As a footnote to the wide-ranging issues emerging fromCalifornia’s electricity wars this summer, the City of Los AngelesDepartment of Water and Power (LADWP) Tuesday paid a record $14million penalty to regional air quality regulators as a result ofrunning its older, more polluting LA Basin generating plantsfull-out this summer. The heavy penalty points up an increasinglytenuous situation for merchant generators who are running out ofways to avoid exceeding their plants’ air emission limits.

Houston-based Reliant Energy, which operates five formerSouthern California Edison natural gas-fired plants along theCalifornia coast, earlier this month crafted a deal with theVentura County Air Pollution Control District to keep its twoplants in Oxnard fully operating.

In past years, large power plants in both the public and privatesectors, which have always been among the state’s largest sourcesof air pollution, could buy pollution credits in the five-countySouth Coast Air Quality Management District’s emission-tradingprogram.

The supply of credits in the trading program has dried uphowever, and the price has skyrocketed. In LADWP’s case, itsgeneration of a lot of excess capacity to sell into the wholesalemarket, netting an extra $45 million in revenues, caused it toexceed its allocation.

The fine assessed against LADWP is the largest ever assessed bythe regional Southern California air pollution regulators. Theprice hike and scarcity of pollution credits has driven themunicipal utility toward a massive effort to upgrade its network ofgenerating plants in the greater Los Angeles metropolitan area overthe next seven to 10 years.

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