SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean.
Biogas Utilization Project
Public-Private Partnership (P3)
Daniela Brandao, Project Manager
December 13, 2022
Presented to the San Francisco Public Utilities Commission SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean. • Approve t he use of Public -Private Partnership (P3) delivery method and recommend that the Board of Supervisors adopt an Ordinance authorizing the San Francisco Public Utilities Commission (SFPUC) to exempt certain design, construction, finance, operation and maintenance services and related agreements for the P3 development of the Biogas Utilization Project at the Southeast Treatment Plant, from Chapters 6, 14B, 21, and section 23.30 of the Administrative Code; and delegate to the Commission approval authority under Charter Section 9.118. • The e
xemptions would allow the SFPUC to contract with a single contractor to provide a turnkey solution to the beneficial use of biogas generated from wastewater treatment.
Proposed Commission Action
2 SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean.
Public-Private Partnership (P3) Delivery Method –
Benefits – Why P3 Delivery
3 • P3 delivery involves competitive procurement of a private partner, who provides financing for a Public Works project in addition to a variety of public services
• Benefits of P3 for this project:
• Secure private non-recourse capital
• Transfer risks to private partner
• Cost and time overruns
• Performance
• Market pricing (gas and renewable credits)
• Single entity responsible for all aspects of the project SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean. • Biogas Utilization Project – subset of
Biosolids Digester Facilities Project (BDFP)
• Ensures beneficial use of the biogas generated
from new digesters
• Converts biogas to renewable natural gas
• Represents best end use and maximum value
and environmental benefits
• Upgrade biogas to natural gas standards
and inject into existing PG&E pipeline for
distribution to outside users
• Key component of the BDFP
• Must be operational and ready to accept the
biogas from the new Biosolids Facilities
Project Background
SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean. • Private P artner Services:
• Fi nance, design, construct biogas utilization project • Operate and ma intain biogas utilization system
• Comply w ith Air Permit requirements
• Coordinate design and construction of pipeline
i
nterconnection with PG&E
• Provide brokerage of fuel sa le and renewable fuel
credit
Public-Private Partnership (P3) – Scope of Work
5 • SFPUC/Wastewater Enterprise (WWE)
Responsibilities:
• Provide digester raw biogas (volume and quality)
• Operate and maintain biosolids digester facilities
• Obtain and maintain Air Permit from Bay Area Air
Q
uality Management District
• Own Interconnection Agreement with PG&E
SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean. • To allow the SFPUC to contract with a s ingle contractor to provide a turnkey solution to the beneficial use of biogas generated from wastewater treatment at SEP
• P3 Ordinance
• The SF Administrative Code doesn’t contemplate these services under one contract. Exemptions from Chapters 6, 14B, 21, and 23.30 of the Adm Code are required, permitting private financing and best-value selection of the P3 partner, and delegating to the Commission authority to approve these agreements under Charter Section 9.118.
• This ordinance shall not be construed as an approval of the Project. Rather, this ordi
nance simply puts in place a procedure to continue to deliver the Project.
P3 Ordinance – Why do we need a Special Ordinance
6 SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean.
Schedule and Next Steps
7 Milestone Dates
Commission approval of P3 Ordinance 12/13/2022
P3 Ordinance introduced to the BOS 12/16/2022
RFQ release March 2023
P3 Ordinance in effect April 2023
RFP release October 2023
Contract Award (return to the Commission) July 2024
Design-Build October 2024 – October
2026
Start-up* (aligned with BDFP) October 2026
* Critical for operations of the new BDFP facilities
SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean. • Approve t he use of Public -Private Partnership (P3) delivery method and recommend that the Board of Supervisors adopt an Ordinance authorizing the San Francisco Public Utilities Commission (SFPUC) to exempt certain design, construction, finance, operation and maintenance services and related agreements for the P3 development of the Biogas Utilization Project at the Southeast Treatment Plant, from Chapters 6, 14B, 21, and section 23.30 of the Administrative Code; and delegate to the Commission approval authority under Charter Section 9.118. • The e
xemptions would allow the SFPUC to contract with a single contractor to provide a turnkey solution to the beneficial use of biogas generated from wastewater treatment.
Commission Action (effective 12/13/2022)
8 SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean.
Biogas Utilization Project
Public-Private Partnership (P3)
Daniela Brandao, Project Manager
December 13, 2022
Presented to the San Francisco Public Utilities Commission
DEPARTMENT SFPUC Infrastructure
AGENDA NO.
12 MEETING DATE December 13, 2022
APPROVAL
COMMISSION
SECRETARY
AGENDA ITEM
Public Utilities Commission
City and County of San Francisco
Approve Public-Private Partnership (P3) delivery method for the Biogas Utilization Project:
Regular Calendar
Project Manager: Daniela Brandao
Approve Public-Private Partnership (P3) Delivery Method for the Biogas Utilization Project and Recommend that the Board of Supervisors Adopt a P3 Special Ordinance
Summary of
Proposed
Commission Action:
Approve the use of Public -Private Partnership (P3) delivery method ; and recommend that the Board of Supervisors adopt a Special Ordinance authorizing the San Francisco Public Utilit ies Commission (SFPUC) to exempt certain design, construction, finance, operation and maintenance services and related agreements for the P3 development of the Biogas Utilization Project at the Southeast Treatment Plant, from Chapters 6, 14B, and 21, and section 23.30 of the Administrative Code; and delegate to the Commission approval authority under Charter Section 9.118. The exemptions would allow the SFPUC to contract with a single contractor to finance, construct, operate, and maintain a biogas utilization facility connected to the SFPUC Southeast Treatment Plant.
