PROPOSAL:

Amend Contract to
Support Socioeconomic Analyses of AQMD Trading Programs

SYNOPSIS:

Barents Group LLC has been assisting the AQMD in refining the trading model for RECLAIM and assessing the potential for emissions spiking associated with banked credits for the Intercredit Trading Program. Additional analyses in these areas will continue to be required and used to support rulemaking activities. The proposed funding for the analyses is $30,000, bringing the total contractual amount to $80,000. Sufficient funds are in the FY 1996-97 budget.

COMMITTEE:

Administrative, May 23, 1997, Recommended for Approval

RECOMMENDED ACTION:

Authorize the Chairman to execute an amendment to the existing contract with Barents Group LLC in an additional amount not to exceed $30,000 to support socioeconomic analyses of AQMD trading programs. The total funding for the entire contract shall not exceed $80,000.

James M. Lents, Ph.D.
Executive Officer

Background

The AQMD has been using a trading model to project prices of RTCs in RECLAIM. The trading model is linked with an economic model--REMI (Regional Economic Models, Inc.)--to ensure that RECLAIM or any other market incentive strategies result in lower overall costs and no significant shift from high-paying to low-paying jobs, when compared with command-and-control regulations (Health and Safety Code Section 40920.6). Periodic updates of the trading and REMI models are necessary to reflect the most current economic and engineering data. The update of the REMI model has been completed and Barents Group LLC has refined the linkage between the REMI and trading models.

The AQMD is currently working on an intercredit trading program to incentivize development/commercialization of new control technologies, increase participation in credit trading, and lower compliance costs. Economic assessments of major components in the program have been underway and will continue to be refined.

Proposal

There are two major tasks in the proposal: re-calibration of the trading model and impacts of banking of emission credits. Based on the up-to-date data on control options, control costs, and holdings of RTCs at RECLAIM facilities, the trading model will be re-calibrated. The re-calibrated model will be used to support program audits for RECLAIM and rulemaking activities for the intercredit trading programs where interaction between RECLAIM and non-RECLAIM emission credits will be expanded.

One major component under consideration in the intercredit trading program is the banking provision of emission credits. The proposed contractual effort will attempt to define trading scenarios under which emissions spiking from banked credits is likely to occur; and identify various approaches to mitigating potential emissions spiking and its associated market impacts. Assessments of other critical components are also likely as they are formulated.

Sole Source Justification

Section II, Step 3 (C) of the Consultant Selection Policy and Procedure identifies four provisions under which a sole-source award may be justified: (1) cost to prepare documents exceeds cost for consultant, (2) delay would result in the endangerment of public health, (3) services are only available from sole source, and (4) other circumstances exist identifying sole source as in the best interests of the AQMD. This request for a sole-source award is made under provisions (3) and (4).

AQMD staff does not have sufficient resources to perform the tasks in the proposal at this time. Barents Group LLC has demonstrated its ability to handle trading and banking analysis issues in a timely and cost-effective manner. Their ability to speedily and expertly bridge from the existing effort is critical to timely development of banking policies in the overall intercredit trading program. In addition, in order to successfully carry out the required tasks, a contractor must have extensive experience in probability analysis and to be simultaneously proficient in REMI, GAMS, and FORTRAN. Barents Group LLC has previously been identified through the AQMD open bidding process as the most qualified bidder for this type of technical analysis.

Resource Impacts

The total cost of the proposed amendment to the Barents Group LLC contract is $30,000 and the funding is available from the FY 1996-97 budget of the Planning and Policy division. The proposed amendment will bring the total amount of the contract with Barents Group LLC to $80,000.

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