When the district began focusing on a 7.8 or 7.7 ton per day reduction and the reintroduction of power plants in 2004, there was an increase in RECLAIM stream activity. Stream prices moved upward to around $3.00 per pound per year starting in years 2005 and/or 2006, while the spot market prices have remained relatively stable below $1.00 per pound. More recent stream trades have been as high as $6.50 per pound per year. Please note that these market prices are based on the number of credits transferred prior to the reduction being implemented. Companies that purchased streams, prior to the date of rule adoption, lost 22.5% of the credits purchased. As expected with the adoption of these rule changes, stream pricing has adjusted commensurate with the reduction and reflects the concern that there may not be enough credits in the market for years 2007 and beyond.

Despite the rule adoption, there are still a number of uncertainties that make long-term planning difficult for facilities. There is uncertainty regarding how many facilities will qualify for an exemption from the reduction and how many credits will be withheld from the reduction. Based on the existing rule language, if a company is exempt from the reduction, their holdings must be accounted for by the rest of the RECLAIM market participants. This volume of credits and the additional amount of the reduction beyond 7.7 tons per day will not be determined until after the district has completed their final review of the applications. Notification on the volume will probably occur in the late summer/fall of 2006, given the application filing schedule. Implementation of the additional reduction will not occur until 2009 at the earliest. This uncertainty means companies planning for the installation of controls may have a difficult time securing the appropriate technology and equipment guarantees if they don't know how much larger the reduction will be due to the exemptions. Furthermore, companies that qualify for the exemption are no longer permitted to sell or swap their holdings. This will have an impact on certain companies that have relied heavily on swapping credits as a credit procurement method to avoid to cash transactions.

Over the past year, industry participants have been working with their planning departments to determine whether or not they can and will install control technology to meet the staff's reductions or purchase streams of credits to make up for the reduction in their holdings. Some companies with excess credits have been selling their credits given the demand which has lead to higher pricing over the past few months. Most streams that have been sold over the past year are a product of facility shutdown or a permanent reduction in operations. Over the next six to twelve months as companies decide how they are going to comply for the years 2007 and beyond, there is a potential for a continued increase in price, volatility and trading. Companies that do not want to be 100% exposed have been hedging their risk through stream purchases.

Even when SCAQMD staff reductions were in the proposal phase, there was some market activity for the "perpetuity" year or "all years after 2010." Since the decision to impose a reduction on RECLAIM participants, transactions of years after 2010 have traded for as high as $14.00 per pound. In regards to year 2006 alone, credits are still available for around $3.00 per pound. Beyond 2006, companies that hold excess credits have been reluctant to break up their streams by selling streams starting with the 2007 or 2008 year. There has been more of a willingness to sell full streams of credits starting in the years 2005 or 2006.

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