## Sacramento Metropolitan Air Quality Management District

Rule 203

– Prevention of Significant Deterioration (PSD) State Implementation Plan Equivalency Determination

January 2 8 , 2011

Executive Summary

In 2002, the United States Environmental Protection Ag ency (EPA) approved modifications to the federal Prevention of Significant Deterioration (PSD) regulations (PSD Reform) 1 . Each state is required to amend its regulations to conform to the new federal program. If the state program

deviates from the federa l provisions, it must perform an equivalency analysis demonstrating its program is at least as stringent as the federal program 2

.

In response to the EPA Reform effort, California enacted Senate Bill 288 (SB288) Protect

California Air Act of 2003. SB288 prohibits districts from making rule changes that would weaken the permitting rules that were approved in the State Implementation Plan (SIP) or submitted for approval before December 30, 2002. For the District, the operative rule i s the

1991 version of R ule 203, 3 which was submitted to EPA for inclusion in the SIP on November 7,

1991

. The District’s review of the current federal regulations indicated that some of those provisions would weaken the District’s current (1991) regulatory program. As required by SB288, the District’s rule excludes or replaces th os e PSD Reform provisions. In light of the revisions, the District prepared t his analysis to verify to EPA that the new Rule 203 is at least as stringent as the PSD Reform rules

.

Background

A

. Federa l Program

On December 31, 2002, the U.S. Environmental Protection Agency (EPA) revised its regulations governing the New Source Review (NSR) programs , including PSD requirements

, under parts C and D of Title 1 of the Clean Air Act. (67 Fed. Reg. 80185). The rulemaking included the following five features at issue here :

1. 10

- year Look

- back for Establishing Emissions Baseline : PSD requirements are triggered when emission increase s for a new project or modification exceed specified

levels

. The emission incr ease is measured by comparing estimated new emissions to a

baseline emission. The federal rule changes how the base line emissions are calculated. The rule allows the facility to use any 24

- month period in the previous 10 years as long

as all current contr ol requirements are taken into account. Rule 203 (1991) and proposed Rule 203 limited the look back to the prior 24 months, unless the District

agree s with the facility that the prior 24 months are not representative.

2. Calculating Emissions Increases: The rule added an option al method for calculating increases in emissions resulting from facility modifications at non

- electric utility steam generating units (non

- EGU’s). The federal rule now requires a source to use an actual

to

- projected actual test (past a ctual emissions compared to the estimated actual emissions after the change). The source has the option to use an actual to potential test (past actual emissions compared to the maximum potential emissions after emission controls, taking in to account all enforceable restrictions) to avoid some monitoring and

1 40 CFR §52 .21 et al. The 2002 rule changes affect nonattainment New Source Review (NSR) as well as PSD, but for brevity and clarity, some references to NSR are excluded from this discussion.

2 40 CFR §51.166 (a)(7)(iv)

3 EPA has not acted on the 1991 rule.SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 2

recordkeeping requirements associated with the projected actual method. Rule 203 (1991) and proposed Rule 203 only allow an “actual

- to

- potential” test.

3. Plantwide Applicability Limits (PALs): The rul es were modified to allow facilities to make changes to their operations without triggering PSD , so long as a facility agrees to operate within a strict facility wide emissions cap, called a Plant wide Applicability Limit or

PAL

. Rule 203 (1991) and propo sed Rule 203 do not include PALS.

4. Pollution Control and Prevention Projects : The rules create d a process allowing facilities that undertake environmentally beneficial projects to avoid emission controls for ancillary emissions increases resulting from the installation of certain pollution control and prevention projects. Rule 203 (1991) and proposed Rule 203 do not include a similar program.

5. Clean Unit Provision: The rules g a ve facilities that install “clean units” operational flexibility if they continu e to operate within permitted limits. Clean units must have an NSR permit or other regulatory limit that requires the use of the best air pollution control technologies. Rule 203 (1991) and proposed Rule 203 do not include a similar provision.

The last t wo features were vacated by the U.S. Court of Appeals for the District of Columbia in State of New York, et al., v. U.S. Environmental Protection Agency, et al., 413 F.3d 3 (D.C. Cir 2005), and are no longer part of the federally revised program

.

B

. Sa cramento SIP Call

In December 2010, EPA made a finding 4 (referred to as a SIP Call) that California’s State Implementation Plan (SIP) is substantially inadequate to meet CAA requirements because Sacramento’s approved PSD rule does not require emission con trols for GHG

- emitting sources. The SIP Call sets a deadline of January 31, 2011 for the District to submit a revised PSD rule.

In addition to the changes needed to meet CAA requirements for PSD Reform for all regulated pollutants, including GHG, amend ments to Rule 203 must conform to the requirements of the

Protect California Air Act of 2003 (referred to as SB288) . This California law pr ohibits d istrict s from adopting new or revised rules that weaken :

“those new source review rules and regulations fo r both nonattainment and prevention of significant deterioration for new, modified, repaired, or replaced sources that have been adopted by the district governing board on or prior to December 30, 2002, that have been submitted to the EPA by the state boar d for inclusion into the SIP and are pending approval or have been approved by the EPA 5 .”

