TITLE 16.ECONOMIC REGULATION

Part 1. RAILROAD COMMISSION OF TEXAS

Chapter 3. OIL AND GAS DIVISION

16 TAC §3.94

The Railroad Commission of Texas adopts the repeal of §3.94, relating to Disposal of Oil and Gas NORM Waste, without changes to the proposal published in the August 23, 2002, issue of the Texas Register (27 TexReg 7691).

The Commission adopts the repeal in order to move the provisions of §3.94, which is a lengthy rule, into 16 TAC Chapter 4, new subchapter F, to be entitled Oil and Gas NORM. The new rules in Chapter 4 are being adopted concurrently with this repeal.

Also in the August 23, 2002, issue of the Texas Register (27 TexReg 7998), the Commission proposed the review of §3.94, in accordance with Texas Government Code, §2001.039, as it is proposed to be repealed. The notice of adopted review will be filed with the Texas Register concurrently with this document. As stated in the concurrent rule review notice, the agency's reasons for adopting rules relating to oil and gas NORM waste continue to exist.

No comments were received regarding the repeal.

The Commission adopts the repeal under Texas Health and Safety Code, §401.415, which grants the Railroad Commission sole authority to regulate and issue licenses, permits, and orders for the disposal of oil and gas NORM, and authority to require the owner or operator of oil and gas equipment used in exploration, production, or disposal to determine whether the equipment contains or is contaminated with oil and gas NORM waste and to identify any equipment determined to contain or be contaminated with oil and gas NORM in order to protect public health and safety and the environment.

Texas Health and Safety Code, §401.415, is affected by the repeal.

Issued in Austin, Texas, on February 11, 2003.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on February 11, 2003.

TRD-200301019

Mary Ross McDonald

Deputy General Counsel

Railroad Commission of Texas

Effective date: March 3, 2003

Proposal publication date: August 23, 2002

For further information, please call: (512) 475-1295


Chapter 4. ENVIRONMENTAL PROTECTION

Subchapter F. OIL AND GAS NORM

16 TAC §§4.601 - 4.603, 4.605, 4.608, 4.611, 4.614, 4.617, 4.620, 4.623, 4.626, 4.629, 4.632

The Railroad Commission of Texas adopts new §§4.601 - 4.603, 4.605, 4.608, 4.611, 4.614, 4.617, 4.620, 4.623, 4.626, 4.629, and 4.632, relating to Purpose; Exclusions and Exemptions; Definitions; Identification of Equipment Contaminated with NORM; Worker Protection Standards; Prohibited Disposal; Authorized Disposal Methods; Permit for Injection; Permit for Surface Disposal; Alternatives; Recordkeeping; Inspection; and Penalties and Certificate of Compliance, in 16 Texas Administrative Code (TAC) Chapter 4, new Subchapter F to be entitled Oil and Gas NORM. (The acronym "NORM" stands for "naturally occurring radioactive material.") The Commission adopts §§4.601, 4.602, 4.611, 4.623, 4.629, and 4.632 without changes and §§4.603, 4.605, 4.608, 4.614, 4.617, 4.620, and 4.626 with changes to the proposed versions published in the August 23, 2002, issue of the Texas Register (27 TexReg 7692).

The Commission adopts these new rules on the same date it adopts the review and repeal of §3.94; the adoptions of the review and the repeal will be filed with the Texas Register concurrently with the adoption of these new rules.

New Subchapter F re-codifies in a more organized fashion the Commission rules concerning oil and gas NORM and oil and gas NORM waste, and moves the rules into 16 TAC Chapter 4, entitled Environmental Protection. The Commission adopts the new rules in Subchapter F to: (1) protect public health and safety and the environment by requiring operators to label oilfield equipment contaminated with NORM at or above the level that makes the possessor of the equipment a general licensee pursuant to applicable regulations of the Texas Department of Health (TDH), which is the state's radiation control agency; (2) define exemption levels for radiation exposure and concentration consistent with health and safety regulations of the TDH; (3) update the Commission's NORM regulations to conform with requirements adopted by the TDH in 25 TAC Chapter 289, related to Radiation Control; and (4) reiterate that operators must comply with applicable health and safety regulations of the TDH when they are engaged in activities involving NORM disposal.

Background

In November 2000, in response to a legislative directive, the Commission delivered to the Governor a report entitled A Study of Regulation of Oil and Gas Naturally Occurring Radioactive Material (NORM) Waste In Texas (NORM Study), reporting the Commission's findings from its investigation of NORM in Texas oil fields. The NORM Study is on file in the Commission's library in the William B. Travis Building, 12th floor, 1701 North Congress, Austin, Texas 78711. On page 12 of the study, the Commission noted that, of 612 sites inspected, 59 sites had equipment with readings at or greater than the level of 50 microroentgens per hour (µR/hr), the limit above which the TDH rule 25 TAC §289.259(d)(3) states the equipment is subject to the TDH regulations which apply to general licensees. Out of over 5,900 readings statewide, 203 were at or greater than 50 µR/hr.

Senate Bill 1338 (SB 1338), 77th Legislature (2001), amended Texas Health and Safety Code §401.415 by adding new subsections (a)(2)(A) and (B) specifically authorizing the Commission, in order to protect public health and safety and the environment, to require the owner or operator of oil and gas equipment used in exploration, production, or disposal to determine whether the equipment contains or is contaminated with oil and gas NORM waste, and to identify any equipment determined to contain or be contaminated with oil and gas NORM. In response to this legislation, the Commission proposed amendments to §3.94, which were published in the February 8, 2002, issue of the Texas Register (27 TexReg 844).

The proposed amendments to §3.94, published February 8, were intended to respond to SB 1338 and would have specifically required owners or operators of oil and gas equipment to: (1) perform periodic radiation surveys depending on the presence of NORM in a given oil or gas field, the type of maintenance or operational activity, and time; and (2) report to the Commission contamination readings on individual pieces of equipment.

On March 5, 2002, the Commission held a public hearing at the William B. Travis Building, 1701 North Congress Avenue, Austin, Texas, to give Commission staff the opportunity to discuss aspects of the February 8 proposal with interested parties and to solicit comments. In addition, the Commission received written comments on the proposed amendments through May 9, 2002. After considering the comments, the Commission determined that the proposed survey and reporting requirements were unworkable because the survey requirements would be highly prescriptive without proportionate increased likelihood of attaining the statutory goal of clearly notifying workers and the public when there is a potential risk of NORM exposure from oil field equipment. The Commission withdrew the proposed amendments published February 8.

Based on the comments on the February 8 proposal, the Commission changed the requirements in these new rules to the more direct approach of simply requiring identification and tagging of NORM-contaminated equipment. In addition, the Commission changed the proposed reporting requirements to require operators to retain appropriate records instead of filing the records with the Commission. This proposal was published in the Texas Register on August 23, 2002.

General Discussion of New Subchapter F

The new rules do not mandate ongoing reporting of contaminated equipment to the Commission, but require operators to retain such records for five years (rather than the three years originally proposed in the proposed February 8 amendments), thus reducing some record-keeping and reporting requirements. The five-year retention period assures records are available for a reasonable time after operators are required to have equipment labeled between six months and two years from the effective date of this rule.

The Commission did not propose a methodology for surveys, but will allow individual operators to determine the most efficient method for their particular situations.

The Commission based the initial proposal regarding periodic surveys of equipment in fields where NORM has not been measured above 50 µR/hr on the premise that NORM may accumulate in equipment over time as greater volumes of fluid, particularly produced water, move through the equipment, and also on the fact that produced water volumes generally increase as fields mature. The Commission has since concluded that the field-oriented survey and resurvey approach it initially proposed would be unworkable and inefficient. The Commission therefore proposed and now adopts a simpler and more workable approach in new §4.605 that requires NORM-contaminated equipment to be identified and tagged. TDH regulations currently require an operator that is a general licensee, i.e. , is in possession of equipment with radiation exposure greater than 50 µR/hr, to comply with 25 TAC §289.259(d)(3). New §4.605 requires the operator to clearly mark the equipment as NORM-contaminated.

The Commission finds that listing a field, especially a county regular field, as a field contaminated by NORM based on one survey, is problematic. The new rules do not include requirements that are tied to fields or maintenance and operations procedures, but simply require owners and operators to identify and tag NORM-contaminated equipment. The Commission intends to maintain a list of fields where NORM contamination has been identified. The list will be updated as Commission inspectors report on equipment that is or should be identified.

The adopted rules include requirements in §4.605 for the identification and tagging of NORM-contaminated equipment because the Commission has determined that such requirements would protect the health of workers. The Commission prefers tagging because it provides direct notice of the presence of NORM. The Commission anticipates that the provisions in new §4.605 will enhance awareness of NORM risk to workers, and that employers will use tools and methods to minimize the risk.

The Commission reiterates that pursuant to 25 TAC §289.259, and since adoption of TDH's NORM regulations, operators already have been required to know whether they possess equipment that has an exposure rate of 50 µR/hr or greater of NORM. Section 289.259 establishes radiation protection standards for the possession, use, transfer, and/or storage of NORM. The section applies to any person who engages in, among other activities, the use, transfer, or storage of NORM. Exceptions include certain categories of NORM waste and, pursuant to 25 TAC §289.259(d)(3), pipe (tubulars) and other downhole or surface equipment used in oil production contaminated with NORM scale or residue not otherwise exempted if the maximum radiation exposure level does not exceed 50 µR/hr including background radiation level at any accessible point. Thus, any person who possesses such equipment used in oil production and contaminated with NORM scale or residue in excess of 50 µR/hr is subject to the general licensee requirements of 25 TAC §289.259. Such persons therefore are charged with knowing if the equipment is contaminated with NORM scale or residue in excess of 50 µR/hr.

The Commission's requirement for onsite disposal is the same as that of the TDH, which adopted the 30 pCi/g exemption level for oil and gas NORM waste in §289.259, effective April 11, 1999, on the basis of scientific evidence.

The Commission notes that radioactive wireline equipment is a "radioactive source" as defined by TDH regulations. Such sources are not NORM and, therefore, are not within the scope of this rulemaking. In new Subchapter F, the Commission modified the definition of "equipment" to exclude exploration equipment, making unnecessary a specific exemption for wireline equipment.

The Commission recognizes that NORM has not been found associated with well drilling equipment and did not intend for a drilling contractor's equipment to be surveyed and identified. In new §4.603, the Commission defines "equipment" to refer to equipment used for production or disposal. This language is also consistent with 25 TAC §289.259(d)(3).

Neither the Commission's proposed February 8 amendments nor the new rules in Subchapter F include radon emanation rates. The TDH removed radon emanation rate criteria from the exemption level for oil and gas NORM waste in its amendments to 25 TAC §289.259 in 1999.

The Commission's new rules in Subchapter F change the standard for onsite application from 5 pCi/g of Radium-226 and Radium-228 to 30 pCi/g of Radium-226 combined with Radium-228 above background. The new rules also allow the onsite application of other radionuclides in concentrations of 150 pCi/g or less in order to be consistent with TDH exemption levels. In practice, screening to determine exposure rate in µR/hr is a common procedure to evaluate where the highest reading occurs and is typically followed by confirmation sampling and analysis of the concentration of mixed soil and NORM waste. The Commission will work with the TDH in the future on the possibility of survey-based standards for soil and mixed media, and intends to work with the TDH to develop workshops to help operators comply with the new requirements.

Commission inspectors will be provided with testing equipment, such as survey meters. The Commission has some testing equipment, has recently purchased more survey equipment, and intends to purchase more when funding becomes available. Although no state requirements currently exist regarding training for persons who perform NORM surveys, taking a reading to determine whether or not equipment is contaminated with NORM is a relatively simple procedure.

The TDH's rule §289.259(f)(4)(A) allows the transfer of NORM-contaminated equipment, provided the equipment will be used for the same purpose or at the same site. New §4.605 simply requires labeling of NORM-contaminated equipment, whether it stays in one place or is moved. The Commission did not propose any changes that would conflict with the TDH regulation regarding general licensees and activities with regard to possession, storage, transfer, and transport. The Commission did not establish time limits on the management of NORM in equipment because NORM storage issue is a matter under TDH jurisdiction. In addition, the Commission does not have jurisdiction over activities or equipment at pipe-refurbishing yards, except for disposal of oil and gas NORM waste generated there.

