Subchapter A. GENERAL RULES

The Texas Commission on Environmental Quality (commission) proposes amendments to §116.12 and §116.150.

If adopted, these amendments will be submitted to the United States Environmental Protection Agency (EPA) as revisions to the state implementation plan (SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED AMENDMENTS

After adoption of the Federal Clean Air Act (FCAA) Amendments of 1990, the EPA classified the designated four areas of Texas that failed to meet the one-hour national ambient air quality standard (NAAQS) for the air contaminant ozone. Each area was classified by the EPA based on the amount by which it exceeded the ozone NAAQS of 0.12 parts per million (ppm) based on a peak one-hour concentration of ozone. Eight counties in the Houston/Galveston/Brazoria (HGB) area (Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, and Waller) were classified as Severe and El Paso County was classified as Serious. Four counties in the Dallas/Fort Worth (DFW) area (Collin, Dallas, Denton, and Tarrant) were originally classified as Moderate and then reclassified to Serious. Three counties in the Beaumont/Port Arthur (BPA) area (Hardin, Jefferson, and Orange) were originally classified as Serious, then reclassified to Moderate, and reclassified again, in 2004, to Serious. The classification of an area has specific effects on sources of air contaminants within the area including what will be considered a major source of contaminants. In the case of ozone, the contaminants of concern are volatile organic compounds (VOC) and nitrogen oxides (NO _x ), referred to as ozone precursers.

If a proposed project (modification of existing facilities or new construction) is determined to be a major modification, the project is subject to federal nonattainment new source review (NNSR) and specific levels of pollution control, which generally mean that the source will be required to meet the lowest achievable emission rate (LAER) and offset the emissions increase.

To determine if a modification at a major source results in an emission increase that would make the project a major modification, the source owner performs a netting exercise if the project emission increase is greater than the netting trigger (five tons per year (tpy) under current commission rules). Netting is an accounting procedure used to determine the amount of increase in emissions by a source over a specified period of time. Under the commission's existing rules, the netting period, defined as the contemporaneous period in 30 TAC §116.12(7), begins on the date of the emission increase and goes back to November 15, 1992, for major sources that emit 250 tpy or more, and goes back five years for major sources emitting less than 250 tpy. All emission increases and decreases at a source over the specified time (netting period) are added or subtracted and, if the resulting figure is at or above the major modification threshold, the source becomes subject to NNSR. This major modification threshold is determined by an area's classification (Severe, Serious, Moderate). The netting trigger and netting period are the principal subjects of this rulemaking action.

The commission's current netting triggers and periods are different than the corresponding federal rules, but are considered equivalent by the EPA and are approved as part of the SIP. The federal rule, adopted after the FCAA Amendments of 1990 and classifications of the areas, required that any increase in emissions would trigger the netting exercise in areas classified as Serious or Severe. To reduce the number of netting exercises, the commission adopted a netting exercise that would not be required when the project resulted in a small increase of emissions resulting from such activities as valve changes or other minor maintenance or facility upgrades and proposed a five tpy trigger. The EPA agreed to the change provided that the netting period was extended to go back to November 15, 1992, for the larger major sources instead of the five-year netting period in the federal rule.

On April 30, 2004, the EPA adopted the Phase I Implementation Rule (69 FR 23951), implementing a new eight-hour ozone NAAQS, effective June 15, 2004. On the same date, the EPA designated and classified areas that were not in attainment of the eight-hour standard (69 FR 23858). In the Phase I Implementation Rule, the EPA stated that it plans to issue a second final rule, Phase 2, which will address many of the planning and control obligations under FCAA, §172 and §182 that will apply for purposes of implementing the eight-hour ozone NAAQS. These rules include, among other things, new source review (NSR). The EPA designated four areas of Texas as nonattainment for the eight-hour ozone standard, and classifications under the new standard are different from the classifications under the one-hour ozone standard. Specifically, HGB and DFW are classified as Moderate, BPA is classified as Marginal, and El Paso is in attainment of the eight-hour standard. In addition to the four counties in the DFW area classified under the one-hour standard, five additional counties (Ellis, Johnson, Kaufman, Parker, and Rockwall) were designated as Moderate nonattainment. The San Antonio area, consisting of Bexar, Comal, and Guadalupe Counties, was designated nonattainment under FCAA, Title I, Part D, Subpart 1 (42 United States Code (USC), §7502) with a deferred effective date, due to its participation in the Early Action Compact Program. In the Phase I Implementation Rule, the EPA also adopted a rule that provides that the EPA will revoke the one-hour standard in full, including designations and classifications, one year following the effective date of the designations for the eight-hour NAAQS. One year after the effective date of the designations for the eight-hour ozone standard is June 15, 2005.

