TITLE 30.ENVIRONMENTAL QUALITY

Part 1. TEXAS NATURAL RESOURCE CONSERVATION COMMISSION

Chapter 101. GENERAL AIR QUALITY RULES

Subchapter H. EMISSIONS BANKING AND TRADING

The Texas Natural Resource Conservation Commission (commission) adopts amendments to §101.302 and §101.372; new §101.338 and §101.357; and corresponding revisions to the state implementation plan (SIP). Sections 101.302, 101.338, 101.357, and 101.372 are adopted with changes to the proposed text as published in the November 23, 2001, issue of the Texas Register , (26 TexReg 9513).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES

The commission adopts these amendments and new sections in order to control ground-level ozone and other criteria pollutants in nonattainment areas in the state, and to implement Senate Bill (SB) 5 (an act relating to the Texas emissions reduction plan) and SB 1561 (an act relating to the acceptance by the Texas Natural Resource Conservation Commission of certain emissions reductions in exchange for other emissions reductions), 77th Legislature, 2001.

The 77th Legislature adopted SB 5 to establish and provide for the administration of the Texas Emissions Reduction Plan (TERP). The TERP is a comprehensive plan to reduce emissions of air contaminants from mobile sources. The program offers subsidies for the replacement of older diesel engines with more efficient diesels with lower emissions and for the purchase of automobiles with low emissions. The program is funded in part through surcharges and fees on the lease, sale, and registration of certain diesel-powered vehicles. The plan is also partially funded by contributions from owners or operators of stationary sources of nitrogen oxides (NO x ) in the Houston/Galveston (HGA) or Dallas/Fort Worth (DFW) ozone nonattainment areas. These owners or operators may substitute emissions reductions made under the plan for those reductions otherwise required under the commission's rules; such substitutions require a contribution to the fund based on the amount of emissions reductions substituted. This adopted rulemaking implements the relevant portions of SB 5 concerning these contributions to the TERP fund in the HGA area, as described in greater detail in the SECTION BY SECTION DISCUSSION portion of this preamble.

This rulemaking also implements the provisions of SB 1561. This legislation allows surplus emission reductions achieved outside the United States (U.S.) to satisfy emission reduction requirements in Texas by allowing reductions in one nonattainment air contaminant to substitute for reductions in another nonattainment air contaminant under the specific conditions described in the SECTION BY SECTION DISCUSSION portion of this preamble.

SECTION BY SECTION DISCUSSION

The adopted amendments to §101.302, General Provisions, address the relationship of the requirements of SB 1561 and the generation of emission reduction credits (ERCs). The amendments allow emission reductions from facilities located outside the U.S. to be used to meet the requirements for reductions in another pollutant in Texas, provided the executive director determines that the substitution results in a greater health benefit or is of equal or greater benefit to the overall air quality of the area. The executive director will make this determination. The amendments involve the substitution of a reduction of a criteria pollutant for which the area has been designated as nonattainment for a required reduction for any criteria pollutant for which the area is also designated as a nonattainment area. The substitution must clearly result in greater health benefits for the community as a whole than would reductions at the original facility. In response to public comment, the commission has amended the rule language to state that the substitution must not cause harm to public health in the area around the facility using the emission substitution. When determining whether an emissions reduction outside the U.S. will be of greater health benefit, the executive director may consider the amount of air contaminant removed, the frequency that concentrations of an air contaminant have exceeded the national ambient air quality standard (NAAQS), existing air quality demonstrations performed under SIP requirements, the air quality index, and any other information which would indicate a clear benefit of a proposed emission reduction. For example, consider a proposed reduction of particulate matter with an aerodynamic diameter of less than or equal to a nominal ten microns (PM 10 ) instead of a required NO x reduction. The de minimis netting threshold for NO x is 40 tons per year (tpy) while the threshold for PM 10 is ten tpy. The lower netting threshold for PM 10 indicates that a reduction in that pollutant would be of greater significance than a numerically equivalent reduction of NO x . The commission believes that this greater significance could be part of a demonstration that such a substitution would be of greater health benefit and overall air quality improvement depending on the documentation and the ability to enforce the reduction in Mexico. While the commission will closely examine any proposed emission reduction under this rule, it does not at this time plan to specify or endorse any particular method of demonstration. The commission recognizes the influence of air contaminant sources outside the U.S. on the El Paso airshed and will to encourage emission reductions under this rule. This rule would not affect federally required reductions.

In order for the reductions to be eligible for substitution, they must be real, permanent, quantifiable, enforceable, and surplus to any applicable international, federal, state, or local law. Reductions of contaminants other than volatile organic compounds (VOC) and NO x will not qualify as ERCs.

The adopted new §101.338, Emission Reductions Achieved Outside the United States, applies the provisions of SB 1561 to the existing emission credit system for electric generating facilities. This system was created under the implementation of SB 7 from the 76th Legislature, 1999. This new section allows the substitution of reductions of one criteria pollutant for another criteria pollutant provided the substitution meets the same requirements as stated in the description of 101.302. In response to public comment, the commission added additional language in subsection (a) that describes under what conditions emissions substitutions may be used and replaced the phrase "may be" with "are" in subsection (b).

The adopted new §101.357, Use of Emission Reductions Generated from the Texas Emission Reduction Plan (TERP), allows site owners or operators in the HGA nonattainment area to defer a portion of their required NOx emissions under applicable commission rules by using emissions reductions generated under the TERP. The TERP reductions may be used if the owner or operator does the following: contributes to the TERP fund $75,000 per ton of NO x reductions used, not to exceed 25 tpy or 0.5 tons per day (tpd) on a site-wide basis; demonstrates to the executive director that the site will be in full compliance with applicable rules no later than five years after the anniversary of the date the emissions reductions would have normally been required; reduces emissions from the site at least 80% of the required reductions; and receives approval from the executive director of a petition from the owner or operator that demonstrates that it is technically infeasible to comply with the applicable emission reductions of 30 TAC Chapter 117, Control of Air Pollution from Nitrogen Compounds. In order to ensure that TERP reductions are not used twice to meet SIP reductions, the commission added a restriction that TERP emissions used to meet stationary source reduction requirements must not have been previously used to meet reduction requirements under a SIP attainment demonstration. For consistency with SB 5, the commission also added a restriction that TERP credits must be used in the same nonattainment area in which they are generated and a requirement that emission reduction projects funded under TERP must be used to benefit the community in which the site using TERP emission reduction credits is located.

The adopted amendments to §101.372, General Provisions, address the relationship of SB 1561 requirements to the generation of discrete emission reduction credits (DERCs). The adopted amendments allow the substitution of emission reductions in one nonattainment air contaminant for reductions of another nonattainment air contaminant under the same restrictions as described for 101.302. Reductions of contaminants other than VOC and NO x will not qualify as DERCs. In response to public comment, the commission also corrected typographical errors and deleted the phrase "and using" from §101.372(a)(2).

New §117.571, which is being adopted concurrently in this issue of the Texas Register (Rule Log Number 2001-025d-117-AI), allows site owners or operators to defer NO x emissions reductions in the DFW ozone nonattainment area by using reductions under the TERP. The conditions on the use of these reductions are identical to those described for §101.357.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the adopted rulemaking in light of the draft regulatory analysis requirements of Texas Government Code, §2001.0225 and has determined that the adopted 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 which has as its specific intent 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 adopted rules implement SB 1561 and allow the substitution of emissions reductions of one criteria pollutant, accomplished outside the U.S., for emissions reductions of another criteria pollutant in Texas. This substitution will occur only under specific conditions as described in the SECTION BY SECTION DISCUSSION. The adopted rules also implement certain requirements of SB 5 and allow the deferral of NO x emissions reductions in the HGA nonattainment area under specific conditions described in the SECTION BY SECTION DISCUSSION portion of this preamble. The adopted rulemaking increases the compliance options for industries currently regulated by the commission. The adopted amendments and new sections do not increase the stringency of existing rules and 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. This rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the adopted rules do not meet any of the four applicability requirements. Specifically, the amendments and new sections implement the requirements of Texas Health and Safety Code (THSC), Texas Clean Air Act (TCAA), §386.056 and §382.0172.

TAKINGS IMPACT ASSESSMENT

The commission completed a takings impact assessment for the adopted rules. Promulgation and enforcement of the rules will not burden private real property. The adopted rules do not affect private property in a manner which restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Consequently, these rules do not meet the definition of a takings under Texas Government Code, §2007.002(5). These rules are specifically adopted to implement the requirements of THSC, TCAA, §386.052 and §382.0172, and address alternative methods of meeting emission reduction requirements and emissions reduction substitutions respectively. Therefore, these revisions do not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that the rulemaking 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's rules in 30 TAC Chapter 281, Subchapter B, concerning Consistency with the Texas Coastal Management Program. As required by 30 TAC §281.45(a)(3) and 31 TAC §505.11(b)(2), relating to actions and rules subject to the CMP, 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 regulations of the Coastal Coordination Council and has determined that the adopted rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) of protecting and preserving the quality and values of coastal natural resource areas, and the policy in §501.14(q), which requires that the commission protect air quality in coastal areas. The adopted rulemaking addresses alternative methods of meeting emission reduction requirements and emissions reduction substitutions. No new emissions of criteria pollutants are authorized by these rules.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM

The adopted rulemaking is part of the state's ozone attainment strategy; therefore, these rules will be submitted as part of the SIP. As a result, the rules will become applicable requirements under the federal operating permit program.

HEARINGS AND COMMENTERS

The commission held public hearings on this proposal in El Paso on December 17, 2001, and in Houston on December 18, 2001. The comment period closed on January 7, 2002. The El Paso Electric Company (EPE); Environmental Defense (ED); Galveston-Houston Association for Smog Prevention (GHASP); Harris County Public Health and Environmental Services, Pollution Control Division (HCPC); Sierra Club, Houston Regional Group (Sierra-Houston); and U.S. Environmental Protection Agency (EPA) submitted comments. ED submitted comments separately and also on GHASP letterhead. The EPE, ED, GHASP, HCPC, and EPA generally supported the proposal with suggested changes. Sierra-Houston generally opposed the proposal.

RESPONSE TO COMMENTS

Sierra-Houston, ED, and EPA stated that there is no criteria for deciding whether an emissions substitution will result in a greater health benefit to the overall air quality of the area, and that the lack of criteria will allow the executive director to operate in an arbitrary and capricious manner. They also stated that the criteria and procedures used to determine "greater health benefit" should be defined in the rule. Sierra-Houston opposed the substitution of reductions of one pollutant from a source outside the U.S. for reductions of another pollutant otherwise required in Texas. Sierra-Houston stated that the proposal ignored the effects of the mix of air pollutants.

The commission has not changed the rules in response to this comment. When determining whether an emissions reduction outside the U.S. will be of greater health benefit, the commission will consider the amount of air contaminant removed, the frequency that concentrations of an air contaminant have exceeded the NAAQS, existing air quality demonstrations performed under SIP requirements, the air quality index, and any other information which would indicate a clear benefit of a proposed emission reduction. While the commission will closely examine any proposed emission reduction under these rules, it does not want to specify or endorse any particular method of demonstration. The commission recognizes the influence of air contaminant sources outside the U.S. on the El Paso airshed and wishes to encourage emission reductions under these rules. These rules would not affect federally required reductions. Subsequent and identical trades involving the same participants may not require any further demonstration.

Sierra-Houston stated that nothing ensures the permanent removal of air contaminants from sources outside the U.S. and questioned how the commission can enforce against a source in Mexico. ED questioned whether a U.S. or Texas regulatory agency would have the authority to inspect monitoring systems and documentation to ensure comparability of emission reductions. ED suggested enforcement strategies that included permit conditions, memoranda of understanding between government agencies, and contracts between private parties with incentives to promote compliance.

The commission believes reductions outside the U.S. can be enforceable and has not changed the rule in response to these comments. Prior to approving any emission substitution, the commission intends to put enforceable requirements on the user of the reduction. For example, an enforceable requirement could be a permit condition requiring a contract with a third party to inspect facilities outside the U.S. If the inspection reveals violations, the user of the reductions would then be held accountable by the commission. This type of plan could also require that the user of reductions maintain records within Texas that demonstrate the Mexican source has accomplished and is maintaining the emissions reduction. Any individual plan used to ensure that reductions outside the U.S. are actually occurring and are maintained would be evaluated on a case-by-case basis.

Sierra-Houston stated that a severe ozone nonattainment area such as HGA should be required to make all available reductions. Sierra-Houston commented that this is particularly important because the current Houston SIP has a 56 tpd reduction deficit. Sierra-Houston also stated that TERP emission reductions should not be allowed as a substitution for reduction currently required of stationary sources, but rather both sets of reductions should be made.

The commission has not changed the rules in response to this comment. The rules require that emission substitution from the TERP occur on a ton-for-ton basis so that all reductions required under the HGA attainment demonstration will be accomplished. The TERP allows the user of TERP emission reductions to delay up to 20% of its required emissions for five years. At the end of this period, any delayed reductions will be surplus to those required under the SIP. Regarding the 56-ton emission reduction deficit, the commission will address the deficit in the 2004 review of the HGA SIP.

EPE expressed concern that the rule as proposed did not specifically mention any provisions for the creation of emission offset credits. This possibility of creating offsets is the principal motivation for EPE to continue work to reduce brick kiln emissions in Ciudad Juárez. ED expressed concern that emission reductions achieved in Mexico may not meet federal nonattainment requirements for compliance with the Federal Clean Air Act (FCAA) because cross-border transactions seem to be limited to the U.S. under the FCAA definitions.

The commission has not changed the rules in response to these comments. The rules do not restrict the use of offsets; however, the offset user must meet the requirements and intent of all federal, state, and local rules and regulations.

ED anticipated that emission reduction substitution will be a complex business when conducted across an international border and recommended the commission first establish regulations that deal with the single pollutant trading.

The commission has not changed the rule in response to this comment. The commission acknowledges that the international trading of emission credits makes issues, such as enforcement and verification, more complex as compared to trading within the U.S. However, the commission believes that such a program can be successfully implemented and will be an effective program to reduce air pollutants in the border area. The commission also believes that tools such as third- party inspections, contracts, and credit user liability can be effective. Finally, the adopted rules reflect the intent of SB 1561 which does not limit trades to one pollutant.

ED recommended the inter-pollutant trades be restricted to those involving precursors for the same resulting pollutant, and stated that this recommendation is consistent with EPA guidance concerning inter-pollutant trading.