Background: The SFPUC is planning to construct a new facility to convert biogas generated from the Biosolids Digester Facilities Project (BDFP) at the Southeast Treatment Plant (SEP) into renewable natural gas (RNG) for pipeline injection. This new facility is intrinsic to the BDFP.
The BDFP, already under construction, will fully replace the outdated existing solids treatment facilities that are operating at the end of their useful lives in order to maintain long- term regulatory compliance and system reliability. One of the largest and highest priority projects in the Sewer System Improvement Program , the BDFP will promote sustainability, including full beneficial use of biosolids and biogas, in addition to minimizing impacts to the neighborhood wi
th respect to
aesthetics, odors, and noise.
Recommendation of P3 Ordinance
Commission Meeting Date: December 13, 2022
On February 9, 2021, by Resolution No. 21 -0024, this Commission authorized the removal of the Energy R ecovery Facility from BDFP/Contract WW-647R conditioned on environmental review of the alternate biogas end-use being completed and approved by the Planning Department, and this Commission’s approval of construction of the alternate biogas end-use. This new biogas facility is the alternate biogas end-use that would provide the highest value for the digester gas and potentially lower capital cost, while providing environmental benefits to the SFPUC and the community.
The SFPUC evaluated the biogas end-use Energy Recovery Facility in the BDFP Environmental Impact Report. City staff are currently evaluating whether any changes to the biogas utilization under the Biogas Utilization Project require additional California Environmental Quality Act (CEQA) review. This Resolution shall not be construed as an approval of the Project. Rather, this Resolution establishes a procedure to continue to deliver the Project, and, if the Project is approved following environmental review, to implement the Project.
No approval of the Project will occur until any necessary CEQA review is completed.
If fully approved, the new end- use will convert the biogas to pipeline - quality renewable natural gas (RNG) which will: (1) reduce capital cost to the BDFP ; (2) net the highest value for the biogas and potentially produce a revenue source for the SFPUC; and (3) reduce on- site air emissions into the surrounding Bayview -Hunters Point neighborhood by eliminating the energy recovery facility and combustion of biogas in the turbine.
The P3 delivery method would involve private financing of the facility and operations. The P3 developer would be recover its investment through the sale of the RNG, the product of the biogas. The P3 delivery method involves competitive procurement of a private sector partner that may be requested to provide financing, design, construction, operation, and/or maintenance of the biogas utilization facilities, and/or sales and marketing of the produced fuel and renewable fuel credits.
On February 16, 2021, SFPUC staff issued a Request for Information to gauge market interest and gather information to inform how SFPUC structures the project. SFPUC received responses from 14 respondent teams, 21 total firms, demonstrating
that a future Request for
Qualification and Request for Propo sal would be met with strong, competitive industry response.
On August 12, 2022, the SFPUC General Manager issued a written determination that P3 is the appropriate project delivery method for the Recommendation of P3 Ordinance
Commission Meeting Date: December 13, 2022
Biogas Utilization Project.
Based on an initial technical feasibility study for the Project, the SFPUC estimates the cost to construct the Project would be approximately $50 million (in 2022 dollars and exclusive of costs not directly related to construction, such as engineering, financing, administrative, and permitting costs).
With the P3 delivery approach, this capital
investment will come from private financing.
In alignment with the BDFP construction and facility start- up, the Biogas Utilization Project must be operational and ready to accept the biogas from the new Biosolids Facilities in Q4 of 2026.
Schedule: If recommended, the SFPUC intends to introduce the Ordinance at the regularly scheduled meeting of the Board of Supervisors on December 16, 2022.
Environmental
Review:
On March 8, 2018 , the Planning Commission certified a Final Environmental Impact Report for the BDFP (Planning Department Case No. 2015- 000644ENV) (BDFP EIR) under the California Environmental Quality Act (CEQA) and Administrative Code Chapter
31. A facility to use biogas (generated at the site for energy recovery) is a component of the BDFP and was evaluated in the BDFP EIR. The City is currently evaluating whether any changes to the biogas utilization under the Biogas Utilization Project require additional CEQA review.
Subsequent approval of the Biogas Utilization Project would be considered only after any necessary environmental review is complete in conformance with CEQA and Administrative Code Chapter 31.
Recommendation: SFPUC staff recommend that the Commission adopt the attached resolution approving the P3 delivery method and recommending that the Board of Supervisors adopt the P3 Ordinance in substantially the same form as attached hereto.
Attachments: 1. Draft P3 Ordinance
2. General Manager Authorization Memorandum
PUBLIC UTILITIES COMMISSION
City and County of San Francisco
RESOLUTION NO.
