Air pollution allowances bring $6.2 million to CU

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City Utilities of Springfield has earned more than $6.2 million selling surplus air pollution "allowances" over the past several years in a national market created to help coal-burning electric generating utilities re-duce acid rain. |ret||ret||tab|

That income isn't pure profit, however. People need to realize that CU's electric operation also spent about $20 million in the first place to clean up its smoke- stack emissions in order to comply with the acid rain standards, said Duane Galloway, CU's senior manager in governmental relations/environmental affairs.|ret||ret||tab|

Still, he said, it reflects the fact that CU has been able to keep its emissions of sulfur dioxide, which is the traded commodity, well below the standard set in the acid rain cleanup program established by congressional legislation in 1990. |ret||ret||tab|

"The goal was to reduce pollutants that move in the air mass from this part of the country to the northeast United States" and create the acid rain, Galloway said. |ret||ret||tab|

Since sulfur dioxide was a major culprit, the government and the utility in-dustry collaborated in building the system of emission allowances and trading designed as an incentive to "reduce and spread out" the pollution, he said. |ret||ret||tab|

In other words, it was decided that the trading program would be cheaper than, and just as effective as, more costly cleanup technology and fines for noncompliance. |ret||ret||tab|

The program|ret||ret||tab|

"The innovative, market-based sulfur dioxide (SO2) allowance trading component of the Acid Rain Program allows utilities to adopt the most cost-effective strategy to reduce SO2 emissions at units in their systems," the U.S. Environmen-tal Protection Agency states on its Web site. "Allowance trading is the centerpiece of EPA's Acid Rain Program, and allowances are the currency with which compliance with the SO2 emissions requirements is achieved." |ret||ret||tab|

Under the system, each "allowance" is equivalent to each ton of SO2 the EPA allows utility generating plants to emit. In the beginning, the EPA provided companies with a 30-year stream of allow-ances at a set number for each generating unit per year, Galloway said. |ret||ret||tab|

Through last year, about 160 million allowances had been transferred since the program began in 1993, according to the EPA. About 70 percent were in the private market among and within scores of utility companies, and the rest were through the EPA's annual allowance auction system. |ret||ret||tab|

Federal law requires that utilities set aside 2 percent of their allowances for sale through the auctions, Galloway said. The auction system was set up to provide a base of fluidity for the private market, he said. |ret||ret||tab|

The total worth of allowances traded so far on an industry-wide basis is not firmly known, since the market price fluctuates. But using an EPA chart indicating that the private market low, on a monthly basis, was about $75 per unit in 1996 results in a value of at least $8 billion on the 111 million units transferred since 1994. The price has regularly been $150 a unit or more and hit $200 in recent years. |ret||ret||tab|

Since the program began, CU has been fortunate to build a surplus of pollution allowances at its James River and South-west power plants, Galloway said. |ret||ret||tab|

This was accomplished chiefly by using more low-sulfur coal from the West. Because of the technology used at the James River plant, some higher sulfur coal from Illinois must be blended with the low-sulfur variety from Wyo-ming, he said. |ret||ret||tab|

The utility had a total allotment of 117,393 of emission units through this year, and had used only 65,660 through the end of last year, according to Jennifer Marino, a CU senior engineering environmentalist. She is in charge of monitoring the SO2 tonnage emitted from the power plants, which is weighed against the allowances to determine the credits. |ret||ret||tab|

The utility's three private market sales have yielded $5,857,250 from 42,200 units, according to data provided by Gal-loway and Marino, with one sale alone providing more than $4 million of the total. Another $399,613 came through the EPA's annual allowance auctions, bringing the grand total to $6,256,863. |ret||ret||tab|

Associated Electric Cooperative Inc., which has headquarters in Springfield and operates power plants in southeast and north-central Missouri, has sold 270,000 pollution allowances over the years, said Charlie Means, manager of environmental services. He said company financial officials did not wish to disclose the total dollar value of the sales. |ret||ret||tab|

Associated spent about $200 million to convert to low-sulfur coal, Means said. That included all costs from coal delivery to burning equipment to pollution-control devices, he said. |ret||ret||tab|

Ameren UE in St. Louis, a regulated public utility that serves a large sector of Missouri, has reportedly sold a considerable number of allowances, but officials there declined to discuss the matter. |ret||ret||tab|

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How sales happen|ret||ret||tab|

As the surplus of unused units built up to a marketable number, CU decided to sell in the private marketplace, Galloway said. He made contact with brokers and they offered bids, which resulted in sales through three companies in three recent years. |ret||ret||tab|

A 1997 sale of 10,000 credits was made through AIG Trading Group at a price of $96 per credit. |ret||ret||tab|

In 1998, CU sold 4,700 allowances at a price of $137.50 through Cantor Fitzgerald, in New York City, which had its headquarters in one of the World Trade Center towers destroyed in the Sept. 11 terrorist attack. |ret||ret||tab|

In 2001, CU made its largest single transaction, selling 27,500 allowances to Enron, the energy giant that crashed financially in late 2001. CU sold 17,500 "1995-2000 vintage" credits for $156 each, and 10,000 "2001-2004 vintage" credits for $152.10 each. The deal was worth a total of $4,251,000. |ret||ret||tab|

Galloway said future credits, such as the 2001-2004 piece of the package, can be sold but have a lower price because they can't be used until their time. |ret||ret||tab|

In the future, CU can probably expect a lower allowance margin resulting from new sulfur dioxide standard at the James River plant, Galloway said. Due to air quality concerns there related to ozone pollution separate from the acid rain program, CU recently signed an agreement with the EPA to lower the emission standard at James River, he said. |ret||ret||tab|

Meanwhile, the utility industry is watching a congressional proposal that would lower the sulfur dioxide standard in the Acid Rain Program and restrict allowances, Galloway said. [[In-content Ad]]