REPORT TO THE CITY COUNCIL FROM: BROCK D. BUCHE, PE, PLS, Director Department of Public Utilities BY: RICK STAGGS, Assistant Director Department of Public Utilities - Wastewater Management Division JENNIFER LOVING, Project Manager Department of Public Utilities - Wastewater Management Division SUBJECT ..Title Authorize the Director of Public Utilities, or designee, to execute a Purchase and Sale Agreement for the purchase of Nitrous Oxide (NOx) Emission Reduction Credits (ERCs), in a total amount not to exceed $900,000, for necessary improvements at the Fresno-Clovis Regional Wastewater Reclamation Facility, as required by the San Joaquin Valley Air Pollution Control District (Council District 3). ..Body RECOMMENDATIONS Staff recommends that City Council authorize the Director of Public Utilities, or designee, to execute an Emission Reduction Credit Purchase and Sale Agreement, subject to approval as to form by the City Attorney's Office, for the purchase of Nitrous Oxide (NOx) ERCs, in a total amount not to exceed $900,000. EXECUTIVE SUMMARY The San Joaquin Valley Air Pollution Control District (Air District) mandates that the Department of Public Utilities (DPU), Wastewater Management Division, purchase Nitrous Oxide (NOx) and Sulfur Dioxide (SOx) ERCs to approve construction of two new waste gas flare units at the Fresno-Clovis Regional Wastewater Reclamation Facility (RWRF). On September 2, 2021, City Council approved an initial ERC Purchase and Sale Agreement (File ID: 21-23157) for approximately 31.022 tons of SOx ERCs and 1.6 tons of NOx ERCs in a total amount not to exceed $327,000. The RWRF completed the purchase of SOx ERCs on January 24, 2022. Since that time, the Air District updated the NOx emissions calculations for the RWRF waste gas flare project, the results of which dictated that the Wastewater Management Division purchase additional ERCs, or as much as 13.7 tons of NOx ERCs. It is anticipated that the total transaction costs to purchase the necessary NOx ERCs, inclusive of the Air District registration fees and the broker fee of 0.05%, will not exceed $900,000. The purchase of ERCs is a one-time transaction for the duration of the operational lifetime of the waste gas flare units. BACKGROUND In the treatment of wastewater, the organic solid treatment that occurs during the digestion process results in the production of biogas, which is burned in existing on-site waste gas flare units. The burning of biogas is necessary (1) to improve safety through the removal of unwanted flammable gas and pressure buildup and (2) to lower the harm to the environment if the biogas was otherwise released. The RWRF currently utilizes an outdated permanent flare unit, with a temporary flare unit also utilized to burn off any excessive gas generation. The RWRF requires the installation of two new waste gas flare units to serve as the primary units and replace the outdated permanent and temporary units. The RWRF is a major stationary emissions source according to Air District Rule 2201, thus, the potential increased emissions from the construction and operation of two new waste gas flare units must be offset through ERCs. To purchase the required ERCs, the DPU will work with a qualified broker to search the open market for available ERCs and negotiate the best price for the City. Once purchased via a Purchase and Sale Agreement, the Air District will assign the ERCs to the new waste gas flare units at the RWRF. The purchase of ERCs is a one-time transaction for the duration of the operational lifetime of the waste gas flare units. On April 15, 2021, the Air District communicated to the DPU the requirement to purchase 1.6 tons of NOx ERCs for approval to construct the two new waste gas flare units at the RWRF. The DPU identified a broker and seller and, on September 2, 2021, City Council authorized the Purchase and Sale Agreement for 1.6 tons of NOx and 31.022 tons of SOx ERCs for an amount not to exceed $327,000. On February 14, 2022, the Air District notified DPU staff of their misinterpretation and miscalculation of an Environmental Protection Agency (EPA) regulation, stating the previously calculated amount of requisite NOx ERCs was incorrect. On May 3, 2022, the Air District reported to DPU staff the required increase was from 1.6 tons to 13.7 tons of NOx ERCs. Due to multiple miscalculations by the Air District, major stationary sources across the State are being contacted, which has increased demand and depleted available supply of ERCs. As a result, ERC pricing has increased drastically and remains very volatile. It is anticipated that the total transaction costs to purchase the requisite 13.7 tons of NOx ERCs, inclusive of the Air District registration fees and the broker fee of 0.05%, will not exceed $900,000. Currently, prices remain volatile and DPU staff desires the City execute the Purchase and Sale Agreement expeditiously before prices rise further and there are further delays to the necessary improvements at the RWRF. The ERC sellers have yet to be identified. The present action requests authorization for the Director of Public Utilities to execute ERC Purchase and Sale Agreements, subject to approval as to form by the City Attorney's Office, once ERC sellers have been identified. The City has an executed agreement with the Air Quality Consultants for their brokerage services. ENVIRONMENTAL FINDINGS An Initial Study and Mitigation Negative Declaration (IS/MND) was prepared and adopted on September 2, 2021, for the Regional Wastewater Treatment Facility Waste Gas Flare and Facility Modification Project (Project). The Project entails construction and operation of two new waste gas flare units on 0.13-acres of land within the existing RWRF property. The IS/MND focused on environmental issues identified as potentially significant in the California Environmental Quality Act (CEQA) checklist and by the CEQA guidelines. The following technical studies were conducted and/or reviewed in preparing the IS/MND: air quality modeling outputs, biological resources assessment, cultural resources study, traffic impact study, and noise modeling. The IS/MND determined that all potentially significant impacts from implementing the Project could be mitigated to less than significant levels. The IS/MND contemplates several actions necessary to complete the Project, including Authority to Construct/Permit to Operate from the San Joaquin Valley Air Pollution Control District. As part of the permitting process, the City is required to purchase SOx and NOx ERCs. This approval is to implement that Project, by allowing staff to purchase NOx ERCs. An analysis has been performed pursuant to CEQA Guidelines �15162 to determine whether subsequent environmental review is required for the Project following the recalculation of the NOx ERCs required by the Air District. Based upon this analysis the following findings are made to support the determination that no subsequent environmental review is required: 1. No substantial changes are proposed in the Project which will require major revisions of the previous Mitigated Negative Declaration due to the involvement of new significant environmental effects or a substantial increase in the severity of previously identified significant effects. In this case, the recalculation of the NOx ERCs by the Air District does not change the original calculation of potential NOx emissions pre- and post-Project in the IS/MND. 2. No substantial changes occur with respect to the circumstances under which the Project is undertaken which will require major revisions of the previous Mitigated Negative Declaration due to the involvement of new significant environmental effects or a substantial increase in the severity of previously identified significant effects. In this case, the recalculation of the NOx ERCs by the Air District was triggered by new direction from the EPA rather than any change to the Project's motivation, scope of work, facilities, or operation. 3. There is no new information, which was not known and could not have been known at the time of the previous IS/MND that the Project will have a significant effect not discussed in the IS/MND. Based upon these findings, it has been determined that no further environmental documentation is required for this project. LOCAL PREFERENCE Local preference was not implemented as this item does not include a bid or award of a construction or services contract. FISCAL IMPACT There is no impact to the General Fund. This Project is in Council District 3. Funds for the ERCs are included in Wastewater Management Division's Fiscal Year 2022 Capital Improvement Program budget within the Sewer Enterprise Fund 40501. Attachment: Attachment 1 - Mitigated Negative Declaration, dated May 25, 2021