OFFICE OF THE GOVERNOR

RICK PERRY GOVERNOR 

### May 1, 2001

Mr. Gregg Cooke Regional Administrator U.S. Enviromnental Protection Agency, Region 6 1445 Ross Avenue Dallas, Texas 75202-2733 Dear Mr. 

### Cooke: Enclosed is aproposed revision to the Texas State Implementation Plan (SIP) that the Texas Natural Resource Conservation Commission adopted on March 21, 2001. The amendments concern 30 TAC Chapter 101, General Air Quality Rules, and Chapter 117, Control ofAirPollution from Nitrogen Compounds; specificallynew §§101.380, 101.382, 101.383, 101.385, 117.109, 117.110, and 117.139. The new sections add flexibility to the trading ofnitrogen oxides emission allowables among electric generating facilities in the DallasfFort Worth nonattainment area, by allowing daily trading among system cap participants without prior executive director approval. Electric· generating facilities in the attainment counties in east and central Texas would be allowed to exceed their emissions cap, provided emission reductions are obtained from another participant in a system cap to offset the excess. A public hearing certification, a complete record ofthe public hearings, and the accompanying order are also enclosed. I look forward to your expeditious approval ofthis SIP revision.

RP:bpk

cc: Mr. Robert J. Huston, Chairman, Texas Natural Resource Conservation Commission JeffreyA. Saitas, P.E., Executive Director, Texas Natural Resource Conservation Commission Enclosures

POST OmCE Box 12428 AUSTIN, TEXAS 78711 (SI2) 463-2000 (VolcE)/(SI2) 47S-3165 (ruD)**.~** 

### TEXAS NATURAL RESOURCE CONSERVATION COMMISSION

THESTATEOFTEXAS § COUNTY OF TRAVIS §

This is to certify that the attached are true and correct copies of a revision to the Texas State Implementation Plan, adopted on March 21, 2001, pursuant to 40 Code ofFederal Regulations**(~FR)** 

### §51.104. Priortotheadoptionofthis revision, publichearings wereheldpursuantto40CFR, §51.102(a), and notice ofthe hearings was givenwhichconformed to the requirements of40 CFR, §51.102(d). I am the custodian ofthe records ofthe Texas Natural Resource Conservation Commission (Commission).

To certify which, witness my hand and the seal ofthe Commission, this the 29th March, 2001. day ofTexas Natural Resource Conservation Commission Public Hearings January 3 and 4, 2001 Concerning revisions to 30 TAC Chapters 101 and 117, and the State Implementation Plan Rule Log Number 2000-046-101-AIINTRODUCTION

The commission held public hearings in Irving onJanuary 3,2001, and in Austin on January 4,2001, to receivetestimonyconcerningnew §§101.380, 101.382, 101.383, 101.385, 117.109, 117.110, and 117.139 and corresponding revisions to the StateImplementationPlan (SIP). Theproposednew sections would add flexibility to the trading ofnitrogen oxides emissions inthe Dallas/FortWorth nonattainment area and the attainment counties in east and central Texas by allowing the exceedence of a system emissions cap, provided emission reductions are obtained from another participant in a system cap to offset the exceedence.

Written comments were accepted through January 5, 2001. All testimony and comments have been reviewed and seriously considered. This volume contains a complete record ofthe public hearings and is divided into the following four sections:

o Public Notification and Proposal

o Written and Oral Testimony

o Evaluation ofTestimony

o StaffRecommendations

Additional copies ofthis hearing record are maintained in the TNRCC central office at 12100 Park 35 Circle, Austin, Texas 78753. For further information, contact Beecher Cameron at (512) 239-1495.

# PUBLIC NOTIFICATION AND PROPOSALPUBLIC NOTIFICAnON

Notification to the public ofthe proposed revisions was conducted by the following procedures:

1. Publication ofthe notice ofpublic hearings in the following newspaper onthe date listed: Austin American Statesman; November 22, 2000 FortWorth Star-Telegram; November 22,2000 San Antonio Express-News; November 26,2000

2. Publication ofthe proposed rules in the December 1, 2000 issue ofthe Texas Register (25 TexReg 11878)

3. Publication ofthe Notice ofPublic Hearings in the December 1, 2000 issue ofthe Texas Register (25 TexReg 12006)

4. Correspondence forwarding the notice ofpublic hearings to the following officials and agencies:
Speaker ofthe House Lieutenant Governor City ofEl Paso City ofVictoria Planning Department Dallas Department ofHealth and Human Services El Paso City-County Health District Federal Highway AdministrationFortWorth Public Health Department Galveston County Health District Houston Department ofHealth and Human Services Harris County Pollution Control Department North Central Texas Council ofGovernments Houston-Galveston Area Council South East Texas Regional Planning Commission Texas Department ofTransportation Texas Transportation Institute Arkansas Department ofPollution Control and Ecology Louisiana Department ofEnvironmental Quality New Mexico Air Quality Bureau Oklahoma Department ofEnvironmental Quality 