WHEREAS, The San Francisco Public Utilities Commission (SFPUC) is planning for the construction of a new facility to convert biogas generated from the Biosolids Digester Facilities Project (BDFP) at the Southeast Treatment Plant (SEP) into renewable natural gas (Biogas Utilization Project), and proposes using the public-private partnership (P3) delivery method; and WHEREAS, The Biogas Utilization Project (Project) would convert the biogas to pipeline- quality renewable natural gas (RNG) which would: (1) reduce capital cost to ongoing SEP projects; (2) net the highest value for the biogas and ideally produce a revenue source for the SFPUC; and (3) reduce on- site air emissions into the surrounding Bayview -Hunters Point neighborhood by eliminating the energy recovery facility and combustion of biogas in the turbine; and WHEREAS, The proposed Project promotes current California state goals for in- state production and distribution of RNG as documented in Assembly Bill 1900 and Senate Bill 840, and this aligns with the City’s sustainability policies as it displaces the use of fossil fuels and improves local air quality , while offering the highest economic and environmental value as renewable fuel for compressed natural gas vehicles, and also providing an opportunity as a “bridge fuel” for in city-natural gas uses that cannot shift to electric; and WHEREAS, The P3 delivery method would involve competitive procurement of a private sector partner, who may be requested to provide, financing, design, construction, operation, and/or maintenance of the biogas utilization facilities, and/or sales and marketing of the produced fuel and renewable fuel credits; and
WHEREAS, On February 16, 2021, SFPUC staff issued a Request for Information to gauge market interest in a P3 delivery method for the Biogas Utilization Project, resulting in 14 respondent teams, 21 total firms; and
WHEREAS, On March 8, 2018, the Planning Commission certified a Final Environmental Impact Report for the BDFP (Planning Department Case No. 2015 -000644ENV) (BDFP EIR) under the California Environmental Quality Act (CEQA) and Administrative Code Chapter 31; and
WHEREAS, A facility to use biogas (generated at the site for energy recovery) is a component of the BDFP and was evaluated in the BDFP EIR and the City is currently evaluating whether any changes to the biogas utilization under the Biogas Utilization Project require additional CEQA review; and
WHEREAS, Subsequent approval of the Biogas Utilization Project would be considered only after any necessary environmental review is complete in conformance with CEQA and Administrative Code Chapter 31; and
WHEREAS, Nothing in this ordinance implements any approvals or facilities for the Project, or grants any entitlements for the Project and the SFPUC retains absolute discretion to: (1) modify the Project to mitigate significant adverse environmental impacts, (2) select feasible alternatives which avoid significant adverse impacts of the Project, (3) require the implementation of specific measures to mitigate the significant adverse environmental impacts of the Project, (4) reject the Project as proposed if the economic and social benefits of the Project do not outweigh otherwise unavoidable significant adverse impacts of the project, or (5) approve the Project upon a finding that the economic and social benefits of the Project outweigh otherwise unavoidable significant adverse impacts; and
WHEREAS, On August 12, 2022, the SFPUC General Manager issued a written determination that the P3 delivery method is the appropriate project delivery method for the Biogas Utilization Project; now, therefore, be it
RESOLVED, That this Commission hereby approves the use of P3 delivery method for the Biogas Utilization Project and recommends that the Board of Supervisors adopt an ordinance, in substantially the same form as the draft on file with the Commission Secretary and attached to this Resolution, authorizing the SFPUC to competitively procure a P3 partner and exempt ing certain design, construction, finance, operation and maintenance services and related agreements for the P3 development of the Biogas Utilization Project from Chapters 6, 14B, and 21, and section 21.30 of the Administrative Code, but requiring compliance with the underlying public policies behind each of the exempted Administrative Code provisions, including without limitation the payment of prevailing wages, implementation of a local business enterprise utilization program, and compliance with the City’s local hire policy and first source hiring ordinance, as applicable to such agreements and allowable under the terms of any federal funding requirements, and delegating to the Commission authority to approve these agreements under Charter Section 9.118.
I hereby certify that the foregoing resolution was adopted by the Public Utilities Commission at its meeting of December 13, 2022.
Secretary, Public Utilities Commission
SUBSTITUTED
FILE NO. 10/21/2022 ORDINANCE NO.
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25 [Administrative Code Waivers and Delegation of Charter Contract Approval Authority- San Francisco Public Utilities Commission Biogas Utilization Project Agreements, Southeast Treatment Plant]
Ordinance authorizing the San Francisco Public Utilities Commission (SFPUC) to exempt certain design, construction, finance, operation, and maintenance services and related agreements for the Public-Private Partnership (P3) delivery of the Biogas Utilization Project at the Southeast Treatment Plant (SEP), located at 1800 Jerrold Avenue, from Chapters 6, 14B,and 21, and Section 23.30 of the Administrative Code, but requiring compliance with the underlying public policies, including the payment of prevailing wages, implementation of a local business enterprise participation program, and compliance with the City’s local hire policy and first source hiring ordinance, as applicable to such agreements, and permitting a best-value selection of the contractor team if the City elects to proceed with the Project after completing its review under the California Environmental Quality Act; and delegating to the SFPUC the authority under Charter Section 9.118 to approve all necessary contracts that are $10,000,000 or more and/or in excess of 10 years.
NOTE: Unchanged Code text and uncodified text are in plain Arial font.
Additions to Codes are in single-underline italics Times New Roman font.
Deletions to Codes are in strikethrough italics Times New Roman font.
Board amendment additions are in double-underlined Arial font.
Board amendment deletions are in strikethrough Arial font.
Asterisks (* * * *) indicate the omission of unchanged Code subsections or parts of tables.
Be it ordained by the People of the City and County of San Francisco:
Section 1. General Background.
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25 (a) The San Francisco Public Utilities Commission (SFPUC) is planning to deliver a new facility to convert biogas generated from the Biosolids Digester Facilities Project (BDFP) at the Southeast Treatment Plant (SEP), located at 1800 Jerrold Avenue, into Renewable Natural Gas (RNG) for pipeline injection (Biogas Utilization Project or Project). (b) If approved, the proposed Biogas Utilization Project would provide beneficial use of the biogas generated at the SEP and in doing so would promote current California state goals for in-state production and distribution of RNG as documented in California Assembly Bill 1900 (enacted in 2012) and California Senate Bill 840 (enacted in 2016). In addition, the generation of RNG aligns with the City’s sustainability policies, as it displaces the use of fossil fuels and improves local air quality. RNG currently offers the highest economic and environmental value as renewable fuel for compressed natural gas (CNG) vehicles, but it also provides an opportunity as a “bridge fuel” for in-city natural gas uses that cannot shift to electric.