As the state radiation control agency, the TDH has jurisdiction over worker protection standards, except for activities involving disposal of oil and gas NORM waste. New Subchapter F does not include adoption of TDH worker protection standards by reference because Commission staff is not trained to enforce the TDH worker protection regulations; however, Subchapter F does restate worker protection requirements with more specificity as to the categories of protective measures the TDH requires, and to add citations to specific applicable TDH regulations.

Requirements such as the need for landowner consent to dispose of NORM waste in a well that is being plugged when the waste was generated on another lease or unit have been the subject of much discussion between interested persons and the Commission in more than one context, and were raised in conjunction with this rulemaking in response to the February 8, 2002, proposal. These provisions have remained the same since the Commission first adopted NORM regulations, effective December 12, 1994. The Commission finds that under the circumstances provided for in the rule such consent continues to be warranted, and that the person who commented on these provisions in the February proposal did not comment on them in the August proposal, even though the language did not change.

Discussion of Comments on the August 23, 2002, Proposal

Five interested persons filed written comments on the August 23, 2002, proposal. Two associations (Texas Oil and Gas Association [TXOGA] and Texas Independent Producers and Royalty Owners Association [TIPRO]) commented, and neither expressed opposition to the proposal. TIPRO's comment was favorable and suggested change to one provision. TXOGA did not oppose the proposal and offered four comments. The Texas Department of Health (TDH) and Lotus, LLC, also filed comments. After the close of the comment period, the Commission received oral comments from the Texas Radiation Advisory Board (TRAB) during the TRAB's quarterly meeting on January 25, 2003; in addition, the TRAB voted unanimously to recommend that the Commission not adopt the new rules. Finally, on January 25, 2003, the Commission received additional late-filed written comments from Lotus, LLC, through TRAB. Many of these comments concerned requirements in the Commission's new NORM rules that are not substantially different from the provisions that have been in effect since the Commission first adopted §3.94, effective December 12, 1994. Other Lotus, LLC, comments reiterated those that the Commission had already received in the initial comments filed by Lotus, LLC.

TXOGA suggested adding the phrase "engaging in the act of" to the definition of "disposal" in §4.603(3) in order to distinguish "disposal" from accidental spills or discharges that are promptly and properly remediated, so that persons who suffer an accidental spill and clean it up according to the rules are not exposed to a potential enforcement action for unauthorized disposal. The Commission agrees that a wording change should be made, but has made a slightly different change to parallel the Commission's definition of "disposal" in §3.8. The definition in §3.8 prohibits a person from "causing or allowing" unauthorized discharge, deposit, injection, etc. The Commission has added a "cause or allow" provision to this definition of "disposal," along with the "engaging in" language TXOGA suggested.

TIPRO suggested that in §4.603(4), the definition of "equipment," the Commission strike the clause "oil and gas equipment used for production or disposal, including but not limited to . . .", and leave the definition to specify precise types of oil field material covered, without a catch-all clause. The Commission disagrees with this comment because maintaining the latitude provided by the catch-all "including but not limited to" better assures that all NORM contaminated equipment to which an oil field worker may be exposed will be properly identified. TIPRO also suggested adding the modifier "oil and gas" to the term "waste" in the last part of this definition. The Commission agrees with this comment and adopts this change.

TDH recommended limiting the references to the TDH exemption levels in §4.603(9)(D) by excluding the reference to the subparagraphs in 25 Texas Administrative Code §289.259, relating to Licensing of Naturally Occurring Radioactive Material (NORM), and referring to main paragraphs only. The Commission finds that this change clarifies the intent of the rule and therefore has made this change.

TXOGA commented that a subsection should be added to §4.605, relating to Identification of Equipment Contaminated with NORM, that would consider a functioning system as a whole and, in certain cases, allow one sign to identify more than one piece of equipment as being NORM contaminated. The Commission finds that this modification of the equipment labeling requirements adds flexibility and still accomplishes the intent of the labeling requirements. This modification meets the need, not clearly addressed in the proposal, to assure that contaminated "systems" are properly identified to assure worker safety. The Commission agrees with the comment in principle and has incorporated a new subsection (c) into the adopted rule allowing such systems to be identified, but also making clear that when such a system is broken up, the owner or operator must properly tag individual pieces of contaminated equipment, or must properly tag groups of such equipment that are contained, wrapped, bound or tied together.

TXOGA commented that §4.608, relating to Worker Protection Standards, should be clarified, by stating that only "applicable provisions" of 25 TAC §289.202 are to be complied with. The Commission notes that 25 TAC §289.202 is the TDH's standard for protection against radiation, and not all provisions apply to oil and gas exploration and production circumstances. The Commission agrees with the comment, and notes that it is TDH, not the Commission, that will determine which provisions of 25 TAC §289.202 do apply to oil and gas exploration and production.

Lotus, LLC commented that subsections (c) and (d) of §4.614, relating to Authorized Disposal Methods, should be struck or altered because they do not state a methodology to ensure ground cover geometry as stringent as that in a TDH memorandum dated January 31, 1995. The Commission has determined that the limits of concentration levels of Radium-226 combined with Radium-228 allowed for in the burial and landfarming of oil and gas NORM are consistent with the exemption levels in the TDH regulations. The Commission therefore does not agree with the comment and declines to make the recommended change.

TXOGA commented that in subsection (a) of §4.626, relating to Recordkeeping, the reference to §4.605, relating to Identification of Oil and Gas Equipment Contaminated with NORM, is redundant and should be removed. The Commission does not agree because §4.626(a) addresses retention of records concerning equipment levels and survey instrument calibration which each call for distinct types of records.

Lotus, LLC suggested limits on the transfer of equipment to non-bonded operators. The Commission does not agree with this comment because transfer of NORM contaminated equipment is under Texas Department of Health jurisdiction. The Commission made no change in response to this comment.

The Texas Department of Health (TDH) comment noted that the agency is in the process of revising 25 TAC §289.259. One of the proposed revisions will change the wording of the exemption concerning oil and gas NORM waste from the current "radium 226 or radium 228" to "radium 226 combined with radium 228." When first adopted in 1993, the TDH rule specified radium-226 or radium-228 in association with a radon emanation rate. The 1999 revision of the TDH rule dropped the reference to radon emanation rate for oil and gas NORM waste, but retained the "or" between "radium-226" and "radium-228."

The TDH has received input over the years indicating confusion over this exemption. The view of TDH is that the wording of the exemption should be consistent with the modeling and evaluation that was performed in determining the 30 pCi/g limit. In the modeling, the natural isotopic ratio of radium-226 to radium-228 (3:1) was used. Therefore the two isotopes are considered together. To determine whether the 30 pCi/g exemption limit is applicable, TDH concluded, an analysis of a sample should be performed to determine the concentration of radium-226 combined with radium-228.

The Commission agrees with TDH and has adopted the rule with the phrase "radium-226 combined with radium-228" replacing the phrases "radium-226 or radium-228" and "radium-226 and radium-228." The Commission has determined that there is no adverse impact from using the new phrase in place of the phrase "radium-226 and radium-228" because the Commission and the TDH intended and have historically interpreted the phrase to be additive and thus essentially the same.

The Commission has also determined that there should be no appreciable adverse impact on persons required to comply with the Subchapter F rules from using the new phrase in place of the phrase "radium-226 or radium-228" even though the new phrase is additive and the old one is not. Although there will be circumstances where analysis of a sample of oil and gas waste may result in a level that would be below the level of "radium-226 or radium-228" but above the level of "radium-226 combined with radium-228," those instances should be a relatively small percentage of all instances. Furthermore, in the four adopted rules where the new phrase replaces the phrase "radium-226 or radium-228" (§4.614(c) and (d) and §4.620(b)), the operator would only have to mix the NORM waste with a bit more soil to achieve the exemption level required prior to burial or landfarming. Furthermore, the Commission has raised the exemption level of 5 pCi/g specified in §3.94 to 30 pCi/g in the Subchapter F rules.

The Texas Legislature created the Texas Radiation Advisory Board (TRAB) in 1961 (Texas Health and Safety Code, Chapter 401). The TRAB reviews and evaluates state radiation policies and programs; makes recommendations and furnishes to the Texas Department of Health (TDH), the Texas Commission on Environmental Quality (formerly the Texas Natural Resource Conservation Commission), the Railroad Commission and other state agencies technical advice that may be required on matters relating to development, use, and regulation. The TRAB also reviews proposed rules and guidelines of these state agencies relating to regulation of sources of radiation; and recommend changes in proposed or existing rules and guidelines relating to uses of radiation. The TRAB generally meets quarterly.

Commission staff has kept the TRAB advised of the activities relating to oil and gas NORM. At the April 7, 2001, and the July 21, 2001, TRAB meetings, Commission staff reported on Senate Bill 1338 and advised that the Commission would need to modify Statewide Rule 94, Disposal of Oil and Gas NORM Waste, because the bill authorizes the Commission to require operators to determine whether their equipment is contaminated with NORM and to identify any such equipment. At the November 3, 2001, TRAB meeting, Commission staff reported that the Commission was in the process of amending Statewide Rule 94. This draft was shared with the TDH and Texas Natural Resource Conservation Commission (now the Texas Commission on Environmental Quality) at an interagency meeting. At the January 12, 2002, TRAB meeting, Commission staff again reported on Statewide Rule 94, advising that the Commission was modifying its first draft of what were at that time proposed amendments.

At the April 6, 2002, TRAB meeting, Commission staff reported on the status of the amendments to Statewide Rule 94. Also at that meeting, TRAB unanimously voted to approve the Waste and Industrial Committee recommendation that the Commission publish proposed amendments to §3.94, Disposal of Oil and Gas NORM. At the July 20, 2002, TRAB meeting, TRAB unanimously voted to approve the recommendation of the Waste and Industrial Committee for repeal of §3.94 and adoption of new rules in Chapter 4, Subchapter F. At the October 5, 2002, TRAB meeting, Commission staff advised the TRAB that the proposed repeal of §3.94 and new rules in Chapter 4, Subchapter F, had been published in the Texas Register on August 23, 2002, for a 60-day comment period.

At the TRAB's quarterly meeting on January 25, 2003, Commission staff received comments from TRAB concerning the proposed new Subchapter F. In addition, the TRAB voted unanimously to recommend that the Commission not adopt the rule amendments.

Comments from various members of the TRAB generally concerned notice to landowners; use of measures other than emanation rates; exemption levels; and transfer, decontamination, and storage of NORM-contaminated equipment. The provisions for notice to affected landowners in the new rules are not substantially different from the provisions that have been in effect since the Commission first adopted §3.94, effective December 12, 1994. As discussed previously in this preamble, the Commission is adopting exemption levels and measurement units that are consistent with the current NORM regulations of the Texas Department of Health. Transfer, cleaning, and storage of NORM-contaminated equipment are under the jurisdiction of the Texas Department of Health.

Other comments from various members of TRAB concerned labeling that operators would be required to place on NORM-contaminated equipment. One member commented that the tag should include the three-bladed radiation symbol and that the acronym "NORM" be in both English and Spanish.

The Commission finds that a requirement to include the three-bladed radiation symbol on the tag required by §4.605 could be misleading. Under both the Texas Department of Health regulations and the federal Occupational Safety and Health Administration regulations, the three-bladed symbol must be used to notify workers of radiation at such levels in an area that a major portion of the body could receive in any one (1) hour a dose in excess of 5 millirem, or in any five (5) consecutive days a dose in excess of 100 millirem (29 CFR §1910.1096.) The TDH regulations include similar requirements. A requirement that operators include this symbol on the tag for NORM-contaminated equipment could raise health concerns that are out of proportion to the risk posed by NORM. The Commission's concern in this rulemaking is that workers be warned to take the precautions appropriate to potential exposure to oil and gas NORM during maintenance, repair or handling of oil and gas equipment. Furthermore, the TDH regulations require that an oil and gas operator who is a general licensee provide training to ensure that workers are aware of the risks, and the precautions necessary to avoid or minimize the risks, associated with NORM-contaminated equipment.