## u. S. Environmental Protection Agency

### EXAMPLE OF NEWSPAPER CLASSIFIED AD



### San Antonio Express-News November 26,2000Comments may be submitted to Lola Brown, MC 205, Office of Environmental Policy, Analysis, and Assessment, Texas Natural Resource Conservation Commission, P.O. Box 13087, Austin, Texas 78711-3087, or by fax to (512) 239-4808. All comments should 

# • • •

Apublichearingontliis proposal willbeheldinArlingtonat 1:30p.m. on January4,2001 at the NCI'COG, 3rdFloorTransportation Board Room, located at 616 Six Flags Drive. Thehearing willbe structured for thereceiptoforalorwrittencommentsbyinterestedpersons. Individuals maypresentoralstatements whencalleduponinorderofregistration. Therewill beno opendiscussionduring thehearing; however, an agency staff member will be available to discuss the proposal 30 minutes priorto thehearing and willanswerquestions beforeand after the hearing. Persons withdisabilities whohave specialcommunicationorotheraccommodationneedswhoareplanningtoattendthehearingshouldcon." tact the Office ofEnvironmental Policy, Analysis, and Assessment at (512) 239-49pO. Requests should be made as far in advance as possible. The commission commits toperform newmobile sourcemodeling, using MOBII,.E6. within 24 months of the model's release. In addition, 

### ifa trafLfportation conformity analysis is to beperformedbetween 12 monthsand24monthsaftertheMOBlLE6 release, trafLfportation conformity willnotbedetermineduntilTexassubmitsamotorvehicleemi.fsiofLfbudget (MVEB) which is developed using MOBlLE6 and which the EPAfinds adequate. The North Central Texa.fCouncilofGovernment(NCI'COG) andthe Departmentof Transportation have been informed of these commitment.f. Correction ofError Comments may be submitted to Lola Brown, MC 205, Office of Environmental Policy, Analysis, and Assessment, Texas Natural Resource Conservation Commission, P.O. Box 13087, Austin, Texas TheTexasNaturalResourceConservationCommissionsubmittedano- 78711-3087, or by fax to (512) 239-4808. All comments should tice to adoptthereview ofChapter290, SubchapterB. The notice ap- reference RuleLog Number 1999- 055-SIP-AL and must be received peared in the Review ofAgency Rules Section ofthe November 17, by5:00p.m., January4,2001. Forfurther information, please contact 2000, issueofthe Texas Register(25 TexReg 11530). BillJordan, Strategic Assessment Division, (512) 239-2583. Under the subheading "CHAPTER SUMMARY", fourth paragraph, TRD-2llOoo8047 third sentence the reference to "Chapter 325, Subchapters A and B" Margaret Hoffman is incorrect. It shouldread, "Chapter325, SubchaptenA and D." Director, Environmemal Law Division Under the subheading "ASSESSMENT OF WHETHER THE REA- Texas Natural Resource Conservation Commission SONSFORTHERULES CONTINUETOEXIST", secondparagraph, Filed: November 17, 2000 fint sentence, thereference to "Chapter 325, SubchaptenB and C" is ••• incorrect. It shouldread, "Chapter325, SubchaptenB and D. 

# h TRD-2oooo8172 

# V**~otice** ofPublicHearing (Chapters 101 and 117) TheTexas NaturalResourceConservation Commission (commission)
• •• willconductpublichearings toreceivetestimonyconcerningrevisions NoticeofPublicHearing (Agreements withAmerican Airlines, to 30 TAC Chapters 101 and 117 and to the State Implementation City ofFortWorth, and DallasIFort Worth International Plan (SIP) underthe requirements ofTexas Health and Safety Code, Airpo ) §382.017; Texas Government Code, Subchapter B, Chapter 2001; rt and 40 Code ofFederal Regulations, §51.102 ofthe United States The Texas Natural Resource Conservation Commission (commission) Environmental Protection Agency regulations concerning SIPs. The will conduct a public hearing to receive testimony concerning agree- revisions toChapten 101 and 117 areproposedas revisions to the SIP. ments with American Airlines, City ofFort Worth, and DallasIFort Worth (DFW) InternationalAirportandcorrespondingrevisions to the Under rules adopted by the commission on April 19, 2000, which stateimplementationplan (SIP) undertherequirements of40 Code of were published in the May 5, 2000, issue ofthe Texas Register (25 FederalRegulations, §51.102 ofthe United StatesEnvironmentalPro- TexReg 4101 and 4140), electric generating facilities (EGFs) in the tection Agency (EPA) regulations concerning SIPs. DallasIFort Worth nonattainment area and the attainment counties of east and centralTexas may voluntarilyparticipate in aprogram where The commission proposed agreements with. American Airlines, the individual sources may transfer nitrogen oxides (NO.) emissions CityofFortWorth, and DFW International Airport, asrevisions to the allowances among each other. These EGFs must be under common SIP for ozone control. The agreements and revised SIP would make ownership or control and the total emissions alIlong the participating federally enforceable certain ozone precunor emission reductions of sources cannot exceed a predetermined ma-ximum**referr~to** 1IS a nitrogen oxides from sources at DFW International Airport, Dallas systemcap. Thisproposal wouldallowthe systemcap tobeexceeded, Love Field, Fort Worth Alliance Airport, and Fort Worth Meacham provided surplus emissions allowances can be obtained on the same International Airportin the DFW nonattainment area. day as the exceedence occun from any other EGF participating in Thecommissionisalsoproposing toincorporatethefollowing textinto a system cap. An additional option would allow a system cap to be Chapter7 oftheDFW Attainment Demonstration SIP: exceeded on a**3~day** rolling average, provided sufficient surplus allowances are obtained from another system for the identical time period. The proposal would allow EGFs in the attainment counties an additional option ofexceeding the system cap provided surplus allowances are obtainedfor thatcalendaryear. Public hearings on this proposal will be held in Irving on January 3, 2001 at 6:00p.m. attheCityofIrving PublicLibrary Auditorium, located at801 WestIrvingBoulevard, and in Austin onJanuary4, 2001 at2:00p.m., attheTexasNaturalResourceConservation Commission, BuildingB,Room201A,locatedat 12100Park35 Circle. Thehearings willbe structuredfor thereceipt oforalorwritten commentsbyinterested persons. Individuals may present oral statements when called upon in order ofregistration. There will be no open discussion during thehearings; however, an agency staffmemberwillbeavailable to discuss theproposal 30 minutes priorto the hearings and will answer questions before and afterthe hearings. Personswithdisabilities whohave special communicationorotheraccommodationneedswhoareplanningto attendthehearingshouldcontact the Office ofEnvironmental Policy, Analysis, and Assessment at (512) 239-4900. Requests should be made as far in advance as possible.