(c) The RNG will be injected into an existing natural gas pipeline, which PG&E owns and operates and is located adjacent to the SEP. SFPUC intends to enter into a new long-term interconnection service agreement with PG&E.
(d) The P3 delivery method involves a public-private partnership in which there is competitive procurement of a private sector partner (also referred to as P3 contractor) for the SFPUC. The P3 contractor would provide financing, design, construction, operation, and/or maintenance of the biogas utilization facilities, and sales and marketing of the produced fuel and renewable fuel credits. To compensate the P3 contractor for these services, the SFPUC will grant the P3 contractor rights to the produced fuel and associated revenue, with possible revenue sharing, and renewable fuel credits. If the SFPUC approves the Project and awards a P3 contract, the P3 delivery method would allow the SFPUC to preserve capital by deferring
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25 to the P3 contractor the up-front costs of construction, operations, and sales and the risks of construction costs overruns, production quality, and revenue. (e) Based on an initial technical feasibility study for the Project, the SFPUC estimates the cost to construct the Project would be approximately $50,000,000 (in 2022 dollars and exclusive of costs not directly related to construction, such as engineering, financing, administrative, and permitting costs). The private sector partner will finance these costs in exchange for rights to the biogas and related credits. (f) The Biogas Utilization Project is considered part of the BDFP for the purpose of federal funding under the Water Infrastructure Finance and Innovation Act (WIFIA), as it was a planned component of BDFP under the first loan, and therefore construction of this project will require compliance with federal requirements.
(g) In alignment with the BDFP construction and facility start-up, the Biogas Utilization Project must be operational and ready to accept the biogas from the new biosolids facilities in the fourth quarter of calendar year 2026.
Section 2. Findings Supporting P3 Delivery for the Biogas Utilization Project. (a) Unlike conventional methods of contracting for new construction, in which a public entity procures discrete functions through separate solicitations, P3 delivery uses a single private entity that has the responsibility and financial liability for performing a significant number of services under a long-term contractual arrangement with the public entity. These services could include pre-development, design, construction, financing, operations and maintenance services (collectively or in any combination, “P3 Services”). Under P3 delivery, the private sector partner may make a substantial cash, at-risk, equity investment in the project if the financing structure and final risk allocation calls for it, and the public sector gains access to new revenue and/or service delivery capacity without having to pay the private sector partner upfront.
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25 (b) Although the City has limited experience implementing P3 projects, this delivery method is a fully developed and market-accepted means to deliver infrastructure projects.
Several significant and high-profile P3 projects have been completed in California at the state and municipal levels. The Federal government and over 30 states have adopted specific legislation (including California Government Code Section 5956) to enable the use of P3 in the procurement of infrastructure projects. The City is currently in the process of another P3 project, referred to as the Potrero Yard Modernization Project, that the Board of Supervisors approved in 2021 through Ordinance No. 38-21.
(c) For the Biogas Utilization Project, the P3 Services would include: financing, design, construction, operation, and/or maintenance of the biogas utilization facilities, and/or sales and marketing of the produced fuel and renewable fuel credits. (d) A primary driver for P3, and the California Government Code sections that authorize it, is access to private investment capital for fee-producing infrastructure facilities. “Fee-producing” means the entities that benefit from the project pay for the operation of the facility, i.e., the project must have payback. The financial model developed for the project establishes the initial feasibility of the Biogas Utilization Project by confirming that project revenue is enough to repay private capital investment over a reasonable term (20 years).
Revenue is generated by selling the RNG and generating renewable fuel credits through federal and state incentive programs. The financial model was developed by the BDFP design consultant team with input from SFPUC’s Finance team. The model is a tool for predicting the range of financial outcomes based on several inputs: biogas production rates, Renewable Identification Number credit (RIN) values, Low Carbon Fuel Standard credit (LCFS) values, RNG values, project capital cost, operation and maintenance costs, escalation, and P3 payment structure. The model shows the project has a positive rate of return for the P3 contractor as well as for the SFPUC. The model indicates that the P3 delivery outcome is
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25 consistent with the legislative goals of private infrastructure financing government projects by being “fee producing” and having attainable payback.
(e) The Biogas Utilization Project is expected to deliver a positive 20-year net present value (NPV). Project revenues are strongly linked to market-based RIN and LCFS values which are not guaranteed and are expected to fluctuate. With P3, SFPUC should have no capital outlay and no operation and maintenance costs. SFPUC may receive an annual payment from the P3 (either fixed or variable). The intent is to transfer financial risk to the P3 contractor in exchange for its right to potential profit on the value of the biogas. (f) SFPUC staff have identified the following objectives for the Project (“Project Objectives”): (1) provide beneficial use of the biogas generated at the SEP; (2) net the highest value for the biogas and potentially produce a revenue source for the SFPUC; (3) reduce on- site air emissions into the surrounding Bayview-Hunters Point neighborhood by eliminating the energy recovery facility and combustion of biogas in the turbine; and (4) reduce SFPUC capital expenditure by including private financing funded by the sale of the RNG and the renewable fuel credits.
(g) Based on the Project Objectives, the SFPUC has determined it is appropriate and in the City’s best interest at this time to adopt a P3 delivery approach to deliver the Project.