The Commission does, however, agree that the addition of the Spanish translation of "NORM" might be beneficial and has added language allowing employers whose employees speak languages other than English to add to the tag the translation of the acronym "NORM" in those languages, as long as the acronym "NORM" is also on the tag.

A TRAB member also recommended that the Commission add words to ensure that the tags are "securely attached." The Commission agrees with this comment and has inserted the word "securely" before the word "attaching" in §4.605(a) and (b), as a clarification of the Commission's intent as to the meaning of these provisions.

One member of the TRAB also commented that the Commission has not been very specific about the types of records that operators are required to keep. The Commission agrees with this comment and has included language in §4.626 to clarify its intent with respect to information required to be in an operator's records.

One TRAB member also recommended that the Commission require operators to report to the Commission information concerning NORM-contaminated equipment. As discussed earlier in this preamble, Senate Bill 1338 as it was initially filed, included a requirement that operators report to the Commission, and that the Commission maintain records of, NORM contaminated equipment; however, the Texas Legislature specifically removed this requirement before passing Senate Bill 1338. Furthermore, ready access to a database with information about the location of NORM-contaminated field equipment would not be as useful to workers in the field as a tag placed directly on contaminated equipment. As noted above, the Commission is adopting the more direct approach of requiring that operators tag NORM-contaminated equipment, maintain records on that equipment, and make those records available to Commission personnel upon request.

Discussion of New Subchapter F as Adopted

New §4.601 includes a specific reference to the current requirement that operators that possess oil and gas NORM comply with the Commission's regulations and applicable TDH regulations and contains some new wording that specifically identifies TDH regulations that persons who handle oil and gas NORM or oil and gas NORM waste are expected to follow.

New §4.602, regarding Exclusions and Exemptions, is generally the same as §3.94(b)(3) and (4), except that the new rule does not include language that it is limited to disposal of oil and gas NORM waste, because SB 1338 authorizes the Commission to require an operator to determine if oil and gas equipment is contaminated with NORM and subsequently to identify such equipment.

New §4.603, relating to Definitions, includes definitions for "Commission," "equipment," "NORM-contaminated equipment," and "radiation survey instrument," that are different from those in §3.94. "Equipment" is defined as oil or gas equipment used in production and disposal. The Commission determined that exploration equipment does not pose such a risk of becoming contaminated with NORM to warrant coverage and because the relevant TDH regulation, 25 TAC §289.259(d)(3), does not refer to exploration equipment.

"NORM-contaminated equipment" is defined as equipment that contains or is contaminated with NORM when appropriate radiation survey instruments detect radiation exposure levels greater than 50 µR/hr, consistent with the exemption level established by the TDH in 25 TAC §289.259(d)(3). The Commission has made a minor editorial change in the wording for greater specificity and thus greater clarity.

The new definition of "Commission" means the Commission or its delegate.

"Radiation survey instrument" is defined as an instrument used to measure radiation and capable of measuring radiation exposure levels from one (1) µR/hr to 500 µR/hr, consistent with TDH standards. New §4.603 does not include definitions for "radiation survey" and "routine maintenance" because the new rules do not require operators to conduct a survey at a specific time; instead, operators are required to know if their equipment is contaminated with NORM at or greater than 50 µR/hr, and if it is, to clearly mark the equipment.

New rules in Subchapter F do not include references to the Texas Radiation Control Regulations (TRCR) in order to conform to the TDH's recodification of its radiation regulations, as in §3.94; instead, the new rules in Subchapter F cite specific TDH regulations in the Texas Administrative Code.

New §4.605, relating to Identification of Equipment Contaminated with NORM, represents the primary change from §3.94.

New §4.605(a) provides that within two years of the effective date of this rule, each person who owns or operates equipment used for production or disposal and each person who owns or operates equipment associated with a commercial facility, as defined in §3.78 (relating to Fees, Performance Bonds, and Alternative Forms of Financial Security Required to be Filed), must identify NORM-contaminated equipment with the letters "NORM" by attaching a clearly visible waterproof tag or marking with a legible waterproof paint or ink.

New §4.605(b) provides that within six months of the effective date of this rule, each person whom the Commission has notified that the person owns or operates NORM-contaminated equipment must, on each lease that is the subject of the Commission notice, identify NORM-contaminated equipment with the letters "NORM" by attaching a clearly visible waterproof tag or marking with a legible waterproof paint or ink.

New §4.605(c) allows the owner or operator to identify NORM-contaminated equipment in an interconnected equipment system such as a wellhead, flowline, or facility piping system by tagging the system as a whole so long as the tag(s) provide the required notice. NORM-contaminated tubular goods, connections, and other equipment removed from service or taken out of the functioning system must be tagged in accordance with §4.605(a).

New §4.605(d) requires that the radiation survey instruments used to assess radiation exposure levels in equipment be able to measure radiation exposure from one (1) µR/hr to 500 µR/hr and to conform with regulations adopted by the TDH in 25 TAC §289.259(e), relating to Licensing of Naturally Occurring Radioactive Material (NORM). The new rules in Subchapter F do not require a survey of equipment, but do require operators to identify NORM-contaminated equipment.

New §4.608, relating to Worker Protection Standards, is different from §3.94(c) in that the new rule more specifically identifies the relevant TDH regulations but does not adopt them by reference.

New §4.611, relating to Prohibited Disposal, includes the provisions of §3.94(d).

New §4.614, relating to Authorized Disposal Methods, includes the requirement for determining the concentration of Radium-226 combined with Radium-228 to be consistent with TDH regulations. The provisions of §3.94(e) required a determination of Radium-226 and Radium-228, but §4.614, as proposed on August 23,2002, used the phrase "Radium-226 or Radium-228" because that is the terminology in TDH rules. However, TDH has advised the Commission that its use of the conjunction "or" when referring to Radium-226/Radium-228 in this context is in error. TDH intends to change its wording of the exemption from "Radium-226 or Radium-228" to "Radium-226 combined with Radium-228." In addition, new §4.614(b)(7) requires an operator to include on Form W-3A, Intent to Plug and Abandon, the radioactivity level of any NORM radionuclides to be disposed of in a well to be plugged, not just Radium-226 and Radium-228, as §3.94 required. The Commission adopts this provision to conform to TDH's interpretation and application of 25 TAC §289.259(d)(1)(A)(ii), relating to Licensing of Naturally Occurring Radioactive Material (NORM).

Similarly, new §4.614(c) raises the radioactivity limit of oil and gas NORM waste that has been treated or processed for authorized onsite disposal by burial from less than five picocuries per gram (pCi/g) to less than 30 pCi/g Radium-226 combined with Radium-228 or 150 pCi/g of any other radionuclide. The Commission adopts new §4.614(d) to allow disposal of NORM waste on the same site where it was generated by mixing it with material on the land surface if the radioactivity concentration of the NORM and soil waste mixture does not exceed 30 pCi/g Radium-226 combined with Radium-228 or 150 pCi/g of any other radionuclide. The new limits on radioactivity levels for burial and mixing material on the land surface conform to TDH's interpretation and application of 25 TAC §289.259(d), which the TDH adopted effective April 11, 1999, to change the exemption levels for oil and gas NORM waste after the Commission adopted §3.94, effective December 12, 1994.

New §4.617 relates to Permit for Injection. New §4.617(c)(3) requires that an application for a permit to dispose oil and gas NORM waste under §3.9 of this title, relating to Disposal Wells, include information on the maximum measured radioactivity level of oil and gas NORM waste to be injected in units of pCi/g of NORM radionuclides other than Radium-226 combined with Radium-228. This change is necessary to conform with TDH's interpretation and application of 25 TAC §289.259(d)(1)(A)(ii), relating to Licensing of Naturally Occurring Radioactive Material (NORM). The other provisions in new §4.617, including the notice requirements in §4.617(d), are substantively the same requirements that have been in effect since the Commission adopted §3.94, effective December 12, 1994.

New §4.620 relates to Permit for Surface Disposal. New §4.620(b) increases the allowed radioactivity of an oil and gas NORM waste that is to be buried or mixed with the land surface from less than five pCi/g above the background level to less than 30 pCi/g of Radium-226 combined with Radium-228 or less than 150 pCi/g for any other radionuclide.

New §4.620(c)(3) requires that the applicant for a permit to dispose of oil and gas NORM waste by burial or by mixing with the land surface provide the maximum measured radioactivity level of any other NORM radionuclide. In addition, new §4.620(c)(4) requires that the applicant include the background radiation concentration measured in µR/hr as well as concentration measured in pCi/g of Radium-226 combined with Radium-228. These changes are necessary to conform with TDH's interpretation and application of 25 TAC §289.259(d)(1)(A)(i) and (ii), relating to Licensing of Naturally Occurring Radioactive Material (NORM).

The remaining provisions in new §4.620, including the notification requirement in §4.620(d), have been in effect since the Commission first adopted §3.94, effective December 12, 1994.

New §4.623, relating to Alternatives, allows the Commission to approve alternatives to the provisions of proposed §4.617 and §4.620 upon a demonstration in writing that the alternatives will protect the public health, safety, and the environment. This rule does not differ substantially from §3.94(k), which has been in effect since December 12, 1994.

New §4.626, relating to Recordkeeping, requires operators to retain records relating to the identification of NORM-contaminated equipment and disposal for at least five years. In new §4.626(b), the owner or operator of the lease, unit, or facility is responsible for maintaining records of the radiation exposure levels of equipment, the date the exposure levels were determined, and the location and identification of the equipment. New §4.626 requires a record retention period of five years, but there is no requirement for operators to file these records with the Commission. The Commission determined that five years is appropriate because the new rules in Subchapter F make each operator, rather than the Commission, responsible for retaining records. Furthermore, new §4.605, relating to Identification of Equipment Contaminated with NORM, requires identification and tagging of all equipment contaminated with NORM within six months to two years of the effective date of the rule, so the five year record retention provision provides the Commission ample time to monitor compliance. New §4.626(c)(5) requires the owner to maintain records on the radioactivity level of oil and gas NORM waste for any other NORM radionuclide, not just Radium-226 combined with Radium-228, consistent with TDH's interpretation and application of its regulations.

New §4.629, relating to Inspection, and new §4.632, relating to Penalties and Certificate of Compliance, conveys the Commission's inspection and enforcement authority under new Subchapter F. These rules do not differ substantively from provisions in §3.94(j) that have been in effect since the Commission first adopted §3.94, effective December 12, 1994.

The Commission has completed the review of §3.94, as proposed for repeal, in accordance with Texas Government Code, §2001.039. The adopted notice of review will be filed with the Texas Register concurrently with the adoptions of the repeal of §3.94 and the new rules in chapter 4, Subchapter F.

The Commission adopts the new rules in Subchapter F under Texas Health and Safety Code, §401.415, which grants the Railroad Commission sole authority to regulate and issue licenses, permits, and orders for the disposal of oil and gas NORM waste, and authority to require the owner or operator of oil and gas equipment used in exploration, production, or disposal to determine whether the equipment contains or is contaminated with oil and gas NORM waste and to identify any equipment determined to contain or be contaminated with oil and gas NORM in order to protect public health and safety and the environment.

The Commission has determined that despite use of the permissive "may" in SB 1338, the statute nevertheless broadened the Commission's authority to include not only oil and gas NORM waste, but also NORM-contaminated equipment, in order to protect public health and safety and the environment. Given the compelling state interest in public health and the clear expansion of Commission authority in this area by the legislature, the Commission is obliged to initiate the equipment identification provisions.

The Commission also proposed and now adopts other revisions to be consistent with the TDH NORM regulations. TDH regulates, among other things, the possession, storage, use and transportation of NORM. Persons who owns or operate NORM-contaminated equipment must comply with TDH requirements. In order to comply with the TDH requirements for a general licensee, including worker protection standards, the person must know whether or not the person possesses equipment contaminated with NORM above the exemption level of 50 µR/hr. The Commission's new rules do not change these requirements.

