The Stationary Source Committee met Friday, February 23, 2001. Following is a summary of that meeting. The next meeting will be March 23, 2001, at 10:30 a.m., in Conference Room CC8.
RECOMMENDED ACTION:
Receive and file this report and the attached NSR Interim Report from the Home Rule Advisory Group.
Ronald O. Loveridge
Chairman, Stationary Source Committee
Attendance
The meeting began at 10:55 a.m. Present were Norma Glover, Committee Vice Chair; and Cynthia Verdugo-Peralta. Ronald Loveridge, Committee Chairman; Jon Mikels; Jane Carney; and Leonard Paulitz arrived at 11:15 a.m. Also in attendance, but not participating, were Hal Bernson, and William Burke who arrived at 11:35 a.m.
INFORMATIONAL ITEMS
Annual RECLAIM Audit Report for 1999 Compliance Year
Carol Coy, Deputy Executive Officer for Engineering and Compliance, reported that this regular annual report would be before the Board in March. The RECLAIM universe increased from 331 to 361 RECLAIM facilities this compliance year because of inclusions and opted-ins to the program, as well as several exclusions, mergers and facility shutdowns. RTC trading was very active with over $177 million in NOx and $4 million in SOx RTCs traded.. As reported previously to the Governing Board, NOx prices have been very high this compliance year. SOx prices, although higher than originally, are not escalating at the rate that NOx prices are. However, staff believes we still need to carefully watch the status of SOx prices. We are at the "crossover" point where reported emissions are almost equivalent to the RTC supply. From the audits that have been completed to this point, there is a high degree of compliance with the RECLAIM program. On the NOx side, 91 percent of the universe is compliant with its allocation and appropriate enforcement action is being taken regarding violators. The companies in the SOx RECLAIM program were 100 percent compliant with their allocations for the 1999 Compliance Year. Program amendments are currently under development to implement backstop measures to lower the price of NOx RTCs and bring the price closer to the marginal cost of emission controls. There is significant need for emission control projects at NOx facilities to keep the facilities in compliance and assure the program delivers the NOx reductions required in the Air Quality Management Plan.
RECLAIM Working Group Update
Jill Whynot, Manager, Planning, Rule Development & Area Sources, gave an update on the status of the efforts of RECLAIM rule development. The purpose of the presentation was to provide information on the process so far, and what has happened since the Board Meeting on January 11, 2001. The main elements of the proposals were discussed, as well as key issues, information on the CEQA alternatives, and what process will occur between now and the May 11, 2001 Board Meeting.
A Working Group was formed and three meetings have been held. These meetings are on a weekly basis and have provided input to draft proposed amended rules and to develop a new rule for a power plant emissions mitigation fee and the Air Quality Investment Program. The Working Group is assisting with market analysis and there has also been a discussion of the Executive Orders and how they relate to RECLAIM rules. A series of draft rule amendments and a preliminary staff report has been produced, which are available to the public in preparation for the public workshop on February 28, 2001.
For outreach, an advisory letter is being sent to all RECLAIM facilities to let them know about common options for cost-effective control technologies at their facilities. There will also be a series of meetings to invite facilities to come in and talk more specifically about control equipment options.
Many of the RECLAIM amendments focus on power plants and try to separate influence of the power-producing facilities on the balance of the market. Power plants will be required to do compliance plans and add emissions controls. Some trade limitations are proposed. In addition, there is a fee mitigation program that will help when they have to exceed their emissions allocations to meet the electrical generation needs of California.
For other facilities, a compliance plan is recommended for the largest facilities. That plan is different from requirements for power plants because it doesn’t specifically require control. Facilities will have the option of committing to credit purchase or adding controls to demonstrate future compliance with allocations. For medium facilities, in response to Working Group meetings, similar information will be requested on a forecast basis. The overall program will be evaluated to help determine whether enough facilities are planning on putting on controls to help stabilize the market.
For the power plants there is a temporary program proposed to bridge the next few years, where utilities will likely exceed their allocations. If they do, they would pay $7.50 per pound for the emissions in excess of their allocation. The District will try to secure emission reductions from other sources. To make sure the environment will not be detrimentally affected, the amount of emissions they request from this program will be deducted from their second year allocation. As emissions reductions are obtained, the allocation debit would be credited back.
There is also a temporary credit assistance program for some of the smaller facilities. New power facilities or small facilities that have emissions controls would be able to request that the District assist them in meeting their credit needs. They would also pay $7.50 per pound. The District intends to pre-fund the program, and facilities can use this program only if there are emission reductions available. This is a supplemental assistance program not intended to take over the function from the private market.