(h) Because the Board of Supervisors has not generally authorized the P3 delivery approach in the Administrative Code, the SFPUC requests such authority for the Project, which requires exemptions from Administrative Code Chapters 6, 14B, and 21, and Section
23.30. The authority granted by this ordinance would allow the SFPUC to contract with a single P3 contractor to provide a turnkey solution to the reuse of biogas generated from wastewater treatment.
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25 Section 3. P3 Procurement Process; Exemption from Certain Administrative Code Provisions.
(a) Administrative Code Chapter 6 codifies the City’s policies and procedures for public work contracts, including design, engineering, and construction contracts; Administrative Code Chapter 21 regulates the City’s acquisition of commodities and professional services, including finance, as well as maintenance, asset management, and other general services; Administrative Code Chapter 14B codifies the City’s policies and requirements for participation of Local Business Enterprises (LBEs) and non-discrimination in public contracts generally; Administrative Code Chapter 23 governs the City’s real property transactions, with Section 23.30 therein requiring determination of the market value of leases for City-owned property. The P3 Services required for the Project will likely span the subject matter of Chapters 6, 14B, and 21 and Section 23.30, but none of these provisions contemplates the acquisition of these services in one procurement, as required for P3 Services.
(b) Notwithstanding these specified provisions of the Administrative Code, the SFPUC is authorized to procure and contract for P3 Services for the Biogas Utilization Project using the P3 delivery method described below:
(1) The SFPUC may pre-qualify, solicit proposals from, and enter into one or more agreements with, private entities for P3 Services for the Project. (2) The SFPUC may issue a request for qualifications to pre-qualify and shortlist the private entities allowed to submit proposals to provide P3 Services for the Project.
The request for qualifications shall generally describe the Project, the Project Objectives, the desired qualifications, experience, and responsibilities of the selected party, and the overall procurement process, delivery method, summary of contract terms, and schedule for the Project.
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25 (3) The SFPUC may issue to shortlisted parties a request for proposals. The request for proposals may describe the Project, the Project Objectives, the range of P3 Services and delivery methods the SFPUC is considering for the Project, the proposal submittal requirements, and the evaluation criteria. The proposal evaluation criteria may include, but need not be limited to, the qualifications of respondents, projected construction and financing costs for the Project, life-cycle cost savings to the City, design quality, and the extent to which the proposal or proposals meet the Project Objectives. The request for proposals may also include the form of agreement or basic term sheet for one or more of the P3 Services agreements, and any other information the SFPUC deems necessary or appropriate to adequately describe the Project, development opportunity, procurement process, delivery method, and P3 Services needed to deliver the Project. (4) Based on the evaluation of proposals received, the SFPUC will negotiate the terms of a P3 Services agreement with the highest-ranked proposer, and if negotiations are unsuccessful it will move to the next highest-ranked proposer, and continue this process until a satisfactory agreement is reached. The ranking of proposers will be a best-value determination that shall be based on evaluation criteria identified in the request for proposals and clarifications obtained after initial review of the proposals. In making the best-value determination, the SFPUC retains the right to hold and enter into negotiations with the selected proposer(s).
(5) The SFPUC may enter into one or more agreements for P3 Services with the selected P3 contractor and any ancillary agreements as appropriate. The forms of agreements to deliver the Project may include but are not be limited to pre-development, early works, design-build, finance, and operations and maintenance.
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25 (c) Except as provided below, any P3 Services agreement awarded in connection with the Project shall be exempt from the requirements of Administrative Code Chapters 6, 14B, 21, and Section 23.30.
(1) The SFPUC shall require that any contractor performing construction under any P3 Services agreement pay prevailing wages in accordance with Section 6.22(e) of Article II of Chapter 6 of the Administrative Code, comply with applicable certified payroll requirements under those provisions of the Administrative Code by submitting certified payroll through the City’s certified payroll reporting system, and comply with the requirements of the State Apprenticeship Program in accordance with Section 6.22(n) of Article II of Chapter 6.
The Office of Labor Standards Enforcement shall have authority to enforce such prevailing wage requirements.
(2) The SFPUC shall require that any contractor performing construction under any P3 Services agreement comply with the City’s Local Hiring Policy as set forth in Administrative Code Chapter 82 and/or the City’s First Source Hiring Program as set forth in Administrative Code Chapter 83, as applicable.
(3) The SFPUC shall work with the Contract Monitoring Division to develop an LBE program that is consistent with the policy goals and purpose of Chapter 14B to ensure participation by LBEs and non-discrimination in the design, construction, and ongoing asset management of the Project.
(4) The SFPUC shall ensure that the Project and any related contracts comply with the public policy behind all Administrative Code sections that would otherwise be applicable in the absence of this ordinance. In addition to the items set forth above in subsections (c)(1)-(3), this includes, without limitation, the SFPUC ensuring that the contractor that will be constructing the Project is properly licensed and insured, and obtains payment and
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25 performance bonds for the full value of the construction work, as well as ensuring compliance with any and all relevant labor and safety protections. (d) With the planned location for the Biogas Utilization Project being on-site at the SEP, to the extent that the P3 contractor is responsible for the construction, operation, or maintenance of the Biogas Utilization Project, the P3 contractor will need sufficient rights to enter and control the relevant portion of the SEP property. The extent of those rights may vary depending on the nature of the P3 Services agreement. In the case where the P3 contractor constructs, and then operates and maintains, the Biogas Utilization Project for the described 20-year term, the P3 contractor will have lease-like control over the relevant portion of the SEP property and have lease-like terms included in the relevant P3 Services agreement to protect the SFPUC. The cost-savings realized by collocating the Biogas Utilization Project with the SEP will mean that more of the revenue is a potential profit for both the City and the P3 contractor. Any P3 Services agreement awarded in connection with the Project shall be exempt from the requirements of Administrative Code Section 23.30, to the extent it would be applicable as the value of any leasehold interest is incorporated into the Project financial model and would not benefit from separate appraisal.