The new EPA rules make no changes to the netting procedure or thresholds. The new designations and classifications allow the commission an opportunity to limit the number of netting exercises by revising its rule. The commission is proposing to adopt the federal model concerning netting triggers and periods with the exception of the netting trigger in a Serious or Severe nonattainment area where the commission would retain its existing five tpy trigger. The commission would eliminate the netting period for larger major sources that requires netting going back to 1992. This period is now too long to be useful and would not be justified for the sources in the five new nonattainment counties in the DFW area. Under the new eight-hour ozone standard, there are no areas currently classified as Serious or Severe. The proposed netting triggers for all eight-hour ozone nonattainment areas would be 40 tpy and all netting periods would be five years.

Application of the eight-hour ozone standard for NNSR becomes effective June 15, 2005, and the commission is updating its rules to implement the necessary changes. On September 24, 2004, in response to a petition by Earthjustice and other environmental groups, the EPA granted a partial reconsideration of the Phase I Implementation Rule adopted April 30, 2004, allowing states to apply federal NNSR based on an eight-hour classification. The result of this reconsideration could be a return to the one-hour ozone standard for application of federal NNSR. The result of the EPA reconsideration may not be known until after the commission adopts these amendments. Therefore, the commission is including contingency language in §116.150, New Major Source or Major Modification in Ozone Nonattainment Areas, and in the footnotes of the definition of major modification in §116.12. This contingency language would go into effect if the EPA decided to require states to return to a one-hour standard for federal NNSR determination.

NO _x Netting and Mass Emission Cap and Trade

Concurrent with the effective date of the new five-year contemporaneous period, the commission will allow the reductions required by the HGB NOx mass emission cap and trade program (MECT) in 30 TAC Chapter 101, Subchapter H, to be creditable for netting purposes. This will apply only to NO _x sources subject to MECT in HGB for netting exercises only and will not apply to NO _x credits or offsets. This determination for sites subject to HGB MECT and NO _x netting will not impact the MECT or the SIP because the MECT cap is ultimately the governing factor in the amount of NO _x emitted. Furthermore, the moving five-year netting period will ensure that emission reduction strategies driven by MECT compliance that are used to "net out" emission increases from increases at a site will have to occur within the netting period. MECT allows for trading of a fixed number of emission allowances so the emission reductions are not binding on any specific unit or site but it ensures that area-wide emission reductions are made, regardless of changes at any particular site.

SECTION BY SECTION DISCUSSION

The commission proposes to make administrative changes for better readability, conformity with the drafting standards in the Texas Legislative Council Drafting Manual , October 2002, and consistency with other commission rules.

The commission also proposes to make corrections to citations of federal and state law and to add USC references to citations of sections of the FCAA.

§116.12, Nonattainment Review Definitions

The commission proposes to amend the definition of contemporaneous period in paragraph (7) to require that netting be performed from the date of a modification going back a period of 60 months for all netting exercises. This period is more representative of recent activity as compared to a period that goes back to 1992.

The commission proposes to add new footnotes 6 and 7 in the figure located in the definition of major modification in paragraph (11)(A) that would require sources in areas that were classified nonattainment for ozone under a one-hour ozone standard to return to the major source thresholds, major modification thresholds, and offset ratios for the one-hour standard for federal NNSR applicability if the EPA requires states to use the one-hour standard after reconsideration of the rule implementing the new eight-hour standard.