### 25 TexReg 12006 December

### 1, 2000 Texas Registerreference Rule Log Number 2000- 046-101-AI, and mustbereceived by 5:00p.m., January 5, 2001. For furtherinformation, please contact BeecherCameron, Policy and Regulations Division, (512) 239-1495. TRD-200008045 Margaret Hoffman Director, Environmental Law Division Texas Natural Resource Conservation Commission

. Filed: November 17, 2000

NoticeofRequestforPu lieCommentandaNon-Adjudicatory Public HearingforTotal uimumDailyLoads and Update to the StateWaterQuality anagementPlan Notice isherebygiven that urSllant to therequirements oftheFederal CleanWaterAct, TexasWa r Code,Chapter26, andPart25 ofTille40 ofthe Code ofFederalReg lations, the Texas NaturalResourceConservation Commission (TN CC or commission) has made available forpubliccommentdraft'I1 MaximumDailyLoads (l'MDLs) concerning 1,2-dichloroethane nd 1,I,2-trichloroethaneinClearCreekin Harris, Galveston, andFort endCounties. TheTNRCCwillalso conduct a non-adjudicatory pu lic hearing to complete the public comment period. This announ ment constitutes notice that a change to the StateWaterQualityMa gementPlanwilloccurupon approval of these TMDLs by the Unite StatesEnvironmental ProteCtion Agency (EPA). Texas is required to develo TMDLs for impaired waterbodies under the 1972 Federal Clean W; er Act, §303(d). A TMDL is a detailed water quality assessment th tprovides the scientific foundation to allocatepollutant loads in ace inbodyofwatertorestoreandmaintain designated uses. The TNRCC will conduct non-adjudicatorypublic hearing on these TMDLs concerning 1,2- di hloroethaneand 1,I,2-trichloroethane in ClearCreek. Thepurpose 0 thepublichearing is toprovide thepublic an opportunity to comment n these proposed TMDLs. These water bodies are also listed for th presence ofcarbon disulfide in fish tissue. TMDLs are notbeing eparedfor this pollutantbecause through additional assessment it is a parent that carbon disulfide measured in fish tissue samples was an 'fact oftissue degradation during laboratoryanalysis. TNRCC d s not deem it necessary orappropriate to establishaTMDLfor carbo disulfideinClearCreekand willpropose to remove this pollutant fro the next §303(d) list. The commission requests commenton each 0 the six majorcomponents oftheTMDL: ProblemDefinition,Endpoi tIdentification, SourceAnalysis,Linkage BetweenSourcesandRecei ngWaters,MarginofSafety,andLoading Allocations. After the pub commentperiod, TNRCC staffmay revisetheTMDLs, ifappropritte. The finalTMDLswillthenbebrought to the commission for app val. Upon approval ofthe TMDL by the commissioners, the final DL and a response to all comments will be made available on the RCC web site referenced below. These TMDLs willthenbe submit d to theEPARegion 6 for approval as an updateto the State ofTexas aterQualityManagementPlan. A non-adjudicatory public 'ng willbe held inWebster, Texas, on January9,2001,beginning 7:00p.m., attheChallenger7 Memorial Park. locatedat2301 NASA oulevard. Agency staffwillbeavailable 6:30p.rn. - 7:30p.m. for di ussionorto answerany questions. Iodividuals maypresent oral**sta~ments** when calledupon iii orderofregistration. Open discussion 11 not occur during the hearing. Agency staff.member will be**avail~** e again after the public hearing for discussIon orto answer questt s. 