Regarding the Commission's own requirements, after review of the legislative history of SB 1338 and testimony on the bill by the author and others, the Commission determined that the intent of the bill was to direct the Commission to review its 2000 NORM study and any other relevant information concerning risks to public health and safety and the environment from NORM-contaminated equipment, and to determine whether additional requirements might be necessary. After this evaluation, the Commission determined that the legislature specifically wanted operators to identify oil-field equipment contaminated with NORM where necessary in order to reduce radiation risk to workers and other persons. Therefore, the Commission proposed and now adopts a requirement that owners or operators of oil and gas equipment identify and tag equipment that contains or is contaminated with NORM above the exemption level established by the TDH. The Commission determined that these changes will enhance the protection of oil and gas field workers from exposure to airborne radiation that may be ingested or inhaled.

The Commission reviewed SB 1338 and the Health and Safety Code, Chapter 401, to discern state law and policy concerning consistency among state agencies charged with enforcing radioactivity regulations. The Commission concluded that the provisions of Chapter 401, when viewed as a whole, indicate it is the policy of the state for such standards to be consistent both among state agencies and between state and federal authorities. SB 1338, which amended Health and Safety Code, §401.415(d), requires the Commission to consult with the TDH and the Texas Natural Resource Conservation Commission (TNRCC, now the Texas Commission on Environmental Quality [TCEQ]) regarding administration of the Commission's authority to regulate and issue licenses, permits, and orders for the disposal of oil and gas NORM waste, and to require owners and operators of oil and gas equipment to determine whether the equipment contains oil and gas NORM and identify such equipment. The policy of interagency consultation runs throughout Chapter 401. See §401.001(1)(B) and (C), concerning the policy of the state to maintain single, effective regulatory system compatible with other states' systems; §401.002, concerning the program to promote orderly regulatory pattern in the state, among the states, and between the federal government and the state; §401.015, concerning creating one radiation advisory board made up of representatives of all the relevant industries; §401.052, concerning the requirement that the radiation advisory board's rules for transportation of radioactive material and waste, to the extent practical, be compatible with the United States Department of Transportation (USDOT) and the United States Nuclear Regulatory Commission (USNRC) regulations; and §401.0525, concerning the requirement that the board's groundwater protection standards be compatible with federal standards. Consistent with this policy of compatibility, Health and Safety Code §401.415(e) provides that the Commission shall adopt rules for the management of oil and gas NORM waste and in so doing shall consult with the TNRCC (TCEQ) and the TDH regarding protection of the public health and the environment. Further, the Commission's rules shall provide protection for public health, safety, and the environment equivalent to the protection provided by rules applicable to disposal of other NORM wastes having similar properties, quantities, and distribution, although the approved methods and sites for disposing of oil and gas NORM wastes may be different from those approved for other NORM wastes. The Commission concludes that the oil and gas NORM radiation standards (i.e. , the minimum NORM exposure rate or concentration that triggers a requirement) should not be different from the TDH NORM standards.

In addition, the exemption level for equipment of 50 µR/hr, including background, was established by the TDH during the adoption of its NORM regulations in 1993. At that time, TDH received comments from oil and gas operators who desired a quick and easy method for establishing exemption criteria for equipment that did not also require a determination of background radiation. Furthermore, review of the background readings for the 612 sites surveyed in the Commission's NORM Study determined that the average background reading was 9.6 µR/hr and that only three sites were included as NORM contaminated when readings, including background, were slightly greater than 50 µR/hr. Finally, inclusion of background levels eliminates the uncertainties as to the accuracy of a background reading at a particular site. For all the foregoing reasons, the Commission retained the 50 µR/hr requirement in these new rules.

Texas Health and Safety Code, §401.415, is affected by the proposed new rules.

Issued in Austin, Texas, on February 11, 2003.

§4.603.Definitions.

The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Background radiation--Radiation at the ground surface from:

(A) cosmic sources;

(B) non-technologically enhanced naturally occurring radioactive material, including radon, except as a decay product of source or special nuclear material; or

(C) global fallout as it exists in the environment from the testing of nuclear explosive devices. "Background radiation" does not include sources of radiation from radioactive materials regulated by the TDH.

(2) Commission--The Railroad Commission of Texas or its designee.

(3) Disposal--Engaging in the act of discharging, depositing, injecting, dumping, spilling, leaking, or placing of any oil and gas NORM waste into or on any land or water, or causing or allowing any such act, so that such waste, or any constituent thereof, may enter the environment or be emitted into the air or discharged into any waters, including subsurface waters. For purposes of this subchapter, disposal of oil and gas NORM waste includes its management at the site ( e.g. , lease, unit, or facility) where disposal will occur when undertaken for the explicit purpose of facilitating disposal at that site. The term does not include decontamination activities, except for in-place mixing of oil and gas NORM waste to remedy historical contamination of the land surface and decontamination of equipment and facilities that become contaminated solely through disposal operations. In addition, the term does not include activities, including processing or treatment, that occur at a location other than the disposal site.

(4) Equipment--Oil and gas equipment used for production or disposal, including but not limited to pipes (tubulars), tanks, vessels, pumps, valves, flow lines, and connectors such as tees and elbows, provided that such equipment is or has been in contact with oil and gas waste or produced fluids or substances.

(5) Microroentgens per hour (µR/hr)--A measurement of exposure from x-ray and gamma ray radiation in air.

(6) NORM--Naturally occurring radioactive material.

(7) NORM-contaminated equipment--Equipment that, at any accessible point, exhibits a minimum radiation exposure level greater than 50 µR/hr including background radiation level.

(8) Oil and gas waste--Oil and gas waste as defined in §3.8 of this title (relating to Water Protection).

(9) Oil and gas NORM waste--Any solid, liquid, or gaseous material or combination of materials (excluding source material, special nuclear material, and by-product material) that:

(A) in its natural physical state spontaneously emits radiation;

(B) is discarded or unwanted;

(C) constitutes, is contained in, or has contaminated oil and gas waste; and

(D) prior to treatment or processing that reduces the radioactivity concentration, exceeds exemption criteria specified in 25 TAC §289.259(d) (relating to Licensing of Naturally Occurring Radioactive Material (NORM)).

(10) Person--A natural person, corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, or any other legal entity.

(11) Picocuries per gram (pCi/g)--A measure of the radioactivity in one gram of a material. One picocurie is that quantity of radionuclide(s) that decays at the rate of 3.7 x 10 -2 disintegrations per second.

(12) Radiation survey instrument--An instrument used to detect and measure radiation exposure levels from 1 µR/hr through at least 500 µR/hr.

§4.605.Identification of Equipment Contaminated with NORM.

(a) Except as provided in subsection (b) of this section, within two years of the effective date of this rule, each person who owns or operates equipment used for production or disposal including each person who owns or operates equipment associated with a commercial facility, as defined in §3.78 (relating to Fees, Performance Bonds, and Alternative Forms of Financial Security Required to be Filed), shall identify NORM-contaminated equipment with the letters "NORM" by securely attaching a clearly visible waterproof tag or marking with a legible waterproof paint or ink. Employers whose employees speak languages other than English may add to the tag the translation of the acronym "NORM" in those languages as long as the acronym "NORM" is also on the tag.

(b) Within six months of the effective date of this rule, each person whom the Commission has notified that the person owns or operates NORM-contaminated equipment shall, on each lease that is the subject of the Commission notice, identify NORM-contaminated equipment with the letters "NORM" by securely attaching a clearly visible waterproof tag or marking with a legible waterproof paint or ink. Employers whose employees speak languages other than English may add to the tag the translation of the acronym "NORM" in those languages as long as the acronym "NORM" is also on the tag.

(c) For an interconnected equipment system such as a wellhead, flowline, or facility piping system, the owner or operator of the system may identify the system as a whole with tags or markings that provide notice to workers on that system that the equipment in the system may be NORM-contaminated. The owner or operator shall identify NORM-contaminated equipment that is removed from an interconnected equipment system:

(1) as individual pieces of equipment as provided in subsection (a) of this section, or

(2) as groups of equipment that are kept in a common container or are wrapped, bound or tied securely together. Grouped equipment shall be tagged or marked to provide notice that any piece of equipment in the group may be NORM-contaminated.

(d) Radiation survey instruments used to determine whether equipment is NORM-contaminated shall comply with regulations adopted by the TDH in 25 TAC §289.259(e) (relating to Licensing of Naturally Occurring Radioactive Material (NORM)).

§4.608.Worker Protection Standards.

Any employer of persons engaged in activities involving the disposal of oil and gas NORM waste shall comply with applicable provisions, as determined by TDH, of 25 TAC §289.202 (relating to Standards for Protection Against Radiation from Radioactive Material) adopted effective October 1, 2000, including but not limited to:

(1) implementing a radiation protection program as provided in 25 TAC §289.202(e);

(2) controlling the occupational dose to all employees as provided in 25 TAC §289.202(f) - (m);

(3) conducting surveys and monitoring as provided in 25 TAC §289.202(p) and (q);

(4) assuring respiratory protection and implement controls to restrict internal exposure in restricted areas as provided in 25 TAC §289.202(v) - (x);

(5) posting signs and labels as provided in 25 TAC §289.202(z) - (dd);

(6) keeping records of radiation protection programs and of special exposures as provided in 25 TAC §289.202(ll) - (nn), (pp) - (rr), and (vv); and

(7) keeping reports as provided in 25 TAC §289.202(ww) - (zz) and (aaa).

§4.614.Authorized Disposal Methods.

(a) Purpose. This section authorizes the methods for disposing of oil and gas NORM waste without a permit.

(b) Disposal in plugged and abandoned well. A person may dispose of oil and gas NORM waste by placing it between plugs in a well that is being plugged and abandoned, provided that:

(1) No person may dispose of oil and gas NORM waste at a lease or unit other than the lease or unit where the oil and gas NORM waste was generated unless prior to commencement of disposal operations, the surface owner of the lease or unit where the disposal occurs provides written consent for the disposal.

(2) The oil and gas NORM waste shall be placed in the well at a depth at least 250 feet below the base of usable quality water in compliance with §3.14 of this title (relating to Plugging).

(3) If the oil and gas NORM waste is encased in a tubing string, the tubing shall be:

(A) placed, not dropped, in the well; and

(B) left with an assembly that allows ready retrieval, if the string is not secured in cement.

(4) A cement plug shall be set immediately above the oil and gas NORM waste and the plug shall be either:

(A) above a cement retainer;

(B) above a cast iron bridge plug; or

(C) tagged to locate its position.

(5) The cement of the surface plug shall be color dyed with red iron oxide.

(6) A permanent marker that shows the three-bladed radiation symbol specified in 25 TAC §289.202(z) (relating to Standards for Protection Against Radiation from Radioactive Material), adopted effective October 1, 2000, without regard to color, shall be welded to the steel plate at the top of the well casing.

(7) The operator shall state on Form W-3A, Intent to Plug and Abandon:

(A) the physical nature (such as pipe scale, contaminated soil, basic sediment, equipment, pipe, pumps, or valves) of the oil and gas NORM waste;

(B) the volume of oil and gas NORM waste;

(C) the radioactivity level of the oil and gas NORM waste (in pCi/g of Radium-226 combined with Radium-228 and any other NORM radionuclides for soil or other media (such as pipe scale, contaminated soil, basic sediment, etc.), or in µR/hr for equipment (such as pipes, pumps and valves);

(D) the operator(s) of the lease, unit, or facility at which oil and gas NORM waste was generated; and

(E) the source(s), if known, of the oil and gas NORM waste by Commission district; field; lease, unit, or facility; and producing formation.

(8) If the oil and gas NORM waste is encased in tubing, the operator shall state on Form W-3A, Intent to Plug and Abandon:

(A) the size, grade, weight per foot, and outside diameter of the tubing;

(B) the subsurface depth of both the top and bottom of the tubing;

(C) the diameter of the retrieval assembly; and

(D) whether the tubing is free in the hole or is secured by cement, a bridge plug, or a cement retainer.

(9) The operator shall submit Form W-3A to the Commission's district office for the location of the oil and gas NORM waste disposal site.