The commission has not changed the rule in response to this comment. The commission believes that the intent of SB 1561 is to allow the substitution of emission reductions in one nonattainment pollutant for reductions otherwise required in another, as long as there is an improvement to the overall health benefit and general air quality in the affected area. The commission acknowledges that some trades may not meet federal regulations and may not be approved.

ED stated that a source that elects to use emissions trading be required to demonstrate that the benefit derived from the trade does not come at public health detriment or lower environmental performance.

The commission agrees and amended the rules in response to this comment. In order for a trade to be considered a greater benefit, the emission reduction outside the U.S. must result in no harmful local health effects through the avoidance of reductions otherwise required in Texas. The trade must also result in a greater health benefit as determined by the executive director. Both of these demonstrations would be accomplished using methods approved by the executive director, including, but not limited to, air dispersion modeling. The commission may require this demonstration only for the initial trade. Subsequent and identical trades involving the same participants may not require further demonstration.

ED commented that emissions trading could increase local effects from hazardous air pollutants or diminish the benefits a local community might have realized under a reduction program. ED used the example of a source acquiring credits and using the credits to avoid a reduction in a hazardous air pollutant such as benzene. ED stated that the commission rules should contain safeguards to protect low-income and minority populations adjacent to sources of toxic emissions. In addition, ED stated that the commission should prohibit trading in situations where VOC reductions are otherwise required.

The commission changed the rule to include the requirement to evaluate localized health effects. These rules shall not be used to allow emissions increases that are determined by the commission to be a threat to public health. Prior to authorization to use emissions reductions from outside the U.S., the user's emissions are subject to a health effects review to ensure that harmful concentrations of a pollutant do not occur off the property where the source is located. However, the commission believes that prohibiting VOC trades would not be consistent with SB 1561, which allows the trading of one nonattainment pollutant for another.

ED and HCPC commented that rules should be applied only in nonattainment areas on an international border as SB 1561 amended the TCAA, §382.0172, International Border Areas. ED commented that, if the bill were intended to apply to any nonattainment area of the state, it would have amended a more generic statute. In its interpretation of SB 1561, ED does not believe that Texas Government Code, §311.024, which states that the heading of a section does not limit or expand the meaning of a statute, should be read in isolation, but that the commission should also consider legislative history and intent. ED made a reference to the state senator who sponsored the bill, and who stated that SB 1561 would give the commission the necessary authority to allow for greater flexibility in improving air quality along the border region. HCPC commented that §§101.302(c)(4), 101.372(e)(6), and 101.338 are too broad in scope and need additional language consistent with SB 1561 to clarify that the facilities outside the U.S. are in the international border area with Mexico, and the reductions can only be used in the corresponding border areas in Texas. EPA stated that only sources in the El Paso nonattainment area could participate in the emissions substitution program.

The commission changed the rule in response to these comments. The commission believes the legislature intended that SB 1561 apply to the border area because the statute amended TCAA, §382.0172. The commission will restrict the use of this rule to facilities within 100 kilometers of the Texas - Mexico border. This is consistent with the definition of the border area contained in the 1983 La Paz agreement. El Paso is currently the only nonattainment area on the international border with Mexico and is designated nonattainment for three criteria pollutants: ozone, carbon monoxide, and PM 10 . Additionally, the commission has demonstrated under the FCAA Amendments of 1990, §818, that El Paso would be in attainment for these pollutants were it not for emissions from outside the U.S. Therefore, the commission believes that trading across the international border will result in air quality improvement for this area.

ED commented that §101.338(a) does not contain the same level of detail as §101.302 regarding the nature of acceptable emissions substitutions. ED stated that the word "are" should be substituted for "may be" in §101.338(b). ED also commented that the commission should insert the word "monoxide" after "carbon" in §101.372(a). ED also stated that the words "and using" in §101.372(a)(2) appear to be unnecessary and inconsistent with the statute and that the word "an" appears twice in §101.372(a)(2)(B).

The commission modified the rule to make the requested changes and corrections.

EPA stated that it will be very difficult to determine if emissions reductions outside the U.S. have actually occurred and stated that some mechanism to ensure the permanence of the reductions is necessary. The inability to inspect sources outside the U.S. will be a major difficulty in approval of the emissions substitution program. Section 101.302(e)(4) names enforceability as a criterion, but there is no mechanism for enforcement against facilities located outside the U.S. EPA stated that emission reductions must be subject to monitoring, recordkeeping, and reporting requirements of the EPA economic incentive programs (EIP) document. EPA added that the commission should clarify that emission reductions used as credits must be enforceable in accordance with the EPA EIP guidance. In the absence of an agreement that specifically addresses compliance, EPA suggested that the source receiving the reduction credit will be subject to enforcement action and the immediate installation of controls should the source that generates the credit outside the U.S. not monitor, keep records, or report in English. EPA further stated that records from the source generating the credit must be kept at the U.S. facility receiving the credits. The commission must address how the records from a foreign source generating credits for use in the U.S. will be checked for accuracy. Sierra-Houston stated that there are no criteria for determining when emission reductions are enforceable, quantifiable, and surplus to any applicable federal, state, or local law.

The commission has not changed the rule in response to these comments. Prior to approving any emissions reduction substitution, the commission intends to put enforceable requirements on the user. For example, an enforceable requirement might be a permit condition requiring a contract with a third party to inspect facilities outside the U.S. If the inspection reveals violations, the user of the reductions could then be held accountable by the commission. This type of plan could also require that the user of reductions maintain records within Texas that demonstrate that the Mexican source has accomplished and is maintaining the emissions reduction. Any individual plan used to ensure that reductions outside the U.S. are actually occurring and are maintained would be evaluated on a case-by-case basis. Any emission reductions from outside the U.S. must meet the same criteria as ERC and DERC generation.

EPA stated that, in order to be surplus, reductions must not have been relied upon in the most recent attainment demonstration approved by EPA or have the same qualitative effect on the environment.

The commission has not changed the rule in response to this comment. The commission agrees with the EPA comment and will use these standards to help evaluate potential emission trades.

EPA stated the emission reductions must have been established by use of an emissions quantification protocol that was pre-approved by EPA.

The commission has not changed the rule in response to this comment and intends to use EPA-approved protocols established by the new source review (NSR) section of the commission's Air Permits Division.

EPA stated that emission reductions under TERP must be real, permanent, quantifiable, and enforceable, and that these issues should be addressed in proposed TERP rules. Until a TERP rule is proposed, §101.357 must require that any emissions deferral be subject to EPA review and comment. Section 101.357 must also clarify from which baseline an 80% emission reduction is accomplished.

The commission has not changed the rule in response to this comment, but agrees with EPA that the reductions must be real, permanent, quantifiable, and enforceable. Any emission reduction deferral will be made available to the EPA until such time as a TERP rule is approved as a SIP revision. Reductions will be determined from the 1997 emission inventory (EI) for DFW and from the baseline as established under the Mass Emissions Cap and Trade (MECT) program for HGA. If a site is not subject to the MECT, the baseline will be the 1997 EI. The commission has not included the baseline within the rule to allow flexibility should the baseline require a change.

Sierra-Houston stated that the proposal lacks the technical criteria that would determine whether it is technically infeasible for a source to make a required reduction. EPA stated that §101.357(4) allows impermissible executive director discretion in the determination of technical infeasibility.

The commission changed the rule in response to this comment. The commission will determine on a case-by case basis whether a required reduction is technically infeasible. Technical specifications and control technology are constantly changing and involve a wide range of technologies and techniques. The commission does not believe it is possible to place a meaningful summary of these technologies within the rule, but has added rule language stating that a technical review will consider current technology, adaptability of technology to a particular source, age and projected useful life of the source, and cost benefits at the time of application.

GHASP and ED commented that the $75,000 paid to the TERP fund for each ton of emissions reduction deferrals should be used to finance reduction under TERP greater than one ton; and that to prevent double counting of SIP reductions, the money should be used to finance reductions distinct from those already in the SIP. GHASP and ED also stated that the rule should contain a provision that any reductions accomplished under TERP remain in effect over the period for which the substitution is granted. Finally, GHASP and ED stated that the definition of "site" must encompass an entire facility and not just single emission units.

The commission has not changed the rule in response to this comment. Money collected from the sale of TERP reductions will go back into the TERP fund and be distributed under TERP rules. Reductions from the TERP will be based on mass tons; therefore, the reducing site does not necessarily need to continue the reductions during the time span in which the reductions are used. For example, if a TERP reduction generates 100 tons of reductions over one year, a facility could use those reductions at a rate of 50 tons over a two-year period. In addition, the commission has not changed the definition of "site" to encompass an entire facility in this rulemaking. However, the definition is being considered for proposal in Chapter 101 as part of the upset/maintenance rule package (Rule Log Number 2001-075-101-AI) in the near future. The definition, as currently planned for that proposal, is: "(88) Site - The total of all stationary sources located on one or more contiguous or adjacent properties, which are under common control of the same person (or persons under common control)...."

1. EMISSION CREDIT BANKING AND TRADING

30 TAC §101.302

STATUTORY AUTHORITY The amendment is adopted under Texas Water Code (TWC), §5.103, concerning Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC; and under TCAA, §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes of the TCAA. The amendment is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive plan for proper control of the state's air. The amendment is also adopted under TCAA, §382.0172(b), concerning International Border Area, as amended by SB 1561, which authorizes the commission to make certain emission reduction substitutions for emission reductions outside the U.S. The amendment is also adopted under SB 5 and SB 1561, as passed by the 77th Legislature, 2001.

§101.302.General Provisions.

(a) Applicable pollutants. Reductions of volatile organic compounds (VOCs) and nitrogen oxides (NO x ) may qualify as emission credits. Reductions of other pollutants do not qualify as emission credits under this division. Reductions of one pollutant may not be used to meet the requirements of another pollutant, unless:

(1) urban airshed modeling demonstrates that one ozone precursor may be substituted for another, subject to executive director and EPA approval;

(2) the facility(s) generating the emission reductions is located outside the United States; and the substitution:

(A) results in a greater health benefit and is of equal or greater benefit to the overall air quality of the area, as determined by the executive director;

(B) is from the reduction of an air contaminant for which the area has been designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment; and

(C) is for any air contaminant for which the area has been designated as nonattainment or leads to the formation of a criteria pollutant for which the area has been designated as nonattainment; or

(3) the user of emission reductions substitutions under paragraph (2) of this subsection:

(A) demonstrates that the use of the reduction does not cause localized health impacts, as determined by the executive director;

(B) submits all supporting information for calculations, modeling, and any additional information requested by the executive director; and

(C) is located within 100 kilometers of the Texas - Mexico border.

(b) Emission reduction requirements.

(1) Emission reduction credits (ERCs) are generated from reductions beyond those required. To be certified as an emission credit, an emission reduction must be enforceable, permanent, quantifiable, real, and surplus. The emission credit must be surplus at the time it is created, as well as when it is used. The certified reduction must have occurred after the most recent year of emissions inventory used for state implementation plan (SIP) determinations for VOC and NO x , and the source's annual emissions prior to the emission credit application must have been reported or represented in the emissions inventory used for SIP determinations.

(2) Mobile emission reduction credits (MERCs) are generated from reductions beyond those required, and derived from a calculation of the annual difference between the mobile source emissions baseline and the projected emissions level after the MERC strategy has been put in place. To be certified as a MERC, an emission reduction must be enforceable, permanent, quantifiable, real, and surplus. The emission credit must be surplus at the time it is created, as well as when it is used. The certified reduction must have occurred after the most recent year of emissions inventory used for SIP determinations for VOC and NO x , the mobile source's emissions must have been represented in the emissions inventory used for SIP determinations, and the applicable mobile sources must have been included in the attainment demonstration baseline.

(3) Emission reductions from a source which are certified as emission credits under this division cannot be recertified in whole or in part as credits under another division within this subchapter.

(c) Eligible sources. The following sources are eligible to generate emission credits:

(1) stationary sources (including area sources);

(2) any mobile source;

(3) any stationary source (including area sources) or mobile source associated with actions by federal agencies under §101.30 of this title (relating to Conformity of General Federal Actions to State Implementation Plans).

(d) Life of an emission credit.

(1) If an ERC is used prior to its expiration date, the ERC is effective for the life of the applicable user source.

(2) Effective January 2, 2001, an ERC is available for use for 60 months from the date of the emission reduction except to the extent regulatory changes occur after the date of reduction that reduce the certified amount or invalidate the entire reduction for affected emission points. ERCs certified or applied for prior to January 2, 2001 shall be available for use for 120 months from the date of the emission reduction except to the extent regulatory changes occur after the date of the emission reduction that reduce the certified amount or invalidate the entire reduction for affected emission points.

(e) Geographic scope. Except as provided in paragraph (4) of this subsection, only emission reductions generated in ozone nonattainment areas can be certified. The trading of emission credits may be discontinued by the executive director in whole or in part and in any manner, with commission approval, as a remedy for problems resulting from trading in a localized area of concern. An emission credit must be used in the nonattainment area in which it is generated unless:

(1) a demonstration has been made and approved by the executive director and the EPA to show that the emission reductions achieved in another county, state, or nation provide an improvement to the air quality in the county of use;

(2) the emission credit was generated in an ozone nonattainment area which has an equal or higher nonattainment classification than the ozone nonattainment area of use, and a demonstration has been made and approved by the executive director and the EPA to show that the emissions from the ozone nonattainment area where the emission credit is generated contribute to a violation of the national ambient air quality standard in the ozone nonattainment area of use;

(3) the user has obtained prior written approval of the executive director and the EPA; or

(4) a facility is using emission reductions generated outside the United States which have been determined by the executive director to be real, permanent, enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law and the result would provide a greater health benefit to the area.

(f) The registry. All emission credit generators and users must register with the executive director. A notice submitted by a generator or user will be posted to the registry. The registry will assign a unique number to each certificate which will include the amount of emission reductions generated. The registry will maintain current listings of all credits available or used for each ozone nonattainment area.

(g) Recordkeeping. The user must maintain a copy of all notices and backup information submitted to the registry during, and for at least two years after, the beginning of the use period. The user must also make such records available upon request to representatives of the executive director, EPA, and any local enforcement agency. The records shall include, but not necessarily be limited to:

(1) the name, emission point number, and facility identification number of each unit using emission credits;

(2) the amount of emission credits being used by each unit; and

(3) the specific number, name, or other identification of emission credits used for each unit.