Executive Orders have been issued by the Governor and also by AQMD to address issues raised by the current "energy crisis." The Governor’s Executive Orders are in effect to the end of this year. A series of Executive Orders by the Executive Officer, are in effect for 10-day periods, that can be extended as the need arises. These Executive Orders work in concert with each other and the proposed rule changes. All of the proposed RECLAIM changes, the Governor’s Executive Orders and the Executive Officer’s Orders, recognize the power-producing facilities need to operate. All require $7.50 per pound mitigation fee for excess emissions. The proposed RECLAIM rule changes and AQMD Executive Orders require control installation. The Governor’s Executive Order does not specify controls, but due to the needs of the South Coast, that element is important to reduce emissions from power plants as quickly as possible. Also, both the proposed RECLAIM changes and the AQMD Executive Orders require a deduction from subsequent allocations, which is paid back if credits are obtained. In the AQMD Executive Orders there is also a mitigation fee for CO and some other restrictions. The Governor’s Executive Order would have the State of California create a credit bank and at the local level there would be a mitigation fee program.
Barry Wallerstein, Executive Officer, reported that to date there is not a conflict between his Executive Order and those issued by the Governor. As he has issued and revised AQMD Executive Orders, he has been consulting with the state Air Resources Board staff, as well as the U.S. EPA, prior to issuing the orders. He said the orders will be renewed that afternoon and it is possible that one of the orders will be refined and reissued. He also brought to the Committee’s attention that the ISO had ordered several local power plants to stay on line instead of shutting down to install pollution controls for which permits have been issued. There are several instances where controls will be delayed until late 2001, and there is nothing to prevent the ISO, in late 2001, from once again issuing that order. In terms of mitigation fees, there will be millions of pounds of NOx that CARB will have to secure under the Governor’s Executive Order or AQMD will have to secure under the Executive Officer’s Order.
Some of the key issues likely to be heard at the March 16 pre-hearing from the power plants, is a concern about whether AQMD can secure enough reductions under the mitigation fee program. They are not comfortable with deductions from the future year allocations. However, that part of the proposal is very important to obtain EPA’s approval as they want to make sure that the environment does not see excess emissions. Staff is working with the power generators, who request less restriction on their trading.
Some of the key elements of the proposal involve compliance plans for other RECLAIM facilities. Staff has made a lot of changes to the original draft proposal in response to comments received. Originally, a compliance plan was requested for any facility over 10 tons. The revised proposal would require a compliance plan for facilities greater than 50 tons, but industry is still saying that they believe this will be inflexible and difficult for them to do. Also, staff is identifying which parts of the information submitted should become part of the compliance plan and become enforceable. Also, the environmental representatives are consistent in not supporting any kind of trading from mobile to stationary sources. That is an issue also being heard at the Working Group meetings.
Another issue is how the RECLAIM market is functioning. There have been comments that there are not adequate avenues to make RTC price information available to assist people. Suggestions have been made that a central market with one clearing price, might assist in stabilizing prices. This is a recent development and staff recommended economists evaluate this approach.
Also, there have been numerous requests to expand the proposal for the Air Quality Investment Program, which is currently limited to the smaller emitters and new facilities that may have fewer options for obtaining credits.
The Board will have a broad range of policy options in the environmental analysis alternatives. Each of the alternatives will be analyzed for potential environmental and economic impacts. A Notice of Preparation is currently available for public review. There are several key program design features that are being varied in the CEQA alternatives. They are: isolation of power plants and trading restrictions, compliance plans, the mitigation fee program, and the AQIP. The Environmental Analysis will evaluate the rate of emission reductions, and the air quality progress of each alternative.
AQMD has contracted with three noted economists to assist in looking at the RECLAIM market. Some of the issues they will evaluate include credit supply and demand and market price stability and predictability.
Between now and the May Board meeting, Wednesday, February 28, at 1 p.m., there is a Public Workshop at the District. At the March 16 Board package will contain more details about the issues highlighted today. Additional Working Group meetings will be held on a weekly basis, or every two weeks, as needed. Staff has worked closely with EPA and ARB. They have been supportive by attending the weekly meetings so that when these rules go to the Board they will be able to expedite approval. The Set Hearing will be at the April Board meeting and the Public Hearing will be May 11, 2001.
Supervisor Jon Mikels asked about the preliminary thinking about sources of the emission reductions that would be obtained from money received from mitigation fees. Barry Wallerstein replied that initially staff could go to the Carl Moyer Program, where projects were not implemented because there wasn’t enough money.
Ronald Loveridge requested this subject be brought back to the next Committee meeting.
Reg. XIII – New Source Review Requirements
Rule 2005 – New Source Review for RECLAIM
Laki Tisopulos, Manager, Planning, Rule Development and Area Sources presented slide presentations on the proposed amendments to these two sets of rules. Both relate to the power crisis. The first set of rules deals with amendments to Rules 1303 and 2005 and essentially revise the modeling requirements that are applicable to new or expanding sources locating in attainment subregions of the District. Modeling is one of three key elements of the NSR program in addition to BACT requirements and the offsets required. Currently, the rule has uniform modeling requirements for all incoming or expanding sources regardless of whether they are located in attainment or nonattainment subregions. The requirements are unnecessarily restrictive for sources locating in subregions already in attainment. This proposal revises the two rules to cover the entire universe of sources and seeks to allow future growth while protecting air quality. It essentially allows increase of emissions from new or expanding sources provided the air quality standard in the subregion is not exceeded. Those sources will still need to meet the BACT requirement and offset all their emission increases. The proposal does not alter current modeling requirements applicable to subregions that are in nonattainment. The Public Workshop was held in December. The Set Hearing will be March 16, 2001, and the Public Hearing will be April 20, 2001.