Footnote 7 would require applications submitted for facilities that would be located in areas designated under FCAA, Title I, Part D, Subpart 1 (42 USC, §7502), be evaluated as if the area was classified as Marginal under FCAA, Title I, Part D, Subpart 2 (42 USC, §7502). The evaluation includes both the threshold for determining if there is a major modification as well as the ratio of offsets required along with any other applicable requirement that depends upon an area's nonattainment classification. Currently, only San Antonio is designated under Subpart 1.

The commission also proposes to delete subparagraphs (E) and (F) from the definition of net emissions increase in paragraph (13). The subparagraphs contain references to a contemporaneous period going back to November 15, 1992.

§116.150, New Major Source or Major Modification in Ozone Nonattainment Areas

For ease of understanding, the commission proposes to reformat the lengthy existing subsection (a) into additional subsections and add new language to address the eight-hour netting procedures.

The commission proposes to amend subsection (a) to apply major modification procedures to all NSR authorizations issued or claimed. In addition to aligning the date with the efffective date of the new designations, the commission is proposing this addition because netting procedures apply to sources authorized under standard permit or permit by rule to demonstrate that modifications under those authorizations are not major.

Proposed new subsection (b) contains language from existing subsection (a) and addresses the control requirements applicable to major sources or major modifications. The rule citation where the control requirements may be found is proposed to be changed to read "subsection (e)(1) - (4) of this section." The commission also proposes to change the citation concerning the exception for NO _x sources in El Paso County from subsection (b) to subsection (f). A reference to a subsection (c) would be deleted as it is obsolete.

The commission proposes new subsection (c), which would contain language from existing subsection (a) that would be amended to contain a new netting trigger of 40 tpy for areas classified as Marginal or Moderate ozone nonattainment. The commission would retain the five tpy netting trigger for areas classified as Serious or Severe.

The commission proposes to add new subsection (d), which would contain contingency language that would go into effect if the EPA, after reconsideration of the eight-hour standard, requires states to use the area's one-hour standard classification for determining applicability of NNSR. The contingency language would require sources in areas that were classified nonattainment for ozone under a one-hour ozone standard to return to a netting trigger of five tpy, which is based on a one-hour ozone standard for the applicability of federal NNSR.

Proposed new subsection (e) contains language from existing subsection (a) concerning emission standards and offsets for sources and modifications classified as major sources and modifications.

Existing subsection (b), which exempts sources located in El Paso County from the requirements of this section concerning NO _x emissions, is proposed to be relettered as subsection (f).

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

Nina Chamness, Analyst, Strategic Planning and Grants Management Section, determined that for the first five-year period the proposed amendments are in effect, no fiscal implications are anticipated as a result of administration or enforcement for units of state or local governments. State or local governments that own or operate major sources of air contaminants could realize a cost savings resulting from the reduction in the number of netting exercises.

Currently, NNSR is implemented under EPA's one-hour ozone NAAQS. EPA's implementation of an eight-hour ozone NAAQS designated attainment areas under the eight-hour standard, added five new counties to the DFW ozone nonattainment area, and designated the San Antonio area as nonattainment with a deferred effective date.

Major sources, including those operated by state or local government, located in the counties added to the DFW nonattainment area and the San Antonio area, could have significant costs if required to upgrade their emission control equipment from best available control technology (BACT) to LAER. The new designation of the counties as nonattainment does not in itself mean that emission controls must be immediately upgraded or additional controls installed. Also, because San Antonio is participating in the Early Action Compact Program, its designation may never become effective. Sources that undergo major modifications would be subject to LAER, but the commission does not have information indicating which, if any, sources are going to be affected. The commission expects cost increases to be mostly limited to large combustion sources because of the limited industrialization of the new nonattainment counties.

The proposed rulemaking seeks to: 1) implement EPA netting triggers and periods for nonattainment areas classified as Moderate or Marginal to 40 tpy and five years; 2) retain the five tpy netting trigger for Serious or Severe nonattainment areas but reduce the netting period to five years; and 3) include contingency language for a possible return to a one-hour standard for NNSR determinations of new major source or major modification in nonattainment areas if EPA decides to reapply the one-hour standard at a later date after reconsidering implementation of the eight-hour standard.