(h) Public information. All information submitted with a notice or report regarding the nature and quantity of emissions associated with the use or generation of an emission credit is public information and may not be submitted as confidential. Any claim of confidentiality for this type of information, or failure to submit all information, may result in the rejection of the emission reduction. All non-confidential notices and information regarding the generation, use, and availability of emission credits may be obtained from the executive director.

(i) Authorization to emit. An emission credit created under this division is a limited authorization to emit VOC and/or NO x , unless otherwise defined, in accordance with the provisions of this section, the FCAA, and the TCAA, as well as regulations promulgated thereunder. An emission credit does not constitute a property right. Nothing in this division may be construed to limit the authority of the commission or the EPA to terminate or limit such authorization.

(j) Program participation. The executive director has the authority to prohibit an organization from participating in emission credit trading either as a generator or user, if the executive director determines that the organization has violated the requirements of the program or abused the privileges provided by the program.

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 March 15, 2002.

TRD-200201614

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

2. EMISSIONS BANKING AND TRADING ALLOWANCES

30 TAC §101.338

STATUTORY AUTHORITY

The new section is adopted under TWC, §5.103, concerning Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC; and under TCAA, §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes of the TCAA. The new section is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive plan for proper control of the state's air. The new section is also adopted under TCAA, §382.0172(b), concerning International Border Areas, as amended by SB 1561, which authorizes the commission to make certain emission reduction substitutions for emission reductions achieved outside the U.S. This new section is also adopted under SB 5 and SB 1561, as passed by the 77th Legislature, 2001.

§101.338.Emission Reductions Achieved Outside the United States.

(a) A grandfathered or electing electric generating facility (EGF) may use emission reductions achieved outside the United States in substitution of allowances for the purposes of compliance with this division provided that the emission reductions are enforceable, quantifiable, and surplus to any applicable international, federal, state, or local law; are of greater health benefit; and are of equal or greater benefit to overall air quality of the area, as determined by the executive director.

(b) A grandfathered or electing EGF may only use subsection (a) of this section if reductions of criteria pollutants for which an area has been designated as nonattainment or air contaminants which lead to the formation of a criteria pollutant for which an area has been designated as nonattainment are substituted for any criteria pollutant for which the area has been designated as nonattainment or for air contaminants which lead to the formation of a criteria pollutant for which an area has been designated as nonattainment. The applicant must:

(1) demonstrate that the use of the reduction does not cause localized health impacts, as determined by the executive director;

(2) submit all supporting information for calculations, modeling, and any additional information requested by the executive director; and

(3) be located within 100 kilometers of the Texas - Mexico border.

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 March 15, 2002.

TRD-200201615

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

3. MASS EMISSIONS CAP AND TRADE PROGRAM

30 TAC §101.357

STATUTORY AUTHORITY

The new section is adopted under TWC, §5.103, concerning Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC; and under TCAA, §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes of the TCAA. The new section is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive plan for proper control of the state's air. The new section is also adopted under THSC, §386.056, concerning Availability of Emissions Reductions in Certain Nonattainment Areas, as amended by SB 5, which authorizes the commission to allow alternative methods of compliance with air pollution regulations.

§101.357.Use of Emission Reductions Generated from the Texas Emissions Reduction Plan (TERP).

(a) An owner or operator of a site as defined in §122.10 of this title (relating to General Definitions) in the Houston/Galveston ozone nonattainment area may use nitrogen oxides (NO x ) emission reductions generated under the TERP in lieu of allowances for compliance with this division provided that:

(1) the owner or operator of the site contributes to the TERP fund $75,000 per ton of NO x emissions used, not to exceed 25 tons per year or 0.5 tons per day on a site-wide basis;

(2) the owner or operator of the site demonstrates to the executive director that the site will be in full compliance with the applicable emission reduction requirements of this division and Chapter 117 of this title (relating to Control of Air Pollution from Nitrogen Compounds) no later than the fifth anniversary of the date on which the emission reductions would otherwise be required;

(3) emissions from the site are reduced by at least 80% of the required reductions;

(4) the reductions accomplished under the TERP have not been previously used to meet reduction requirements under a state implementation plan attainment demonstration;

(5) the reductions accomplished under the TERP are used in the same nonattainment area in which they are generated; and

(6) the executive director approves a petition submitted by the owner or operator of the site that demonstrates that it is technically infeasible to comply with applicable emission reduction requirements of this division and Chapter 117 of this title above 80% of the required reductions. When considering technical infeasibility the executive director may consider, but will not be limited to:

(A) current technology;

(B) adaptability of technology to a particular source;

(C) age and projected useful life of a source; and

(D) cost benefits at the time of application.

(b) The emissions reductions funded under the TERP, and used to offset commission requirements, shall be used to benefit the community in which the site using the emissions reductions is located. If there are no eligible emissions reduction projects within the community, the commission may authorize projects in an adjacent community. For purposes of this section, a community means a Justice of the Peace precinct.

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 March 15, 2002.

TRD-200201616

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

4. DISCRETE EMISSION CREDIT BANKING AND TRADING

30 TAC §101.372

STATUTORY AUTHORITY

The amendment is adopted under TWC, §5.103, concerning Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under the TWC; and under TCAA, §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes of the TCAA. The amendment is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive plan for proper control of the state's air. The amendment is also adopted under TCAA §382.0172(b), concerning International Border Area, as amended by SB 1561, which authorizes the commission to make certain emission reduction substitutions for emission reductions achieved outside the United States.

§101.372.General Provisions.

(a) Applicable pollutants. Reductions of volatile organic compounds (VOCs), nitrogen oxides (NO x ), carbon monoxide (CO), sulfur dioxide (SO 2 ), and particulate matter with an aerodynamic diameter of less than or equal to a nominal ten microns (PM 10 ) may qualify as discrete emission credits as appropriate. Reductions of other criteria pollutants are not creditable. Reductions of one pollutant may not be used to meet the reduction requirements for another pollutant, unless:

(1) urban airshed modeling demonstrates that one may be substituted for another or as approved by the executive director and the EPA;

(2) the facility(s) generating the emission reductions is located outside the United States and the substitution:

(A) results in a greater health benefit and is of equal or greater benefit to the overall air quality of the area, as determined by the executive director;

(B) is from the reduction of an criteria pollutant for which the area has been designated as nonattainment or which leads to the formation of a criteria pollutant for which an area has been designated as nonattainment; and

(C) is for any criteria pollutant for which the area has been designated as nonattainment; or

(3) the user of emission reductions substitutions under paragraph (2) of this subsection:

(A) demonstrates that the use of the reduction does not cause localized health impacts, as determined by the executive director;

(B) submits all supporting information for calculations, modeling, and any additional information requested by the executive director; and

(C) is located within 100 kilometers of the Texas - Mexico border.

(b) Discrete emission credit requirements.

(1) Discrete emission reduction credit (DERC) - To be creditable as a DERC, an emission reduction must be real, quantifiable, and surplus at the time the discrete emission credit is generated. The creditable reduction must have occurred after the most recent year of emissions inventory used for state implementation plan (SIP) determinations for all applicable pollutants and the source's annual emissions prior to the discrete emission credit application must have been reported or represented in the emissions inventory used for SIP determinations.

(2) Mobile discrete emission reduction credit (MDERC) - To be creditable as an MDERC, an emission reduction must be quantifiable, real, and surplus. The discrete emission credit must be surplus at the time it is created. The creditable reduction must have occurred after the most recent year of emissions inventory used for SIP determinations for all applicable pollutants, the mobile source's emissions must have been represented in the emissions inventory used for SIP determinations, and the mobile sources are in the attainment demonstration baseline. If a mobile reduction is implemented that is not in the baseline for emissions, this would not constitute an emission reduction.

(3) Emission reductions from a source which are certified as discrete emission credits under this division cannot be recertified in whole or in part as emission credits under another division within this subchapter.

(c) Eligible sources include the following:

(1) stationary sources (including area sources);

(2) mobile sources; or

(3) any stationary source (including area sources) or mobile source associated with actions by federal agencies under §101.30 of this title (relating to Conformity of General Federal Actions to State Implementation Plans).

(d) Life of a discrete emission credit. A discrete emission credit is available for use after the notice of generation, DC-1 Form, has been received and deemed creditable by the commission registry in accordance with subsection (h) of this section, and may be used anytime thereafter.

(e) Geographic scope. Except as provided in paragraph (6) of this subsection, only emission reductions generated in the State of Texas may be creditable and used in the state with the following limitations.

(1) VOC and NO x discrete emission credits generated in an ozone attainment area may be used in any county or portion of a county designated as attainment or unclassified, but may not be used in an ozone nonattainment area.

(2) VOC and NO x discrete emission credits generated in an ozone nonattainment area may be used either in the same ozone nonattainment area in which they were generated, or in any county or portion of a county designated as attainment or unclassified.

(3) VOC and NO x discrete emission credits generated in an ozone nonattainment area may not be used in any other ozone nonattainment area, except as provided in this subsection.

(4) CO, SO 2 , and PM 10 discrete emission credits must be used in the same metropolitan statistical area in which the reduction was generated.

(5) VOC and NO x discrete emission credits generated in other counties, states, or nations can be used in any attainment or nonattainment county provided a demonstration has been made and approved by the executive director and the EPA to show that the emission reductions achieved in the other county, state, or nation improves the air quality in the county where the credit is being used.

(6) A facility may use discrete emission reductions generated outside the United States provided that the emission reductions are quantifiable, real, and surplus to any applicable international, federal, state, or local law and the result would provide a greater health benefit to the area as determined by the executive director. The applicant must:

(A) demonstrate that the use of the reduction does not cause localized health impacts, as determined by the executive director;

(B) submit all supporting information for calculations, modeling, and any additional information requested by the executive director; and

(C) be located within 100 kilometers of the Texas - Mexico border.

(f) Trading discontinuation. The trading of discrete emission credits may be discontinued by the executive director in whole or in part and in any manner, with commission approval, as a remedy for problems resulting from trading in a localized area of concern.

(g) Ozone season. In areas having an ozone season of less than 12 months, VOC and NO x discrete emission credits generated outside the ozone season may not be used during the ozone season.

(h) The registry. All required notices of discrete emission credit generators and users must be submitted to the registry. A notice submitted by a generator or user will be reviewed for credibility and when deemed certified, posted to the registry. The registry will assign a unique number to each ton of emission reductions generated. The registry will maintain current listings of all credits available or used for each ozone nonattainment area. One combined listing for all the counties or portions of counties designated as attainment or unclassified will be provided by the registry.

(i) Recordkeeping. The generator must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion of the generation period. The user must maintain a copy of all notices and backup information submitted to the registry for a minimum of five years, following the completion of the use period. Other relevant reference material or raw data must also be maintained on-site by the participating sources. The user must also maintain a copy of the generator's notice and backup information for a minimum of five years after the use is completed. The records shall include, but are not necessarily limited to:

(1) the name, emission point number (EPN), and facility identification number (FIN) of each unit using discrete emission credits;

(2) the amount of discrete emission credits being used by each unit; and

(3) the specific number, name, or other identification of discrete emission credits used for each unit.

(j) Public information. All information submitted with a notice or report regarding the nature and quantity of emissions associated with the use or generation of discrete emission credits is public information and may not be submitted as confidential. Any claim of confidentiality for this type of material or failure to submit all information may result in the rejection of the emission reduction. All non-confidential notices and information regarding the generation, use, and availability of discrete emission credits may be obtained from the registry.

(k) Authorization to emit. A discrete emission credit created under this division is a limited authorization to emit the specified pollutants in accordance with the provisions of this section, the FCAA, and the TCAA, as well as regulations promulgated thereunder. A discrete emission credit does not constitute a property right. Nothing in this division should be construed to limit the authority of the commission or the EPA to terminate or limit such authorization.

(l) Program participation. The executive director has the authority to prohibit a company from participating in discrete emission credit trading either as a generator or user, if the executive director determines that the company has violated the requirements of the program or abused the privileges provided by the program.

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 March 15, 2002.

TRD-200201617

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

Chapter 117. CONTROL OF AIR POLLUTION FROM NITROGEN COMPOUNDS

Subchapter E. ADMINISTRATIVE PROVISIONS

30 TAC §117.571

The Texas Natural Resource Conservation Commission (commission) adopts new §117.571 and corresponding revisions to the state implementation plan (SIP). Section 117.571 is adopted with changes to the proposed text as published in the November 23, 2001 issue of the Texas Register (26 TexReg 9519).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULE

The commission adopts this new section in order to control ground-level ozone in the Houston/Galveston (HGA) and Dallas/Fort Worth (DFW) ozone nonattainment areas and as part of the implementation of Senate Bill (SB) 5 (an act relating to the Texas emissions reduction plan), 77th Legislature, 2001. The 77th Legislature adopted SB 5 to establish and provide for the administration of the Texas Emissions Reduction Plan (TERP), which is a comprehensive plan to reduce emissions of air contaminants from mobile sources. The program offers subsidies for the replacement of older diesel engines with more efficient engines, and older diesel-powered vehicles with vehicles with lower emissions, and for the purchase of new automobiles with lower emissions. The program is funded in part through surcharges and fees on the lease, sale, and registration of certain diesel-powered vehicles. The plan is also partially funded by contributions from the owners or operators of stationary nitrogen oxides (NO x ) sources in the HGA and DFW ozone nonattainment areas. These owners or operators may substitute emission reductions made under the plan for those reductions otherwise required under the commission rules; such substitutions require a contribution to the fund based on the amount of emissions reductions substituted. This adopted new section implements the relevant portions of SB 5 concerning these contributions to the TERP fund for certain sources in the HGA and DFW areas as described in greater detail in the SECTION DISCUSSION portion of this preamble.