The most recent PSD rule adopted by the District and submitted to EPA for inclusion in the SIP

is the 1991 version of Rule 203 . Consequently, the 1991 rule provide s the SB288 comparison

baseline. To meet SB288

, proposed Rule 203 exclude s or modifies the 2010 federal PSD rule

for certain Reform provisions

. The specific provisions excluded or modified include: Ma jor

4 Action to Ensure Authority to Issue Permits under the Prevention of Significant Deterioration Program to Sources of Greenhouse Gas Emissions: Finding of Substantial Inadequacy and SIP Call, Final Rule”, Federal Register, Volume 75, page 77698. December 13, 2010 (75 FR 777698)

5 California Health and Safety Code § 42504(a), § 42505SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 3

M odification definition

, Baseline Actual Emissions definition , Actual

- to

- Projected

- Actual applicability, and Plantwide Applicability Limitations.

Sacramento Equivalency Determination Analysis

PSD Reform permits states to deviate from the new federal regulations, but requires that states

that do so show that their existing program is at least as stringent as the PSD Reform provisions 6 . This analysis fulfills that requirement.

A. Stringency of state and local requirements in the Sacramento area subsumes voluntary reductions anticipated in PSD Reform

PSD Reform ’s environmental impact analysis relies on benefits from encouraging facilities to voluntarily implement emission controls. There are several factors that render this result unlikely, if not impossible, in Sacramento. The first category of fa ctors relate s to the stringency

of the N on

- PSD program, the second rela t es to requirements under state laws on climate change, and the third relates to the applicability to Sacramento of some of EPA’s key analytical assumptions.

The stringency of state an d local rules stems from the District’s attainment status for various pollutants. We achieved the federal standard for carbon monoxide over a decade ago, when

EPA re

- designated Sacramento to attainment for carbon monoxide. But, a lthough air quality in

the region has been steadily improving, Sacramento has been nonattainment for federal ozone and particulate matter air quality sta ndards for decades. And while the area recently submitted a

re

- de signation request under the federal 1

- hour ozone standard, we st ill do not meet the more stringent 8

- hour ozone standard. The District has requested re

- designat ion to attainment for
PM10, and ARB has approved the request and forwarded it to EPA for final approval.

Sacramento remains nonattainment for PM 10 until EPA approves the request

, but we still do not

meet the PM2.5 standard

.

To achieve and maintain the federal standards, California and the District have established some of the most stringent rules in the nation to control carbon monoxide (CO), particulate

ma tter and ozone precursors ( NOx, and VOC ) and sulfur oxides (as a precursor to particulate matter) to meet federal attainment or maintenance requirements. Because of the severity of air quality problems in the area , state and federal laws and regulations re quire SMAQMD to regularly review its rules and make changes to those rules to insure sources implement the best available controls on new and modified sources and best available retrofit control technologies 7

. Although nonattainment pollutants are not sub ject to PSD rules, because all of the potential

PSD sources also emit nonattainment pollutants, regulations directed at nonattainment pollutants frequently provide significant ancillary reductions in attainment, GHG and other regulated pollutants. For exam ple, w ith a few exceptions, Sacramento’s PSD sources exceed PSD applicability thresholds because of their combustion emissions , and c ombustion emissions include PSD pollutants (GHGs, CO, and NO2) as well as nonattainment pollutants, NOx, VOC (as precursors to ozone) and PM2.5 and its precursors. Therefore, state and local

nonattainment pollutant rules directly affect the potential PSD sources and their emissions.

In addition to the stringent local requirements contained in the District’s attainment and

non attainment programs, recent state laws affecting GHG’s will further tighten the mandatory

6 40CFR51.166(a)(7)(iv)

7 California Health and Safety Code Section 41010(b) and California Code of Regulations Title 17, Division 3, Chapter 1.5, Article 6, Section 70601SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 4

controls on pollutants in the District

. State law AB32, has and will continue to require controls on GHGs, including energy efficiency and emissions reductions 8 . AB3 2 (California State Climate Change Law) and California’s Cap and Trade rule 9 go beyond federal PSD requirements. AB32 will help put California on the path to meet its goal of reducing GHG emissions to 1990 levels by the year 2020, ultimately achieving an 8 0% reduction from 1990 levels by 2050. Under cap

- and

trade, an overall limit on GHG emissions from capped sectors will be established and facilities subject to the cap will be able to trade permits (allowances) to emit GHGs.

These historic and on

- going r equirements, which are unaffected by PSD Reform, already significantly limit the emissions from stationary sources in Sacramento County. The combined impact of state and local laws and rules, including AB32 and its Cap and Trade program, is to limit opport unities for additional voluntary controls and make any remaining opportunities for additional voluntary controls much more expensive than in other parts of the country

. C onsequently, PSD Reform provisions that arguably create an incentive for sources to

im plement voluntary controls or reduce emissions w il l be ineffective in Sacramento County.

B. The EPA’s Supplemental Analysis is flawed and does not account for the

invalidation of a portion of Reform

At the time Reform was approved, EPA made a determinati on that the Reform provisions are more stringent than the pre

- 2002 base program from a nationwide perspective. The

determination did not include state

- or district

- specific evaluations. The decision relied primarily

on the agency’s “Supplemental Analysis of the Environmental Impact of the Final NSR Improvement Rule (November 21, 2002) (hereinafter “Supplemental Analysis”), which examined the changes, using the federal regulations as the comparison baseline. This study relied largely

on anecdotal evidence and concluded that final revisions were “environmentally beneficial” based on the assumption that all five of the revisions would be implemented together. ( 67 Fed. Reg. 80185, 80241, see also Supplemental Analysis p.2. ) However, since two of the five

measu res, Clean Units and Pollution Control Project exemption, were vacated by the Court of Appeals, EPA’s conclusion that there is a net environmental benefit is out

- dated.