(c) Burial. Except as otherwise provided in this subsection, a person may dispose of oil and gas NORM waste by burial at the same site where the oil and gas NORM waste was generated, provided that, prior to burial, the oil and gas NORM waste has been treated or processed such that the radioactivity concentration does not exceed 30 pCi/g Radium-226 combined with Radium-228 or 150 pCi/g of any other NORM radionuclide within the treated or processed waste. Such treatment or processing, if it occurs at the disposal site, is considered to fall within the definition of disposal because it is necessary to facilitate disposal. This subsection does not authorize any person to bury NORM-contaminated equipment.

(d) Landfarming. A person may dispose of oil and gas NORM waste at the same site where the oil and gas NORM waste was generated by applying it to and mixing it with the land surface, provided that after such application and mixing the radioactivity concentration in the area where the oil and gas NORM waste was applied and mixed does not exceed 30 pCi/g Radium-226 combined with Radium-228 or 150 pCi/g of any other radionuclide.

(e) Disposal at a licensed facility. A person may dispose of oil and gas NORM waste at a facility that has been licensed by the United States Nuclear Regulatory Commission, the State of Texas, or another state if such facility is authorized under its license to receive and dispose of such waste.

(f) Injection. Injection of oil and gas NORM waste that meets exemption criteria of 25 TAC §289.259 (relating to Licensing of Naturally Occurring Radioactive Materials (NORM)), as a result of treatment or processing at a facility licensed by the TDH (hereinafter referred to as a "specifically licensed facility") into a well permitted under §3.9 of this title (relating to Disposal Wells) is authorized under this section, provided that the requirements of this subsection are met.

(1) Prior to injecting treated or processed oil and gas NORM waste, the operator of the injection well shall notify the Commission in writing that the operator plans to inject oil and gas NORM waste that meets the exemption criteria of 25 TAC §289.259 as a result of treatment or processing at a specifically licensed facility. The operator shall include a copy of the TDH license for each facility where oil and gas NORM waste that will be injected is treated or processed in order to meet the exemption criteria of 25 TAC §289.259.

(2) Prior to injecting oil and gas NORM waste that has been treated or processed to meet the exemption criteria of 25 TAC §289.259, the injection well operator shall verify that the waste meets the exemption criteria by obtaining from the specifically licensed facility documentation regarding NORM surveys or other analyses conducted to ensure that the treated or processed oil and gas NORM waste meets the exemption criteria of 25 TAC §289.259.

§4.617.Permit for Injection.

(a) Applicability. With the exceptions of produced water and oil and gas NORM waste that meets the exemption criteria of 25 TAC §289.259 (relating to Licensing of Naturally Occurring Radioactive Material (NORM)) as a result of treatment or processing at a facility specifically licensed by the TDH, no person may dispose of oil and gas NORM waste by injection into a well without a permit issued under §3.9 of this title (relating to Disposal Wells) that specifically allows disposal of oil and gas NORM waste. The provisions of this section apply in the case of oil and gas NORM waste disposal permits issued under §3.9.

(b) Standards for permit issuance. The Commission shall issue a permit to dispose of oil and gas NORM waste under §3.9 of this title (relating to Disposal Wells) only if the Commission determines that the subject oil and gas NORM waste will be disposed of in a manner that protects public health, safety, and the environment. Any permit to dispose of oil and gas NORM waste issued pursuant to §3.9 shall contain construction and operating requirements that are reasonably necessary to protect public health, safety, and the environment.

(c) NORM information. In addition to the application requirements of §3.9 of this title (relating to Disposal Wells), an applicant for a permit to inject oil and gas NORM waste shall include the information specified in this subsection. The Commission may require the applicant to provide any such additional information as may be necessary to show that the proposed disposal protects public health, safety, and the environment.

(1) The applicant shall describe the physical nature (such as pipe scale, contaminated soil, or basic sediment) of the oil and gas NORM waste to be disposed of;

(2) The applicant shall state the total volume of oil and gas NORM waste to be disposed of or the proposed rate of oil and gas NORM waste disposal; and

(3) The applicant shall state the maximum measured radioactivity level of the oil and gas NORM waste (in pCi/g of Radium-226 combined with Radium-228, and any other NORM radionuclide) that will be disposed of.

(d) Notice requirements. An applicant for a permit to inject oil and gas NORM waste under §3.9 of this title (relating to Disposal Wells) shall provide notice as required in that section and shall include in such notice the information required in subsection (c) of this section.

§4.620.Permit for Surface Disposal.

(a) Applicability. Except in the case of onsite disposal that meets the requirements of §4.614(c) and (d) of this title (relating to Authorized Disposal Methods), no person may dispose of oil and gas NORM waste by burying it or by applying it to and mixing it with the land surface without first obtaining a permit under §3.8 of this title (relating to Water Protection). The provisions of this section apply in the case of permits for such surface or near-surface disposal methods.

(b) Standards for permit issuance. The Commission shall issue a permit to dispose of oil and gas NORM waste under §3.8 of this title (relating to Water Protection) only if the Commission determines that the subject oil and gas NORM waste will be disposed of in a manner that protects public health, safety, and the environment. Any permit to dispose of oil and gas NORM waste issued pursuant to §3.8 shall contain construction and operating requirements that are reasonably necessary to protect public health, safety, and the environment. In addition, the Commission shall issue a permit for burial of oil and gas NORM waste only if, prior to burial, the oil and gas NORM waste has been treated or processed so that the radioactivity concentration does not exceed 30 pCi/g Radium-226 combined with Radium-228 or 150 pCi/g of any other NORM radionuclide. The Commission shall issue a permit to dispose of oil and gas NORM waste by applying it to and mixing it with the land surface only if, after such application and mixing, the radioactivity concentration in the area where the oil and gas NORM waste was applied and mixed will not exceed 30 pCi/g Radium-226 combined with Radium-228 or 150 pCi/g of any other NORM radionuclide.

(c) NORM information. In addition to the application requirements of §3.8 of this title (relating to Water Protection), an applicant for surface or near-surface disposal of oil and gas NORM waste shall include the information specified in this paragraph. The Commission may require the applicant to provide any such additional information as may be necessary to show that the proposed disposal will protect public health, safety, and the environment.

(1) The applicant shall describe the physical nature (such as pipe scale, contaminated soil, basic sediment) of the oil and gas NORM waste to be disposed of.

(2) The applicant shall state the total volume of oil and gas NORM waste to be disposed of or the proposed rate of oil and gas NORM waste disposal.

(3) If the oil and gas NORM waste has been treated or processed to reduce the radioactivity concentration under a specific license issued by the TDH, the applicant shall state the maximum measured radioactivity level (in pCi/g of Radium-226 combined with Radium-228 for soil or other media such as pipe scale, contaminated soil, basic sediment, etc.). If the oil and gas NORM waste will be treated or processed at the disposal site to reduce the radioactivity concentration, the applicant shall state the maximum measured radioactivity level (in pCi/g of Radium-226 combined with Radium-228, and any other NORM radionuclide, for soil or other media such as pipe scale, contaminated soil, basic sediment, etc.

(4) The applicant shall include the background radioactivity concentration (in pCi/g of Radium-226 combined with Radium-228) of the disposal area.

(5) The applicant shall describe all methods to be used to control dust from the oil and gas NORM waste during disposal.

(6) The applicant shall include written authorization from the surface owner, if different from the applicant, for disposal of oil and gas NORM waste on the surface owner's property.

(d) Notice requirements. The applicant shall give notice of an application for a permit to dispose of oil and gas NORM waste under this section as required in §3.8 of this title (relating to Water Protection) and such notice shall include the information required in subsection (c)(1) - (5) of this section.

§4.626.Recordkeeping.

(a) Retention period. A person shall retain current records relating to the radiation exposure levels of equipment and the disposal of oil and gas NORM waste for at least five years. Such records shall include the information specified in this section and in §4.605 of this title (relating to Identification of Oil and Gas Equipment Contaminated with NORM).

(b) Equipment. The owner or operator of the lease, unit, or facility shall maintain records of the radiation exposure levels of equipment, the date the exposure levels were determined, and the location and identification of the equipment.

(c) Waste generation. The operator of the lease, unit, or facility at which oil and gas NORM waste was generated shall maintain records that include:

(1) the identity of the property where the oil and gas NORM waste was generated, including the Commission district; field; lease, unit, or facility; and producing formation, if known;

(2) the identity of the facility, site, or well where the oil and gas NORM waste was disposed of;

(3) the physical nature (such as pipe scale, contaminated soil, basic sediment, or equipment) of the oil and gas NORM waste;

(4) the volume of oil and gas NORM waste the person disposed of at that facility, site, or well; and

(5) the radioactivity level(s) of the oil and gas NORM waste (in pCi/g of Radium-226 combined with Radium-228 and any other NORM radionuclide for soil and other media such as pipe scale, contaminated soil, basic sediment, etc., or in µR/hr for equipment).

(d) Disposal. Each person who disposes of oil and gas NORM waste shall maintain records that include the identity of the operator of the lease, unit, or facility at which the oil and gas NORM was generated and the information required under subsection (b) or (c) of this section.

(e) Extension during investigation. Each operator shall retain any documents or records that contain information pertinent to the resolution of any pending Commission enforcement proceeding beyond any time period specified in this subchapter until the resolution of the proceeding.

(f) Examination and reporting. Any person who keeps records required by this subchapter shall make the records available for examination and copying by the Commission during reasonable working hours. Upon request of the Commission, the person who keeps the records shall file such records with the Commission.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on February 11, 2003.

TRD-200301020

Mary Ross McDonald

Deputy General Counsel

Railroad Commission of Texas

Effective date: March 3, 2003

Proposal publication date: August 23, 2002

For further information, please call: (512) 475-1295


Part 2. PUBLIC UTILITY COMMISSION OF TEXAS

Chapter 25. SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS

Subchapter H. ELECTRICAL PLANNING

1. RENEWABLE ENERGY RESOURCES AND USE OF NATURAL GAS

16 TAC §25.173

The Public Utility Commission of Texas (commission) adopts an amendment to §25.173, relating to Goal for Renewable Energy, with changes to the proposed text as published in the November 22, 2002 issue of the Texas Register (27 TexReg 10843). The amendment extends certain deadlines related to the 2002 compliance period. Project Number 26848 is assigned to this proceeding.

Staff proposed two changes to §25.173 in response to concerns raised by various retail electric providers (REPs) about shortages and liquidity problems in the renewable energy credit (REC) market that may affect a REP's ability to meet its 2002 obligations. One change involved increasing the deficit banking allowance detailed in subsection (m). The other involved extending the compliance deadlines contained in subsection (l) by three months for the 2002 compliance period. The commission requested comments on both these proposed changes.

The commission received written comments on the proposed amendment on December 23, 2002 and January 2, 2003. Parties submitting written comments included the Alliance of Retail Marketers (ARM), American Electric Power (AEP), Cielo Wind Power, LLC (Cielo), Occidental Power Marketing, L.P. (Occidental), Public Citizen, Reliant Resources Inc. (Reliant), Texas Wind Coalition, Virtus Energy Research Associates (Virtus), along with City Public Service of San Antonio, Austin Energy, and Environmental Defense commenting jointly (Joint Commenters). The commission also conducted a public hearing on January 6, 2003, pursuant to the Administrative Procedure Act §2001.029. Public Citizen offered oral comments at the public hearing.

The underlying issue addressed by parties was how well §25.173 was achieving the Legislature's directives for renewable energy as set forth in Public Utility Regulatory Act (PURA) §39.904, Goal for Renewable Energy . In this project, the commission considers the question with respect to the need for immediate changes to §25.173 that would affect settlement for the 2002 compliance period. Changes that would not affect the 2002 compliance period are being considered in Project Number 26912, P.U.C. Project to Review of the Renewable Energy Credits Program Pursuant to §25.173 .

ARM and Occidental argued that the design of the program is flawed because the three- year life of a REC is longer than the period over which a retailer's annual REC obligation is calculated. According to these parties, the difference creates an opportunity and incentive for hoarding RECs. AEP, Cielo, Joint Commenters, Public Citizen, Texas Wind Coalition and Virtus argued that the REC program is working well and does not require any fundamental change. On the basis of comments offered in this proceeding, the commission concludes that the proposed changes are warranted insofar as they affect the 2002 and 2003 compliance periods.