(e) The provisions of this ordinance shall be implemented in a manner consistent with the civil service provisions of the Charter.
(f) In any agreement for P3 Services which involves the use of any funds furnished, given, or loaned by the government of the United States or the State of California, all laws, rules, and regulations of the government of the United States or the State of California or of any of their agencies, relative to the performance of the services under the agreement and the conditions under which the services are to be performed, shall prevail over the requirements of this ordinance when such laws, rules, or regulations are in conflict with or otherwise preempt the requirements of this ordinance.
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25 Section 5. Delegation of Contract Approval Authority Under Charter Section 9.118. (a) Subject to Project approvals, the SFPUC intends that one or more resulting P3 Services agreement(s) and/or Project implementation agreement(s) would be subject to Board of Supervisors approval under Charter Section 9.118(b), because the Project contemplates non-construction services with a term that may exceed 10 years and/or the value of the biogas conveyed to the P3 contractor may exceed $10,000,000, and under Charter Section
9.118(c), because the Project contemplates the P3 contractor’s use of City land for a period that may exceed 10 years.
(b) The Board of Supervisors hereby delegates authority to the San Francisco Public Utilities Commission to approve such agreements under Charter Sections 9.118(b) and
9.118(c) upon recommendation of the SFPUC General Manager.
Section 5. Environmental Review.
(a) The City prepared and certified a Final Environmental Impact Report for the BDFP on March 8, 2018 (Planning Department Case No. 2015-000644ENV) (BDFP EIR) under the California Environmental Quality Act (CEQA) and Administrative Code Chapter 31.
A facility to use biogas (generated at the site for energy recovery) is a component of the BDFP and was evaluated in the BDFP EIR. The City is currently evaluating whether any changes to the biogas utilization under the Biogas Utilization Project require additional CEQA review.
(b) Approval of this ordinance shall not be construed as an approval of the Biogas Utilization Project. Rather, this ordinance simply authorizes a set of contracting procedures to allow the City to continue to develop, study, and design the Project, and, if the Project is approved following any additional environmental review, to implement and deliver the Project.
No approval of the Project will occur until CEQA review is completed. The City will evaluate the need for and conduct any required additional environmental review of the Biogas
Supervisor ___
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25 Utilization Project following development of more detailed design. Nothing in this ordinance implements any approvals or facilities for the Project, or grants any entitlements for the Project. The City retains absolute discretion to: (1) modify the Project to mitigate significant adverse environmental impacts, (2) select feasible alternatives which avoid significant adverse impacts of the Project, (3) require the implementation of specific measures to mitigate the significant adverse environmental impacts of the Project, (4) reject the Project as proposed if the economic and social benefits of the Project do not outweigh otherwise unavoidable significant adverse impacts of the project, or (5) approve the Project upon a finding that the economic and social benefits of the Project outweigh otherwise unavoidable significant adverse impacts.
Section 6. Effective Date.
This ordinance shall become effective 30 days after enactment. Enactment occurs when the Mayor signs the ordinance, the Mayor returns the ordinance unsigned or does not sign the ordinance within ten days of receiving it, or the Board of Supervisors overrides the Mayor’s veto of the ordinance.
APPROVED AS TO FORM:
David Chiu, City Attorney
By: [DRAFT]
Tyson Arbuthnot
Deputy City Attorney
N:\LEGANA\AS2022\2300111\01643908
OUR MISSION: To provide our customers with high-quality, efficient and reliable water, power and sewer services in a manner that values environmental and community interests and sustains the resources entrusted to our care.
525 Golden Gate Avenue, 9th Floor
San Francisco, CA 94102
T 415.554.3289
[email protected]
TO: Dennis Herrera
General Manager, SFPUC
THROUGH: Stephen D. Robinson
Assistant General Manager, Infrastructure
Howard Fung
Acting Wastewater Capital Program Director
FROM: Daniela Brandao and Carolyn Chiu
Senior Project Manager, Project Management Bureau
SUBJECT: Recommendation to proceed with P3 Delivery of Biogas Utilization Project
DATE: August 12, 2022
EXECUTIVE SUMMARY
This memorandum supports the determination that a design-build public- private-partnership (P3) project delivery method is the best option for the implementation of the Biogas Utilization Project at the Southeast Plant (SEP), based on SFPUC’s primary drivers to avoid capital investment and transfer operational and market performance/financial risks to a private partner. The P3 delivery method meets project schedule and ensures long term success of the project, and by doing so delivers financial and environmental benefits to the SFPUC. Based on this memorandum, we request your concurrence to proceed with P3 delivery method for the Biogas Utilization Project.
A Request for Information (RFI) was issued on February 16, 2021 to gage market interest and gather information to inform how SFPUC structures the project. There were 14 respondent teams, 21 total firms, providing assurance that a future Request for Qualification (RFQ) and Request for Proposal (RFP) would be met with strong, competitive industry response.
While the P3 can provide significant benefits to the SFPUC and flexibility in allocating risks to the project participants, it also adds complexity and risks not typically present in more traditional delivery methods. Based on the lessons learned from the Potrero Yard Modernization Project and input from the City's Attorney's Office, the team recommends hiring an outside P3 advisor with P3 structuring, financing, and procurement expertise to support the Project.