In addition, a Government Accounting Office study found that [the Supplemental Analys is] did not adequately represent the revised rule’s effect on: (i) energy efficiency projects industry wide, or (ii) the impact of Reform on overall emissions under the new federal rules . See EPA Should

Use Available Data to Monitor the Effects of Its Revi sions the New Source Review Program

, GAO

- 03

- 947, August 2003. pp. 23

- 24. Appendix 2 . See also Reform or Rollback?: How EPA’s Changes to New Source Review Affect Air Pollution in 12 States, Environmental Integrity Project and the Council State Governments/ Eastern Regional Conference, July 28, 2003. Appendix 3.

C. The EPA’s Supp l emental Analysis of the impacts of PSD Reform does not reflect

conditions in Sacramento

EPA’s Supplemental Analysis relied heavily on reductions from the application of PALs to six

sources 10 and extrapolated those results to assess impacts in three industrial categories :

8 California Health and Safety Code commencing with Section 38500

9 Additional information on the Cap and Trade program can be found at http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm

10 U.S. Envi ronmental Protection Agency, New Source Review (NSR) Improvements: Supplemental Analysis of the Environmental Impact of the 2002 Final NSR Improvement Rules, November 21, 2002.SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 5

pharmaceutical manufacturing, semi

- conductor manufacturing, and automobile manufacturing. None of these types of PSD facilities are located within Sacramento County , and, therefore, the emission benefit estimate would not apply here. To address this, t he District’s analysis followed EPA’s general protocol by analyzing existing sources for key regulated PSD pollutants common to nearly all of the potentially impacted P SD sources in Sacramento County

. T his analysis

consider ed the impact if the PSD determinations were made today, using each source ’ s emissions information. We also used each sources ’ permitting history to provide supplementary

information for the analysis of impacts of potential future permitting actions. As demonstrated below, the analysis established that PALs implementation would provide fewer emissions reductions than implementation of proposed Rule 203.

In addition to the PALs analysis, the District reviewed the relative stringency of t he applicability tests and emissions baseline revisions when compared to the proposed rule, and found that

those Reform provisions provide no benefits in Sacramento. The EPA analysis already conceded that: (i) the ac tual

- to

- projected actual test is likely to have only a limited environmental benefit, and (ii) the change in the emissions baseline may allow a small number of sources to avoid PSD permitting because of the availability of a higher baseline 11 . Our analysis confirmed

that the pro po sed rule would result in more emission reductions than either of the Reform

revisions.

1. Identification of Potential PSD Facilities in Sacramento

This analysis followed EPA’s general protocol by analyzing existing sources for key regulated PSD pollutants common to nearly all of the potentially impacted PSD sources in Sacramento County; GHGs 12 , NO 2 13 , CO, and PM10 (to ensure that a potential future EPA re

- designation to attainment for PM10 would not yield different conclusions). Tab le 1 identifies the potential to

emit for the ten facilities that could be affected by PSD. We did not evaluate VOC because it is an ozone precursor subject to nonattainment NSR rather than PSD . We also did not analyze

SO 2 because no facility exceeds the 250 TPY PSD threshold. In fact all of the facilities but one

w ere less than 15 TPY for this pollutant

.

As indicated in Table 1, t en facilities in Sacramento County have a current potential to emit (PTE) NOx, PM10, or CO greater than 250 TPY or CO 2 e in excess of the 100,000 TPY threshold and consequently may trigger PSD requirements if they make a major modification to their facility.

Page 2 and Appendix A

- “Evaluation of Implementation Experiences with Innovat ive Air Permits”, EPA Office of Air Quality Planning and Standards (not dated)

11 U.S. Environmental Protection Agency, New Source Review (NSR) Improvements: Supplemental Analysis of the Environmental Impact of the 2002 Final NSR Improvement Rules , November 21, 2002. Page 2.

12 This analysis uses GHGs expressed as CO 2 e as defined in 40CFR51.166(b)(48)(i

– ii).

13 The analysis uses NOx emissions because NO 2 data is not readily available.SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 6

Table 1

Facility Type PTE Emissions TPY Estimated

PTE

TPY CO 2 e
VOC NOx SOx PM10 CO GHG
SMUD, Cosumnes Power Plant 2 9.99 125.6 10.96 80.2 297.75 1,953,320
SMUD, SCA Power Plant 16.81 58.77 3.86 34.92 99.34 808,625
SMUD, SPA Power Plant 19.96 49.9 3.72 22.54 43.69 711,519
SMUD, Carson Ice Power Plant 18.29 53.35 11.51 19.0 100 404,354 Campbell Soup Soup manuf 3.14 61 .98 0.62 7.77 54.36 238,674