Jane Carney asked about the transport of pollutants and how attainment in subregions takes into account the migration of pollutants. Laki Tisopulos said that the modeling requirements are predominantly designed to address local impacts. The NSR program is a regional program and assures there will not be an adverse air quality impact downwind by requiring the sources to meet the BACT requirements and submit offsets. Specifically, they will have to offset each pound of emissions with 1.2 pounds, resulting in a net air quality benefit. In addition, Rules 1401 and 1402 provide additional protection to local communities from potential exposure to toxics emissions.
The next set of rules also deals with the power crisis and is intended to streamline the permitting associated with new power plants coming to the Basin, by allowing temporary access to the Priority Reserve account. To respond to the power crisis, there are a number of new plants that are planning to come on line between now and the next few years. There are roughly eight that are expected to be located here in the Basin. These electric generating facilities must offset all their emissions increases in all pollutants, including PM10, in addition to meeting the BACT requirements. There is a problem however, with the PM10 credits that are in short supply on the open market. The supply of credits is approximately 2,100 pounds and roughly 1,000 pounds are owned by electric generating facilities. Yet, the potential demand from the new construction is roughly 4,700 pounds. If one considers the 1.2 offset factor, the potential demand could be as high as 5,700 pounds per day. There is an imbalance, and as a way of alleviating that imbalance, staff is recommending the use of PM10 reduction credits in the District’s Priority Reserve account. The Priority Reserve account was established to provide credits to select sources such as essential public services, publicly owned treatment plants, police facilities, prisons, schools, as well as research and innovative projects. There are approximately 3,000 pounds now accumulated in the bank. This credit balance is expected to grow in the future, since the Priority Reserve account is also being fed with 125 pounds every quarter. Staff believes this supply adequately addresses the needs for the next two to three years here in the Basin.
The proposed amendments to Rules 1302 and 1309.1 will allow electric generating facilities to temporarily access this bank between the years 2001 and 2003, provided they meet certain conditions: all sources in a facility are utilizing BARCT for PM10; pay a mitigation fee (the proposed figure being considered is $25,000 per pound); conduct due diligence to procure credits first on the open market; and complete the construction within three years. The District will use the mitigation fees collected to fund PM10 reduction, which will be used to refund the Priority Reserve.
Norma Glover asked if we were talking about new plants coming on line and Laki Tisopulos reported that the rule would apply to both new plants and existing plants expanding their power-generating capacity that results in an emission increase.
Laki Tisopulos continued saying the District would have to demonstrate to EPA that the environment is made whole by providing a reasonable further progress and attainment demonstration. He said this could be done by using the recently adopted rules as backstops, such as Rule 431.2, that will provide 200 pounds per day and Rule 1158 with another 2,000 pounds per day. Also, the Clean Air Investment Program projects will provide additional reductions.
The Public Workshop is scheduled for March 1, 2001. The Set Hearing is March 16, 2001 and the Public Hearing is April 20, 2001.
Reg. IX – Standards of Performance for New Stationary Sources
Reg. X – National Emission Standards for Hazardous Air Pollutants
Jill Whynot, Manager, Planning, Rule Development and Area Sources, reported that once a year a periodic update is done on these regulations. It incorporates existing changes to federal requirements for various sources. Regulations IX and X provide a list for facilities for reference to see what applies to them. There is no economic impact to the facilities. These are requirements that they already are subject to under the federal government. No issues are expected.
Notice of Violation Penalty Summary
(Written report—no action taken)
Rule Forecast Report
(Written report—no action taken)
Monthly Report on Home Rule Advisory Group (This report includes the NSR Interim
Report)
Carol Coy asked the Committee to take action on forwarding the NSR Interim Report from the Home Rule Advisory Group to the Board. The Committee unanimously approved forwarding the report.
Other Business
Jane Carney said she had seen an analysis done by the Legislative Analyst’s Office on penalties and the amounts being charged, particularly for repeat offenders. She asked if Peter Mieras could prepare a report from his office on what the policy is on fines and repeat offenders. Peter Mieras, District Prosecutor, said he would provide this information at the next Committee meeting.
William Burke, Board Chairman, commented that at the CARB meeting in Richmond last night, CARB said they are considering developing a "menu" of fines and increasing the fines throughout the State of California for offenders. Dr. Burke suggested the District staff consider putting their own schedule together to give CARB AQMD input in that area.
South Coast Air Quality Management District