BACKGROUND — BIOGAS UTILIZATION PROJECT
Currently under construction, the Biosolids Digester Facilities Project (BDFP) will fully replace the outdated existing solids treatment facilities at SEP and provide new digesters and treatment processes that produce a higher quality biosolids product and capture and treat odors more effectively. A major infrastructure improvement, BDFP will meet Commission-endorsed goals to provide for 100% beneficial use of biosolids and biogas and meet levels of service to enhance sustainability, reliability and affordability.
Biogas is a byproduct of the solids-digestion treatment process. To achieve the 100% beneficial use of SEP biogas, the BDFP originally included an energy recovery/cogeneration facility in which boilers and/or a turbine generator would convert the biogas to heat, steam and electricity, to support the new biosolids facilities. During a necessary BDFP cost reduction and value engineering effort in 2019-2020, an alternative biogas end-use was identified, in lieu of energy recovery. The new end-use would convert the biogas to pipeline-quality renewable natural gas (RNG) which would: 1) reduce capital cost to the BDFP, 2) net the highest value for the biogas and produce a revenue source for the SFPUC, and 3) reduce on-site air emissions into the surrounding Bayview- Hunters Point neighborhood by eliminating the energy recovery facility and combustion of biogas in the turbine. In addition, the P3 delivery method was proposed to further reduce capital expenditure.
The proposed Biogas Utilization Project also promotes current California state goals for in-state production and distribution of RNG as documented in Assembly Bill 1900 and Senate Bill 840. In addition, the generation of RNG is in line with the City's sustainability policies as it displaces the use of fossil fuels and improves local air quality. RNG currently offers the highest economic and environmental value as renewable fuel for compressed natural gas (CNG) vehicles, but it also provides an opportunity as a "bridge fuel" for in city-natural gas uses that cannot shift to electric.
2 PUBLIC-PRIVATE-PARTNERSHIP (P3) DELIVERY METHOD
Although the City has limited experience implementing P3 projects, this delivery method is a fully developed and market-accepted means to deliver infrastructure projects. Several significant and high-profile P3 projects have been completed in California at the state and municipal levels. The Federal government and over 30 states have adopted specific legislation (including California Government Code Section 5956) to enable the use of P3 in the procurement of infrastructure projects. The P3 delivery method is also acceptable under the San Francisco Administrative Code Section 6.61(a).
The P3 private partner may be requested to provide, but is not limited to, financing, design, construction, operation, and/or maintenance of the biogas utilization facilities, and/or sales and marketing of the produced fuel and renewable fuel credits (LCFS and Renewable Identification Numbers [RINs]).
P3 Benefits
The use of a P3 delivery method will enhance the SFPUC's ability to:
• Preserve SFPUC's capital and secure limited/non-recourse capital in support of the construction and long-term operations of the Project; • Fix construction costs and transfer the principal risks of project overruns on cost or time to private sector partner;
• Delegate the responsibility of coordinating the PG&E pipeline interconnection to a private sector partner;
• Assign the specialized gas marketing related to fuel sale and credit brokerage contracting to a private sector partner;
• Obtain efficiencies in the delivery and long-term facility operation and maintenance, leading to a lower lifecycle cost for SFPUC and addressing the limited staffing resources within the VVWE to take on a new process; • Transfer or share revenue risks outside our usual business (e.g., RNG demand, commodity gas pricing, changing environmental regulations and incentives, etc.) to a private sector partner.
In addition to these anticipated benefits, the use of the P3 delivery method will allow the SFPUC to secure and engage with expertise and external stakeholders that are outside our typical core functions. 3 P3 Financial Model
A primary driver for P3, and the government codes that authorize it, is access to private investment capital for fee-producing infrastructure facilities. "Fee- producing" means the operation of the facility is paid for by the entities benefited by the project, i.e. the project must have payback.
The financial model establishes the initial feasibility of the project by confirming that project revenue is enough to repay private capital investment over a reasonable term (20 years). Revenue is generated by selling the RNG and generating renewable fuel credits through federal and state incentive programs.
The financial model was developed by the BDFP design consultant team with input from SFPUC's Finance team. The model is a tool for predicting the range of financial outcomes based on several inputs: biogas production rates, RIN values, LCFS values, RNG values, project capital cost, operation and maintenance costs, escalation, and P3 payment structure. It aims to show that the project has a positive rate of return for the P3 partner as well as for the SFPUC. The model indicates that the P3 delivery outcome is consistent with the legislative goals of private infrastructure financing government codes by being "fee producing" and having attainable payback.
Net Present Value Analysis
The Biogas Utilization Project is expected to deliver a positive 20-year net present value (NPV). Project revenues are strongly linked to market-based RIN and LCFS values which are not guaranteed and are expected to fluctuate. With P3, SFPUC has no capital outlay and no O&M costs. SFPUC will receive an annual payment from the P3 (either fixed or variable). Without costs and only revenue, the estimated 20-year NPV is positive $6M. Financial risk is transferred to the P3.
Schedule Analysis
In alignment with the BDFP construction and facility start-up, the Biogas Utilization Project must be operational and ready to accept the biogas from the new biosolids facilities as early as 2026. There is no benefit from completing the Biogas Utilization Project sooner than biogas is available from the new BDFP facilities. In fact, it is in the best interest of the BDFP and the SFPUC to make the site available for BDFP construction staging as long as possible. In this sense, schedule performance is tied to alignment with BDFP construction and startup. A design-build P3 contract can deliver the Project in the required timeframe. A planning level P3 schedule is attached to this memo. 4 Permitting
The proposed biogas utilization facilities include the biomethane system (consisting of the biogas upgrading system and a thermal oxidizer) and the standby enclosed flares. Compared to the existing energy recovery facilities, the proposed biogas utilization facilities will have greater capacity for digester gas utilization and will not require routine flaring of digester gas. The standby enclosed flares are anticipated to be operated infrequently, as a backup to the biomethane system.