# • • Notice ofWaterDistrictAp The Texas Natural Resource**~'onservation** Commission (fNRCC)' will conduct a hearing on a pet tion for dissolution ofGALVESTON COUNTY MUNICIPAL UTIL DISTRICT NO.9 (District) The petitionwas signedby StePhe

# t. Clark. PresidentofCypress Realty, Ioc., a Texas corporation, bein the owner ofa majority ofproperty located within the District (pe tioner). The TNRCC willconductthis hearing underthe authority of**~apters** 49 and 54 oftheTexas Water Code, 30Texas Administrativ9 Code Chapter293 and theprocedural rules oftheTNRCC. The TNP.CC wiltconduct the hearing at: 9:30 a.m., Wednesday, January 24l 2000 Building E, Room 201S 12100 Park35 Circle Austin, Texas.'OnJanuary 20, 1982, theTexas Water Commission created theDistrjct. It operates underTexas WaterCode Chapters 49 and 54 as a muwcipal utility district. The petition states the District: (1) has Perform«id.l none ofthe functions for which it was created for five consecutive**r~** preceding the date ofthe petition. (2) is financially dormant, atjd (3) has no outstanding bonded indebtedness. Certifiedcopies ofilieAnnualFinancialDormancyandFIling Affidavits for the years**199~** through 1998 are on file. An affidavit from the State ComptrollerJofPublic Accounts has been included in the petition, certifying thalfthe District has no bonded indebtedness. ITthe requestfor**dissoluti~h** is approved, the District's assets, ifany, will escheat to the State pfTexas and will be administered by the State Comptroller ofPub9c Accounts and disposed ofin the manner provided byChapter**74~Perty** Code. The TNRCC may grant contested case hearing on this application ifa written hearing req .st is filed within 30.da ys after the newspaperpublication ofthis otice. The Executive Director may approve the application unless a 'ttenrequestfor a contestedcasehearing is filed within 30days aft,rthe newspaperpublication ofthis notice. To request a contested**c~** hearing, you must submit the following:. (1) your name (or for a group or association, an official representattve), mailing address, daytifue phone number, and fax number, ifany; (2) the name ofthe**appli~nt** and the TNRCC Intemal ControlNumber; (3) the statement "We request a contested case hearing"; (4) a briefdescription ofhOw you would be affectedby the granting ofthe requestinawaynotc;ommonto the genera.1**p~blic. ~ou**  mayalso**~b** mit yourproposedad/ustments to the application whIchwould satisfy yourconcerns.**Requ~ts** foracontestedcasehearingmustbesubmitted Comments should be sub tted to Angela Slupe, Texas Natural Resource Conservation Co • sion, Office ofEnvironmentalPolicy, Analysis, and Assessment, 205, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (51 ) 2394808. All comments must be receivedby5:00p.m., Jan 12, 2001, and shouldreferenceDocket Number 2000-1285-TML. further information regarding these proposedTMDLs, please con etKirkDean, Office ofEnviroomental Policy, Analysis, andAssessm 1, (512) 239- 3667. Copies ofthedocument summarizing these pro sed TMDLs can be obtained via the commission's Web Siteat ' nrcc.state.tx.uslwaterlqualityltmdl, or bycalling Angela Slupe at (51 2394712. Persons withdisabilities whoh e specialcommunicationorotheraccommodationneedswhoarepla
.ngtoattendthemeetingshouldcontactthe agency at (512) 23949
. Requests shouldbe made as far in advance as possible. TRD-200oo8117 Margaret Hoffman Director, Environmental Law Diy' Ion Texas Natural Resource Conserv tion Commission Filed: November21, 2000 

# • 

# • •

INADDITION December 

### 1, 2000 

### 25 TexReg 12007[(8)] Adulterated and mi branded device. If the Texas Department ofHealth (department) i entifies an adulterated or misbranded device, the department may se [eafeJee] the applicable provisions of Subchapter C ofthe A t including, but not limited to: detention, emergencyorder, recall, co demoation, destruction, injunction, civilpenalties, criminal enaiti [eBfereemest], and/oradministrativepenalties;[,] Administrative an civil nalties will beassessed using the SeverityLevels contained [ eul] in §229.261 ofthis title (relating to AssessmentofAdminis ·ve orCivilPenalties). This agencyherebycertifieS thatth proposal has been reviewed bylegal counsel and found to be wi in the agency'slegal authority to adopt Filed with the Office of the Secre ry of State, on November 17, 2000. TRD-200008065 Susan K. Steeg General Counsel Texas Department of Health Earliest possible date ofadoption: Dec mber31,2000 Forfurther information, please call: (51 ) 458-7236 