SECTION DISCUSSION

The adopted new §117.571, Use of Emission Reductions Generated from the Texas Emissions Reduction Plan (TERP), allows site owners or operators in the DFW and HGA nonattainment areas to defer a portion of their required NO x emissions under applicable commission rules by using emissions reductions generated under the TERP. The TERP reductions may be used if the owner or operator contributes to the TERP fund $75,000 per ton of NO x reductions used, not to exceed 25 tons per year or 0.5 tons per day (tpd) on a site-wide basis; demonstrates to the executive director that the site will be in full compliance with applicable rules no later than the fifth anniversary of the date the emissions reductions would have normally been required; reduces emissions from the site area at least 80% of the required reductions; and receives approval from the executive director of a petition from the owner or operator that demonstrates that it is technically infeasible to comply with the applicable emission reductions of Chapter 117. In order to ensure that TERP reductions are not used twice to meet SIP reductions, the commission added a restriction that TERP emissions used to meet stationary source reduction requirements must not have been previously used to meet reduction requirements under a SIP attainment demonstration. For consistency with SB 5, the commission also added a restriction that TERP credits must be used in the same nonattainment area in which they are generated and a requirement that emission reduction projects funded under TERP must be used to benefit the community in which the site using TERP emission reduction credits is located.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the rulemaking in light of the regulatory impact analysis requirements of Texas Government Code, §2001.0225 and has determined that the rulemaking does not meet the definition of "major environmental rule." Furthermore, it does not meet any of the four applicability requirements listed in §2001.0225(a). A "major environmental rule" is a rule which is specifically intended to protect the environment or reduce risks to human health from environmental exposure, and which 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 new section implements certain requirements of SB 5 and allows the deferral of NO x emissions reductions in the DFW and the HGA nonattainment areas under specific conditions described in the SECTION DISCUSSION portion of this preamble. This adopted section increases the compliance options for industries currently regulated by the commission. The adopted new section does not increase the stringency of existing rules and 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. This rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the adopted rule does not meet any of the four applicability requirements. Specifically, the new section implements the requirements of Texas Health and Safety Code (THSC), §386.056.

TAKINGS IMPACT ASSESSMENT

The commission completed a takings impact assessment for the adopted rule. Promulgation and enforcement of the rule will not burden private real property. The adopted rule does not affect private property in a manner which restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Consequently, the new rule does not meet the definition of a takings under Texas Government Code, §2007.002(5). The new rule is specifically adopted to implement the requirements of THSC, §386.056 and address alternative methods of meeting emission reduction requirements. Therefore, this adopted rule does not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission determined that this rulemaking 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's rules in 30 TAC Chapter 281, Subchapter B, concerning Consistency with the Texas Coastal Management Program. As required by 30 TAC §281.45(a)(3) and 31 TAC §505.11(b)(2), relating to actions and rules subject to the CMP, 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 regulations of the Coastal Coordination Council and determined that the adopted rule is consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) of protecting and preserving the quality and values of coastal natural resource areas, and the policy in §501.14(q), which requires that the commission protect air quality in coastal areas. The adopted rulemaking addresses alternative methods of meeting emission reduction requirements. No new emissions of air contaminants are authorized by this adoption.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM

The adopted new section is part of the state's ozone attainment strategy; therefore, the section will be submitted as part of the SIP. As a result, the section will become an applicable requirement under the federal operating permit program.

HEARINGS AND COMMENTERS

The commission held public hearings on this proposal in Houston on December 18, 2001, and in Irving on December 20, 2001. The public comment period closed on January 7, 2002. The Environmental Defense (ED); Galveston-Houston Association for Smog Prevention (GHASP); Sierra Club, Houston Regional Group (Sierra-Houston); and United States Environmental Protection Agency (EPA) submitted comments during the comment period. The GHASP and ED comments were submitted on GHASP letterhead. EPA, GHASP, and ED generally supported the proposal with suggested changes. Sierra-Houston generally opposed the proposal.

RESPONSE TO COMMENTS

Sierra-Houston stated that a severe ozone nonattainment area such as HGA should be required to make all available reductions. They stated that this is particularly important because the current Houston SIP has a 56 tpd reduction deficit. Sierra-Houston also stated that TERP emission reductions should not be allowed as a substitution for reductions currently required of stationary sources, but rather both sets of reductions should be made.

The commission disagrees and has not changed the rule in response to this comment. The rule requires that emission substitution from the TERP occur on a ton-for-ton basis so that all reductions required under the HGA attainment demonstration would be accomplished. The TERP allows the user of TERP emission reductions to delay up to 20% of their required emissions for five years. At the end of this period, any delayed reductions will be surplus to those required under the SIP. Regarding the 56-ton emissions reduction deficit, the commission will address the deficit in its 2004 review of the HGA SIP.

EPA stated that emission reductions under the TERP must be real, permanent, quantifiable, and enforceable, and that these issues should be addressed in proposed TERP rules. Until a TERP rule is proposed, §101.357 must require that any emissions deferral be subject to EPA review and comment. Section 101.357 must also clarify from which baseline an 80% emission reduction is accomplished.

The commission has not changed the rule in response to this comment, but agrees with EPA that the reductions must be real, permanent, quantifiable, and enforceable. Any emission reduction deferrals will be made available to the EPA until such time as a TERP rule is approved as a SIP revision. Reductions will be determined from the 1997 emission inventory (EI) for DFW and from the baseline as established under the Mass Emissions Cap and Trade (MECT) program for HGA. If a site is not subject to the MECT, the baseline will be the 1997 EI. The commission has not included the baseline within the rule to allow flexibility should the baseline require a change.

Sierra-Houston stated that the proposal lacks the technical criteria that would determine whether it is technically infeasible for a source to make a required reduction. EPA stated that §117.571 allows impermissible executive director discretion in the determination of technical infeasibility, and that there must be direction or criteria for the executive director to determine the validity of the technical feasibility demonstration.

The commission changed the rule in response to these comments. The commission will determine on a case-by case review whether a required reduction is technically infeasible. Technical specifications and control technology are constantly changing and involve a wide range of technologies and techniques. The commission does not believe it is possible to place a meaningful summary of these technologies within the rule, but has added rule language stating that a technical review will consider current technology, adaptability of technology to a particular source, age and projected useful life of the source, and cost benefits at the time of application.

GHASP and ED commented that for $75,000 per ton, the TERP fund should be able to produce more than one ton of emissions reduction deferrals. GHASP and ED stated that to prevent double counting of SIP reductions, the money should be used to finance reductions distinct from those already in the SIP. GHASP and ED also stated that the rule should contain a provision that any reductions accomplished under TERP remain in effect over the period the substitution is granted. Finally, GHASP and ED stated that the definition of "site" must encompass an entire facility, not just single emission units.

The commission has not changed the rule in response to these comments. Money collected from the sale of TERP reductions would go back into the TERP fund and be distributed under TERP rules. Reductions from the TERP would be based on mass tons, therefore, the reducing site does not necessarily need to continue the reductions during the span the reductions are used. For example, if a TERP reduction generates 100 tons of reductions over one year, a facility could use those reductions at 50 tons over a two-year period. In addition, the commission has not changed the definition of "site" to encompass an entire facility in this rulemaking. However, the definition is being considered for proposal in Chapter 101 as part of the upset/maintenance rule package (Rule Log Number 2001-075-101-AI) in the near future. The definition, as currently planned for that proposal, is: "(88) Site - The total of all stationary sources located on one or more contiguous or adjacent properties, which are under common control of the same person (or persons under common control)...."

STATUTORY AUTHORITY

The new section is adopted under Texas Water Code (TWC), §5.103, concerning Rules, which authorizes the commission to adopt rules necessary to carry out its powers and duties under TWC; and under Texas Clean Air Act (TCAA), §382.017, concerning Rules, which authorizes the commission to adopt rules consistent with the policy and purposes of the TCAA. The new section is also adopted under TCAA, §382.011, concerning General Powers and Duties, which authorizes the commission to control the quality of the state's air; and §382.012, concerning State Air Control Plan, which authorizes the commission to prepare and develop a comprehensive plan for proper control of the state's air. The new section is also adopted under THSC, §386.056, concerning Availability of Emissions Reductions in Certain Nonattainment Areas, as created by SB 5, which authorizes the commission to allow alternative methods of compliance with air pollution regulations.

§117.571.Use of Emission Reductions Generated from the Texas Emissions Reduction Plan (TERP).

(a) An owner or operator of a unit located in the Dallas/Fort Worth nonattainment area or in the Houston/Galveston nonattainment area that is not subject to Chapter 101, Subchapter H, Division 3 of this title (relating to Mass Emissions Cap and Trade Program) may meet emission control requirements of §117.105 or §117.205 of this title (relating to Emission Specifications for Reasonably Available Control Technology (RACT)), §117.106 or §117.206 of this title (relating to Emission Specifications for Attainment Demonstrations), §117.207 of this title (relating to Alternative Plant-wide Emission Specifications), §117.108 of this title (relating to System Cap), or §117.223 of this title (relating to Source Cap), by obtaining emission reductions generated from the TERP if:

(1) the owner or operator of the site as defined in §122.10 of this title (relating to General Definitions) contributes to the TERP fund, $75,000 per ton of nitrogen oxides emissions used, not to exceed 25 tons per year or 0.5 tons per day on a site-wide basis;

(2) the owner or operator of the site demonstrates to the executive director that the site will be in full compliance with the applicable emission reduction requirements of this chapter no later than the fifth anniversary of the date on which the emission reductions would otherwise be required;

(3) emissions from the site are reduced by at least 80% of the required reductions;

(4) the reductions accomplished under the TERP have not been previously used to meet reduction requirements under a state implementation plan attainment demonstration;

(5) the reductions accomplished under the TERP are used in the same nonattainment area in which they are generated; and

(6) the executive director approves a petition submitted by the owner or operator of the site that demonstrates that it is technically infeasible to comply with applicable emission reduction requirements of this division and this chapter above 80% of the required reductions. When considering technical infeasibility the executive director may consider, but will not be limited to:

(A) current technology;

(B) adaptability of technology to a particular source;

(C) age and projected useful life of a source; and

(D) cost benefits at the time of application.

(b) The emissions reductions funded under the TERP, and used to offset commission requirements, shall be used to benefit the community in which the site using the emissions reductions is located. If there are no eligible emissions reduction projects within the community, the commission may authorize projects in an adjacent community. For purposes of this section, a community means a Justice of the Peace precinct.

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 March 15, 2002.

TRD-200201618

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 4, 2002

Proposal publication date: November 23, 2001

For further information, please call: (512) 239-0348

Chapter 334. UNDERGROUND AND ABOVEGROUND STORAGE TANKS

The Texas Natural Resource Conservation Commission (TNRCC or commission) adopts amendments to §334.2, Definitions; §334.3, Exemption for Underground Storage Tanks (USTs) and UST Systems; §334.5, General Prohibitions for Underground Storage Tanks (USTs) and UST Systems; §334.6, Construction Notification for Underground Storage Tanks (USTs) and UST Systems; §334.8, Certification for Underground Storage Tanks (USTs) and UST Systems; §334.12, Other General Provisions; §334.45, Technical Standards for New Underground Storage Tank Systems; §334.47, Technical Standards for Existing Underground Storage Tank Systems; §334.50, Release Detection; §334.54, Temporary Removal from Service; §334.71, Applicability; §334.82, Public Participation; §334.201, Purpose and Applicability; §334.301, Applicability of this Subchapter; §334.302, General Conditions and Limitations Regarding Reimbursement; §334.303, When to File Application; §334.310, Requirements for Eligibility; §334.313, Review of Application; and §334.322, Subchapter H Definitions. Sections 334.82 and 334.302 are adopted with changes to the proposed text as published in the November 9, 2001 issue of the Texas Register (26 TexReg 9034). Sections 334.2, 334.3, 334.5, 334.6, 334.8, 334.12, 334.45, 334.47, 334.50, 334.54, 334.71, 334.201, 334.301, 334.303, 334.310, 334.313, and 334.322 are adopted without changes to the proposed text and will not be republished.

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES

The adopted rules implement the provisions of House Bill (HB) 2687 and duplicative provisions in TNRCC Sunset legislation in HB 2912, Article 14. These statutory provisions cover several areas that require rulemaking: the definition of a tank "owner" in the petroleum storage tank (PST) program was clarified; the scope of compliance self-certification (established by HB 2815 in the previous legislative session) was prospectively narrowed to exclude tanks containing regulated substances that are not motor fuels; specific deadlines were attached to the existing general obligations that tank owners and operators have to perform corrective action activities at leaking petroleum storage tank (LPST) sites, with loss of reimbursement eligibility stemming from missed deadlines that are the fault of the tank owner or operator (or their agents, etc.); the long-standing legal fact that a person's liability to perform corrective action at LPST sites is unrelated to any possible reimbursements that a person may be eligible for was reiterated and emphasized in new statutory provisions; the Petroleum Storage Tank Reimbursement (PSTR) Account was extended through September 1, 2006, and new deadlines were created concerning applications for reimbursement from that fund. Other elements of the new legislation (e.g., fee schedules) do not require rulemaking, and are not included in this adoption. A minor amount of regulatory reform is contained in this adoption. For example, amendments are adopted to facilitate owner/operators of tanks temporarily out-of-service (under §334.54), bringing those tanks back into service without violating compliance self-certification regulations in §334.8(c). Typographical errors in the rules are also corrected.

SECTION BY SECTION DISCUSSION

Subchapter A - General Provisions

Several of the new legislative provisions (concerning the clarified tank owner definition, and the prospective narrowing of the scope of the compliance self-certification program) require changes to the regulations in this subchapter. Also, regulatory reform changes are adopted here concerning how tanks that are temporarily out-of-service in §334.54 may be brought back into service without violating compliance self-certification requirements. Also, some typographical errors in the subchapter were corrected.

Section 334.2, Definitions. Paragraph (27)(C) is amended by correcting the spelling of the word "tester." The definition of "Owner" in §334.2(72) is amended to match the clarified definition of the term contained in the legislation being implemented by this rulemaking.

Section 334.3, Exemptions from Underground Storage Tanks (USTs) and UST Systems. Section 334.3(a)(10)(A) is amended to correct the spelling of the word "pipeline."

Section 334.5, General Prohibitions for Underground Storage Tanks (USTs) and UST Systems. The text of subsection (b)(1)(C) is deleted, because the new legislation prospectively narrows the scope of the compliance self-certification program such that there will no longer be a phase-in concerning regulated substances that are not motor fuels, with the old subsection (b)(1)(D) language now becoming (b)(1)(C) (and including a correction of the spelling of the phrase "prima facie"). Section 334.5(b)(2) is amended by deletion of the parenthetical, because the new legislation narrows the scope of the compliance self-certification program such that there will no longer be a phase-in concerning regulated substances that are not motor fuels.

Section 334.6, Construction Notification for Underground Storage Tanks (USTs) and UST Systems. Section 334.6(b)(1)(C) is added to require that when an underground storage tank (UST) system has been taken temporarily out-of-service under §334.54 of this chapter, the owner or operator must first submit a construction notification form before returning the UST system to service. This change is implemented because under existing compliance self-certification rules in §334.8(c), owners/operators may experience difficulty in bringing these tanks back into service without violating those compliance self-certification requirements. In the self-certification regulatory scheme, new and replacement tanks may receive a "temporary delivery authorization" from the commission under §334.8(c)(5)(D) once a construction notification form is received under this section. This temporary authorization functions as the required delivery certificate while preliminary testing is done on the tank systems (which includes placing motor fuels into them). The amendment plugs the temporarily out-of-service tanks into this system as well such that, once the construction notification form is received, the temporary authorization allows the owner/operator to perform the testing, etc. necessary to bring such a tank back into service prior to getting his standard delivery certificate as discussed in that portion of the Section by Section Discussion of this preamble. Concurrent changes to §334.8(c) and §334.54 are made to implement this change (see discussion in those sections).

