1. Pipeline Biomethane Market Development County of Los Angeles Sanitation Agency October 9, 2009

2. 2 Discussion Outline  Pipeline biogas market evolution roadmap  Our knowledge base on economic feasibility  Market assessment and high-level economics  Wastewater Treatment Facilities (WWTFs)  Potential proposals for WWTFs  Landfill Gas Concerns

3. 33 Renewable Natural Gas Green Waste Gasification Gas Clean-up & Conditioning Anaerobic Digestion Renewable, green natural gas to pipeline Phase #1 Phase #2 Phase #3 Mixed Waste Raw Biogas Syngas to Methane

4. 4 Biogas Clean-up & Conditioning PSA Example Feed Compression Pressure Swing Adsorption (PSA) Unit Product Compression (if required) Tail Gas To Flare Commercially proven equipment for oil field applications and a few biogas installations Modular Need reference installations in California

5. 5 Our Knowledge Base 18 months of Engineering Analysis Study ScopeApproachResults / Findings Biogas Composition Assessment Testing & Monitoring Protocol Development Dairy waste WWTFs Organic waste (Note: landfill gas not studied)  Studies conducted by Gas Technology Institute, specialist consultants,internal engineering staff  Defined potential contaminants, test and monitoring options,action levels  Biogas feedstock studied can be conditioned to meet Rule 30 specs  Testing, monitoring and control guidance document distributed to potential producers  Will review annually Biogas Conditioning Economic Feasibility Study  Black and Veatch study – technology options, conceptual engineering, vendor assessment and economic analysis  Internal engineering analysis  Conditioning demonstration design (Burns and MacDonald)  Several technologies are available that can meet technical requirements  Pressure Swing Adsorption  Membranes  Cryogenic distillation  Amine scrubbing  Very scale sensitive -- ~$5/MMBTU -- $20/MMBTU+ Dairy and Dairy Cluster Pipeline Biomethane Economic Feasibility  Specialist consultant study and internal engineering analysis  Full production chain assessment – lagoon digester though injection  Detailed cluster analysis  Very scale sensitive – scale curve flattens at about 10,000 cows  Clustering using gas gathering may be economic but requires a more detailed engineering study and pilot

6. 6 Study ScopeApproachResults / Findings Large Scale Anaerobic Digester Economic Feasibility Study  Black and Veatch study  Vendor RFI  Multiple vendors and technologies technically viable  Mature industry in Europe – nascent in US  Generally not economic without tipping fee (negative fuel cost)  ~$25/MMBTU at scale at $0 fuel cost Waste Gasification and Methanation  Studies by Black and Veatch and Alternative Resources Inc.  Internal engineering study  Not currently economic  Some promising technologies on the horizon in next 2-3 years  Lots of development work for gasification – need more on methanation step Algae-to-Methane  Part of regional collaborative with UCSD and industry partners  Demo projects in planning stage  Huge resource potential (similar to central solar)  Most effort on liquid fuel but co-production of methane promising  5-year commercialization cycle (optimistic)  ~10x reduction in cost needed Our Knowledge Base 18 months of Engineering Analysis

7. 7 Market Gap Analysis and Potential Utility Role SegmentMarket Characteristics Gaps and BarriersPotential Utility Role General  Number of reference installations for pipeline biomethane is very small  European market much more mature  Capital crunch impacting all segments  Opportunity for utilities to support early market development  Proposals need to address ratepayer risk, competitive issues and regulatory timeline WWTFs  Generally knowledgeable about energy matters but not pipeline injection – significant interest in exploring  Many have on-site gen and air emissions issues  Many looking at fuel cell alternatives  Do not want to market gas  Strong credit  Educate on pipeline option  Get initial commercial pilots done quickly using contracts approved by the Commission  Utility owns and operates conditioning facilities and contracts with host for “capacity” – host owns the gas  Compatible with developer or host participation Dairies  Not in the energy business and don’t want to be  Air emission and water quality issues are the dominant concerns  Want end-to-end solution  Weak credit  Educate on pipeline option  Undertake detailed engineering studies on a few clusters  Utility-lead consortium for commercial pilot project(s)  CEC and CPUC support to address technical and commercial risks Large Digester Projects  Capital availability/credit strength a major issue  Many open to utility participation in projects – particularly for conditioning  File project applications using Utility Owned Generation model on project-specific basis