# • • • TITLE 30. ENVIRONMENTAL QUALITY 

### PART 

## 1. TEXAS NATURALRESOURCE CONSERVATION COMMISSION CHAPTER 101. GENERAL AIR QUALITY RULES 

### SUBCHAPTERH. EMISSIONSBANKING AND TRADING DMSION 5. SYSTEM CAPTRADING 30TAC §§l01.380, 101.382, 101.383, 101.385 The Texas Natural Resource Conservation Commission (commission) proposes new §101.380, Definitions; §101.382, Applicability; §101.383, General Provisions; and §101.385, Recordkeeping and Reporting. The proposed new sections are to be grouped into Subchapter H, Emissions Banking and Trading; new Division 5, System Cap Trading. The sections will also be submitted to the United States Environmental Protection Agency (EPA) as revisions to the state implementation plan (SIP). BACKGROUND AND SUMMARY OF THE FACTUAL BASiS FOR THE PROPOSED RULES ·rhe proposed rules would simplify emission trading for electric generating facilities (EGFs) operating under a system emission cap in the DallasIFort Worth (DFW) ozone nonattainment area and in the attainment counties of east and central Texas. The rules represent a continuing commibnent by the commission to incorporate maximum flexibilityforthe electricindustryin achieving the nitrogen oxides (NO,) emissions reductions necessary to achieve the goal of ozone attainment in the DFW area while maintaining reliability of service. The proposed procedure may be applied to otherfacilities SUbjectto a system cap underChapter 117 in subsequent rulemaking. Repertiag"]. .ng. Device distributors ormanufac-

.caldevicereponing requirements leet approval provisions of21 CPR. valofMedical Devices."

ill. Sale ofcontact lenses 'atflea markets. Contact lenses may notbe sold by persons atflea markets unless: 

### ill the personselling fue contactlenses has compliedwith the uirements ofBusiness and ' ommerceCode, §35.SS; and 

### ill the personselling e contactlenseshas compliedwith the requirements ofthe Texas Cdntact Lens Prescription Act, Texas Civil Statutes, Article 45S2·A. \ §229.443. Enforcement. andpen\' {ties. (a)

- (b) (No change.) (c) Access to records. 

### ill A person who is

## ~\quired to maintain records referenced in these sections orunderth Texas Food, Drug, and Cosmetic Act, Health and SafetyCode, Chapt 431 (Act) or §519 or§520(g) of theFederalFood, Drug, and Cosmeti Actoraperson whois in charge orcustodyofthose records shall, at erequest ofan authorized agent orhealth authority, permit the autho zed agent orhealth authority at allreasonabletimes access to andto c 'pyandverify the records. 

### ill A rson who is sub· t to licensure under these sections ofthis suocha ter shall at the uest ofan authorized a ent or health authorit, emit the authorized ent orhealth anthont at all reasonabletimes access to and to co d verie all records showin :

merce; and



### 25 TexReg 

### 11878 December

### 1, 2000 Texas RegisterEmission reduction credit (ERC) trading among companies is allowed under the April 19, 2000 adoption of the DFW ozone attainment demonstration rules for EGFs, which were published in the May5, 2000 issue ofthe TexasRegister(25TexReg 4140). In orderto complete a trade underthese existing rules, one source owner must bank an emission credit with the commission and another source owner must receive the executive director's approval to use the credit. This procedure works well for trades which are made relatively infrequently, such as tend to occur when emissions are limited annually. In contrast, the ozone attainment demonstration rules for EGFs in DFW establish daily NO limits because the EGFs in DFW mostly operate on days conducive to exceedencesofthe ozone standard. This proposed rulemaking would add a trading alternative which would facilitate daily emission trading by reducing the steps necessary**~o** trade allowable emissions among different owners. Under thiS rule proposal, the source owners would be simply required**~o** report trades and the commission**w~uld h~v~**  the opportunity. to review, on a quarterly basis, the dally**emlsslo~S,** 30-day roiling average emissions, and anyemission tradeswhich occurred during the preceding calendar quarter. Currently, individual sources under comr:non ownership or control may be voluntarily grouped together In system With a**s~s** tem cap ontotal emissions from the sources In the system.**E~I~'** sion allowables may be transferred from source to source Within the system, provided the cap is not**exceede~.** This proposal would allow the increase of system caps, prOVided that surplus emission allowables are obtained from another source owner participating in a system cap. The system cap.may be**increa~ed** daily using a daily surplus or on a 30-day roiling average uSing 30-day rolling average surpluses for the same period. The rules adopted on April 19, 2000 also established an annual system cap for EGFs in the attainment counties of east and central Texas (25 TexReg 4101). This proposal would allow the exceedence of that system cap provided surplus emission allowable is obtained from another EGFs participating in the system cap. The EGFs affected by Chapter 117 are in the following counties: Atascosa, Bastrop, Bexa.r, Brazos,**Cal~oun,** Cherokee, Fannin, Fayette, Freestone, Gohad, Gregg,**Gn~es,** Harrison Henderson Hood, Hunt, Lamar, Limestone, Manon,