UCD Medical

Center Power Plant/Space Heating 26.5 21.16 0.7 12.24 40.85 201,820

County of

Sacramento

- Kiefer Landfill 62.53 14 87.5 90.66 27.07 445.74 182,136

SMUD, McClellan Power Plant 4.5 24.65 3.83 10.44 73.32 154,100

Sta te of Calif ornia

GS Space Heating 10 15 99 140,020

Aerojet Defense Contractor

– Rocket Motors 124 84 2 289 453 62,141

2. Plantwide Applicability Limits 15

Proposed Rule 203 excludes all federal PSD requirement provisions related to Plantwide

A pplicabilit y Limits (PALs) in 52.21(aa). That section allows a source to request a PSD PAL; once a PSD PAL is established, change s 16 can be made at the facility so long as the facility’s

actual emissions remain below the PAL. The PAL level is the source’s baseline a ctual emissions plus the PSD significance levels 17 . The PAL must be adjusted downward to reflect the benefits of any known new requirements that will affect the facility

. I n creases in PAL levels

to account for new or modified equipment are only allowed in l imited circumstances 18

. PALs limits expire after 10 years, and t he source has the option to allow the PAL to expire (and cease being an operational restriction) or to revise the PAL.

EPA’s Analysis states 19 , that “a PAL, is an optional approach that will p rovide you, the owners or operators of major stationary sources, with the ability to manage facility

- wide emissions without triggering [PSD]” (emphasis added). EPA further states 20 that PALs promote “voluntary improvements in pollution controls by creating an incentive for you [sources] to control existing and new emissions units”. EPA goes on to describe the benefits achieved under PALs using the results from a study 21 of VOC emissions under six permits that included PAL

- like provisions. EPA extrapolated that study’s results to estimate the potential VOC emissions reductions from PALs for three source categories: pharmaceuticals, semiconductors, and automobile manufacturing (auto manufacturing does not include auto parts manufacturing or automobile

refinis hing) 22 . EPA’s analysis included estimated VOC emissions benefits from PALs based on assumptions about the percentage of sources that might opt to participate in the PAL program

14 This PTE limit excludes fugitive emissions from the landfill.

15 This sec tion pertain s to 40 CFR 51.166(a)(7)(iv)(a)

16 The types of change allowed are specified in 52.21(aa)(1)(i)

17 Significance levels are specified in 52.21(b)(23)

18 Restrictions are in 52.21(aa)(11)

19 Quote taken from 67FR80206 IV.A. paragraph 1, December 31, 2002

20 Quote taken from 67FR80206 IV.A. paragraph 2, December 31, 2002

21 “Evaluation of Implementation Experiences with Innovative Air Permits”, EPA Office of Air Quality Planning and Standards (not dated)

22 EPA’s Supplemental Analysis, Section III.A.SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 7

and the percentage of additional emissions reductions that might be achieved by establishing a PAL below the facility’s current potential to emit.

EPA’s analysis and conclusions do not support adoption of PSD Reform in Sacramento because: (i) sources are implementing facility improvements in response to other programs, and

PALs wil l not affect the rate of these improvements through implementation of additional voluntary controls , (ii) the use of VOC’s as a measure of reductions is inapp ropriate in Sacramento because here VOC emissions are subject to NSR requirements, not PSD require ments, (iii) existing facility

- wide limits are more stringent under Proposed Rule 203 than the Reform PAL limits, and (iv) the PSD Reform monitoring and recordkeeping requirements are met through the Rule 203 and Title V requirements, and therefore PSD Ref orm does not provide any added protections.

a. Voluntary Controls

As discussed in more detail in section C.4., the severity of air quality problems in Sacramento and state laws and regulations require SMAQMD to regularly review our rules and make change s to those rules to require sources to implement the best available controls on new and modified sources and best available retrofit control technologies on existing sources 23

. Additionally, state law AB32 (California State Climate Change Law), has and wi ll continue to impose controls on GHGs, including energy efficiency and emissions reductions. AB32 and California’s Cap and Trade rule 24 go es beyond federal PSD and other potential new control requirements. AB32 will help put California on the path to meet i ng its goal of reducing GHG emissions to 1990 levels by the year 2020, and ultimately achieving an 80% reduction from 1990 levels by 2050. Under cap

- and

- trade, an overall limit on GHG emissions from capped sectors will be established by the cap

- and

- trade p rogram and facilities subject to the cap will be able to trade permits (allowances) to emit GHGs.

These programs are a critical tool in bringing down emissions from Sacramento’s PSD sources. Nearly all of Sacramento’s potential PSD sources are directly regulated by the Cap and Trade program, including five of Sacramento’s largest emitters, the electrical generating facilities operated by or contracted to SMUD. Individual sources decide how to meet the emission caps established by the cap

- and trade rules . Compliance will likely require installation of controls and other efficiency improvements. The combined impact of state and local laws and rules, including AB32 and its Cap and Trade program, is to limit opportunities for controls that go beyond requirem ents, mak ing any remaining opportunities for additional voluntary controls much more expensive than in other areas of the country . Consequently, Reform provisions that arguably create an incentive for sources in other states to implement voluntary control s or reduce emissions will be ineffective for PSD sources in Sacramento County.

b. VOC emissions and NSR

Sacramento violates the federal ozone standard and consequently ozone precursor emissions, like the VOC emissions analyzed by EPA, are subject to NSR re quirements, not PSD requirements. As a result, implementation of PSD Reform will have no impact on the emission of VOCs within Sacramento, and Sacramento will likewise not see any of the VOC emission benefits identified in EPA’s Supplemental Analysis.

