BOARD MEETING DATE: September 8, 2006
AGENDA NO. 41

Adopt Proposed Rule 1315 – New Source Review Tracking System.

SYNOPSIS:

Proposed Rule 1315 was developed to formalize AQMD's accounting methodology for tracking changes to its internal NSR offset accounts for the purpose of demonstrating programmatic equivalency between AQMD's NSR program and federal NSR requirements.  In addition, U.S. EPA has requested adoption of and AQMD staff has agreed to propose an NSR tracking rule to the Board for adoption as a necessary condition for U.S. EPA's future approval of Rule 1309.2 - Offset Budget in the SIP.

COMMITTEE:

Stationary Source, July 28, 2006, Reviewed

RECOMMENDED ACTION:

Adopt the attached resolution:

1. Adopting Rule 1315 – New Source Review Tracking System; and
2. Certifying the Notice of Exemption (NOE) from the California Environmental Quality Act (CEQA) for Proposed Rule 1315.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

After several months of discussions between AQMD staff and U.S. EPA staff, AQMD staff has developed Proposed Rule 1315 to formalize AQMD’s NSR accounting methodology and to address the issues and questions raised by U.S. EPA regarding all aspects of AQMD’s NSR Offset Tracking System.  The proposed revisions to AQMD’s NSR Offset Tracking System are primarily intended to facilitate U.S. EPA’s SIP approval of AQMD’s past and presently-proposed NSR rule amendments.

Based on discussions between AQMD and U.S. EPA staff, Proposed Rule 1315 addresses all issues raised by U.S. EPA regarding AQMD’s NSR Offset Tracking System.  The revised NSR Offset Tracking System includes specific changes to AQMD’s existing NSR tracking procedures.

Since prior to 1990, AQMD has implemented the NSR program under AQMD’s Regulation XIII, which, among other things, provides for certain exemptions from, and funding for, offsets for specific types of sources.  These rules have been SIP approved by U.S. EPA a number of times, most recently in 1995 and 1996.

AQMD has also prepared NSR status reports, accounting for credits and debits for the period beginning in 1990, demonstrating that in the aggregate it has provided offsets for sources which are subject to the federal NSR offset requirements, but which are not required to provide offsets under AQMD’s NSR rules (Regulation XIII.).

In order to address U.S. EPA’s questions and issues regarding AQMD’s NSR offset tracking, AQMD staff has spent over 6,000 person-hours reviewing and analyzing records in our NSR tracking system.  In addition, AQMD staff (including Executives, Senior Management and other staff) has spent several hundred additional person-hours developing, in consultation with U.S. EPA staff, the revisions to AQMD’s NSR Offset Tracking System.  Proposed Rule 1315 includes specific changes to AQMD’s existing NSR offset tracking procedures and addresses all issues raised by U.S. EPA.

Summary of Rule 1315 Proposed for Adoption

• Without affecting credits already transferred to holders, eliminate all Pre-1990 credits for which AQMD no longer retains any documentation or records (this will reduce AQMD’s previously-reported Pre-1990 credits by anywhere from about 7% to 92%, depending on the pollutant).
• Use only the revised and re-verified Pre-1990 credits for which records exist.
• Eliminate any unused portion of the revised and re-verified Pre-1990 credits remaining in AQMD’s offset accounts and not use them post 2005.
• Use as sources of credits both minor and major source orphan shutdowns.
• Discount all orphan shutdown credits (both for major and minor sources) to reflect actual emissions both prospectively and retrospectively to the beginning of AQMD NSR offset bank balances in 1990.
• Discount all orphan shutdown credits (both for major and minor sources) that are not used in the same timeframe generated, to reflect BARCT discount at the time of use both prospectively and retrospectively to the beginning of AQMD NSR offset bank balances in 1990.
• Use as sources of credits any surplus ERCs used to offset emission increases beyond the requirements of federal NSR.
• Eliminate and remove as sources of credits all ERC BACT discounts both prospectively and retrospectively to the beginning of AQMD NSR offset bank balances in 1990 (AQMD will notify U.S. EPA if at any time it intends to use any such credits it has determined to be creditable).

In addition, AQMD is proposing, as part of Proposed Rule 1315, to provide for:

• A “worst case” preliminary annual equivalency demonstration within twelve months of the close of each reporting period, with a final annual equivalency demonstration within six additional months, if the preliminary annual equivalency demonstration does not verify equivalency.
• In conjunction with each annual equivalency demonstration, provide a two future year projection of the NSR offset account balances based on the averages of the last five years credits and debits.
• Provisions to enable the AQMD Executive Officer to withhold future funding of the Priority Reserve if the final annual equivalency demonstration or the two future year projection does not demonstrate equivalency or adequate credits in the AQMD’s NSR offset account, respectively.
• Incorporation of back stop measures if AQMD can not verify equivalency through the final equivalency demonstration.

CEQA Analysis

Pursuant to the California Environmental Quality Act (CEQA), the SCAQMD is the Lead Agency and has reviewed the proposed rule pursuant to CEQA Guidelines §15002 (k)(1).  Because the proposed rule is administrative in nature, specifying NSR reporting procedures, it can be seen with certainty that there is no possibility that the proposed rule in question has the potential to have a significant adverse effect on the environment.  In addition, there are no reasonably foreseeable environmental impacts resulting from PR1315.  Therefore, PR1315 is not a “project” under CEQA.  The use of credits available under this rule is speculative and cannot be analyzed at this point.  Thus, the proposed rule is exempt from CEQA pursuant to CEQA Guidelines §15061(b)(3) - Review for Exemption even if it is determined to be a “project” under CEQA.  A Notice of Exemption has been prepared pursuant to CEQA Guidelines §15062 - Notice of Exemption.  The Notice of Exemption will be filed with the county clerks of Los Angeles, Orange, Riverside and San Bernardino counties immediately following the adoption of the proposed project.

The Notice of Exemption is attached to this Board Letter.

Socioeconomic Impacts

The socioeconomic impact analysis relies upon many speculative scenarios.  As such, no firm conclusions can be drawn.  However, since the AQMD’s offset accounts have not experienced a shortfall historically and the backstop provisions would forestall future shortfalls, it is theorized that impacts, if any, would not be significant.

AQMP and Legal Mandates

The California Health and Safety Code requires the AQMD to adopt an Air Quality Management Plan (AQMP) to meet state and federal ambient air quality standards in the South Coast Air Basin.  In addition, the California Health and Safety Code requires that the AQMD adopt rules and regulations that carry out the objectives of the AQMP.

Resource Impacts

Due to the volume and complexity of the analyses required, it is estimated that implementation of Proposed Rule 1315 requirements will require one FTE and $150,000 in programming costs for enhancements to AQMD’s New Source Review computer program.

Attachments (EXE 666kb)