### McLenn~n, Milam,

### M~rris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton. The transferofemission allowable remains restricted to the area, nonattainment or attainment, in which it originates. SECTION BY SECTION DISCUSSION The proposed new §101.380 contains definitions for use in this division. Surplus emission allowable is defined as an amount, greater than zero, by which a source's allowable source cap emissions exceed actual emissions fora single day or a 30-day average ortons peryearfora calendaryearfora source subject to Chapter 117, Subchapter B, Division 2, Utility Electric Generation in East and Central Texas. The proposed new §101.382 would apply th.e trading**pro~isions** of this division to sources located within a SIngle nonattalnment area or other area with unique emission limits as defined in Chapter 117. The proposed new §101.383 would allow the**increa~** of system cap limits provided surplus allowances are obtained**fr~m** anotherowneroroperatorparticipating in the system cap. EmiSsionscaps maybe increased dailyoron a30-day rolling average, provided allowances are obtained that match the period when the increase occurs. System cap.limits for EGFs as regulated underChapter 117, Subchapter B, Division 2, may be exceeded with surplus emission allowable obtained for that calendar year from anothersource owner or operator participating in the system cap. The proposed new §1 01.385 would require owners oroperators of sources in an ozone nonattainment area participating in this trading program to submitquarterly reports based on a calendar year within 30 days of the end of the reporting period. The reports would contain daily NO. emissions from each source and supporting calculations, rolling 30-day average for each source with supporting calculations, and all emission trades during the reporting period including trade date or period, quantity traded, and trading participants. Similarly, EGFs complying with Chapter 117, SubchapterB, Division 2, would submit reports dated on annual period beginning January 1 of each year and submitted within 30 days**followin~** the end ofthe annual period. The report would detail annual emissions with supporting calculations and all emission trades during the report period including trade date, quantity traded, and trade participants. This section would also require owners or operators to report to the commission, within 48 hours, any exceedences of a system cap when there were not allowances available to compensate for that exceedence. FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT John Davis, Technical Specialistwith Strategic Planning and Appropriations, determined for each year of the first five-year period the proposed rules are in effect, there may be positive fiscal implications, which are not anticipated to be significant, for owners of boilers and turbines in the four- county DFW nonattainment area and the 9S-eounty central and east Texas attainmentareaas a resultofadministrationoumforcementofthe proposed rules. There are 23**investor~wnectboitersand13** boilers owned by municipalities in the DFW area that could be affected by the proposed rules. In addition, there are approximately 65 investor-owned boilers and turbines and 36 boilers and turbines owned by municipalities. cooperatives, or river authorities in the eastand centralTexas attainmentareasthat could beaffected by the proposed rules. There will be no fiscal implications for units ofstate and local governmentthat do not own oroperate boilers or turbines at EGFs in the affected areas. The proposed rules are intended to simplify and expand the trading of emissions for regulated NO. sources in the affected areas. This proposal is intended to provide increased flexibility for regulated NO sources byadding anotheremissiontrading alternative to meet required emission levels. Regulated NO, sources in the affected areasthatare operating undera system cap are eligible to participate in the system cap trading program. This proposal would allow the trading of emissions between different entities as long as participating sources are operating under a system cap. A NO source would only be allowed to exceed the system cap by obtaining surplus emissions from othersources. The system cap trading program differs from**th~** emission.credit banking and trading program, because there IS no banking of emissions with the agency. All trading is done between entities with overall trading reports and emission levels provided to the commission on a quarterly or annual basis. The**prop~ed** 

### system cap trading program is intended to enhance**~~Iy tr~dlng**  of emissions by allowing direct trades between entities WIthOUt prior agency approval and.to implement annual**tr8;di~g** in the east and central Texas attamment area. The commiSSion does