Section 334.8, Certification for Underground Storage Tanks (USTs) and UST Systems. Section 334.8(c)(1)(A)(i) is amended by deleting the word "and" at the end of the provision, and the period at the end of §334.8(c)(1)(A)(iii) is changed to a semi-colon, since new items are being added to the list. Section 334.8(c)(1)(A)(iv), reading "USTs used for storing regulated substances that are not motor fuels (as defined in this subchapter); and" is added because new legislative provisions narrow the scope of the compliance self-certification program to exclude regulated substances that are not motor fuels. Section 334.8(c)(1)(A)(v), reading "USTs temporarily out-of-service under §334.54 of this title..." is added to clarify compliance self-certification requirements for this class of tanks. Section 334.8(c) is reorganized so that existing §334.8(c)(1)(B) language becomes §334.8(c)(2) language (with necessary cross-reference changes), while current §334.8(c)(2)(B) language becomes new §334.8(c)(1)(B) language. This reorganization of language is made because new legislative provisions narrow the scope of the compliance self-certification program to exclude regulated substances that are not motor fuels. For this reason, there will no longer be a phase-in of the program for those substances that occurs in November of 2002. Section 334.8(c)(3)(B) is amended to correct the spelling of the phrase "self-certification." The phrase "To ensure timely initial issuance by the agency of the UST delivery certificate," is deleted from §334.8(c)(4)(A)(vi) as superfluous language. Section 334.8(c)(5)(D) is amended to facilitate tanks that are temporarily out-of-service under §334.54 being brought back into service without violating compliance self-certification requirements. These tanks are added to the list in §334.8(c)(5)(D)(i), and changes to clauses (ii) and (iii) are made to acknowledge this new item on the list (see full discussion in this preamble in the amendments to §334.6).

Section 334.12, Other General Provision. Section 334.12(a)(2) is deleted, because the statutory language can stand alone on these points. Section 334.12(a)(1) has been relettered to (a) and a cross- reference in (a)(1) was deleted.

Subchapter C - Technical Standards

There are three categories of amendments for this subchapter: changes which serve to cross- reference new legislative special requirements for tank owners and operators with tanks located in areas containing certain aquifers, the specifics which will be contained in a separate rulemaking (Rule Log Number 2001-100-214-WS); changes to remove uncertainty in technical standards caused by HB 2912 language invalidating certain local ordinances; and changes to facilitate owner/operators of tanks temporarily out-of-service (under §334.54) who wish to bring those tanks back into service without violating compliance self-certification regulations in §334.8(c).

Section 334.45, Technical Standards for New Underground Storage Tank Systems. Section 334.45(d)(1)(C) is amended by inserting the following new language: "An UST system, at a minimum, shall incorporate secondary containment as specified in Texas Water Code, §26.3476, if the UST system is located in an area described in that provision." The current language in subparagraph (C) would become a new subparagraph (D). These changes are to cross-reference new requirements for tanks located near certain aquifers that are contained in HB 2912, Article 13.

Section 334.47, Technical Standards for Existing Underground Storage Tank Systems. Section 334.47(d) is amended by inserting the following new language: "An UST system, at a minimum, shall incorporate secondary containment as specified in TWC, §26.3476, if the UST system is located in an area described in that chapter." Subsection (d) becomes a new subsection (e). These changes are to cross-reference new requirements for tanks located near certain aquifers that are contained in HB 2912, Article 13.

Section 334.50, Release Detection. Section 334.50(d)(1)(B)(iii)(III) is amended by deleting the phrase "the local standards for meter calibration or within" and inserting the phrase "or less" after the word "six" to remove uncertainty caused by the new HB 2912, Article 14.10 which invalidates certain local ordinances, replacing it with a technically appropriate standard not dependant on local laws.

Section 334.54, Temporary Removal From Service. Section 334.54(c)(3)(B) is amended to change the period at the end of the sentence to "; and" to reflect a new item on the list. Section 334.54(c)(3)(C) is amended with new language reading "Before any UST system is returned to service under this subsection, the owner or operator must first submit a construction notification form as specified under §334.6(b) of this title" to facilitate tanks that are temporarily out-of-service under this section being brought back into service without violating compliance self-certification regulations in §334.8(c) (see full discussion in §334.6 of this preamble).

Subchapter D - Release Reporting and Corrective Action

For many years, Texas Water Code (TWC), Chapter 26, generally, and Subchapter I specifically, have required tank owners and operators to perform corrective action activities concerning releases from their facilities. Assessment and necessary clean-up at the LPST site must be timely and properly performed until the commission is satisfied that the site can be closed. Wording in this subchapter and Subchapter G reiterates this statutory obligation, and provides the details on how it is to be accomplished.

New legislative language assigns specific calendar deadlines to corrective action milestones, and provides that missing one of these deadlines removes eligibility for reimbursement for those and future corrective action activities at that LPST site from the PSTR Account. The new TWC provisions go on to say that eligibility is only lost if the missed deadline is the fault of the tank owner or operator, or his agent, or contractor. The amendments to this rule subchapter are primarily designed to reflect these new specific deadlines which have been overlaid on the existing assessment/cleanup obligations, as well as to reference the reimbursement consequences for missing a deadline. In addition, amendments memorialize the commission practice of having the owner or operator provide the required notice to persons affected by a contamination release, as opposed to having a regulatory option that the commission may choose to make the notification itself.

Section 334.71, Applicability. The title of this section is amended to "Applicability and Deadlines," to reflect the insertion of the new legislative deadlines in this section. Section 334.71 is changed to §334.71(a), since other subsections are added to this section. New §334.71(b) is added to reflect the new corrective action milestone deadlines contained in HB 2687 and HB 2912, Article 14.03. New §334.71(c) is added to reflect the new legislative requirements concerning PSTR Account reimbursement consequences of missing a deadline, and to provide a cross-reference to Subchapter H where rules containing more detail on the matter are inserted via this rulemaking package.

Section 334.82, Public Participation. Previous rule language provided that either the owner or operator, or the agency (at its discretion), would provide the required notice to "those members of the public directly affected by the release and the planned corrective action." In practice, the agency, with its limited resources, has consistently directed the owner/operator to make these notifications. Because the commission wishes to continue this practice, amendments to §334.82(a) and (b) regulatorily state that it will be the owner or operator that will always have this burden (unless the LPST site is being handled by the commission's State-Lead Program). To this end, §334.82(a) is amended by substituting the phrase "owner or operator must" for the phrase "agency shall" in the first sentence. In the same subsection in the last sentence, the word "certified" is inserted to require that notification letters be sent certified mail, when that is the option of notification chosen by the owner or operator, to better allow the agency to ensure that the notification has been made. Also, the phrase "or businesses" is inserted after the word "households" in the last sentence of the subsection to acknowledge that an affected person may sometimes be in a business as opposed to a residence. In §334.82(b), the phrase "executive director may require the" is deleted, as discussed in the rationale for amendments to subsection (a), to reflect that it will always be the owner or operator who will make the required notification. The phrase "must submit proof of the notification required under subsection (a) of this section to the agency within 30 days of either agency, or the owner or operator, determination that off- site assessment is required, whichever date is earlier" replaces the phrase "to perform or implement the public notices in this section and to verify that such activity has been satisfactorily completed" as clarification to provide an actual deadline in every case by which the owner or operator must prove to agency staff that the required notification has been made. This language was clarified from that published at the proposal stage, based on public comment received. In §334.82(c), the phrase "executive director" is replaced with the more general "agency," per definitions in 30 TAC Chapter 3. Also in this subsection, the phrase "When corrective action is performed by the commission, the commission will provide the notification referenced in subsection (a) of this section" is added to reflect the fact that some LPST sites are handled in the commission's State-Lead Program.

Subchapter G - Target Concentration Criteria

For many years, TWC, Chapter 26, generally, and Subchapter I specifically, have required tank owners and operators to perform corrective action activities concerning releases from their facilities. Assessment and necessary clean-up at the LPST site must be timely and properly performed until the commission is satisfied that the site can be closed. Wording in this subchapter and Subchapter D reiterates this statutory obligation, and provides the details on how it is to be accomplished.

New legislative language assigns specific calendar deadlines to corrective action milestones, and provides that missing one of these deadlines removes eligibility for reimbursement for those and future corrective action activities at that LPST site from the PSTR Account. The new TWC provisions go on to say that eligibility is only lost if the missed deadline is the fault of the tank owner or operator, or his agent or contractor. The amendments to this rule subchapter are designed to reflect these new legislative requirements, and to provide a statement of applicability and a cross-reference to Subchapter D.

Section 334.201, Purpose and Applicability. The title of this section is amended to "Purpose, Applicability, and Deadlines" to reflect the addition of a new subsection concerning the new legislative deadlines for corrective action activities (see full discussion in this preamble in §334.71). New §334.201(c) is added to reflect the applicability of the new deadlines, and provide a cross- reference to Subchapter D where those deadlines are set out.

Subchapter H - Reimbursement Program

New legislation necessitates that three areas of amendments be made in this subchapter: HB 2687 and HB 2912, Article 14 extended the sunset date for the PSTR Account through September 1, 2006, and new deadlines were created concerning applications for reimbursement from that fund; the same legislation provided specific deadlines associated with existing corrective action duties for owners and operators, with missed deadlines affecting reimbursement eligibility; and the same legislation provided a clarified definition for "owner," which necessitates matching amendments to the "eligible owner" definition in this subchapter. Also, a small number of regulatory reform amendments are made to clarify the subchapter.

Section 334.301, Applicability of this Subchapter. Section 334.301(c) is amended by adding the phrase "No expenses for corrective action performed after September 1, 2005 will be reimbursed. No reimbursements will be made for corrective action expenses sought in claims submitted to the agency after March 1, 2006. Under no circumstances will any reimbursements be made on or after September 1 "2006," with a deletion of "2003," to reflect the new dates and restrictions concerning the PSTR Account contained in HB 2687 and HB 2912, Article 14.

Section 334.302, General Conditions and Limitations Regarding Reimbursement. Language in §334.302(c)(5) is deleted and replaced with "any expenses related to corrective action performed after September 1, 2005"; to reflect the new dates and restrictions concerning the PSTR Account contained in HB 2687 and HB 2912, Article 14. A new §334.302(c)(6), reading "any expenses related to corrective action contained in a reimbursement claim filed with the agency after March 1, 2006; or," is added to reflect the new dates and restrictions concerning the PSTR Account contained in HB 2687 and HB 2912, Article 14. At adoption, this has been changed to "or" to properly reflect the nature of the list. A new §334.302(c)(7), reading "on or after September 1, 2006," is added to reflect the new dates and restrictions concerning the PSTR Account contained in HB 2687 and HB 2912, Article 14. At proposal, this language ended with "and/or."

Section 334.303, When to File Application. Section 334.303(a) is amended to insert the phrase "not after," delete the phrase "prior to," add the word "March," delete the word "June," add the year "2006," and delete the year "2003," such that the provision reads "An application for reimbursement under this subchapter must be filed on or after January 17, 1990, but not after March 1, 2006," to reflect the new dates and restrictions concerning the PSTR Account contained in HB 2687 and HB 2912, Article 14.

Section 334.310, Requirements for Eligibility. Section 334.310(a)(1) is amended to insert the parenthetical "(including, but not limited to, the restrictions under §334.302 of this title (relating to General Conditions and Limitations Regarding Reimbursement))" to provide a cross-reference to regulations where new rule language reflects the new dates and restrictions concerning the PSTR Account contained in HB 2687 and HB 2912, Article 14 (see full discussion in this preamble in §334.302). Section 334.310(a)(1)(E) is amended to insert the phrase "on or receives an assignment or deed in lieu of foreclosure" to more accurately reflect the requirements of TWC, §26.3571(b)(1)(C). Language in §334.310(b) is deleted and replaced with "If an otherwise eligible owner or operator misses a deadline under §334.71(b) of this title (relating to Applicability), and that missed deadline is the fault of that person, his agent or contractor, then that person shall no longer be eligible for reimbursement for those and future corrective action expenses at that site" to reflect the additional PSTR Account reimbursement eligibility requirements imposed by HB 2687 and HB 2912, Article 14 and to provide a cross-reference to rule amendments give more details on the specific corrective action deadlines required under the new statutory provisions (see discussion in this preamble in §334.71).

Section 334.313, Review of Application. Section 334.313(a)(1)(F) is amended to add the parenthetical "(though no reimbursement applications may be filed after March 1, 2006)" to reflect the new dates and restrictions concerning the PSTR Account contained in HB 2687 and HB 2912, Article 14. Section 334.313(b) is amended by changing the date "June 1, 2003" to read "March 1, 2006" to reflect the new dates and restrictions concerning the PSTR Account contained in HB 2687 and HB 2912, Article 14. Section 334.313(d) is amended to insert the clarifying phrase "either, at the executive director's discretion" to reflect that the executive director must take one of the two actions listed, and to make the point that which of the two actions is taken on a particular application is at the discretion of the executive director.

Section 334.322, Subchapter H Definitions. Section 334.322(9) is amended so that the definition of "eligible owner" properly tracks the amendment to the tank "owner" definition contained in HB 2687 and HB 2912, Article 14.

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION

The commission has reviewed the rulemaking in light of the regulatory impact analysis requirements of Texas Government Code, §2001.0225, and has determined that the rulemaking is not subject to §2001.0225 because it does not meet the definition of a "major environmental rule" as defined in that statute. 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. Further, it does not meet any of the four applicability requirements listed in §2001.0225(a).