23 Ca lifornia Health and Safety Code Section 41010(b) and California Code of Regulations Title 17, Division 3, Chapter 1.5, Article 6, Section 70601

24 Additional information on the Cap and Trade program can be found at http://www.arb.ca.gov/cc/capandtrade/capandtrade.htmSMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 8

c. Potential PALs

Instead of evaluating VOC emissions, the District evaluated the potential PAL emission benefits based on attainment pollutant emissions from PSD sources. The resulting equivalency determination found that if Rule 203 included PAL provisions , almost all PALs would be higher than facility

- wide emissions caps already established for Sacramento’s existing PSD sources, and therefore, the new PALs provide no emission benefits. In the few instances in which this

initial look indicated PALs m ight p rovide emissions benefits, we examined the permitting history to assess the likelihood that the source will opt to establish a PAL, and concluded that that result is unlikely.

Rule 203 PSD applicability determinations consider any facility

- wide permit lim itations that are federally enforceable. All of Sacramento’s existing facilities potentially subject to PSD already have facility

- wide emission limitations for the PSD pollutants analyzed, CO, NOx and PM10. The emissions benefits from PAL provisions only occur if the facility’s PAL is lower than their current permitted emissions level. This equivalency determination evaluated whether any of Sacramento’s potential PSD facilities could establish a PAL that is lower than their current facility

- wide emissions limit. If not, the PALs provide no emissions benefits.

As shown in Attachment B

, nearly all of the potential PSD sources have existing facility

- wide emissions limitations that are more stringent than the potential PAL limits. Consequently, t he PALs provi de no emission benefits in those instances

.

Where the PAL wa s more stringent than the facility

- wide emissions limit, we then evaluated the difference between the PAL and the permitted emissions limit and the source’s permitting history to estimate the li kelihood of the source exercising its option to request a PAL. The

federal rules do not require a source to accept a PAL, therefore, any potential emission benefits from PALs will only occur if the source chooses to accept a PAL in exchange for increased flexibility under PSD Reform.

In the specific cases where the PAL would be lower than facility

- wide emission limitations, the PAL is roughly half or less of current emissions limits. This occurs in all cases except two sources. It is unlikely that a sour ce would request a PAL that so substantially limits future increases in their actual emissions. For those two exceptional sources, discussed below, only

the NOx PAL is close to the source’s emissions limit.

The first case is Campbell Soup. The facility’ s permitting history shows several changes and additions, including emissions control retrofits that required local NSR permits . This history does not suggest that any perceived inflexibility under the current rules is limiting changes at their facility. The second exceptional source, Cosumnes Power Plant, was permitted in 2004. Cosumnes was required to install LAER NOx controls (2 ppm NOx emissions limit) and already employs state

- of

- the

- art fuel efficiency technology. Since Cosumnes already employs contr ols that go beyond PSD NOx BACT requirements

, it also would most likely meet PSD BACT requirements if modifications were made . Furthermore, SMUD prepared tentative expansion plans for Cosumnes, and those plans show that the expansion would likely trigger P SD regardless of whether the PAL limit were established. PAL restrictions would therefore only limit utilization levels, and consequently, there would be no incentive for the facility to propose or accept a PAL.SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 9

d. Monitoring and Recordkeeping

All but tw o of the potential PSD facilities currently have Title V permits that contain adequate monitoring and recordkeeping provisions to ensure compliance with the required emissions limitations. Those two facilities that do not currently have Title V permits wi ll be required to get a Title V permit if their GHG potential to emit exceeds the Tailoring Rule’s Title V applicability thresholds. Therefore, the monitoring and reporting provisions associated with PALs provide no

emissions benefits.

e. Conclusion

Based o n the circumstances and sources specific to Sacramento , the District concludes that
Rule 203 is at least as stringent as the PAL provisions in EPA’s PSD Reform program.

3. Baseline Actual Emissions ( 10 Y ear L ook

- back R evision ) 25

Proposed Rule 203 modifies the definition of “baseline actual emissions” for all regulated PSD pollutants except GHGs, by requiring use of the average rate, in tons per year, at which the unit actually emitted the pollutant during the 24

- month period preced ing the application date . The Air

Pollution Control Officer may allow the use of a different time period if the source demonstrates that it is more representative of normal source operation. 26 The alternative period must use two consecutive years during the prior 5

- year period. PSD Ref orm allow s the baseline look

- back period to consider any 2 consecutive years out of the last 10 years

. The lower the baseline number, the more likely the facility will trigger PSD requirements.

In the Supplemental Analysis, EPA states 27 that “ the overall consequences of the baseline change will be negligible

. ” EPA acknowledged 28 that “ it is very difficult to model source behavior sufficiently to predict whether emissions benefits will be lost or gained” and notes 29 that the Reform change will not affect the baseline for most sources

, including new sources, modifications in the largest

- emitting category (coal fired power plants), modifications at sources where emissions have been highest in recent years, and modifications at sources where

emissions have been r elatively stable. EPA also noted that the new baseline would not apply if the present emissions are lower due to enforceable controls or limitations, which EPA indicated

is true 70% of the time . According to EPA, then, the only sources that will receive a higher baseline under PSD Reform will be those whose low emission years are due to decreased utilization due to decreased market demand, outages, or other circumstances

. EPA noted 30 in their analysis that they would be unable to estimate what emissions co nsequences

-- if any

-- would result for these types of sources, but stated that the number of sources receiving different baselines likely represents a very small fraction of the overall NSR permit universe, and because the baseline may shift either dire ction, EPA concluded that any overall consequence would be negligible.