Under the proposed rules, state or local governments with major sources of air contaminants in nonattainment areas classified as Serious or Severe under the one-hour standard may see a decrease in costs because of the classification to Moderate and Marginal under the eight-hour standard. This new classification carries with it a new netting trigger for emissions associated with a new project or certain changes in operations. The higher netting trigger of 40 tpy for Moderate, Marginal, and FCAA, Title I, Part D, Subpart 1 areas will mean that fewer netting exercises will be required and will reduce the chance that an emission increase associated with these activities would trigger requirements to offset emissions because of new projects or operational changes. The commission is unable to estimate savings for individual sources because of the inability to anticipate which sources will be subject to future modification. However, if the EPA decides to require eight-hour nonattainment areas to continue NNSR under its one-hour designation, then no cost savings would be realized.

PUBLIC BENEFITS AND COSTS

Ms. Chamness also determined that for each year of the first five years the proposed amendments are in effect, the public benefit anticipated from the changes seen in the proposed rules will be implementation of current federal regulations for NAAQS.

Under the proposed rules, businesses with major sources of air contaminants in nonattainment areas classified as Serious or Severe under the one-hour standard may see a decrease in costs because of the classification under the eight-hour standard of Moderate and Marginal. The higher netting trigger of 40 tpy for Moderate, Marginal, and FCAA, Title I, Part D, Subpart 1 areas will mean that fewer netting exercises will be required and will reduce the probability that an emission increase associated with these activities would trigger requirements to offset emissions because of new projects or operational changes. Sources in the El Paso area would realize a cost savings because it would no longer be subject to NNSR. The commission is unable to estimate savings for individual sources because of the inability to anticipate which sources will be subject to future modification.

Major sources located in the counties added to the DFW nonattainment area and the San Antonio area could have significant costs if required to upgrade their emission control equipment from BACT to LAER. The designation of the counties as nonattainment does not in itself mean that emission controls must be immediately upgraded or additional controls installed. Because San Antonio is participating in the Early Action Compact Program, its designation may never become effective. Sources that undergo major modifications would be subject to LAER, but the commission does not have information indicating which, if any, sources are going to be affected. The commission expects cost increases to be mostly limited to large combustion sources because of the limited industrialization of the new nonattainment counties.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT

No adverse fiscal implications are anticipated for small or micro-businesses. Small or micro-businesses are less likely to operate major sources of air contaminants. Small or micro-businesses that do operate major sources will see the same reduction in probability that a source modification will trigger a major modification under federal NNSR, and they will experience the same types of costs savings or increases as those experienced by large businesses that generate major sources of contamination under the eight-hour ozone standard. Small businesses operating sources of air contaminants in the new DFW nonattainment counties that do undergo major modifications would be subject to the same NNSR requirements and potential expense as larger businesses.

LOCAL EMPLOYMENT IMPACT STATEMENT

The commission reviewed this proposed rulemaking and determined that a local employment impact statement is not required because the proposed amendments do not adversely affect a local economy in a material way for the first five years that the proposed amendments are in effect.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the proposed rulemaking in light of the regulatory impact analysis requirements of Texas Government Code, §2001.0225, and determined that the proposed rulemaking does not meet the definition of a "major environmental rule." Furthermore, it does not meet any of the four applicability requirements listed in §2001.0225(a). A "major environmental rule" means a rule, the specific intent of which, is to protect the environment or reduce risks to human health from environmental exposure, and that may adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. The proposed amendments revise the netting trigger and netting period for projects that are a major modification and are therefore subject to federal NNSR for air quality permitting and specific levels of pollution control. The proposed amendments also make applicable to the San Antonio area and the five additional counties in the DFW area NNSR requirements. Because San Antonio is an early action compact area, it has a deferred effective date of September 30, 2005, and will continue to be deferred as it remains in compliance with the compact agreements. The amendments also make changes to the definition of contemporaneous period and net emissions increase as well as changes to the figure in the definition of major modification, and nonsubstantive organizational changes. The proposed amendments will not adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state.