8. 8 Key Findings Across Pipeline Biogas Applications  Rigorous gas quality testing, monitoring and control protocols are important to ensure that gas quality standards are met at all interconnection points: at transmission or distribution levels.  SoCalGas/SDG&E provided specific guidance to biogas producers on interconnection requirements and monitoring protocols (excluding landfill gas).  Pipeline injection reduces local air emissions, allows renewable biogas assignment to highest value use.  Economies of scale are critical – driven mostly by the gas conditioning stage of the process.  WWTFs provide best vehicle for early deployment of conditioning systems for pipeline injection and critical live-project experience for other applications such as dairies and ultimately landfills.  Small biogas producers (dairies and WWTF) not generally interested in being primary participants in energy markets or technologies. Looking for partners.  Credit and technology risk issues also pose challenges.  Joint action and streamlined processes needed to move pipeline biomethane markets forward.

9. 9 Estimated Gas Conditioning Cost $0 $2 $4 $6 $8 $10 $12 $14 0200040006000800010000 Flowrate scfm $/MMBtu WWTF Gas Conditioning Preliminary Data 9/14/2009 Small Large Largest MPR Range Conventional gas producer scale Waste Water Treatment Facility (WWTF) Demographics - SoCalGas / SDG&E Territory Size -- scfm rawCountAvg. MMsfd*Total MMscfd*MMBTU/yr 1500 - 400041.76.92,497,651 650 - 14990N/A0.00 300 - 649100.44.11,482,980 150-299190.23.71,334,682 50 - 149460.14.01,436,149 5 - 49990.022.1772,711 Total1782.420.87,524,174

10. 10 Recommendations for WWTF Biogas Development  Approve utility participation in no less than 2 WWTF commercial pilot project contracts  To refine protocols and expand knowledge base on gas monitoring and control  To validate feasibility study results on technical, economic and commercial issues  To demonstrate commercial viability and improve financeability of later projects  To provide a knowledge base that can feed into dairy and digester projects & inform long-term state biogas policy  Potential Projects of Interest ( preliminary and subject to utility due diligence ) Point Loma WWTF - largest in the San Diego area  Biogas to fuel 8 MW of fuel cells at UCSD and City’s South Bay Power Plant – contracts in place  Original bottle truck gas transport to UCSD/South Bay opposed by community leaders  SDG&E evaluating technical/economic feasibility of pipeline biogas delivery. Strong City/UCSD interest.  UCSD fuel cell received largest SGIP grant in history – must be in service by 4/2011. Expeditious Commission approval would be an issue should SDG&E propose to provide pipeline biogas conditioning. Escondido WWTF Demonstration Project - 1/5 the size of Point Loma WWTF  Originally ERRP proposal: scope revisions/alternative funding (SoCalGas RD&D) allowed design stage  City of Escondido interested in conversion to commercial operation at end of demonstration Orange County Sanitation Agency (Plant 1 and Plant 2) County of Los Angeles Sanitation Agency (JWPCP) City of Los Angeles (Hyperion)

11. 11 Key Contract Elements  Utility contracts with the host (or developer) to provide gas conditioning service under contract similar to a lease arrangement – effectively a capacity contract  Contract revenue provides full revenue requirement for the conditioning facility capital and operating costs  Contract contains fee component to cover utility services (i.e. contracting, billing). No cross subsidy.  Utility takes no commodity risk but may assist with gas sales transaction and/or gas management.  Commercial risk is born by shareholders, not by ratepayers.  Credit risk is minimized through specific security provisions that may include credit rating of the counter party, claim on gas sales revenue, step-in rights, letters of credit, parent guarantees  Technical and operating risk mitigated through supplier warranties and operating agreements  Contracts submitted to CPUC for approval *

12. 12 Biomethane Capture From Landfills  Landfill gas contains the widest spectrum of contaminants to be removed in order to meet stringent gas quality specifications for interconnection to So Cal Gas, and use of such gas is not included in this effort at this time.  Declining biogas production in older landfills  Siloxane concerns with some landfills  Volatile Organic Compounds  Hazardous Air Pollutants –Benzene –Vinyl Chloride –Methyl Ethyl Ketone  Persistant Bioaccumulative Toxics –Mercury