The exact components and configuration of the biomethane system is unknown at this time because the P3 contractor will be responsible for the design and selection of equipment. The P3 contractor will be responsible for meeting the specifications as described in the BDFP permit application and the resulting air permit limits to be issued by the Bay Area Air Quality Management District (BAAQMD).
The biogas utilization components are included in the BDFP air permit application because they are intrinsic to the operations of the new biosolids facilities. Authorization to Construct (ATC) must be obtained before construction of the actual BDFP facilities start. Without the biogas utilization components, BAAQMD will not issue ATC for the BDFP facilities (note that for air permitting purposes, construction is defined as pouring concrete and installation of actual equipment).
Market Interest
A Request for Information (RFI) was issued on February 16, 2021. There were 14 respondent teams, 21 total firms, indicating strong market interest in the project. This provides assurance that a future RFQ and RFP for the Project would be met with strong, competitive industry response. Key takeaways from the RFI responses that will inform how PUG structures the project:
1. Consider a combination of fixed payment and royalty (revenue), which provides security to SFPUC and aligns interests in the success of the project without introducing governance and decision-making complexities;
2. Consider eliminating the co-ownership structure;
3. Allocate risk to the party best able to manage it. This is critical to continued market interest and participation;
4. Structure RFQ requirements around industry standard functions in a P3;
5. Require that a primary member of the team specifically has water/wastewater experience.
5 Other Considerations
Special Ordinance. While it is noted that a P3 delivery method can provide significant flexibility in allocating risks to the project participants, it also adds complexity and risks not typically present in other delivery methods, including long term counterparty risk. The P3 structure also may not be clearly addressed in the City/SFPUC policies and contracting procedures. A special ordinance will likely be required to accommodate the anticipated contract structure and it is incorporated in the project schedule.
P3 Advisor. Based on the lessons learned from the Potrero Yard Modernization Project and input from the City's Attorney's Office, an outside P3 advisor with P3 structuring, financing, and procurement expertise will be needed to support the Project.
Water Infrastructure Finance and Innovation Act (WIFIA) Funding. The Biogas Utilization Project is part of the WIFIA BDFP project (first loan) and construction of this project will require compliance with federal requirements.
PG&E. SFPUC is in the process of obtaining a two-year capacity reservation letter from PG&E. A Standard Service Agreement between SFPUC and PG&E will be the next step.
Operations. A P3 partner will remotely monitor the facility and likely share O&M staff across several locations/contracts. With the ability to share staff and expertise across multiple facilities, the P3 partner will likely be able to assign less than 1 full-time employee (FTE) to the SFPUC project. If the WWE were to operate the facility, more than 1 FTE would be required just to have continuous coverage for the facility (holidays, weekends, and nights, if deemed necessary). WWE would not have the benefit or efficiency of sharing staff across multiple biogas upgrading facilities.
The envisioned P3 contract would require performance guarantees (in the form of total digester gas utilization) and thereby transfer the risk and accountability to a private partner. These requirements would carry performance liquidated damages. If the WWE were to operate the facility, any repercussions from underperformance would be the financial responsibility of the SFPUC.
The Biogas Utilization Project is required to comply with the SEP's and BDFP's air permit. The air permit requires SFPUC to beneficially use the biogas rather than operate the flares. Excessive flaring, due to project schedule delay or 6 underperformance, would result in regulatory and financial penalties for the SFPUC.
CM/GC Delivery Method. Consideration was given to delivering the project under the existing CM/GC contract. Procurement efforts would be reduced to O&M and revenue generation, both under WWE responsibility. However, this option would not provide the opportunity for SFPUC to avoid the capital investment and the operational and market performance/financial risk would be the responsibility of the WWE.
CONCLUSION
To reduce capital cost investments, meet project schedule and transfer performance and financial risk, the P3 delivery method is recommended for the Biogas Utilization Project. The P3 has the framework to allow the SFPUC to obtain expertise through a private partner to ensure long term success of the project.
Upon endorsement of the P3 delivery method, the SFPUC will immediately bring a P3 advisor on board to support procurement of this important project and will start developing the RFQ/RFP, which we plan to issue in early 2023, in order to meet the project schedule.
Approved to proceed as recommended:
Dennis rrera, SFPUC General Manager
)42_
Date
Attachment:
1. Planning level P3 Delivery Schedule - Biogas Utilization Project Cc: Ron Flynn
Greg Norby
Sheryl L. Bregman
7 SEWER SYSTEM IMPROVEMENT PROGRAM | Grey. Green. Clean.
Draft for discussion purposes.
Attachment 1
P3 Biogas Project Schedule
2022 2023 2024 2025 2026 2027
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 PG&E
Design
P3 Design/Build/StartupRFP ProcessRFQ
PG&E Interconnection
Construction/Startup
Prepare
RFQ
Prepare
Draft
Contract
Terms
P3
Ordinance Introduction of
Sludge to Digesters
Prep
RFP
Hire P3
Advisor
PG&E
Capacity
Reservation
Letter
Contract Development
PG&E
Interconnection
Agreement
Draft – July 2022