BOARD MEETING DATE: March 1, 2002
AGENDA NO. 3

Authorize Executive Officer to Purchase NOx RTCs

SYNOPSIS: 

In May 2001, the Board amended RECLAIM, temporarily separating existing power plants from the RECLAIM market and precluding them from purchasing NOx RTCs to reconcile emissions to stabilize NOx RTC prices. For 2001, some power plants and other RECLAIM facilities have excess NOx RTCs, which are surplus in the RECLAIM market. This action proposes to authorize the Executive Officer to purchase excess NOx RTCs for the purposes of offsetting power plant emissions and RTC deductions from power plants. Funding for this purchase is available in the Executive Officer Mitigation Account, Fund 27.

COMMITTEE: 

Not Applicable

RECOMMENDED ACTION:

Authorize the Executive Officer to purchase Compliance Year 2001 excess NOx RTCs on behalf of AQMD at a cost not to exceed $1.00 per pound of RTC and $500,000 in total purchase for the purposes of offsetting power plant emissions and RTC deductions from power plants.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

On May 11, 2001, the Board amended the RECLAIM program to address California’s energy crisis and stabilize NOx RTC prices. The amendments separated the existing large power plants from the RECLAIM market until at least 2004 and require them to install the best available retrofit control technologies as soon as possible, but no later than January 1, 2003 for boilers and non-peaking turbines and January 1, 2004 for peaking turbines. These amendments also precluded power plants from purchasing NOx RTCs to reconcile their emissions in order to stabilize RTC prices.

However, to mitigate power plant emissions, the Board established a temporary mitigation fees program for the next four years, whereby power plants would pay the AQMD $7.50 per pound of NOx emissions in excess of their RTC holdings. Furthermore, AQMD Executive Order 01-03 issued on February 8, 2001, pursuant to Rule 118 and the Governor Executive Order D-40-01 issued on June 11, 2001 also allowed for a limited time, power plants meeting specific criteria to pay mitigation fees for the purpose of mitigating excess emissions. The AQMD would use the fees to offset excess power plant emissions and RTC deductions from power plants by taking such actions as obtaining emission reductions from mobile, area and stationary sources.

Proposal

A large number of power plants installed air pollution control equipment in 2001 in response to the high RTC prices and the RECLAIM rule amendments. This action has resulted in surplus NOx RTCs from some power plants. Additionally, a number of RECLAIM facilities installed control equipment to reduce emissions in 2001. Surplus NOx RTCs from non-power plants sector may also be available for sale. AQMD staff believes that the purchase of surplus NOx RTCs could be used to offset emissions and RTC deductions from power plants consistent with the RECLAIM rules.

Based on staff’s survey of three RTC brokers on February 15, 2002, more than 175 tons of Compliance Year 2001 NOx RTCs were available at the asking price of less than $1.00 per pound. A survey of two additional brokers on February 20, 2002 indicated more than 50 tons of NOx RTCs were available at the prices ranging from $1.00 to $4.00 per pound. Staff was not able to determine whether the available RTCs were from power plants or other RECLAIM facilities. However, it is also important to note that some sellers may list their RTCs for sale at several brokerage firms. Therefore, the amount of RTCs available for sale may be overstated through multiple listings. In addition to the RTCs being offered through the broker, staff is also aware of more than 50 tons of surplus RTCs that are available for sale by a power company operating several power plants in the basin.

Staff proposes the Board authorize the Executive Officer to purchase Compliance Year 2001 surplus NOx RTCs on behalf of AQMD at a cost not to exceed $1.00 per pound of RTC and $500,000 in total purchase for the purposes of offsetting excess power plant emissions and RTC deductions from power plants. Based on the recent survey of RTC prices conducted by staff described earlier, there are surplus RTCs currently available in the market at low prices. The investment of less than $1.00 per pound of RTC is a cost-effective means of offsetting emissions and RTC deductions from power plants.

Resource Impacts

Executive Officer Mitigation Account, Fund 27 was established as a special revenue account. Currently, there is adequate funding available to use in mitigating NOx emissions from power plants as outlined herein.

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