BOARD MEETING DATE: February 6, 2004
AGENDA NO. 6

Authorize Funding to Purchase Compliance Year 2003 NOx RECLAIM Trading Credits

SYNOPSIS:

In an effort to stabilize NOx RTC prices, the Board amended the RECLAIM program in May 2001 to preclude power plants from purchasing NOx RECLAIM Trading Credits (RTCs) to reconcile their emissions. Consequently, to avoid rolling blackouts the governor issued Executive Order D-40-01 on June 11, 2001, directing air pollution control agencies to allow power plants, under specific circumstances, to emit NOx in excess of the emission limits for the period from June 11, 2001 to October 31, 2001. The Executive Order prohibits excess emissions from being considered when determining whether the facilities exceed allocations, provided that the plant operator pays mitigation fees. This action proposes authorizing the Executive Officer to purchase excess NOx RTCs for Compliance Year 2003 for the purpose of offsetting power plant emissions in excess of allocations, pursuant to the governor's executive order. Funding for this purchase is available in the Executive Officer's Mitigation Account, Fund 27.

COMMITTEE:

Stationary Source, January 23, 2004, Reviewed

RECOMMENDED ACTION:

Authorize the Executive Officer to expend up to $300,000 from the RECLAIM and Executive Officer Mitigation Account, Fund 27 to purchase Compliance Year 2003 NOx RTCs on behalf of AQMD for the purpose of offsetting excess power plant emissions subject to Governor’s Executive Order D-40-01.

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 required 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. In addition, the Board established a temporary mitigation fee program for the next four years to mitigate power plant emissions, whereby power plants would pay the AQMD $7.50 per pound of NOx emissions in excess of their RTC holdings.

Proposal

AQMD staff anticipates that NOx RTCs for Compliance Year 2003 may be available for sale from both the power plant and non-power plant sectors. Staff believes that the purchase of surplus NOx RTCs can be used to offset emissions and RTC deductions from power plants consistent with the RECLAIM rules.

Staff proposes the Board authorize the Executive Officer to purchase Compliance Year 2003 surplus NOx RTCs on behalf of AQMD at a cost not to exceed $300,000 in total purchases for the purposes of offsetting excess power plant emissions. The proposed purchase should retire any remaining debt regarding excess emissions.

Resource Impacts

RECLAIM and 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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