Message-ID: <20658315.1075862104551.JavaMail.evans@thyme> Date: Wed, 26 Sep 2001 14:53:34 -0700 (PDT) From: marc.phillips@enron.com To: e.taylor@enron.com Subject: FW: 1/22/01 Memo to Jim Prentice Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Phillips, Marc X-To: Taylor, Michael E X-cc: X-bcc: X-Folder: \MTAYLOR5 (Non-Privileged)\Taylor, Michael E\Inbox\methanol plant X-Origin: Taylor-M X-FileName: MTAYLOR5 (Non-Privileged).pst -----Original Message----- From: =09Phillips, Marc =20 Sent:=09Wednesday, September 26, 2001 4:11 PM To:=09Woods, Trevor Subject:=091/22/01 Memo to Jim Prentice FYI. If you do meet with Jim Prentice, I thought you would be interested in= the memo I sent to him back in January. It was sent via Lotus Notes so I c= opied the text from that message below. Mike Terraso forwarded a question from you about the worth of emission cred= its if the methanol plant is shut down and the credits are sold on the open= market. The new Houston non-attainment regulations that apply to the gener= ation of emission credits just appeared in the Texas Register on January 9,= 2001 so the value of the credits are very speculative at this time. Howeve= r I will attempt to make some educated guesses about the value of the credi= ts. Under the new rules, emission credits can be created by the shutdown of= the methanol plant for nitrogen oxides (NOx), volatile organic compounds, = (VOCs) and carbon monoxide (CO). Under the new rules there are three types of emission credits that would ap= ply to the methanol plant. They are 1) Emission Reduction Credits (ERCs), 2= ) Discrete Emission Reduction Credits (DERCs) and 3) "allocations" under th= e new cap and trade program. As an example, if you shut down an emission so= urce that emitted 100 tons/year of a pollutant you can obtain 100 tons/year= of ERCs as long as no new rules are passed that would require further redu= ction of the emissions. If you shut down the same source, you can obtain 10= 0 tons of DERCs each year until new rules are passed that would require fur= ther reductions. ERCs and DERCs for NOx and VOC are not new and were availa= ble under the old trading rules. ERCs and DERCs for CO are new under the ne= w rules that just passed. Allocations under the cap and trade rules are new= and (for now) only apply to NOx emissions. Allocations are allotted each y= ear to a location and form the basis for their cap. They are based on histo= ric operating hours and the new NOx limits (e.g., 0.5 grams/hp-hr for engin= es and 0.01 lbs/MMbtu for the reformer) and a company must buy allocations = every year if they are over their "cap" and can sell allocations every year= if they are under their cap. If a plant is shutdown, you would receive all= ocations and could sell them to other companies. Since reductions under the= cap and trade program start in 2004 it is anticipated allocations would be= gin to have value in 2004. After review of the data for the methanol plant, it appears that you would = have approximately 500 tons/year of VOC ERCs or DERCs, 150 tons/year of CO = ERCs or DERCs, and 85 tons/year of NOx ERCs, DERCs, or allocations, if you = shut down the plant. You would have to make the determination whether the E= RCs, DERCs or allocations (for NOx only) have the most value if you sell th= e credits. It is anticipated that ERCs, which are a one-time creation, will= generally have a reduced value in future years because they cannot be used= in the cap and trade program. Allocations and DERCs can be created every y= ear and will be needed every year by companies for compliance. The value of VOC ERCs under the old rules typically were about $3,000/ton s= o the value of 500 tons/year of VOC could be $1,500,000. I would not antici= pate a great change in the value of VOC ERCs under the new rules. CO ERCs and DERCs being new have no history, and I could not find anyone th= at could even make an educated guess as to their value, but since the CO ru= les are not anywhere near as stringent as the NOx and VOC rules, I would no= t anticipate that their value would be that great. The value of NOx ERCs under the old rules were about $3,500/ton. Under the = new rules, the expense of putting on new controls such as selective catalyt= ic reduction (SCR) is anticipated to be very great which should drive up th= e price of NOx credits. Remember that companies will have to make the decis= ion to either purchase credits or put on controls, whichever is most cost e= ffective. TNRCC has estimated that allocations could be worth as much as $5= 0,000/ton (which would place the value of the 85 tons of NOx credits at ove= r $4,000,000) under the new rules, but most in industry do not believe they= will be worth that much. A value of $3,000-25,000/ton of NOx is conceivabl= e which would value the NOx allocations available from a shutdown at $255,0= 00 to $2,125,000. Keep in mind that the value of credits will be driven by = market forces such as supply and demand and the cost of controls. Also reme= mber that allocations are needed every year so this would be an annual reve= nue stream for Enron. Since the cap and trade program is so new and the way the rules will be imp= lemented is still being sorted out by TNRCC, I would suggest that this info= rmation should be updated at a later date. If you have any questions, give me a call at 713-646-7646. Marc N. Phillips Director, Regulatory Technical Analysis 713-646-7646 (cell 713-594-6919) marc.phillips@enron.com