Smog credit auction delayed again; set for late July.

Market participants request more time to prepare for event

The first-of-its-kind Clean Air Auction has been postponed from March 24 to July 29, its sponsors said last week, because market participants need more time to ready themselves for the event.

Participants are all firms affected by the South Coast Air Quality Management District's Regional Clean Air Incentives Market, dubbed the Reclaim program, which took effect Jan. 1. They include, said the sponsors, Rosemead-based Southern California Edison Co. and downtown L.A.-based Unocal Corp.

Reclaim sets caps on the amount of certain pollutants that a company facility may emit each year, giving some leeway in the form of credits -- the amount of which shrinks yearly. The first round of emissions permits and credits appeared last December and in early January, according to AQMD spokesman Bill Kelly.

Most credits are tradable. So, if a facility believes it can afford to make the pollution-control changes to meet its cap within a certain time frame (or ends up shutting down production), it may sell its credits to a facility that doesn't think it can meet its cap.

That's where the Clean Air Auction comes in. To facilitate the buying and trading of these credits, Dames & Moore, an L.A.-based environmental engineering firm, and New York-based brokerage Cantor Fitzgerald L.P. have organized a modified sealed bid auction to bring the buyers and sellers together. On March 11 the auction was postponed for the second time (the original debut date was Jan. 10).

"We thought participants would be confident enough to trade after they reviewed their draft permits in December," Cantor Fitzgerald spokesman Carlton Bartels said.

But Bartels said, "25 percent felt they absolutely required more time," and another 40 percent or so "were just happy to have more time."

He added, "At least one significant player was having technical problems with its emissions permit" to the point that it "felt it necessary to have all these problems resolved before participating in the auction."

Resolution of permit problems involves an appeal process, which Bartels gauged as a six- to eight-week process.

"If a company disagrees with a condition in the permit, they can file a written petition for an appeal with the AQMD's Hearing Board," explained Kelly. "Then the board will set a date for a hearing of the matter and the district will file a brief with the board outlining its position."

Kelly would not estimate how long an appeal would take, saying that it would depend on the particulars of the case. Appeals, he said, can cover anything from a mistaken address to a specific requirement or an outright request for exclusion from the program altogether.

According to official Southern California AQMD records, 36 local companies so far have filed appeals with the district.

Wrangling over permits was only one cause for delay. Another, minor setback was caused by the absence of trading/transfer forms to record the trades and certify that companies had the credits to trade.

The forms, said Kelly, were due to be released last Friday (March 18).

"Companies said they wanted to have these forms available before they traded in the auction," Kelly said. But, he added, "while that's a legitimate concern, the major reason the auction has been postponed is that they (the sponsors) need more participants to make the auction worthwhile."

Representatives from Cantor Fitzgerald and Dames & Moore claim "orders are being prepared for well over 10 million pounds of (pollutant) credits through the year 2010." They would not confirm the exact number of orders in hand, the average amount of credits per order or the number of customers that have pledged to participate in the auction.

Dames & Moore spokesman Josh Margolis said although the auction will be postponed to July 29, "we're going to accommodate those who cannot wait." Trades may be done at the standard 7.5 percent commission rate for brokered deals vs. the 3.5 percent rate maximum estimated for auction orders, he said.