25 This section pertain s to 40 CFR 51.166(a)(7)(iv)(b)

26 District’s permitting policies limit the “representative” period to the last five years.

27 EPA’s Supplemental Analysis, p. 2

28 EPA’s Supplemental Analysis, p. 13

29 EPA’s Supplemental Analysis, p. 13

30 EPA’s Supplemental Analysis, p. 13SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 10

To analyze the potential PSD Reform impact s on baseline assumptions in Sacramento

, SMAQMD used 31 the actual emissions from the last 10

- 11 years for the 1 0 facilities listed

above. Cosu mnes Power Plant ha s only been in operation for 5 years , so we used those years

. The results are presented in Attachment A.

The analysis look ed at the historical emissions of NOx, PM10 and CO. For eight of the facilities

, the baseline actual emissions u sing the District’s rule is lower for emissions of NOx and PM10

t han the baseline actual emissions would be using the PSD Reform approach. For two facilit ies

, the baseline actual emissions are the same regardless of which rule is used.

For CO emissions

, 4 facilities have lower baseline actual emissions under the District rule than the baseline actual emissions using PSD Reform

. For 3 facilities , the baseline actual emissions

for the last 2 years (District rule) is low est , the baseline actual emissions us ing 2 out of 5 (District rule) or 2 out of 10 (PSD Reform) would be the same. For the other 2 facilities, the

baseline actual emissions are the same regardless of which rule is used

. Since there would be no difference in the baseline if you allowed 2 out of 10 years, SMAQMD’s proposed Rule 203

CO baseline would be equivalent for those five facilities. For NOx and PM10 and the remaining CO sources, SMAQMD’s proposed Rule 203 would be more stringent than NSR Reform.

For the type and size of facilities ope rating within Sacramento County, including the 10 year

look

- back period would establish higher baseline emissions for most of the existing facilities

. Using a higher baseline would allow sources to potentially avoid the applicability of PSD requirements

, and therefore, potentially avoid the imposition of controls. For those cases where it wouldn’t establish a high er baseline than proposed Rule 203, the baseline actual emissions would be equivalent to the current federal PSD rules.

Based on the above data , the District believes that the Rule 203 look

- back for the 24

- month period preced ing the date of application , and allowing a different time period to be used (within a five year window) if that period is more representative of normal source operation

, i s at least as stringent as the federal requirements.

4. Actual

- to

- Projected

- Actual Test (Applicability determination) 32

Proposed Rule 203 uses an actual

- to

- potential applicability test. PSD Reform gives sources the option of using an actual

- to

- projected

- act ual applicability determination (with the subsequent recordkeeping requirements) as an alternative to using the actual

- to

- potential applicability determination. EPA’s intent is to encourage facility improvements by decreasing the likelihood that the chang e will trigger air permit requirements. This rests on the assumption that facilities in the pre

- Reform realm avoided improvements because of the permit requirements. This assumption does not hold true in Sacramento, where other forces provide adequate in centive to implement facility improvements, even in the face of added air permit requirements. As a consequence, for Sacramento, the result of Reform would be to reduce the number of these projects that are subject to air quality controls, and thereby inc rease air emissions.

EPA’s Supplemental Analysis stated that 33 the actual

- to

- potential methodology “ discourages [sources from making] certain environmentally beneficial changes and actually provides an incentive to keep actual emissions high” and claimed that therefore there is an “adverse

31 California Air Resources Board, Secure District Resources, last accessed January 19, 2011, <http://www.arb.ca.gov/ei/drei/eitac/secure/se cure.htm>

32 This section pertain s to 40 CFR 51.166(a)(7)(iv)(c) and 40 CFR 51.166(a)(7)(iv)(f)

33 EPA’s Supplemental Analysis, Appendix G, p. G

- 1SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 11

environmental impact from sources that trigger NSR under the actual to potential test, but not the actual to projected actual test

. In short, they argue that the actual

- to

- potential test drives

facilities to avoid or de lay changes that would have resulted in emission reductions for fear of the cost associated with added controls or permit timeframes imposed by the actual

- to

- potential

test.

However, the historical information for Sacramento demonstrates that our industr ies have implemented sophisticated state

- of

- the

- art facility improvements despite application of the

actual

- to

- potential test and the resulting permit and emission control requirements. It is unlikely that additional upgrades exist that have been delibera tely shunned by industries trying to avoid the applicability of PSD requirements. As discussed previously, state laws and local rules either require or create voluntary incentives for sources to implement energy efficiency strategies and

other control stra tegies that reduce or limit actual emissions. For example, all of the electric utility facilities in Sacramento County are natural gas combined or simple cycle gas turbines using state of the art controls that emit less than 5 ppm of NOx. These sources rep resent five of the 10 PSD sources. SMUD or its contracted power producers have recently implemented energy efficiency improvements on 2 of their five facilities. And, while EPA argues that facilities have avoided improvements to keep actual emissions high and preserve their related permit

limit s , that has not been the case in Sacramento. For example, the actual emissions at Aerojet, another PSD source, are a small fraction of their permitted emissions levels (10% or less). Clearly, existing rules are not causing that source to keep actual emissions high. The actual emissions and recent control strategy changes made at each source are discussed in Appendix A. All of the potential PSD sources analyzed have continued to make modifications at their facility f or energy efficiency, plant expansion, or product demands.