The vast majority of these adopted rule amendments reflect the new dates and restrictions concerning the PSTR Fund contained in HB 2687 and HB 2912, Article 14, rather than being specifically intended to protect the environment or reduce risks to human health from environmental exposure. The PSTR Fund was created many years ago by TWC, Chapter 26, Subchapter I, to provide a fee-driven pool of monies from which eligible owners and operators may apply for reimbursement for certain expenses associated with corrective action they are required to perform at LPST sites (the agency is also authorized to use the fund for certain expenses associated with operating the PST program). The new legislation attaches specific calendar deadlines to existing general obligations that tank owners and operators have under TWC, Chapter 26, Subchapter I and Subchapters D and G of this rule chapter to perform corrective action activities at LPST sites and bring those sites to closure, with loss of reimbursement eligibility stemming from missed deadlines that are the fault of the tank owner or operator (or their agents, etc.). The specific deadlines in the new statutory provisions are part of a legislative effort to wind down the PSTR Fund by its new sunset date of September 1, 2006. As the new statutory language reiterates, "a person's liability to perform corrective action under this chapter is unrelated to any possible reimbursements the person may be eligible for under Section 26.3571" of the TWC. That general liability predates the new legislation.

In addition, the adopted regulatory "owner" definition revision, also necessitated by the new statutory provisions, is intended as a clarification to better explain this important term and how the agency makes ownership determinations.

The exclusion of regulated substances that are not motor fuels from the compliance self- certification program was written into the new statutory provisions to narrow the prospective program scope. The self-certification program was created by HB 2815 in 1999, and following that session there was some question concerning legislative intent about the scope of the program. In implementing HB 2815, rules were promulgated in §334.8(c)(2) that would not phase the substances in question into the self-certification scheme until 2002. This was specifically done to allow the legislature, if it chose to, to address the applicability issue concerning these substances in the following session, which was done in HB 2687 and HB 2912, Article 14. With the applicability change, the "phase-in" period for these substances to enter the compliance self-certification program, scheduled for 2002, will not take place, and the amended rules reflect this. It should be noted that only a very small number of facilities would have been included in that phase-in group.

Also, the regulatory reform amendments in this rulemaking are intended to clarify rule requirements, rather than introduce new concepts. The amendments concerning the mechanics of how a tank that has been temporarily out-of-service under §334.54 can be brought back into service without violating the self-certification rules in §334.8(c) is essentially administrative in nature.

Any potential adverse economic effect caused by these adopted rules (specifically the specific calendar deadlines placed on corrective action milestones, and their resulting effect on reimbursement eligibility) should be offset by the extension in HB 2687 and HB 2912, Article 14 of the PSTR Fund sunset date for three additional years. Because of this extension, owners and operators will be able to apply for reimbursements for much longer than they could have under existing law and thus face fewer out-of-pocket expenses when assessing and remediating LPST sites.

In addition, even if one of these amended rules was to be considered a "major environmental rule," a regulatory impact assessment is not required because the rules do not exceed a standard set by federal law, exceed an express requirement of state law, exceed a requirement of a delegation agreement, or propose to adopt a rule solely under the general powers of the agency.

These adopted amendments do not exceed a standard set by federal law. These adopted amendments also do not exceed an express requirement of state law because almost all of the amendments in this adoption are required by new legislation, and those amendments do not exceed the scope of those new statutory provisions. The regulatory reform amendments are either clarifications of existing rules or corrections of typographical errors. These adopted amendments are authorized as described in the "STATUTORY AUTHORITY" section of this preamble. These adopted amendments do not exceed a requirement of a delegation agreement or contract between the state and an agency or representative of federal government to implement a state federal program. One of the central elements of federal approval of the Texas PST program is the existence in state law of requirements concerning timely and proper assessment and clean-up of contaminated LPST sites (see 40 Code of Federal Regulations §281.35). A substantial part of the adoption reflects HB 2687/HB 2912, Article 14 requirements establishing specific calendar deadlines for assessment and clean-up of these sites. When the Texas program was approved, it already contained regulations concerning the duty for timely and proper LPST site corrective action. The new state legislation only places specific calendar deadlines on existing general obligations that tank owners and operators have to perform corrective action activities at these sites. Also, the amended rules are not adopted solely under the general powers of the agency, but rather under program-specific state law.

TAKINGS IMPACT ASSESSMENT

The commission has prepared a takings impact assessment for these amendments under Texas Government Code, §2007.043. The specific purpose of this rulemaking is to implement HB 2687 and HB 2912, Article 14 (with a small number of clarifying regulatory reform amendments adopted). This action will not create a burden on private real property. Most of the legislatively-driven changes relate to the operation of the PSTR Account. This fund was created many years ago by TWC, Chapter 26, Subchapter I, to provide a pool of monies from which eligible owners and operators may apply for reimbursement for certain expenses associated with corrective action they perform at LPST sites (the commission is also authorized to use the fund for certain expenses associated with operating the PST program). The existence of this fund facilitates timely and proper assessment and remediation of LPST sites by tank owners and operators. The new legislation extends the sunset date of the fund for three additional years. Consequently, this may increase the pace of clean-ups and closures at contaminated sites around the state. The small number of rules amended as part of the commission's regulatory reform effort also do not create a burden on private real property, since they are written to clarify existing rules. As a whole, this adoption will not be the cause of a reduction in market value of private real property, and does not create a burden on private real property and will not constitute a takings under Texas Government Code, §2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM

The commission has prepared a consistency determination pursuant to 31 TAC §505.22, and has found that the adopted rulemaking is consistent with the applicable Texas Costal Management Program (CMP) goals and policies. The rulemaking is subject to the CMP and must be consistent with applicable goals and policies which are found in 31 TAC §501.12 and §501.14. The CMP goal applicable to the rules is the goal to protect, preserve, restore, and enhance the diversity, quality, quantity, functions, and values of Coastal Natural Resource Areas (CNRAs). This adoption implements HB 2687 and HB 2912, Article 14, and also includes a small number of regulatory reform changes. Most of the legislatively-driven changes relate to the operation of the PSTR Account. This fund was created many years ago by TWC, Chapter 26, Subchapter I, to provide a pool of monies from which eligible owners and operators may apply for reimbursement for certain expenses associated with corrective action they perform at LPST sites (the commission is also authorized to use the fund for certain expenses associated with the operating PST program). The existence of this fund facilitates timely and proper assessment and remediation of LPST sites by tank owners and operators. The new legislation extends the sunset date of the fund for three additional years. Consequently, this may increase the pace of clean-ups and closures at contaminated sites around the state. The new legislation also adds specific deadlines for corrective action milestones that owners and operators must follow in cleaning up LPST sites on the way to site closure. A missed deadline, which is the fault of the owner or operator (or agent, etc.), leads to a loss of reimbursement eligibility from the PSTR Fund, thus acting as an inducement for the deadlines to be met, which in turns expedites timely and proper assessment and remediation of contaminated sites. The adopted regulatory reform amendments clarify existing rules, or correct typographical errors. No CMP policies are applicable to this rulemaking.

For these reasons, the commission has determined that this rulemaking is consistent with the applicable CMP goal and will not have an adverse effect on the CNRAs.

HEARING AND COMMENTERS

A public hearing was not held for this proposal. A total of two commenters provided written comments both general and specific on the proposed rules. The following commented on the proposal: Darcy Environmental Group (Darcy); and Ranger Environmental Services, Inc. (Ranger).

RESPONSE TO COMMENTS

General Comments

While admitting that the proper legalities of Texas Register rule proposal notice were followed by the agency for this rulemaking, Ranger wants to have the proposal sent back for republication so that additional public comment can be submitted. The basis for this comment seems to be the allegation that public outreach was insufficient and that the commenter had difficulty accessing the proposed rules on the agency website. Ranger also finds it "very disturbing" that a particular agency mass-mailout concerning the new statutory deadlines "was sent out...two days after the date that the rules went to the Texas Register ."

In response to these general comments, the commission declines to republish this rulemaking package in the Texas Register for additional public comment. As the commenter admits, the proper procedures for Texas Register publication for rulemaking proposals were followed for this package, and the Administrative Procedure Act does not require informal public outreach or posting of the proposed rules on the Internet. The commission does wish to point out, however, that extensive public outreach was in fact conducted for this rulemaking package. Beginning in the summer of 2001, stakeholders participated in discussions with agency staff prior to the proposal of these rules, including Texas Petroleum Marketers and Convenience Store Association; and Industry Council on the Environment, which are two groups representing members of the regulated community likely to be affected by these rules. Many PST-licensed contractors are members of one or more of these groups, and some of these contractors requested and received additional briefings on the new statutory deadlines and associated implementation issues. On September 26, 2001, the agency's Reimbursement & Technical Services Section provided a written synopsis of, and discussed, the new deadlines and associated implementation issues at an agency waste seminar in Houston. On November 12, 2001, a packet of information concerning the new deadlines was mailed by the agency's Responsible Party Remediation (RPR) Section to over 5,300 potentially affected parties. This mass mailout was a proactive attempt (not required by the new statutory language or any rule) to let everyone in the agency database of active LPST sites know about the new deadlines. The mailing occurred as soon after the effective date of the new legislation as it could be developed, finalized, and duplicated. The mailout informed these persons about the new statutory language and new agency guidance consistent with that language. To the extent the mailout might prompt someone to comment on these rules, the timing of the mailout would appear to allow ample time for such comments to be made within the public comment period (November 9, 2001 to December 10, 2001). Also starting around November 12, 2001, the RPR Section began, where appropriate, to include a reference to the deadlines in regular correspondence going to external parties pertaining to LPST sites. The commission is unsure why Ranger had difficulty accessing the proposed rules on the agency webpage, since the proposal was made available there according to standard agency procedures for such postings (in this case, posted on October 26, 2001 at http://www.tnrcc.state.tx.us/oprd/rules/propadop.html , which provided rule text and the dates for public comment).

Specific Comments

Comments on §334.71(b)(1)

Darcy stated that the September 1, 2002 deadline contained in new statutory language in TWC, §26.351(f)(1) is inadequately defined in the proposed rule. Ranger stated that the proposed rule provided "no definition for what constitutes a 'complete site assessment.' " Darcy then goes on to separate its comments into two sections: those associated with the idea of a "complete site assessment," and those associated with the idea of a "complete risk assessment." Concerning the former category, Darcy objects to one possible interpretation it feels the agency may make of a "complete site assessment," one in which "NO reimbursable site assessment (i.e., installation of monitor wells or soil borings, excluding remediation-related assessment such as recovery wells) can be reported after 9/1/02." Further, Darcy comments that, for responsible parties (RPs) who have not progressed very far toward site closure (e.g., "initial assessment activities were completed only within the past year, or have not been completed yet"), the deadline will be difficult to meet. Darcy goes on to give several reasons it believes that an RP might be in this situation. Similarly, Ranger objects that the rule will adversely affect RPs which have "cooperated fully in their corrective action process," and further claims that this was not the legislature's intent when the new statutory language was passed, suggesting that the intent was instead to "simply get the uncooperative RPs moving forward in the corrective action process....not to penalize those parties who have cooperated and could simply be affected by either contamination migration, changes in groundwater flow direction or changes in TNRCC project coordinator." Presumably implying that this proposal does not match that alleged intent, Ranger requested that rulemaking to be suspended until a group of regulated community representatives can talk to the legislature about "what the true legislative intent was of the statute." Ranger then goes on to question the legislation itself, and asks why the legislature couldn't have taken a different approach, such as informal negotiation or enforcement, which it claims would lead to the same result. Darcy then objects to the effects it feels will result in a scenario where groundwater sampling data is collected which may in turn call for additional assessment that cannot be completed before the September 1, 2002 deadline, adding that pre-approval time for the groundwater sampling plan could exacerbate the situation. According to Darcy, this will cause RPs to attempt to predict what "additional assessment" might be called for by the groundwater sampling data, and then attempt to gain pre- approval of that up front so as not to run afoul of the deadline. Darcy states it wants a "looser definition of complete site assessment." Darcy appears to be saying that this "looser" definition would only require that a complete "Plan A Risk Assessment Report Form" be submitted by the September 1, 2002 deadline, with "Plan B Risk Assessment and establishment of site-specific target levels" not due until September 1, 2003 (which is the statutory corrective action plan deadline). Darcy states that this would allow these RPs from September 1, 2002 to September 1, 2003 to work on the rest of the assessment work and the corrective action plan. Both Darcy and Ranger claim this is how the agency in 1996 handled the deductible deadline contained in TWC, §26.3512(e), which they further claim is analogous to the proposed rule at issue. Moving to its second category of comments, Darcy claims that the term "complete risk assessment" needs to be further defined, and recommends that the definition be the same as it suggested for the "looser" definition of "complete site assessment." In the alternative, Darcy suggests a definition where all the RP has to do by the deadline is select target levels "in conjunction with identification of all potential/actual receptors. This could include calculation of site-specific target levels via Plan B Risk Assessment or by application of default target levels." In neither case, Darcy suggests, would the RP be required "to install all required monitoring wells needed for full delineation of a contamination plume in order to establish target levels." Similarly, Ranger objects to any interpretation of the rule which would require that the "entire plume....be defined to the extent no further drilling will be necessary after 9/1/02," and cites an unspecified 1997 agency memorandum in support of its position. Darcy admits that "sometimes it is useful to utilize additional assessment to verify modeling results," but claims that such assessment is not required. Ranger suggests a scenario where further site assessment might be found to be necessary after the September 1, 2002 deadline, when everyone involved (i.e., the RP, his/her consultants, and agency staff assigned to the case) believed before the deadline that no further assessment would be required. Ranger goes on to state that it believes the legislature did not intend reimbursement eligibility to be lost in such a situation. Ranger also suggests a scenario where the handling of an LPST site is reassigned from one agency case coordinator to another before the site has been brought to closure, and the new coordinator requires more assessment than the previous coordinator had indicated would be necessary, and this additional assessment could not be completed by the deadline. Ranger also claims that, in the past as to up- gradient and cross-gradient assessment, it "was not a TNRCC priority as these directions generally are not great areas of concern as they are not in the primary plume migration direction." Ranger claims the agency will now reverse this position, and the commenter goes on to object to this claimed shift based on reimbursement eligibility consequences it believes will result.

