Lessons in LFGTE

When creating a landfill gas-to-energy project, there's always room for improvement.

Similar to the game of basketball, developing a successful landfill gas-to-energy (LFGTE) project requires doing your homework. Even if the odds are in your favor, you just can't run and shoot. But by learning from past experiences, you can improve your winning strategy. In developing a LFGTE project for Lake County, Ohio, here's what Granger Energy learned that could help future LFGTE projects.

A Slam-Dunk When Granger Energy first became involved in the Lake County LFGTE project, the company was enthusiastic. The 250-acre landfill owned by the county already had 5.75 million tons of trash in place, and additional waste capacity was available in the future. Community members supported the project. And, several nearby industrial customers potentially could use the natural gas year-round. Additionally, to take advantage of the Section 29 tax credits deadline, a well field production system to collect the gas had been installed prior to June 1998.

The project sounded like a slam-dunk, so Granger hired an independent contractor to build and install a gas collection pipeline at the landfill. Granger also hired Custer Services Inc., a boiler specialist, to make modifications at the gas customer's facility so that it could run on landfill gas (LFG).

But like all winning streaks, the momentum had to come to an end. The project ran into three major obstacles.

Utility Calls Foul The first major obstacle occurred when the local natural gas utility objected to Granger's request to be granted "Relief from Commission Jurisdiction" by the Public Utility Commission of Ohio. If granted, Lake County's LFG project would not have been classified as a public utility and consequently not subject to utility rules and regulations.

However, eyeing Granger as a competitor, the utility objected. The commission considered landfill gas to be the same as natural gas, and argued that making a distinction would create an unfair advantage if an independent distributor of natural gas was exempted from the rules and regulations that apply to public utilities.

As part of its arguments, the utility said that landfill gas is the same as natural gas because the:

- Chemical composition is similar (CH4 is the primary constituent);

- Production method is the same (both gasses come from the ground);

- State in which the gas is delivered is the same (both are gasses);

- Gathering and processing methods both involve wells and processing equipment; and

- Transportation, distribution and metering methods are similar.

Additionally, the local utility noted that past precedent found that landfill gas companies are considered gas or natural gas companies, and that they are in direct competition with local gas distribution companies.

On the other hand, Granger argued landfill gas is not natural gas because:

- LFG is a byproduct of a man-made facility (landfill);

- LFG has roughly half the heating value of natural gas and cannot be introduced into a utility pipeline without altering its chemical composition;

- LFG is a renewable resource whereas natural gas isn't;

- LFG is generated and released, regardless of whether humans attempt to use it, whereas natural gas is not;

- LFG extraction is mandated by environmental agencies and natural gas isn't; and

- It is not commonly accepted in the landfill gas industry that LFG is the same as natural gas.

Granger also noted that there are no environmental benefits associated with LFG. In all aspects pertaining to public utility regulation, Granger argued that there was no economic basis for the creation of regulatory barriers to its use.

Two Years Later After a legal battle that took approximately two years and cost nearly $125,000 for legal representation only, the Ohio court distinguished a difference between landfill gas companies and natural gas companies, and relieved Granger from the public utility regulations.

In the future, Granger vowed, when possible,

- To select a project structure that avoids permitting obstacles but keeps its options open to multiple customers;

- To select legal counsel carefully, weighing experience against billing rates; and

- Not to underestimate the resistance of the local utility because it can create regulatory interference and add natural gas transportation charges.

Then, Granger ran into a second roadblock. While the landfill's well field system was installed before June 1998, the pipes were placed near the landfill's surface. Shortly after Granger began gas sales, operators discovered that roughly one-third of the entire active landfill gas collection system had been destroyed because of additional waste placement on the landfill, which caused a significant drop in gas sales.

As a result, Granger had to reconstruct several areas of the horizontal collection system, including redrilling 70 2-inch wells, replacing 16,500 feet of collection piping and installing nine new valve stations. Repairing the system totaled nearly $450,000 in third-party contractor costs.

While the problem was successfully overcome with strategic planning and good communication with the landfill, in hindsight, Granger realized a permanent system with deeper pipes could have prevented the unexpected construction costs to rebuild the system.

It would have been wiser, Granger noted, to design and construct a well field system that could survive filling and capping activities when it is being placed in an active or closed area.

Remember the Owner Finally, Granger learned that when negotiating contracts, the landfill operator must take some financial responsibility for damage to collection systems. This should include cost of repairs plus cost for lost revenue caused by damage.

After solving its legal battles and rebuilding the well field system, Granger's costs to develop the LFGTE project were significantly higher than originally anticipated. However, if, from the beginning, the contract had been set up to hold all parties responsible for their actions, then the process would have been smoother.

Final Recap Overall, Granger learned that by judiciously structuring a project upfront, it might be possible to avoid unnecessary obstacles. In Lake County, if the ownership of the pipeline had originally been placed the customer's name, it would have been considered a customer-owned service line, which is, by definition, exempt from Commission jurisdiction. This alternative could have avoided a very lengthy and costly legal battle.

When obstacles cannot be avoided, Granger noted that regular communication with the customer on all issues still can ensure project success.