EPA acknowledges 34 that there are cases where emissions increases could trigger NSR under

the actual

- to

- potential test but not under the actual

- to

- projected actual test. In fact, that is the

crux of their argument

– that sources avoid improvements to evade the related controls imposed

under the actual

- to

- potential test and resulting permit requirement s . But since sources in Sacramento are continuing to make facility upgrades under the existing ac tual

- to

- potential test, this area would not experience the uptick in facility improvements anticipated by EPA and would simultaneously be giving up the emission reductions that come with requiring the emission controls imposed through the permit review pro cess.

EPA’s Supplemental Analysis also identified two scenarios 35 in which the Reform actual

- to

projected actual approach would be less stringent than the District’s actual

- to

- potential approach. First when an actual

- to

- potential test shows an increase b ut the source avoids PSD requirements by taking a permit limit. EPA dismisses this scenario stating 36 that PSD Reform

rules would “ effectively limit their emissions in the same fashion

, ” meaning the projected actual

estimate will limit the facilities emiss ions to the same level as the permit limit under the District program. The flaw in this analysis is that the projected actual estimate is difficult to identify and enforce, while a permit limit violation is clear . The second scenario concerns sources that will have an actual emission increase, but cannot take the permit limit and instead are reviewed under PSD (implementing additional controls). EPA dismisses this scenario by stating 37 that “this is [an] extremely rare case and [EPA is] unaware of any examp le” . But by requiring the

actual

- to

- potential test, Rule 203 would achieve additional reductions, however rarely the

34 EPA’s Supplemental Analysis, p. 14

35 EPA’s Supplemental Analysis, Appendix G, p. G

- 4&5

36 EPA’s Supplemental A nalysis, Appendix G, p. G

- 5

37 Ibid.SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 12

instance arises. Furthermore, if facilities are in fact rarely reviewed under PSD (instead taking permit limits), than the need for PSD Ref orm is mooted.

Evidence in this analysis shows that there are no benefits from removing perceived disincentives to making environmentally beneficial changes and that maintaining the actual

- to

potential test has and will continue to provide emissions bene fits achieved by implementing BACT emission control requirements at the point of construction, when adding controls is at its most cost effective. Therefore, SMAQMD concludes that the actual

- to

- po tential test is at least as stringent as the current feder al PSD rule.

5. Major Modification 38

Proposed Rule 203 defines a major modification as any physical or operational change at a major stationary source that would result in a cumulative significant net emissions increase.

PSD Reform would only classify a maj or modification as significant if it would result in a significant incre ase both individually and cumulatively. In other words, unlike the proposed rule, PSD Reform would not consider accumulated emissions from a series of less than significant

emissions i ncreases if the emissions increase from the proposed modification to the source is, standing alone, less than significant.

The historical information for Sacramento demonstrates that for our industries, the typical permit

modifications are for individual projects that individually emit less than the PSD significance

levels

. Under proposed Rule 203, a major modification would be triggered if the 5 year accumulation of less than significant emissions changes is significant. Under PSD Reform, a major modific ation would only be triggered if both tests are met

– the proposed modification is greater than significant and the 5 year accumulation of emissions changes is significant. For example, if a source has made 5 individual “ less than significant ” modification s over the last five

years , it would be a major mo dification under Rule 203, but not under PSD Reform.

SMAQMD concludes that excluding the first part of EPA’s m ajor modification tests

– is the proposed modification significant

– and only including the significant net emissions increase part of the test is at least as stringent as the current federal PSD rule.

38 This section pertain s to 40 CFR 51.166(a)(7)(iv)(a) and 40 CFR 51.166(a)(7)(iv)(b) 0 10 20 30

1 2 3 4 5 

### Emission Change NOx

- TPY Proposed Rule 203

20 + 5 + 10 + 5 + 15 = 55 TPY > 40 TPY

- major modification

PSD Reform

Proposed Modification 20 TPY < 40 TPY

– not major modification

Second test doesn’t applySMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 13

6. Fugitive Emissions 39

Proposed Rule 203 would include fugitive emissions in the same manner as the current federal regulations. The proposed Rule 203 adopts by reference 40 CFR 52.21 (in effect January 27, 2011) including the definition of fugitive emissions. See also, the fugitive emissions discussion

in R ule 203, Section 102.4

- Applicability and Rule 203, Section 205.3.h

- Major Modification. No equivalency determination is needed for this provision.

7. New Emission Units 40

Rule 203 requires the use of the actual

- to

- potential test for new emissions units i n the same manner as current federal regulations. The proposed Rule 203 adopts by reference 40 CFR 52.21 (in effect January 27, 2011). See also the new units discussion in Rule 203 , Sections
201.4, 204.3, 206.8. No equivalency determination is needed fo r this section.

