On Friday, May 11th, the SCAQMD approved several significant changes to the 
RECLAIM Program.  The key elements of these modifications are as follows:

For existing large power plants (greater than 50MW): bifurcation from the 
rest of the RECLAIM market, requiring installation of Best Available Retrofit 
Control Technology (BARCT) through compliance plans (to be installed no later 
than 2003 for boilers and 2004 for turbines), and a temporary mitigation fee 
program.  Any emissions in excess of their allocation can be offset by the 
payment of a mitigation fee of $7.50 per pound ($15,000 per ton) to the 
District, which will in turn invest the money in NOx emission reduction 
projects to mitigate the air pollution effects.   These rule changes include 
an environmental dispatch provision which requires prioritization of the use 
of cleaner emitting equipment first;
Initiation of a temporary, limited, pilot RECLAIM Air Quality Investment 
Program (AQIP) for new power plants and structural buyers, allowing access to 
mobile and area source credits; 
Development of four new pilot credit generation rules which are voluntary and 
are applicable to a specific type of mobile or area source emission reduction 
project, as summarized below: 
- Rule 1631 applies to diesel-fueled captive marine vessels where the 
existing marine engine is repowered or replaced with a new diesel-fueled 
marine engine. 
- Rule 1632 applies to marine vessels that are anchored in district harbors 
or ports that use electric power in lieu of auxiliary diesel engines to 
provide power for lights, ventilation, loading, offloading, and other 
"hotelling" operations. 
- Rule 1633 applies to truck or trailer refrigeration units that are mounted 
on a truck body or trailer container that use electric power in lieu of 
auxiliary diesel engines while at distribution centers. 
- Rule 2507 applies to diesel-fueled engines that are replaced with electric 
motors that are used to power agricultural pumps. 

Summary of Impact of Modifications:

The South Coast Air Quality Management District (SCAQMD) introduced these new 
rules to reduce the impact of CA's electricity crisis ( the need to increase 
generation) on the RECLAIM trading credit (RTC) market and to do their part 
to facilitate increased electricity supply.  These amendments are intended to 
stabilize RTC prices by increasing supply, reducing demand, and increasing 
trading information and accuracy.  

There is one major "IF" built into these rules.  It involves the mitigation 
fee program for existing large power plants.  IF the AQMD fails to produce 
adequate reductions for the mitigation fee program, power producing 
facilities would have allowances deducted from future year allocations to 
cover their emissions.  In otherwords, they would be able to run at higher 
levels this year, but may face severe curtailments in future years.

I do think there are a couple of noteworthy precedence within these rules.  
One is the increased validity and recognition of need of alternate source of 
emission offsets.  This rule development had active participation by CARB and 
the USEPA, who bought off on these provisions  The second is the use of the 
mitigation bank for generators.  CARB has developed a similar bank for new 
peaking turbines, but this program has much broader application.  And, 
finally, this is the first time I've seen environmental dispatch provisions 
codified.  

For those of you that want more details see below.  I also have summaries of 
the rules and comments on the rules.  Please give me a call if you have 
questions or want the documentation.  Please forward this to anyone I've 
missed.

Mary Schoen
Environmental Strategies
713.345.7422

Power Producing Facilities

The proposed rule changes will separate power producing facilities from the 
rest of the RECLAIM market while energy supply issues are being addressed. 
Existing power plants will not rejoin the full RECLAIM program unless the 
Governing Board, in a public hearing prior to July 2003, determines that 
their re-entry will not result in any negative impact on the remainder of the 
RECLAIM universe or California,s energy security needs. The proposed rules 
would require a compliance plan for power producing facilities with capacity 
> 50 megawatts and require installation of best available retrofit control 
technology at the earliest feasible date, but no later than 2003 for boilers 
or 2004 for turbines. In addition to the initial compliance plans, power 
producing facilities are required to update information annually for 2001 
through 2005 Compliance Years. Annual update reports provide AQMD with the 
necessary information to access the impacts of emissions from these 
facilities on the RECLAIM program and anticipate future demands of credits 
from the Mitigation Fee Program. The proposed rules also include 
environmental dispatch, which requires prioritization of the use of cleaner 
emitting equipment first. 
Trading would also be limited to isolate the rest of the market from credit 
demands from power producing facilities. RTC purchases after January 11, 2001 
could only be used to reconcile facility emissions if the RTCs are from 
facilities under common ownership or have been generated from approved mobile 
source credit generation programs. Power Producing Facilities could sell 
credits back to the District for a price not to exceed $7.50 per pound. Any 
emissions in excess of their allocation can be offset by the payment of a 
mitigation fee of $7.50 per pound ($15,000 per ton) to the District, which 
will in turn invest the money in NOx emission reduction projects to mitigate 
the air pollution effects. 
??????? Compliance Plans and Forecast Reports for other Facilities
For facilities other than large power producing facilities, compliance plans 
are proposed for facilities with 1999 or any subsequent year emissions 
greater than or equal to 50 tons per year (tpy). These compliance plans 
provide flexibility by including options for installing controls or 
purchasing credits. The plans are being designed to allow as much flexibility 
as possible, while requiring timely, enforceable commitments to be made to 
ensure compliance. Facilities may provide several options in their original 
plan submittal and can amend their compliance plans at any time. The Board 
resolution directs staff to expedite review and approval of compliance plans 
and plan modifications (60 days for plans and 30 days for modification). 
Facilities between 25 and 50 tpy emissions in 1999 will be required to submit 
informational forecast reports and update forecasts annually. Compliance 
plans and forecast reports from the large and medium facilities will help 
ensure adequate advance planning by facilities to meet the overall RECLAIM 
program emission targets. 
??????? Mitigation Fee Program
A temporary mitigation fee program through compliance year 2004 is proposed 
for power producing facilities that exceed their RTC holdings. The facility 
would pay $7.50 per pound of NOx to the District, which uses the funds to 
achieve emission reductions from a variety of mobile source or other credit 
generation avenues. The current rules require that excess emissions be 
deducted from the subsequent year allocation to ensure that the environment 
is not impacted by additional emissions. In this proposed amendment, staff 
recommends the deduction of excess emissions from the second year to account 
for the lead time necessary for installation of control equipment at the 
power producing facilities. When emission reductions are secured for the 
Reserve by the District, the deduction would be credited back to the 
facility. In addition, if the mitigation fee program achieves emission 
reductions equal to at least 75 percent of those requested, in aggregate, by 
the second compliance year, an additional year can be granted to generate 
reductions, thereby minimizing the need to further deduct future year 
allocations. 
??????? RECLAIM Air Quality Investment Program (AQIP)
Another short-term credit assistance program, the RECLAIM AQIP, is being 
proposed for use by certain facilities through the 2004 compliance year. This 
program would be available for structural buyers, such as new facilities and 
small facilities with installed controls at a minimum of BARCT. The RECLAIM 
AQIP would provide structural buyers additional compliance options to reduce 
the overall demand for RTCs from the RECLAIM trading market. Facilities that 
request participation would pay $7.50 per pound of NOx to use the RECLAIM 
AQIP, if reductions are available. No deduction from allocations is proposed 
for this program since emission reductions must be available prior to use. 
The District is pre-funding the AQIP program with emission reduction credits. 
The Governing Board has allocated $2 million from the AES Settlement Fund to 
use to obtain emission reductions from marine vessels. 
??????? Other Rule Changes
To help improve trade information, the proposed rules would require 
identification of both the seller and buyer of RTCs after the completion of a 
trade. The rule includes registration requirements for pooled trading and 
contractual agreements for future transfer of RTCs. In addition, timely 
filing of trades is proposed to help facilitate market information.