Preamble Question Number 1. This amendment would increase the rule's deficit banking allowance from 5.0% to 10% of a competitive retailer's annual REC requirement for the 2002 and 2003 compliance periods. Subsection (m)(2) contains the deficit banking provision. The commission invites specific comment on whether this change is necessary, how it would be beneficial, and on whether an amount other than 10% would be more appropriate.

ARM said adjustments to the REC rule are needed to address the disparity between buyers and sellers of RECs inadvertently created when the rule was initially adopted. ARM argued that a disparity has been created by allowing RECs to be banked for up to three years while requiring REPs to meet their annual REC allocations, creating an incentive to hoard RECs. ARM stated that this has allowed RECs to be stripped from the market and held for future years, resulting in artificial shortages. Thus, ARM asserted, despite a significant surplus of RECs available for sale in 2002, the price of RECs as of mid-November, 2002 was more than fourfold the price in May, 2002. ARM rejected arguments that competitive REPs can effectively act as sellers and noted that this fails to acknowledge the position of competitive REPs in the newly deregulated marketplace. ARM stated that, given the uncertainties in the amount of a competitive REP's load, a competitive REP is at risk if it buys forward since this would tie up capital in RECs that are not needed for current operations rather than devoting resources to maintaining and building a competitive business. ARM stated that the current rule's banking provisions reduce flexibility by allowing RECs to be stripped from the market for hoarding and provide regulatory cover for an entity seeking to engage in economic withholding. Furthermore, ARM maintained that while the banking provisions were placed in the rule to ensure development of additional capacity, concerns about slow development of renewable resources have proven unjustified so that incentives in the ability to bank RECs do not appear to be needed. To that end, ARM recommended that the deficit banking allowance be increased from 5.0% to 100%. As an alternative, ARM said the commission should structure the deficiency allowance in a manner that will achieve greater parity between buyers and sellers of RECs over the period between now and 2007 when transmission upgrades in West Texas are anticipated to be completed. ARM recommended a deficit allowance of 85% for 2002; 70% for 2003; 55% for 2004; 40% for 2005 and 25% for 2006.

Reliant supported increasing the deficit allowance to 10% and maintaining it at a steady level until the West Texas intrazonal transmission constraints are relieved. Specifically, Reliant recommended that the commission incorporate language into the rule that allows the 10% deficit allowance to continue until the latter of 2007 or when the commission makes an affirmative determination that intrazonal transmission constraints in the West Texas zone have been eliminated. Reliant noted that this will benefit REPs by providing them flexibility in managing their annual REP obligations while the REC market matures and the transmission constraints are addressed.

Occidental said it does not object to the proposed amendment to increase the REC rule's deficit banking allowance from 5.0% to 10%. However, it objected to any further modification without addressing what it views as problems with the existing rule that has led to REC holders engaging in various "withholding equivalent" strategies to create artificial shortages of RECs with corresponding price increases.

AEP, TXU, Cielo, Texas Wind Coalition, and Public Citizen urged the commission to reject ARM's proposal and said the REC trading program is operating as the commission intended. AEP noted that the commission recognized the responsibility of each market participant to implement appropriate business planning and risk management practices to ensure that the requirement under the rule is satisfied. Thus, competitive retailers had an opportunity to implement business strategies to achieve compliance with the rule. AEP also urged the commission to reject ARM's alternative proposal of restructuring the deficiency allowance because the rule currently offers relief to those encountering REC shortfalls due to transmission constraints. In response to Reliant's proposal, AEP said that increasing the deficit allowance until transmission constraints have been addressed is unnecessary because a relief mechanism is already available for competitive retailers that encounter REC shortfalls due to transmission constraints. Specifically, subsection (o)(4) provides that a competitive retailer will not be assessed a penalty if the commission determines that events beyond the competitive retailer's control prevent it from meeting its REC obligation. Subsection (o)(5) specifies lack of transmission capacity or availability in the list of circumstances that may be outside a party's reasonable control.

TXU argued that the current REC rule has worked quite well, as more than 400 MW of renewable generation has been installed in Texas by January 1, 2003 as mandated by PURA §39.904, Goal for Renewable Energy . TXU noted that the rule was adopted after lengthy debate and, ultimately, compromise and agreement by the parties as to many of the rule's provisions. TXU noted that the representative from the Electric Reliability Council of Texas (ERCOT) was asked at the December 12, 2002 workshop in Project Number 26912 to quantify the number of RECs currently in existence: for the first three quarters of 2002, roughly 1.8 million RECs had been created, in addition to the roughly 600,000 RECs that had been created prior to 2002 pursuant to the early banking provisions of the rule. TXU concluded, therefore, that there currently exist approximately 2.4 million RECs, with an anticipated additional 600,000 RECs being created in the fourth quarter of 2002, and with REPs required to retire in the aggregate 1,226,400 RECs to meet their statutory obligations for 2002, this equates to roughly 2.5 times the number of RECs needed in order for the REPs, as a whole, to meet their obligations under the rule. TXU saw no reason to increase the allowance. If anything, the company said, the allowance should be eliminated entirely, although TXU said it was not arguing for elimination because parties should be able to rely on the commission's rules in developing their business plans. It said some parties may have relied upon the deficit banking provisions when deciding to make REC purchases in the past year. TXU asserted that any person can both buy and sell RECs; thus, the rule is not unfair or inequitable between sellers and buyers. TXU said that no REP at the December 12, 2002 workshop indicated that it could find no RECs to buy, that RECs had been unavailable for purchase during 2002, or that it could not meet the provisions of the current rule, therefore the need to pay more for RECs since the spring does not reflect a need to increase the allowance. TXU said REPs that took the risk of not buying RECs earlier in 2002 at cheaper prices should not now be given regulatory relief just because their business decisions did not turn out favorably, contending that to do so would harm those REPs who took steps as necessary to ensure they would have an adequate number of RECs to comply with the current rule.

Cielo and Texas Wind Coalition opposed any changes to the current REC rule. They stated that by opening up questions about the RECs market in Texas, the commission has already destabilized the capital markets' interest in Texas wind power projects which is directly impacting the capitalization of new wind projects. Cielo urged the commission to take immediate and strong action articulating in terms that cannot be misinterpreted affirming that the REC rules are fixed and will be strictly enforced.

Texas Wind Coalition argued that intervention by the commission to defer REC obligations is a damaging precedent that signals a weakening of the state's commitment to its REC program. It asserted that no changes to the program are needed, citing the substantial surplus of RECs currently available and the relief mechanism already provided for in the rule. Instead, Texas Wind Coalition urged that the commission eliminate deficit allowances entirely since there are sufficient RECs to satisfy the collective needs of all competitive retailers in the market and the allowance was envisioned as a special flexibility mechanism if there proved to be a shortage of RECs.

Public Citizen supported the Coalition's position and opposed any changes to the current rule, asserting that changes would undermine the nascent market for RECs. Public Citizen also argued that the fact that the commission is willing to re-open REC rules to possibly weaken them may already be undermining the value of RECs and future prices. Finally, Public Citizen indicated that there is no shortage of RECs on the market and that allegations that there is a lack of liquidity are being made to masks business decisions by certain entities to maintain a short position as to their REC obligation; in short, these entities had the same opportunities as others in the market to purchase RECs at lower prices. Public Citizen noted that there are a multitude of uncertainties and cost elements that manifest themselves in the form of REC prices and that it would be unfair to disrupt the expectations of supply and demand that formed the basis of investment in renewable technology in Texas. To this end, Public Citizen urged that a change from 5.0% to 10% in the deficit banking provision will be destabilizing, sending the wrong signals to those involved in this market.

While Joint Commenters agreed with Public Citizen, Cielo and Texas Wind Coalition that the REC program is working well, they concluded that modest changes to the rule, such as the proposed 10% deficit banking allowance, would be acceptable to provide increased flexibility for compliance without significantly altering the foundation of the rule.

With regard to the deficit banking allowance, the commission notes that support for the proposed increase to 10% was lukewarm. All commenting parties advocated either no change, a greater expansion than what was proposed, or were indifferent to the 10% allowance. The main argument put forward by advocates of a more liberal allowance was that the difference between the life of a REC (three years) and the period a retailer has to meet its obligation (one year) places retailers at an unfair disadvantage.

The three-year banking provision was intended to provide REPs with flexibility in meeting their compliance requirements, a flexibility that is necessary given the intermittent nature of renewable resources such as wind power. Moreover, this aspect of the program has been clear for three years. All retailers have operated under the same rules of the game during that time, and each has had the same opportunity to adapt to the rules -- including the three-year banking provision -- in whatever way is most consistent with its own business plan. The commission also recognizes that consistency of market rules is important for the smooth development of a new market. Wind developers have installed more than 1,000 MW of wind turbines in Texas, almost all of them associated with long-term contracts (i.e., 10 to 15 years). As the state's renewable energy market developed, parties priced contracts for renewable power based on the existing rules.

Although the spot market for RECs saw a price increase during the last half of 2002, it remains unclear whether it was due to program flaws as claimed by ARM or to transitory first-year market growing pangs. The commission prefers to see in Project Number 26912 further discussion of whether the three-year REC life and the annual compliance cycle together constitute a program flaw.

Reliant offered another reason to support increasing the deficit allowance: additional flexibility for REPs in managing their annual obligations while the REC market matures and transmission constraints are addressed. The commission agrees that the additional flexibility is warranted for the near-term, and agrees with Joint Commenters that the change will not undermine the structure of the rule. Whether the deficit allowance should be continued beyond 2003, however, is a longer-range question beyond the scope of this rulemaking; thus the commission prefers to consider it in Project Number 26912. The commission therefore changes the banking deficit allowance for the 2002 and 2003 compliance periods to 10%.

Preamble Question Number 2. The amendment would also add a paragraph to subsection (l) that would extend the time REPs have to comply with their 2002 REC requirements. The commission invites comment on whether or not extending the deadlines for the 2002 compliance period is necessary or would be beneficial.

TXU, AEP and ARM all supported extending the time period for 2002 compliance of the REC requirement by three months. TXU said it was unsure of the necessity but found the change beneficial, as RECs for the fourth quarter of 2002 will not be issued until March 2003. TXU also noted that REC requirements are based on actual 2002 energy sales by REPs, and that a final and accurate calculation will not be available in time for the REC program administrator to notify each REP of its 2002 REC obligation by January 31, 2003. TXU also pointed out that this is the first compliance period, and to extend the time period would give all REPs a more than adequate period of time to verify and obtain their requirements and to retire RECs as appropriate. ARM stated that the addition will give REPs time to adjust to any changes that are made in this project. Furthermore, should changes be made to the rule under Project Number 26912, ARM said that extending the compliance schedule may allow those changes to take effect for the 2002 compliance period.

AEP suggested an additional revision that would extend the deadline of subsection (l)(1) relating to the program administrator's responsibility to notify each competitive retailer of their total REC requirement.

Texas Wind Coalition stated that the extension of the 2002 REC requirement compliance time is not needed by generators. However, since this amendment would not fundamentally alter market participant obligations, and is substantiated by an identifiable, unforeseen development (i.e., delays in ERCOT market settlement), the coalition said it would support necessary delays in the REC program settlement period.

Occidental did not object to the change, and Joint Commenters were not opposed to a 60- day extension of the annual compliance period. Similarly, these parties agreed that an extension would provide flexibility. Joint Commenters stated that it does not appear that this flexibility would alter the economic foundation of the rule. Occidental stated this flexibility would help REPs to meet their obligation during this initial stage.

Cielo and Public Citizen opposed an extension, saying they found no problem with the design of the REC program and that a 60-day extension is therefore unnecessary and would increase uncertainty. Public Citizen found that the surplus of RECs in the market, and the fact that participants have known for almost three years that the deadline was approaching, leave no need for an extension.

TXU, in reply comments, addressed the support of proposed changes by Occidental and Joint Commenters because of their creation of additional flexibility. TXU disagreed that there is any need for additional flexibility since no REP has indicated that it will not and cannot meet the obligations of the current rule. TXU contended that there is sufficient flexibility for REPs in the current rule. TXU reiterated that it did support the 2002 compliance period extensions for the purpose of giving all REPs enough time to know, obtain and retire their actual REC obligations.