In response to these comments, the commission declines to change the new rule language. This language tracks the statutory provision language, and it is appropriate that it do so. This rule is designed to deal with a wide variety of LPST sites, each with site-specific variables. The whole spectrum of these variables, and the corresponding appropriate corrective action activities to assess and remediate the sites, can never be completely captured in rule language. As was the case prior to the effective date of the new legislation, there will always be an element of informed judgment by agency experts when reviewing technical submissions from RP consultants for each LPST site that is evaluated on its way toward closure. The wording of the new rule, therefore, was not drafted in an attempt to comprehensively list every possible situation. In the statutory provision in TWC, §26.351(f)(1), the term "complete site assessment and risk assessment" is followed by the parenthetical "(including, but not limited to, risk-based criteria for establishing target concentrations)." This serves as a legislative statement as to an element that agency staff must require be adequately accounted for in the assessments submitted to the agency for review. The new rule tracks this language because to do otherwise would alter the meaning and effect of the statutory provision. The commenters state that the term "complete site assessment and risk assessment" is not adequately defined. Inherent in this comment is the idea that the parenthetical phrase quoted earlier in this paragraph is not a sufficient definition. The commission disagrees with this point. The parenthetical phrase, and the statement in the statute which reads "as determined by the executive director," clearly indicate that the agency should write a rule to implement this statutory provision that includes the baseline element of "risk- based criteria for establishing target concentrations" and beyond that provides for agency case-by-case analysis of submissions from RP consultants, using its expertise. To do otherwise would alter the legislative intent as manifested in the new statutory provision. As to the interpretation of "complete site assessment" that Darcy alleges the agency will take, the commission responds that it is not the case that there will be no circumstances where site assessment work performed after September 1, 2002 is reimbursed. New statutory language in TWC, §26.351(g), and corresponding new language in these rules in §334.310(b), contains the concept of "fault" in the application of the deadline. Agency staff will honor its obligations under the statute and rules to make good faith "fault" determinations, some of which could conceivably lead to site and risk assessment work performed after the deadline to nevertheless be reimbursed. Darcy's statements about the negative effects the deadlines will have on RPs who haven't progressed very far with corrective action are actually criticisms of the legislation itself. The central theme of the new legislation in TWC, §26.351(f) and (g), and associated cross-references, is the establishment of a system whereby the finite universe of RPs (i.e., whose releases were reported to the agency no later than December 22, 1998) must bring their sites to closure according to a specified timetable, with strict consequences (administrative penalties; loss of reimbursement eligibility) if they do not. Ranger's similar comment suggests that the new statutory deadlines are not meant by the legislature to apply to RPs who are currently being cooperative in working with the agency. The commission responds that the new statutory language does not distinguish between "cooperative" and "uncooperative" RPs in the new corrective action requirements. It is clear that the statute applies to all RPs whose releases were reported to the agency by December 22, 1998. Ranger continues that the legislation was specifically not meant to include RPs "simply...affected by either contamination migration, changes in groundwater flow direction or changes in the TNRCC project coordinator." In any of these examples, it may be that a missed deadline will lead to loss of eligibility. Inherent in the new statutory provisions is the idea that the finite group of RPs affected by the deadlines have had at least 3 1/2 years (and in many cases, much longer than that) to complete assessment phases of corrective action at their LPST sites, those who have delayed in moving toward site closure are anticipated to be at a disadvantage now, and some of those are anticipated to lose their reimbursement eligibility (with no recourse under TWC, §26.35731(b)). To read the legislation otherwise would not be giving the required effect to its plain meaning. In the exceptional cases, the legislature has built in the "fault" determinations to provide the agency some discretion when the deadline can truly be said to have been missed by no fault of the RP and/or his contractor or agent. The clear intent of the legislation, however, is for these deadlines to be applicable to the entire group of identified RPs, regardless of whether their recent behavior could be termed as "cooperative" and regardless of changed site conditions (except for the exceptional case under a "fault" determination). While a change in agency case coordinator will not be presumed to change the efficacy of the deadline, the agency will evaluate such cases in good faith as required by the new statute and rules.

The commission is bound to promulgate rules that effectively achieve the goals and mandates of this new legislative language. Ranger's criticisms of the central concept of this particular rule (i.e., corrective action deadlines and corresponding reimbursement consequences) are later voiced in terms of criticism of the legislation itself, asking why the legislature could not have taken a different approach "such as informal negotiation or enforcement," which the commenter claims would lead to the same result. The commission will not speculate on why other avenues were not chosen by the legislature, and responds that the intent of the language placed in the statute is clear, and the rules drafted pursuant to those provisions appropriately effectuate the statutory requirements.

Darcy suggests a scenario where groundwater sampling data is collected which (once results are in) may in turn call for additional assessment that cannot be completed before the September 1, 2002 deadline, adding that agency processing time for the groundwater sampling plan could worsen the situation. In response, the commission states that it is true that these cases could lead to a loss of reimbursement eligibility if the deadline is missed. Again, these RPs have had years to complete the assessment phases at their sites. Their delays early in the process will inherently make meeting the new deadlines more difficult, and in some cases, impossible. This is the natural effect of the new statutory scheme enacted by the legislature. Darcy adds, as to this scenario, that RPs will attempt to predict what "additional assessment" might be called for once the groundwater sampling data is submitted to the agency, and attempt to get pre-approval for that speculative additional assessment before the groundwater sampling data is even submitted. In response, the commission states that pre-approvals will be based on what corrective action activities are technically appropriate given the current available data about an LPST site. Reimbursement considerations cannot drive agency pre-approval decisions, because these decisions are always technical decisions. Further, the commission states here that the agency will insist on a reasonable amount of time to review groundwater sampling data in scenarios of this type (i.e., if the results are submitted too close to the September 1, 2002 deadline such that agency review and any subsequent additional assessment pre-approvals do not allow time for that additional assessment to be completed before the deadline, this will not be considered to justify a "fault" exception to the deadline). This will be the agency's approach, in general, to addressing any of the new corrective action deadlines. Responsible parties will not be able to make last minute submissions to the agency, then demand a "fault" exception when the agency hasn't responded in time for a deadline to be met (as long as the agency review time is deemed reasonable). Responsible parties and their consultants must build in reasonable time for agency review when planning corrective action activities at LPST sites.

The commission declines to adopt Darcy's suggested "looser" definitions for a "complete site assessment" and a "complete risk assessment." The new statutory language is clear in requiring these assessments to be done by September 1, 2002. A complete Plan A Risk Assessment Report Form does not categorically represent that full assessment has been done. Darcy's suggestion that the agency could accept a Plan B Risk Assessment Report Form, and other assessment-related submissions, for reimbursement purposes through September 1, 2003 runs directly counter to the clear meaning of the statute. Completion of these forms does not in all cases mean that further assessment will not turn out to be necessary to close the site under the law. The commission does not believe its actions concerning the date contained in TWC, §26.3512(e) are, or should be considered, analogous to this new rule, as the wording of the two statutory sections are significantly different (in addition, the commission does not cede that the commenters have accurately summarized the nature of those past agency actions).

Darcy's suggested alternative definition to "complete risk assessment" is inappropriate for much the same reasons, as it anticipates that the agency could allow the needed work to continue past its September 1, 2002 deadline while still being categorically eligible for reimbursement. Like its other suggested definitions, Darcy's proposal would call for the agency to accept and reimburse partial work as complete work, thus giving the legislature's corrective action deadline only partial effect. The agency is not at liberty to promulgate such a rule, nor to interpret any rule in this manner.

Ranger states that it objects to any interpretation of the rule which would require that the "entire plume....be defined to the extent that no further drilling will be necessary after 9/1/02," and cites an unspecified 1997 agency memorandum in support of its position. The commission responds that it does not interpret this rule to say that monitor wells will not be needed after the September 1, 2002 deadline. As previously stated in this response, the variables of each site (consistent with the statutorily-required element of "risk-based criteria for establishing target concentrations") will determine when, in the expert opinion of the agency, sufficient assessment has been done. The September 1, 2002 deadline does not state, nor should it be read to imply, that assessment work will never have to be performed once the deadline has passed. The deadline is significant for reimbursement and enforcement purposes, and the agency will strictly enforce this deadline consistent with the statutory intent (and consistent with good faith "fault" determinations in exceptional cases). The extent of contamination at each LPST site must be delineated as appropriate, which is determined by agency experts in their review of submitted data, consistent with applicable statutes and rules. As discussed more extensively in the initial paragraph of this response, there will always be an element of agency case-by-case expert judgment in the handling of these sites, and the statutory provisions specifically reference this. In an effort to be proactive, the agency has from time to time issued guidance to help PST contractors understand how agency judgment in these technical areas has been used. One such guidance document, concerning plume delineations, was issued on February 10, 1997, though some of its contents were superceded by a memo issued November 1, 1999. Nothing in this guidance, however, supports Ranger's assertion that the agency will interpret the new rule so that the "entire plume....be defined to the extent that no further drilling will be necessary after 9/1/02." Darcy's statement that additional assessment, after modeling results are obtained, is sometimes "useful" but not required is one that the agency does not believe is accurate in all situations. Rather, modeling sometimes indicates that additional assessment is needed to appropriately define the plume. The decision is ultimately made by agency experts in the process of reviewing the technical submissions of the RP's consultant.

Ranger suggests a scenario where further site assessment might be found to be necessary after the September 1, 2002 deadline, when everyone involved (i.e., the RP, his/her consultants, and agency staff working on the case) believed before the deadline that no further assessment would be required. Ranger urges that the legislature did not intend for such scenarios to always lead to a loss of reimbursement eligibility. The commission responds that it does not intend that such a scenario would categorically lead to a loss of eligibility. Rather, the agency will in good faith evaluate arguments from RPs and their agents as to why a "fault" determination under TWC, §26.351(g) should be read to effectively extend the deadline for reimbursement purposes.

Ranger's further comments concerning case reassignment within the agency and its possible effects on the deadlines have already been addressed earlier in this preamble. As a final point, Ranger states that in the past, concerning up-gradient and cross-gradient assessment, it "was not a TNRCC priority as these directions generally are not great areas of concern as they are not in the primary plume migration direction." Ranger goes on to state that the agency intends to reverse this alleged position, which the commenter then objects to. The commission disagrees with this characterization of its past position. The agency has always wanted these gradients properly accounted for, and will continue to require this in the future as part of ensuring appropriate plume delineation by the RP. The new statutory language anticipates that this review will take place as part of agency staff determining what is a "complete site assessment and complete risk assessment" when reviewing technical submissions from an RP.

Comments on §334.71(b)(4)

Darcy states that it is actually commenting on this requirement as stated in agency guidance documents concerning the new statutory requirements, and claims that the guidance requirement has no basis in the new statutory language or in the proposed rule.

While first arguing that the commission has no legal obligation to answer comments on agency guidance in this forum, the commission points out that the new TWC, §26.351(f)(4) creates an obligation to submit a "comprehensive and accurate annual status report" for a site which requires either a corrective action plan or groundwater monitoring, with a loss of reimbursement eligibility stemming from a failure to do so. The proposed rule tracks the statutory language.

Comments on §334.82

Ranger claims that all changes to this rule section are "unnecessary" and "could potentially increase litigation unnecessarily, without enhancing protection to human health and the environment."

The commission responds that these changes serve to memorialize long-standing agency practice concerning which party will provide the required notification, as well as adding detail to ensure that such notifications are in fact made. In the past, the rules have allowed for either the agency or the RP, at the agency's sole discretion, to make the required notification. In practice, the agency has elected to have the RPs make the notifications due to the limited resources available to the agency. The notification concept is not new. The commission asserts that it is good public policy to make minor adjustments to its notification requirements so that affected landowners (e.g., schools, hospitals, nursing homes) and other members of the affected public are actually made aware of these instances of PST contamination. While not ceding that the rule change would "unnecessarily" lead to increased litigation, the commission will say that such concerns are outweighed by the necessity of ensuring that members of the public are made aware of contamination that directly affects them. Effective notification can protect "human health and the environment," for instance, by letting an adjacent landowner know of a possible threat to his/her water well.

Comments on §334.82(a)

Ranger objects to the changes to this rule subsection because the existing option which allows owners/operators to use a "letter" as a method of notification would change to require a "certified letter," which it appears the commenter feels is too onerous.

In response to the comment, the commission declines to change the new rule language. The "letter" method of notification is just one of several allowable under the rule. If the letter option is chosen, however, the commission believes it is appropriate to require that it be a certified letter to better provide for documenting (as required under subsection (b)) that the required notification has in fact been made. Sending letters certified is a common practice, and one that the commission does not believe to be too onerous in these situations.

Comments on §334.82(b)

Ranger objects to the attachment of a 30-day deadline to the existing language concerning RP notification of the affected public, stating it "is not practical." Though the comment is unclear, it appears the basis for this statement is that the commenter claims there is some uncertainty as to when the 30-day period begins, what a "confirmation of the release" means, and what kind/amount of "release" triggers the notification requirement. Ranger asks whether the agency intends the notification requirement to apply when high concentrations of contamination are found near an adjacent property which could suggest that the contamination extends off-site. If this rule section is adopted at all, Ranger asks for clarification on these points.

In response to the comment, the commission adopts the new rule language with a clarification. As discussed earlier in this preamble, for many years the agency has elected to require the RPs to make the notifications, and the rule language has allowed the agency to do this. The new language removes the option that the agency might choose to make the notifications itself, given that resources have not, do not, and likely will not allow the agency to elect to assume this burden. While it is true that the new rule language puts a 30-day deadline on proving to the agency that the notification has been made (as opposed to no express deadline in the current rule), the commission feels that this is an adequate and fair period of time to allot for that demonstration to be made. Ranger has not made a compelling case for why this time period is "not practical." While the commenter's rationale is unclear, the commission will attempt to answer the various points: long-standing subsection (a) language qualifies the notification requirements as being applicable to "each confirmed release that requires corrective action." This has not historically been a problem, as RP's consultants are familiar with what constitutes an LPST site requiring corrective action (including assessment and necessary remediation) under Subchapter D rules in this chapter. As to when the 30-day period begins, the commission agrees with the commenter that a clarification is warranted. To avoid any confusion, the adopted language states that the 30-day period begins when either the agency, or the owner/operator, determine that off- site assessment is needed, whichever date is earlier. This clarifies that the new rule does not mean that the 30-day period begins when the source-property release is first confirmed.

Comments on §334.310(b)

Ranger does not believe it is sufficient that this language tracks the structure of the new statutory language in TWC, §26.351(g) and §6.3571(b) as to loss of reimbursement eligibility and RP fault. Instead, Ranger wants this rule (and unspecified other rules) to contain an affirmative statement that if the fault is the agency's, then eligibility is retained.

In response to the comment, the commission declines to change the new rule language. The new rule language tracks the statute in an appropriate manner, and provides a cross-reference to the rules containing the corrective action deadlines. It is clear, as a legal matter, that a "fault" determination centers around a judgment by the agency as to whether a corrective action deadline was missed at the fault of the RP or his contractor or agent. If the fault is found by the executive director to lie with some other party, be it the agency or some other extraneous entity, then the deadline is effectively extended for reimbursement and enforcement purposes. No further rule language is needed to make this point clear.