In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal government to implement a state and federal program; or 4) adopt a rule solely under the general powers of the agency instead of under a specific state law. The proposed amendments do not exceed a standard set by federal law or exceed an express requirement of state law. There is no contract or delegation agreement that covers the topic that is the subject of this rulemaking. Finally, this rulemaking was not developed solely under the general powers of the agency, but is authorized by specific sections of the Texas Health and Safety Code and Texas Water Code, which are cited in the STATUTORY AUTHORITY section of this preamble. Therefore, this rulemaking is not subject to the regulatory analysis provisions of Texas Government Code, §2001.0225(b), because the proposed amendments do not meet any of the four applicability requirements.

The commission invites public comment regarding the draft regulatory impact analysis determination during the public comment period.

TAKINGS IMPACT ASSESSMENT

The commission completed a takings impact analysis for the proposed amendments. The specific purpose of this rulemaking is to revise the netting trigger and netting period for projects that are a major modification and are therefore subject to federal NNSR for air quality permitting and specific levels of pollution control. The amendments implement NNSR requirements for the newly designated San Antonio area and the five additional counties in the DFW area. The amendments also make nonsubstantive organizational changes. Promulgation and enforcement of the proposed amendments would be neither a statutory nor a constitutional taking because they do not affect private real property. Specifically, the proposed amendments do not affect private property in a manner that restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Therefore, the proposed amendments do not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that this rulemaking action relates to an action or actions subject to the Texas Coastal Management Program (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resources Code, §§33.201 et seq. ), and the commission rules in 30 TAC Chapter 281, Subchapter B, concerning Consistency with the CMP. As required by §281.45(a)(3) and 31 TAC §505.11(b)(2), relating to Actions and Rules Subject to the Coastal Management Program, commission rules governing air pollutant emissions must be consistent with the applicable goals and policies of the CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the rules of the Coastal Coordination Council, and determined that the action is consistent with the applicable CMP goals and policies. The CMP goal applicable to this rulemaking action is the goal to protect, preserve, and enhance the diversity, quality, quantity, functions, and values of coastal natural resource areas (31 TAC §501.12(l)). No new sources of air contaminants will be authorized and the proposed revisions will maintain the same level of emissions control as the existing rules. The CMP policy applicable to this rulemaking action is the policy that commission rules comply with federal regulations in 40 Code of Federal Regulations, to protect and enhance air quality in the coastal areas (31 TAC §501.14(q)). This rulemaking action complies with 40 Code of Federal Regulations Part 51, Requirements for Preparation, Adoption, and Submittal of Implementation Plans. Therefore, in accordance with 31 TAC §505.22(e), the commission affirms that this rulemaking action is consistent with CMP goals and policies.

The commission solicits comments on the consistency of the proposed rulemaking with the CMP during the public comment period.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM

Section 116.12 and §116.150 are applicable requirements under 30 TAC Chapter 122, Federal Operating Permits Program. Upon the effective date of this rulemaking, owners or operators subject to the Federal Operating Permit Program that modify any NSR authorized sources at their sites will be subject to the amended requirements of §116.12 and §116.150.

ANNOUNCEMENT OF HEARING

The commission will hold a public hearing on this proposal in Austin on March 17, 2005, at 10:00 a.m. in Building F, Room 2210, at the commission's central office located at 12100 Park 35 Circle. The hearing is structured for the receipt of oral or written comments by interested persons. Individuals may present oral statements when called upon in order of registration. Open discussion will not be permitted during the hearing; however, commission staff members will be available to discuss the proposal 30 minutes before the hearing and will answer questions before and after the hearing.

Persons with disabilities who have special communication or other accommodation needs who are planning to attend the hearing should contact the Office of Environmental Policy, Analysis, and Assessment at (512) 239-4900. Requests should be made as far in advance as possible.

SUBMITTAL OF COMMENTS

Comments may be submitted to Lola Brown, Office of Environmental Policy, Analysis, and Assessment, MC 205, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (512) 239-4808. Comments must be received by 5:00 p.m., March 28, 2005, and should reference Rule Project Number 2005-009-116-AI. Copies of the proposed rule can be obtained from the commission's Web site at http://www.tnrcc.state.tx.us/oprd/rules/propadop.html . For further information, please contact Beecher Cameron, Air Permits Division, at (512) 239-1495 or Michael Bame, Policy and Regulations Division, at (512) 239-5658.

Subchapter A. DEFINITIONS