Conclusion

In Sacramento, because of the particular sources subject to the PSD rule, and because of the very stringent rules and regulations already in place, the proposed Rule 203 is at least as stringent as the federal PSD Reform rules . In fact, when the EPA’s analysis of the Reform provisions is applied to Sacramento

– as opposed to the national review undertaken by EPA

– the proposed Rule 203 is more stringent than the Reform provisions.

39 This section pertain s to 40 CFR 51.166(a)(7)(iv)(b)

40 This section pertain s to 40 CFR 51.166(a)(7)(iv)(d) and 40 CFR 51.166(a)(7)(iv) (f)SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 14

ATTACHMENT A

10 YEARS OF OPE RATING HISTORYSMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 15SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 16SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 17SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 18SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 19SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 20SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 21SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 22SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 23SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 24SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 25

ATTACHMENT B

POTENTIAL PAL LIMITATION SSMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 26



# Theoretical PAL

- CO

Facility Year Actual
Emissions (tpy) 2

- year Avg

(tpy) Significance

(tpy) Theoretical PAL

(tpy) Permitted PTE

(tpy)

SPA 2009 1.89 1.15 100 101.15 43.688

2008 0.40

SCA 2009 15.65 16.86 100 116.86 99.34

2008 18.07

Campbell Soup 2009 5.60 3.57 100 103.57 54.364

2008 1.54

Carson ICE 2009 66.14 71.14 100 171.14 100

2008 76.13

Cosumnes Power 2009 29.65 31. 10 100 131.10 297.752

2008 32.54

UCD MED 2009 19.53 23.64 100 123.64 40.848

2008 27.75

SPA McClellan 2009 0.28 0.51 100 100.51 73.32

2008 0.74

Kiefer 2009 402.22 404.61 100 504.61 445.746

2008 407.01

DGS 2009 3.71 3.27 100 103.2 7 99

2008 2.84

Aerojet 2009 12.05 9.95 100 109.95 453

2008 7.85

As required by 40 CFR Part 52.21(aa)(6) the “theoretical” PAL, if requested by the source

equals the 2 year average emissions + significance threshold for that pollutant. This analysis

does not reduce the PAL limit by any potential regulations as there are no SMAQMD

restrictions that will affect these pollutants. At this time, it is not possible to project c0

- benefits that may arise from the GHG Cap and Trade rules for this pollutant.SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 27



# Theoretical PAL

- NOx

Facility Year Actuals
Emissions (TPY) 2

- year

Avg (tpy) Significance

(tpy) Theoretical PAL

(tpy) Permitted PTE

(tpy)

SPA 2009 28.73 34.68 40 74.68 49.9

2008 40.63

SCA 2009 26.46 35.54 40 75.54 58.767

2008 44.62

Campbell Soup 2009 0.47 0.33 40 40.33 61.98

2008 0.18

Carson ICE 2009 24.99 26.86 40 66.86 53.35

2008 28.72

Cosumnes Power 2009 62.51 64.58 40 104.58 125.6

2008 66.65

UCD MED 2009 11.54 11.27 40 51.27 21.16

2008 11.00

SPA McClellan 2009 0.59 0.58 40 40.58 24.65

2008 0.57

Kiefer 2009 69.19 73.64 40 113.64 87.5

2008 78.10

DGS 2009 1.64 1.43 40 41.43 10

2008 1.21

Aerojet 2009 8.3 6 7.58 40 47.58 84

2008 6.79

As required by 40 CFR Pa rt 52.21(aa)(6) the “theoretical” PAL, if requested by the source

equals the 2 year average emissions + significance threshold for that pollutant. This analysis

does not reduce the PAL limit by any potential regulations as there are no SMAQMD

restrictions that will affect these pollutants. At this time, it is not possible to project c0

- benefits that may arise from the GHG Cap and Trade rules for this pollutant.SMAQMD Equivalency Determination for Rule 203

January 2 8 , 2011 Page 28



# Theoretical PAL

- PM10

Facility Year Actual

Emissions
(tpy) 2

- year

Avg (tpy) Significance

(tpy) Theoretical PAL

(tpy) Permitted PTE

(tpy)

SPA 2009 11.56 14.89 15 29.89 22.54

2008 18.21

SCA 2009 17 .38 18.07 15 33.07 58.767

2008 18.75

Campbell Soup 2009 2.39 2.22 15 17.22 7.772

2008 2.04

Carson ICE 2009 8.21 8.88 15 23.88 19

2008 9.54

Cosumnes Power 2009 33.27 31.19 15 46.19 80.2

2008 29.12

UCD MED 2009 6.48 6.40 15 21.40 12.24

2008 6.31

SPA McClellan 2009 0.17 0.17 15 15.17 10.44

2008 0.17

Kiefer 2009 14.12 15.05 15 30.05 27.1

2008 15.98

DGS 2009 1.89 1.36 15 16.36 15

2008 0.82

Aerojet 2009 4.60 3.87 15 18.87 289

2008 3.14

As required by 40 CFR Part 52.21(aa)(6) the “theoretical” PAL, if requested by the source

equa ls the 2 year average emissions + significance threshold for that pollutant. This analysis

does not reduce the PAL limit by any potential regulations as there are no SMAQMD

restrictions that will affect these pollutants. At this time, it is not possible to project c0

- benefits that may arise from the GHG Cap and Trade rules for this pollutant.