Comments on §334.322(9)

While admitting that "the verbiage...was presented from the statute," Ranger alleges that "this definition contradicts itself." Ranger appears to be advocating a definition that would always look to the current landowner as the RP for LPST sites, based on a theory that the landowner "has a landlord responsibility for activities which occur on his property, or has due diligence requirements during the purchase of the land." If the agency elects not to adopt Ranger's suggested language, the commenter asks that the agency suspend the rulemaking and go to the legislature to "discuss the ambiguity of the definition and further clarity it."

In response to the comment, the commission declines to change the new rule language. The new legislation that went into effect on September 1, 2001 clarified the definition of a tank "owner." As a result, it is necessary for the regulatory definition of a tank owner to track that statutory language. And, because the "eligible owner" definition tracked the old §334.2 owner definition which is changing in this rulemaking package, it is necessary to make concurrent changes to this rule. The commenter admits that the changes to this rule follow the new statutory language. Legally, it is necessary for this to be the case. Ranger's objections are really, therefore, objections to the new statutory definition itself. Ranger urges for a definition that always looks to the current landowner for liability as an "owner." That is not the legal effect of the new statutory definition, and thus cannot be the legal effect of the new regulator "owner" and "eligible owner" definitions. The commission declines to approach the legislature, as Ranger urges, to question the meaning of the definition.

Comments on Fiscal Note

Ranger claims the Fiscal Note is in error as to "adverse fiscal implications for businesses" for the following reasons: 1) commenter claims that RPs will have to perform more assessment activities than is currently the norm; 2) "monies for this extra drilling, which were not originally anticipated, have to be made available"; 3) "as the PST reimbursement staff will tell you, they do not reimburse costs required to perform tasks, they simply pay a specific amount towards the task....Sometimes these two items correspond, however, most often they do not"; and 4) "as the PST reimbursement program has now implemented the practice of back calculating the costs that they believe should have been required to perform tasks (and thus negating the entire pre-approval process), more often than not, they disallow costs for activities even though a consultant may be substantially under budget."

Finally, Ranger also claims that "a local economy may be affected in a material way.....The economy is the tank owner/LPST community," and alleges that the Fiscal Note does not adequately account for this. Later, Ranger includes local governments in its perception of what "local economy" includes. Ranger's rationale for these arguments concerning local government impacts is unclear, but appears to have something to do with a failure to consider what Ranger alleges are "extensive increases in RP deductibles."

The agency disagrees that RPs will have to conduct more assessment activities or "extra drilling" under the new rules relative to the old rules. Nothing in the new statute or these rules promulgated to implement it changes the law concerning how much assessment the agency requires of an RP. The agency will continue to require that all LPST sites including those to which the new corrective action deadlines apply (i.e., sites reported to the agency by December 22, 1998), be fully and properly assessed as always according to agency rules, regulations, and guidance. The new deadlines do not function to increase the degree of assessment required by the agency. Because the degree of required assessment will not change, the agency disagrees that any additional PSTR monies are needed to reimburse extra drilling costs or other claimed extra assessment activities. The agency preapproves costs for corrective action activities per the reimbursement cost guidelines in Subchapters M and H of this chapter and TWC, Chapter 26, Subchapter I.

The agency does not see how Ranger's statements concerning agency reimbursement calculation methodologies summarized as 3) and 4) as discussed earlier constitute a comment relevant to any possible fiscal impacts of this rule package.

Further, the agency is also unclear how statutory deductible deadlines that have been in TWC for years, and which have all passed years ago, are relevant to any possible fiscal impacts of this rule package on any definition of a "local economy." For all these comments, the agency reiterates the points made in its Fiscal Note analysis for this rule package at the proposal publication.

Subchapter A. GENERAL PROVISIONS

30 TAC §§334.2, 334.3, 334.5, 334.6, 334.8, 334.12

STATUTORY AUTHORITY

The amendments are adopted under TWC, §5.103, which provides the commission authority to adopt any rules necessary to carry out its powers and duties under this code and other laws of this state and to adopt rules repealing any statement of general applicability that interprets law or policy; §5.105, which authorizes the commission to establish and approve all general policy of the commission by rule; and §26.011, which requires the commission to control the quality of water by rule. The amendments are also adopted under TWC, §26.345, which provides the commission authority to develop a regulatory program and to adopt rules regarding USTs; and §26.351, which provides the commission authority to adopt rules establishing the requirements for taking corrective action in response to a release from a UST or an aboveground storage tank.

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 March 13, 2002.

TRD-200201571

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 2, 2002

Proposal publication date: November 9, 2001

For further information, please call: (512) 239-4712

Subchapter C. TECHNICAL STANDARDS

30 TAC §§334.45, 334.47, 334.50, 334.54

STATUTORY AUTHORITY

The amendments are adopted under TWC, §5.103, which provides the commission authority to adopt any rules necessary to carry out its powers and duties under this code and other laws of this state and to adopt rules repealing any statement of general applicability that interprets law or policy; §5.105, which authorizes the commission to establish and approve all general policy of the commission by rule; and §26.011, which requires the commission to control the quality of water by rule. The amendments are also adopted under TWC, §26.345, which provides the commission authority to develop a regulatory program and to adopt rules regarding USTs; and §26.351, which provides the commission authority to adopt rules establishing the requirements for taking corrective action in response to a release from a UST or an aboveground storage tank.

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 March 13, 2002.

TRD-200201572

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 2, 2002

Proposal publication date: November 9, 2001

For further information, please call: (512) 239-4712

Subchapter D. RELEASE REPORTING AND CORRECTIVE ACTION

30 TAC §334.71, §334.82

STATUTORY AUTHORITY

The amendments are adopted under TWC, §5.103, which provides the commission authority to adopt any rules necessary to carry out its powers and duties under this code and other laws of this state and to adopt rules repealing any statement of general applicability that interprets law or policy; §5.105, which authorizes the commission to establish and approve all general policy of the commission by rule; and §26.011, which requires the commission to control the quality of water by rule. The amendments are also adopted under TWC, §26.345, which provides the commission authority to develop a regulatory program and to adopt rules regarding USTs; and §26.351, which provides the commission authority to adopt rules establishing the requirements for taking corrective action in response to a release from a UST or an aboveground storage tank.

§334.82.Public Participation.

(a) For each confirmed release that requires corrective action, the owner or operator must provide notice to the public by means designated to reach those members of the public directly affected by the release and the planned corrective action. This notice may include, but is not limited to, public notice in local newspapers, block advertisements, publication in a state register, certified letters to individual households or businesses, or personal contacts.

(b) The owner or operator must submit proof of the notification required under subsection (a) of this section to the agency within 30 days of either agency, or owner or operator, determination that off-site assessment is required, whichever date is earlier.

(c) The agency shall give public notice to affected parties if implementation of an approved corrective action plan does not achieve the established cleanup levels in the plan and termination of that plan is under consideration by the executive director. When corrective action is performed by the agency, the agency will provide the notification referenced in subsection (a) of this section.

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 March 13, 2002.

TRD-200201573

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 2, 2002

Proposal publication date: November 9, 2001

For further information, please call: (512) 239-4712

Subchapter G. TARGET CONCENTRATION CRITERIA

30 TAC §334.201

STATUTORY AUTHORITY

The amendment is adopted under TWC, §5.103, which provides the commission authority to adopt any rules necessary to carry out its powers and duties under this code and other laws of this state and to adopt rules repealing any statement of general applicability that interprets law or policy; §5.105, which authorizes the commission to establish and approve all general policy of the commission by rule; and §26.011, which requires the commission to control the quality of water by rule. The amendment is also adopted under TWC, §26.345, which provides the commission authority to develop a regulatory program and to adopt rules regarding USTs; and §26.351, which provides the commission authority to adopt rules establishing the requirements for taking corrective action in response to a release from a UST or an aboveground storage tank.

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 March 13, 2002.

TRD-200201574

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 2, 2002

Proposal publication date: November 9, 2001

For further information, please call: (512) 239-4712

Subchapter H. REIMBURSEMENT PROGRAM

30 TAC §§334.301 - 334.303, 334.310, 334.313, 334.322

STATUTORY AUTHORITY

The amendments are adopted under TWC, §5.103, which provides the commission authority to adopt any rules necessary to carry out its powers and duties under this code and other laws of this state and to adopt rules repealing any statement of general applicability that interprets law or policy; §5.105, which authorizes the commission to establish and approve all general policy of the commission by rule; and §26.011, which requires the commission to control the quality of water by rule. The amendments are also adopted under TWC, §26.345, which provides the commission authority to develop a regulatory program and to adopt rules regarding USTs; and §26.351, which provides the commission authority to adopt rules establishing the requirements for taking corrective action in response to a release from a UST or an aboveground storage tank.

§334.302.General Conditions and Limitations Regarding Reimbursement.

(a) To be considered for reimbursement under this subchapter, corrective action must be performed either as provided in subsection (b) of this section or in response to a release which:

(1) results in contamination which penetrates beyond the excavation zone of the tank system and which is above action levels determined by the agency;

(2) is ultimately confirmed by the agency, either before or after corrective action commences, provided that it shall be the burden of the person claiming monies under this subchapter to show both that a release which is eligible for reimbursement occurred and the expenses claimed are allowable and reimbursable; and

(3) the confirmed release was initially discovered and reported to the agency on or before December 22, 1998.

(b) Subsection (a) of this section does not apply if the corrective action is specifically required by an order of the commission, or a written request or confirmation by the agency, and the release was initially discovered and reported to the agency on or before December 22, 1998.

(c) No payments shall be made by the agency under this subchapter for:

(1) the owner/operator contribution described in §334.312 of this title (relating to Owner/Operator Contribution), which the agency may apportion in the case of multiple claimants as provided in §334.314(f) of this title (relating to Fund Payment Report);

(2) any expenses for corrective action which exceed one million per occurrence;

(3) any expenses relating to compensation for bodily injury or property damage;

(4) any expenses for corrective action incurred for confirmed releases initially discovered and reported to the agency after December 22, 1998;

(5) any expenses related to corrective action performed after September 1, 2005;

(6) any expenses related to corrective action contained in a reimbursement claim filed with the agency after March 1, 2006; or

(7) on or after September 1, 2006.

(d) No expenses for which reimbursement is claimed under this subchapter and no expenses which are to be applied to the owner/operator contribution shall be subject to reimbursement or applied to the owner/operator contribution unless the following conditions have been met.

(1) An application for reimbursement must be filed by the owner or operator of a petroleum storage tank or his duly authorized representative, as required by §334.304 of this title (relating to Who May File Application).

(2) Unless otherwise approved by the agency, a certification affidavit as provided in the application for reimbursement must be signed by all of the following: owner or operator of a petroleum storage tank, the application preparer, and the prime contractor and/or the prime corrective action specialist, as defined in §334.322 of this title (relating to Subchapter H Definitions).

(3) The application has been filed within the time prescribed in §334.303 of this title (relating to When to File Application).

(4) The person seeking reimbursement must be an eligible owner or operator, as defined in §334.322 and §334.310 of this title (relating to Subchapter H Definitions and Requirements for Eligibility, respectively) or they must be authorized by an eligible owner or eligible operator to receive such payment pursuant to subsections (i) - (k) of this section.

(5) The expenses for which reimbursement is sought, and those which are to be applied to the owner/operator contribution must be allowable costs, as defined in §334.308 of this title (relating to Allowable Costs and Restrictions on Allowable Costs).

(6) The allowable costs for which reimbursement is sought and those which are to be applied to the owner/operator contribution must be reimbursable, as defined in §334.309 of this title (relating to Reimbursable Costs).

(7) An application for reimbursement has been filed in accordance with this subchapter which contains the information required by this subchapter.

(e) For purposes of this subchapter only, the persons listed in §334.310 of this title may be eligible owners or operators, provided that they meet the other criteria prescribed by this subchapter.

(f) All claims for assistance and reimbursement filed under this subchapter are subject to the availability of funds in the petroleum storage tank remediation fund.

(g) Nothing in this subchapter shall affect the liability or responsibility of an owner or operator of an underground or aboveground storage tank to take corrective action in response to a release pursuant to applicable law.

(h) Nothing in this subchapter shall be construed to create an entitlement to monies in the petroleum storage tank remediation fund or any other fund, and the commission reserves the right to amend or repeal without limitation any of the provisions of this subchapter, including provisions regarding eligibility and allowable costs.

(i) Payment made to persons other than the eligible owner or operator may only be made subject to subsections (j) and (k) of this section and may only be made to agents or assignees duly authorized to receive payment on behalf of an eligible owner or operator.

(j) Authorization for an agent or assignee to receive payment on behalf of an eligible owner or operator must be in writing and signed by the eligible owner or operator who is requesting payment. The authorization must clearly describe what funds the agent or assignee is authorized to receive. If the agency determines that the authorization is not clear as to the disposition of funds to which the eligible owner or operator is entitled, the agency may withhold payment and request written clarification from the eligible owner or operator. The agency may limit the number of agents or assignees who may receive payments for any one occurrence. Notwithstanding any review made or limitations imposed by the agency pursuant to this section, neither the State of Texas, nor the agency shall be responsible for insuring that payment is made to the parties as contemplated by the authorization. It is the responsibility of the eligible owner or operator and the agent requesting payment to insure that the agency is supplied with information sufficient to make the proper payments. The right to receive payment under this subchapter is not transferable for any purpose and only the people authorized to receive payment under this section are entitled to do so.

(k) No payment of funds will be made to any person other than the owner or operator under this subchapter except as follows:

(1) the person authorized to accept payment on behalf of an owner or operator is:

(A) a purchaser of the property where the release occurred and on which the claim for payment is based;

(B) a person who holds a security interest in personal property or in fixture that is not attached to the real estate or lienhold interest on the real estate or fixture that is attached to the real estate where the release occurred and on which the claim for payment is based;

(C) a person who has insured the owner or operator of petroleum storage tanks for pollution liability on or after July 17, 1990, and who has paid claims on that policy for remediation costs for which the tank owner may be reimbursed under this subchapter; or

(D) any other person who holds legal or equitable title to the property where the release occurred and on which the claim for payment is based; and

(2) the type of ownership interest required under paragraph (1)(A), (B), and (D) of this subsection is an interest in the surface estate of the property.

(l) The agency may require the execution of a contract of subrogation prior to the disbursement of payment.

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 March 13, 2002.

TRD-200201575

Stephanie Bergeron

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 2, 2002

Proposal publication date: November 9, 2001

For further information, please call: (512) 239-4712