From: Reuters
Published March 25, 2008 01:59 PM

EPA auctions SO2 allowances for $65.8 mln

HOUSTON (Reuters) - The Environmental Protection Agency auctioned sulfur dioxide allowances for $65.8 million, the federal agency said in a report Tuesday.

The auctions were for 125,000 allowances for 2008 and 125,000 allowances for 2015. Each allowance permits the holder to emit one ton of SO2.

The EPA holds the auction each year for the current year and seven years out to help provide price transparency and to ensure that new power plants have a public source of allowances beyond those already allocated to existing units.

In the spot 2008 auction, the weighted average price was $389.91 per allowance, down from $444.39 last year.

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In the spot 2015 auction, the weighted average price was $136.14 per allowance, down from $193.35 a year ago.

Proceeds from the 2008 auction were the lowest since 2004, according to the EPA Web site. The 2007 auction raised $79.7 million.

The EPA takes the proceeds and distributes the money to holders of existing allowances who had a portion of their allowances withheld. The 125,000 in allowances represents about 1.5 percent of the total annual allocations.

The auction price for 2008 allowances was $10-$15 below prices seen in the over-the-counter market before the auction results were announced and much below the roughly $700 per ton cost to add SO2 controls, said Peter Zaborowsky, managing director at energy broker Evolution Markets LLC of White Plains, New York.

Lower auction prices seemed to reflect the large number of allowances being added to the market in a single day and lower participation by electric utilities, Zaborowsky said.

"Utilities are sitting on their hands," said Zaborowsky said. Many utilities have already banked allowances they need or may be worried about changes in U.S regulatory policy, he said.

The winning bidders in the spot auction included subsidiaries Koch Supply & Trading ($17.2 million), Constellation Energy Group Inc ($10.7 million), LUME ($7.5 million) and Merrill Lynch ($4 million).

Two units of Dominion Resources, Dominion Energy Marketing ($10.3 million) and Virginia Electric and Power Co ($6.7 million) acquired the lion's share of the 2015 allowances.

Bids in the 2008 auction ranged as high as $651 per allowance, with a clearing price of $380.01. The clearing bid was the lowest successful bid.

In the spot 2015 auction, the high bid was $400, with a clearing price of $131.50, the EPA said.

(Reporting by Eileen O'Grady; Editing by Marguerita Choy)

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