### PROPOSEDRULES December

### 1, 2000 

### 25 TexReg 11879notanticipate significantfiscal impacts to units ofstate and local government due to the quarterly reporting requirement. Examples of NO, sources at facilities that could be affected by the proposed rules include electric utility boilers and stationary gas turbines. Currently, only EGFs are eligible under Chapter 117 rules to participate in the system cap trading program. There are approximately 23 investor-owned boilers and 13 boilers owned by municipalities in the DFW area that could be affected by the proposed rules if the owners of these boilers decideto participate in the system captrading program. In addition, there are approximately 65 investor-owned boiler and turbine EGFs and 36 boiler and turbine EGFs owned by river authorities, cooperatives, or municipalities in the eastand central Texas attainmentarea which could be affected bythe proposed rules if the owners of these boilers and turbines decide to participate in the system cap trading program. The counties in the affected attainmentareas are: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood. Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk. Titus, Travis, Victoria, and Wharton. The transfer of emission allowable remains restricted to the area, nonattainment or attainment, in which it originates. Although the exact cost perton for an emission credittraded in the system cap trading program is unknown, the commission estimates thatthe cost will be similar to ERCs currently traded in the DFW and Houston/Galveston (HGA) areas. The current cost for ERCs in HGA is approximately $3,600 per ton per year. Actual costs will be dependent on availability and demand. Total costs to state and local governmentsites that elect to participate in the system cap trading program will depend on the amount of emissions purchased. Emission trading underthis program is intended to provide flexibility for regulated NO. sources and potential cost savings in planning and determining the mosteconomical mix of the application of emission control technology with the purchase of surplus emissions from other NO. sources to meet emission reduction requirements. Additionally, facilities that remain within their emission caps may receive additional revenue from selling surplus emissions to other emission sources. PUBLIC BENEFIT AND COSTS Mr. Davis also determined for each ofthe first five years the proposed rules are in effect, the public benefitanticipated asa result on implementing the rules will be the reduction of emissions of NO, in the DFWand east and central Texas areas and increased flexibility for regulated facilities to meet emission reduction requirements. This proposal is intended to provide increased flexibility for regulated NO.sources byadding anotheremission trading alternative to meet required emission levels. Regulated NO. sources in the affected areas that are operating under a system cap are eligible to participate in the system cap trading program, which allows the trading of emissions between different entities as long as participating sources are operating under a system cap. A NO, source would only be allowed to exceed the system cap by obtaining surp1vs emissions from other sources. It is anticipated that the majority of owners and operators of the approximately 23 investor-owned and operated boilers located at EGFs in the DFW area would be affected by the proposed rulemaking by electing to participate in the system cap trading program. Although the exact cost per ton for an emission credittraded in the system cap trading program is unknown, the commission estimates the cost will be similar to ERCs currently traded in the DFW and HGA areas. The current cost for ERCs in HGA is approximately $3,600 per ton per year. Actual costs will be dependent on availability and demand. Total costs to individuals and businesses that elect to participate in the system cap trading program will depend on the amountofemissions purchased. Emission trading underthis program is intended to provide flexibility for regulated NO, sources and potential cost savings in planning and determining the mosteconomical mixofthe application of emission control technology-with the purchase of other NO, source's surplus emissions to meet emission reduction requirements. Additionally, facilities that remain within their emission caps may receive additional revenue from selling surplus emissions to other emission sources. SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT No adverse fiscal implications are anticipated for small or micro-businesses as a result of administration or enforcement of the proposed rules. The proposed rules would allow EGFs in the DFW and east and central Texas areas to participate in the system cap trading program. There are no known small or micro-businesses thatown oroperateaffected EGFs in theaffected areas; therefore, the commission anticipates there will be no fiscal impact for small or micro-businesses as a result of the proposed rules. DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION Thecommission reviewed the proposed rulemaking in lightofthe regulatory analysis requirements of Texas Government Code, §2oo1.0225. The commission determined that these proposed new sections do not meetthe definition of a "major environmental rule" as defined in Texas Government Code, §2001.0225. "Major environmental rule" means a rule, the specific intent of which, is to protect the environment or reduce Tisks-to-human health from environmental exposure, and that-may-adverselyaffect in a material way the economy, a sectorof the economy. productivity, competition. jobs, the environment, orthe public health and safety of the state or a sector of the state. The commission is proposing these new sections to allow greater flexibility for sources in the affected areas to meet NO, emission limitations and for NO. emissions trading. The proposed new sections do not adversely affect in a material way the economy, a sector ofthe economy, productivity, competition, jobs, the environment, orthe public health and safetyofthe state ora sectorofthe state; therefore, this proposal does not constitute a majorenvironmental rule. In addition. Texas Government Code, §2001.0225, only appliestoa majorenvironmental rule, the resultofwhich is to: 1.) exceed a standard set by federal law, unless the rule is specifically required bystate law; 2.) exceed an express requirementof state law, unless the rule is specifically reqUired by federal law; 3.) exceed a requirement of a delegation agreementor 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 undera specific state law. This rulemaking is notsubject to the regulatory analysis provisions of §2oo1.0225(b), because the proposed rules do not meet any of the four applicability requirements. Specifically, the emission banking and trading requirements were developed in orderto meetthe ozone national ambient air quality standard (NAAQS) set by the EPA under the Federal Clean Air Act (FCAA), §109 (42 United States Code (USC), §7409), and therefore meet a federal requiremenl Provisions of42 USC, §741 0, require statesto adopta SIP which provides for "implementation, maintenance, and enforcement"