Reply comments of Reliant recognized that most parties supported a 2002 compliance period extension for lengths of time from 60-90 days. Reliant supported an extension in the 2002 compliance period of three months, citing agreement that the extension would be beneficial and ensure ample time for the accurate count of requirements by the REC program administrator, and for REPs to obtain and retire the appropriate number RECs.

The commission notes that most commenters, including some who believe the rule is working well, agreed with extending the deadlines in subsection (l), Settlement process. As noted by Texas Wind Coalition and others, of particular concern are changes in ERCOT's system-wide settlement procedures that would make the existing deadlines in this subsection problematic. The phrase "all related deadlines" of the proposed amendment would have been sufficient to apply the extension to subsection (l)(1), the deadline by which the REC Trading Program Administrator would notify each retailer of its 2002 REC requirement. Nevertheless, the commission accepts AEP's suggestion and clarifies the language of the amendment so that inclusion of paragraph (1) is unambiguous. However, the commission emphasizes that the program administrator need not wait until April 30 to notify retailers of their REC requirements and should provide this information to them as soon as it can be calculated. With respect to Cielo and Public Citizen's opposition to the extension, the commission points out that allowing additional time for compliance does not imply a problem with the REC trading program itself. ERCOT settlement issues outside the program sufficiently justify the extension.

The commission recognizes that ERCOT settlement procedures may necessitate extending the deadlines in subsection (l) permanently, but a permanent extension is beyond the scope of this proceeding. A permanent extension may be raised in Project Number 26912. In addition, the commission will discuss settlement issues with the program administrator throughout the first half of 2003 and may consider a permanent extension of the deadlines later this year.

The commission also finds that extending the compliance schedule will provide retailers as much flexibility as a higher deficit banking allowance would have. If retailers have until June 30, 2003 to satisfy their 2002 REC requirements, the number of active RECs in the market will include those issued for the first quarter of 2003. Even though 2003-vintage RECs cannot be used for a 2002 REC obligation under §25.173, they will relieve the demand for 2002-vintage RECs that might be held as a hedge against obligations for 2003 and 2004.

The proposed deadline extensions would provide sufficient time to calculate each retailer's 2002 REC requirement, would provide retailers with more flexibility in meeting those requirements, and would help overall to achieve the Legislature's goal for renewable energy in the most efficient manner. Subsection (l) is amended as discussed herein.

All comments, including any not specifically referenced herein, were fully considered by the commission.

This amendment is adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 1998, Supplement 2003) (PURA), which provides the Public Utility Commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; and, specifically PURA §15.023 which authorizes the commission to impose an administrative penalty against a person regulated under PURA who violates PURA or a rule or order adopted under PURA; PURA §36.204 which authorizes the commission, when establishing rates for an electric utility, to provide additional incentives for renewable resources; PURA §39.101 which provides that customers are entitled to have access to providers of energy generated by renewable energy resources; and, PURA §39.904 which requires that the commission adopt rules to promote the development of renewable energy technologies.

Cross Reference to Statutes: Public Utility Regulatory Act §§14.002, 15.023, 39.101 and 39.904.

§25.173.Goal for Renewable Energy.

(a) Purpose. The purpose of this section is to ensure that an additional 2,000 megawatts (MW) of generating capacity from renewable energy technologies is installed in Texas by 2009 pursuant to the Public Utility Regulatory Act (PURA) §39.904, to establish a renewable energy credits trading program that would ensure that the new renewable energy capacity is built in the most efficient and economical manner, to encourage the development, construction, and operation of new renewable energy resources at those sites in this state that have the greatest economic potential for capture and development of this state's environmentally beneficial resources, to protect and enhance the quality of the environment in Texas through increased use of renewable resources, to respond to customers' expressed preferences for renewable resources by ensuring that all customers have access to providers of energy generated by renewable energy resources pursuant to PURA §39.101(b)(3), and to ensure that the cumulative installed renewable capacity in Texas will be at least 2,880 MW by January 1, 2009.

(b) Application. This section applies to power generation companies as defined in §25.5 of this title (relating to definitions), and competitive retailers as defined in subsection (c) of this section. This section shall not apply to an electric utility subject to PURA §39.102(c) until the expiration of the utility's rate freeze period.

(c) Definitions.

(1) Competitive retailer - A municipally-owned utility, generation and transmission cooperative (G&T), or distribution cooperative that offers customer choice in the restructured competitive electric power market in Texas or a retail electric provider (REP) as defined in §25.5 of this title.

(2) Compliance period - A calendar year beginning January 1 and ending December 31 of each year in which renewable energy credits are required of a competitive retailer.

(3) Designated representative - A responsible natural person authorized by the owners or operators of a renewable resource to register that resource with the program administrator. The designated representative must have the authority to represent and legally bind the owners and operators of the renewable resource in all matters pertaining to the renewable energy credits trading program.

(4) Early banking - Awarding renewable energy credits (RECs) to generators for sale in the trading program prior to the program's first compliance period.

(5) Existing facilities - Renewable energy generators placed in service before September 1, 1999.

(6) Generation offset technology - Any renewable technology that reduces the demand for electricity at a site where a customer consumes electricity. An example of this technology is solar water heating.

(7) New facilities - Renewable energy generators placed in service on or after September 1, 1999. A new facility includes the incremental capacity and associated energy from an existing renewable facility achieved through repowering activities undertaken on or after September 1, 1999.

(8) Off-grid generation - The generation of renewable energy in an application that is not interconnected to a utility transmission or distribution system.

(9) Program administrator - The entity approved by the commission that is responsible for carrying out the administrative responsibilities related to the renewable energy credits trading program as set forth in subsection (g) of this section.

(10) REC offset (offset) - An REC offset represents one MWh of renewable energy from an existing facility that may be used in place of an REC to meet a renewable energy requirement imposed under this section. REC offsets may not be traded, shall be calculated as set forth in subsection (i) of this section, and shall be applied as set forth in subsection (h) of this section.

(11) Renewable energy credit (REC or credit) - An REC represents one megawatt hour (MWh) of renewable energy that is physically metered and verified in Texas and meets the requirements set forth in subsection (e) of this section.

(12) Renewable energy credit account (REC account) - An account maintained by the renewable energy credits trading program administrator for the purpose of tracking the production, sale, transfer, purchase, and retirement of RECs by a program participant.

(13) Renewable energy credits trading program (trading program) - The process of awarding, trading, tracking, and submitting RECs as a means of meeting the renewable energy requirements set out in subsection (d) of this section.

(14) Renewable energy resource (renewable resource) - A resource that produces energy derived from renewable energy technologies.

(15) Renewable energy technology - Any technology that exclusively relies on an energy source that is naturally regenerated over a short time and derived directly from the sun, indirectly from the sun, or from moving water or other natural movements and mechanisms of the environment. Renewable energy technologies include those that rely on energy derived directly from the sun, on wind, geothermal, hydroelectric, wave, or tidal energy, or on biomass or biomass-based waste products, including landfill gas. A renewable energy technology does not rely on energy resources derived from fossil fuels, waste products from fossil fuels, or waste products from inorganic sources.

(16) Repowering - Modernizing or upgrading an existing facility in order to increase its capacity or efficiency.

(17) Settlement period - The first calendar quarter following a compliance period in which the settlement process for that compliance year takes place.

(18) Small producer - A renewable resource that is less than two megawatts (MW) in size.

(d) Renewable energy credits trading program (trading program). Renewable energy credits may be generated, transferred, and retired by renewable energy power generators, competitive retailers, and other market participants as set forth in this section.

(1) The program administrator shall apportion a renewable resource requirement among all competitive retailers as a percentage of the retail sales of each competitive retailer as set forth in subsection (h) of this section. Each competitive retailer shall be responsible for retiring sufficient RECs as set forth in subsections (h) and (k) of this section to comply with this section. The requirement to purchase RECs pursuant to this section becomes effective on the date each competitive retailer begins serving retail electric customers in Texas.

(2) A power generating company may participate in the program and may generate RECs and buy or sell RECs as set forth in subsection (j) of this section.

(3) RECs shall be credited on an energy basis as set forth in subsection (j) of this section.

(4) Municipally-owned utilities and distribution cooperatives that do not offer customer choice are not obligated to purchase RECs. However, regardless of whether the municipally-owned utility or distribution cooperative offers customer choice, a municipally-owned utility or distribution cooperative possessing renewable resources that meet the requirements of subsection (e) of this section may sell RECs generated by such a resource to competitive retailers as set forth in subsection (j) of this section.

(5) Except where specifically stated, the provisions of this section shall apply uniformly to all participants in the trading program.

(e) Facilities eligible for producing RECs in the renewable energy credits trading program. For a renewable facility to be eligible to produce RECs in the trading program it must be either a new facility or a small producer as defined in subsection (c) of this section and must also meet the requirements of this subsection:

(1) A renewable energy resource must not be ineligible under subsection (f) of this section and must register pursuant to subsection (n) of this section;

(2) The facility's above-market costs must not be included in the rates of any utility, municipally-owned utility, or distribution cooperative through base rates, a power cost recovery factor (PCRF), stranded cost recovery mechanism, or any other fixed or variable rate element charged to end users;

(3) For a renewable energy technology that requires fossil fuel, the facility's use of fossil fuel must not exceed 2.0% of the total annual fuel input on a British thermal unit (BTU) or equivalent basis;

(4) The output of the facility must be readily capable of being physically metered and verified in Texas by the program administrator. Energy from a renewable facility that is delivered into a transmission system where it is commingled with electricity from non-renewable resources can not be verified as delivered to Texas customers. A facility is not ineligible by virtue of the fact that the facility is a generation-offset, off-grid, or on-site distributed renewable facility if it otherwise meets the requirements of this section; and

(5) For a municipally owned utility operating a gas distribution system, any production or acquisition of landfill gas that is directly supplied to the gas distribution system is eligible to produce RECs based upon the conversion of the thermal energy in BTUs to electric energy in kWh using for the conversion factor the systemwide average heat rate of the gas-fired units of the combined utility's electric system as measured in BTUs per kWh.

(6) For industry-standard thermal technologies, the RECs can be earned only on the renewable portion of energy production. Furthermore, the contribution toward statewide renewable capacity megawatt goals from such facilities would be equal to the fraction of the facility's annual MWh energy output from renewable fuel multiplied by the facility's nameplate MW capacity.

(f) Facilities not eligible for producing RECs in the renewable energy credits trading program. A renewable facility is not eligible to produce RECs in the trading program if it is:

(1) A renewable energy capacity addition associated with an emissions reductions project described in Health and Safety Code §382.05193, that is used to satisfy the permit requirements in Health and Safety Code §382.0519;

(2) An existing facility that is not a small producer as defined in subsection (c) of this section; or

(3) An existing fossil plant that is repowered to use a renewable fuel.

(g) Responsibilities of program administrator. No later than June 1, 2000, the commission shall approve an independent entity to serve as the trading program administrator. At a minimum, the program administrator shall perform the following functions:

(1) Create accounts that track RECs for each participant in the trading program;

(2) Award RECs to registered renewable energy facilities on a quarterly basis based on verified meter reads;

(3) Assign offsets to competitive retailers on an annual basis based on a nomination submitted by the competitive retailer pursuant to subsection (n) of this section;

(4) Annually retire RECs that each competitive retailer submits to meet its renewable energy requirement;

(5) Retire RECs at the end of each REC's three-year life;

(6) Maintain public information on its website that provides trading program information to interested buyers and sellers of RECs;

(7) Create an exchange procedure where persons may purchase and sell RECs. The exchange shall ensure the anonymity of persons purchasing or selling RECs. The program administrator may delegate this function to an independent third party. The commission shall approve any such delegation;

(8) Make public each month the total energy sales of competitive retailers in Texas for the previous month;

(9) Perform audits of generators participating in the trading program to verify accuracy of metered production data;

(10) Allocate the renewable energy responsibility to each competitive retailer in accordance with subsection (h) of this section; and

(11) Submit an annual report to the commission. Beginning with the program's first compliance period, the program administrator shall submit a report to the commission on or before April 15 of each calendar year. The report shall contain information pertaining to renewable energy power generators and competitive retailers. At a minimum, the report shall contain:

(A) the amount of existing and new renewable energy capacity in MW installed in the state by technology type, the owner/operator of each facility, the date each facility began to produce energy, the amount of energy generated in megawatt-hours (MWh) each quarter for all capacity participating in the trading program or that was retired from service; and

(B) a listing of all competitive retailers participating in the trading program, each competitive retailer's renewable energy credit requirement, the number of offsets used by each competitive retailer, the number of credits retired by each competitive retailer, a listing of all competitive retailers that were in compliance with the REC requirement, a listing of all competitive retailers that failed to retire sufficient REC requirement, and the deficiency of each competitive retailer that failed to retire sufficient RECs to meet its REC requirement.

(h) Allocation of REC purchase requirement to competitive retailers. The program administrator shall allocate REC requirements among competitive retailers. Any renewable capacity that is retired before January 1, 2009 or any capacity shortfalls that arise due to purchases of RECs from out-of-state facilities shall be replaced and incorporated into the allocation methodology set forth in this subsection. Any changes to the allocation methodology to reflect replacement capacity shall occur two compliance periods after which the facility was retired or capacity shortfall occurred. The program administrator shall use the following methodology to determine the total annual REC requirement for a given year and the final REC requirement for individual competitive retailers:

(1) The total statewide REC requirement for each compliance period shall be calculated in terms of MWh and shall be equal to the renewable capacity target multiplied by 8,760 hours per year, multiplied by the appropriate capacity conversion factor set forth in subsection (j) of this section. The renewable energy capacity targets for the compliance period beginning January 1, of the year indicated shall be:

(A) 400 MW of new resources in 2002;

(B) 400 MW of new resources in 2003;

(C) 850 MW of new resources in 2004;

(D) 850 MW of new resources 2005;

(E) 1,400 MW of new resources in 2006;

(F) 1,400 MW of new resources in 2007;

(G) 2,000 MW of new resources in 2008; and

(H) 2,000 MW of new resources in 2009 through 2019.

(2) The final REC requirement for an individual competitive retailer for a compliance period shall be calculated as follows:

(A) Each competitive retailer's preliminary REC requirement is determined by dividing its total retail energy sales in Texas by the total retail sales in Texas of all competitive retailers, and multiplying that percentage by the total statewide REC requirement for that compliance period.

(B) The adjusted REC requirement for each competitive retailer that is entitled to an offset is determined by reducing its preliminary REC requirement by the offsets to which it qualifies, as determined under subsection (i) of this section, with the maximum reduction equal to the competitive retailer's preliminary REC requirement. The total reductions for all competitive retailers is equal to the total usable offsets for that compliance period.

(C) Each competitive retailer's final REC requirement for a compliance period shall be increased to recapture the total usable offsets calculated under subparagraph (B) of this paragraph. The additional REC requirement shall be calculated by dividing the competitive retailer's adjusted REC requirement by the total adjusted REC requirement of all competitive retailers. This fraction shall be multiplied by the total usable offsets for that compliance period and this amount shall be added to the competitive retailer's adjusted REC requirement to produce the competitive retailer's final REC requirement for the compliance period.

(i) Nomination and calculation of REC offsets.

(1) A REP, municipally-owned utility, G&T cooperative, distribution cooperative, or an affiliate of a REP, municipally-owned utility, or distribution cooperative, may apply offsets to meet all or a portion of its renewable energy purchase requirement, as calculated in subsection (h) of this section, only if those offsets are nominated in a filing with the commission by June 1, 2001. A G&T may nominate the combined offsets for itself and its member distribution cooperatives upon the presentation of a resolution by its Board authorizing it to do so.

(2) The commission shall verify any designations of REC offsets and notify the program administrator of its determination by December 31, 2001.

(3) REC offsets shall be equal to the average annual MWh output of an existing resource for the years 1991-2000 or the entire life of the existing resource, whichever is less.

(4) REC offsets qualify for use in a compliance period under subsection (h) of this section only to the extent that:

(A) The resource producing the REC offset has continuously since September 1, 1999 been owned by or its output has been committed under contract to a utility, municipally-owned utility, or cooperative nominating the resource under paragraph (1) of this subsection or, if the resource has been committed under a contract that expired after September 1, 1999 and before January 1, 2002, it is owned by or its output has been committed under contract to a utility, municipally- owned utility, or cooperative on January 1, 2002; and

(B) The facility producing the REC offsets is operated and producing energy during the compliance period in a manner consistent with historic practice.

(5) If the production from a facility producing the REC offset energy ceases for any reason, the competitive retailer may no longer claim the REC offset against its REC requirement.

(j) Calculation of capacity conversion factor. The capacity conversion factor used by the program administrator to allocate credits to competitive retailers shall be calculated as follows:

(1) The capacity conversion factor (CCF) shall be administratively set at 35% for 2002 and 2003, the first two compliance periods of the program.

(2) During the fourth quarter of the second compliance year (2003), the CCF shall be readjusted to reflect actual generator performance data associated with all renewable resources in the trading program. The program administrator shall adjust the CCF every two years thereafter and shall:

(A) be based on all renewable energy resources in the trading program for which at least 12 months of performance data is available;

(B) represent a weighted average of generator performance;

(C) use all valid performance data that is available for each renewable resource; and

(D) ensure that the renewable capacity goals are attained.

(k) Production and transfer of RECs. The program administrator shall administer a trading program for renewable energy credits in accordance with the requirements of this subsection.

(1) A REC will be awarded to the owner of a renewable resource when a MWh is metered at that renewable resource. A generator producing 0.5 MWh or greater as its last unit generated should be awarded one REC on a quarterly basis. The program administrator shall record the amount of metered MWh and credit the REC account of the renewable resource that generated the energy on a quarterly basis.

(2) The transfer of RECs between parties shall be effective only when the transfer is recorded by the program administrator.

(3) The program administrator shall require that RECs be adequately identified prior to recording a transfer and shall issue an acknowledgement of the transaction to parties upon provision of adequate information. At a minimum, the following information shall be provided:

(A) identification of the parties;

(B) REC serial number, REC issue date, and the renewable resource that produced the REC;

(C) the number of RECs to be transferred; and

(D) the transaction date.

(4) A competitive retailer shall surrender RECs to the program administrator for retirement from the market in order to meet its REC allocation for a compliance period. The program administrator will document all REC retirements annually.

(5) On or after each April 1, the program administrator will retire RECs that have not been retired by competitive retailers and have reached the end of their three- year life.

(6) The program administrator may establish a procedure to ensure that the award, transfer, and retirement of credits are accurately recorded.

(l) Settlement process. Beginning in January 2003, the first quarter following the compliance period shall be the settlement period during which the following actions shall occur:

(1) By January 31, the program administrator will notify each competitive retailer of its total REC requirement for the previous compliance period as determined pursuant to subsection (h) of this section.

(2) By March 31, each competitive retailer must submit credits to the program administrator from its account equivalent to its REC requirement for the previous compliance period. If the competitive retailer has insufficient credits in its account to satisfy its obligation, and this shortfall exceeds the applicable deficit allowance as set forth in subsection (m)(2) of this section, the competitive retailer is subject to the penalty provisions in subsection (o) of this section.

(3) For the 2002 compliance period, the deadlines set forth in this subsection and all related deadlines in this section shall be extended by three months.

(m) Trading program compliance cycle.

(1) The first compliance period shall begin on January 1, 2002 and there will be 18 consecutive compliance periods. Early banking of RECs is permissible and may commence no earlier than July 1, 2001. The program's first settlement period shall take place during the first quarter of 2003.

(2) A competitive retailer may incur a deficit allowance equal to 10% of its REC requirement in 2002 and 2003 (the first two compliance periods of the program). This 10% deficit allowance shall not apply to entities that initiate customer choice after 2003. During the first settlement period, each competitive retailer will be subject to a penalty for any REC shortfall that is greater than 10% of its REC requirement under subsection (h) of this section. During the second settlement period, each competitive retailer will be subject to the penalty process for any REC shortfall greater than 10% of the second year REC allocation. All competitive retailers incurring a 10% deficit pursuant to this subsection must make up the amount of RECs associated with the deficit in the next compliance period.

(3) The issue date of RECs created by a renewable energy resource shall coincide with the beginning of the compliance year in which the credits are generated. All RECs shall have a life of three compliance periods, after which the program administrator will retire them from the trading program.

(4) Each REC that is not used in the year of its creation may be banked and is valid for the next two compliance years.

(5) A competitive retailer may meet its renewable energy requirements for a compliance period with RECs issued in or prior to that compliance period which have not been retired.

(n) Registration and certification of renewable energy facilities. The commission shall register and certify all renewable facilities that will produce either REC offsets or RECs for sale in the trading program. To be awarded RECs or REC offsets, a power generator must complete the registration process described in this subsection. The program administrator shall not award offsets or credits for energy produced by a power generator before it has been certified by the commission.

(1) The designated representative of the generating facility shall file an application with the commission on a form approved by the commission for each renewable energy generation facility. At a minimum, the application shall include the location, owner, technology, and rated capacity of the facility and shall demonstrate that the facility meets the resource eligibility criteria in subsection (e) of this section.

(2) No later than 30 days after the designated representative files the certification form with the commission, the commission shall inform both the program administrator and the designated representative whether the renewable facility has met the certification requirements. At that time, the commission shall either certify the renewable facility as eligible to receive either RECs or offsets, or describe any insufficiencies to be remedied. If the application is contested, the time for acting is extended by 30 days.

(3) Upon receiving notice of certification of new facilities, the program administrator shall create an REC account for the designated representative of the renewable resource.

(4) The commission may make on-site visits to any certified unit of a renewable energy resource and may decertify any unit if it is not in compliance with the provisions of this subsection.

(5) A decertified renewable generator may not be awarded RECs. However, any RECs awarded by the program administrator and transferred to a competitive retailer prior to the decertification remain valid.

(o) Penalties and enforcement. If by April 1 of the year following a compliance year it is determined that a competitive retailer with an allocated REC purchase requirement has insufficient credits to satisfy its allocation, the competitive retailer shall be subject to the administrative penalty provisions of PURA §15.023 as specified in this subsection.

(1) Except as provided in paragraph (4) of this subsection, a penalty will be assessed for that portion of the deficient credits.

(2) The penalty shall be the lesser of $50 per MWh or, upon presentation of suitable evidence of market value by the competitive retailer, 200% of the average market value of credits for that compliance period.

(3) There will be no obligation on the competitive retailer to purchase RECs for deficits, whether or not the deficit was within or was not within the competitive retailer's reasonable control, except as set forth in subsection (m)(2) of this section.

(4) In the event that the commission determines that events beyond the reasonable control of a competitive retailer prevented it from meeting its REC requirement there will be no penalty assessed.

(5) A party is responsible for conducting sufficient advance planning to acquire its allotment of RECs. Failure of the spot or short-term market to supply a party with the allocated number of RECs shall not constitute an event outside the competitive retailer's reasonable control. Events or circumstances that are outside of a party's reasonable control may include weather-related damage, mechanical failure, lack of transmission capacity or availability, strikes, lockouts, actions of a governmental authority that adversely effect the generation, transmission, or distribution of renewable energy from an eligible resource under contract to a purchaser.

(p) Renewable resources eligible for sale in the Texas wholesale and retail markets. Any energy produced by a renewable resource may be bought and sold in the Texas wholesale market or to retail customers in Texas and marketed as renewable energy if it is generated from a resource that meets the definition in subsection (c)(14) of this section.

(q) Periodic review. The commission shall periodically assess the effectiveness of the energy-based credits trading program in this section to maximize the energy output from the new capacity additions and ensure that the goal for renewable energy is achieved in the most economically-efficient manner. If the energy-based trading program is not effective, performance standards will be designed to ensure that the cumulative installed renewable capacity in Texas meets the requirements of PURA §39.904.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on February 11, 2003.

TRD-200301000

Rhonda G. Dempsey

Rules Coordinator

Public Utility Commission of Texas

Effective date: March 3, 2003

Proposal publication date: November 22, 2002

For further information, please call: (512) 936-7308