### 25TexReg 11880 December1,2000 Texas Registerof the primary NMOS in each air quality control region of the state. While §7410 does not require specific programs, methods, orreductions in orderto meetthe standard, state SIPs must include "enforceable emission limitations and othercontrol measures, meansortechniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights), as well as schedules and timetables for compliance as may be necessary or appropriate to meet the applicable requirements of this chapter," (meaning Chapter 85, Air Pollution Prevention and Control). It is true that 42 USC does require some specific measures for SIP purposes, like the inspection and maintenance program, but those programs are the exception, not the rule, in the SIP structure of 42 USC. The provisions of 42 USC recognize that.states are in the best position to determine what programs and controls are necessary orappropriate in order to meetthe NMOS. This flexibility allows states, affected industry, and the public, to collaborate on the best methods for attaining the NMOS for the specific regions in the state. Even though 42 USC allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meetsthe requirements of§741 O. Thus, while specificmeasures are notgenerally required, the emission reductions are required. States are notfree to ignorethe requirements of§741 0and must develop programs to assure that the nonattainmentareas ofthe state will be brought into attainment on schedule. The requirement to provide a fiscal analysis of proposed n3gulations in the Texas Government Code was amended by Senate Bill (SB) 633 during the 75th Legislative Session, 1999. The intent of SB 633 was to require agencies to conduct a regulatory impactanalysis (RIA) ofextraordinary rules. These are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement of state law, federal law, or a delegated federal program, or are adopted solely under the general powers of the agency. With the understanding thatthis requirementwould seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment of rules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number of rules that would require assessment under the provisions of the bill was not large. This conclusion was based, in part, on the criteriasetforth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law. As previously discussed, 42 USC does not require specific programs, methods, or reductions in orderto meet the NMOS; thus, states mustdevelopprograms foreach nonattainmentarea to ensure thatareawill meetthe attainmentdeadlines. Because of the ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The commission bases these actions on the presumption thatthe legislature understands this federal scheme. If each rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full RIA contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board (LBB) in its fiscal notes. Because it is a rule of statutory interpretation that the legislature is presumed to understand the fiscal impacts of the bills it passes, and that presumption is based on information provided by state agencies and the LBB, the commission believes thatthe intentofSB 633 was onlyto require the full RIA for rules thatare extraordinaryin nature. While the SIP rules will have a broad impact, that impact is no greaterthan is necessary orappropriate to meetthe requirements of the FCM. Forthese reasons, rules proposed for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are required by federal law. The rulemaking does not exceed a standard set by federal law, exceed an express requirement of state lav.: (unless specifically. required by federal law), or exceed a reqUIrement of a delegation agreement. The**rule~** making was not developed solely under the general powers of the agency, but was specificallydeveloped to meet the NMOS established underfederal lawand authorized underTexas Clean AirAct (TCM), §§382.011, 382.012, and 382.017 aswell asunder 42 USC, §7410(a)(2)(A). The commission invites public comment on the draft RIA. TAKINGS IMPACT ASSESSMENT The commission completed a takings impactassessmentforthe proposed rules. The following is asummaryofthatassessment. The sections are proposed as part of a strategy to reduce and permanently cap emissions of NO. to a level which would allow the DFW nonattainmentareato attain the NMOSforozoneand to maintain airqualityinthe eastand centralTexasarea. Promulgation and enforcement of the rules will not burden private real property. The proposed new sections do notaffectprivate property in a mannerwhich restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Additionally, the NO. emissions underthe system cap that are the subject of these rules are not property rights. Consequently, the proposed sections do not meetthe definition of a takings under Texas Government Code, §2007.002(5). Although the proposed sections do notdirectlypreventa nuisance or prevent an immediate threat to life or property, they do prevent a real and substantial threatto publichealth and safety, and partially fulfill a federal mandate underthe USC, §7410. Specifically, the emission limitations and control requirements thatare the subjectof this proposal were developed in orderto meetthe ozone NMOS set by the EPA under the USC, §7409. States are primarily responsible for ensuring attainment and maintenance ofthe NMOS on.ce the EPAhas established them. Under the USC, §7410 and related provisions, states mustsubmit, for approval by the EPA, SIPs that provide for the attainment and maintenance of NMOS through control programs directed to sources ofthe pollutants involved. Therefore, the purpose ofthe rule proposal is to implementa NO. strategywhich is necessary for the DFW area to meet the air quality standards established under federal law and to maintain air quality in east and central Texas. Consequently, the exemption which applies to these proposed rules is that of an action reasonably taken to fulfill an obligation mandated by federal law. Therefore, these proposed revisions will not constitute a takings under Texas Government Code, Chapter 2007.

. CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined the proposed rulemaking relates to an action or actions subject to the Texas Coastal Management Plan (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resource Code, §§33.201 et seq.), and the commission's rules in 30 TAC Chapter281, Subchapter B, concerning Consistencywith the Texas Coastal Management Program. As required by30TAC §505.11 (b)(2) and 30 TAC §281.45(a)(3), 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


### PROPOSED RULES December 

### 1, 2000 

### 25 TexReg 11881CMP goals and policies in accordance with the regulations of the Coastal Coordination Council and determined the proposed 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 31 TAC §501.14(q), which requires the commission protectairquality in coastal areas. The proposed newsections would allow greaterflexibility in meeting system cap requirements by trading NO, emissions between sources in the DFW and east and central Texas areas. These proposed rules do notauthorize any new NO,airemissions. Interested persons maysubmitcomments on the consistency of the proposed rules with the CMP during the public comment period. EFFECTON SITES SUBJECTTO THE FEDERALOPERATING PERMITS PROGRAM The proposed new sections, if adopted, would become part of the state's ozone attainment strategy; therefore, these revisions would be submitted as part ofthe SIP. As a result, the proposed sections would become applicable requirements underthe federal operating permit program and sources would be required to amend their permits. ANNOUNCEMENT OF HEARING The commission will hold public hearings on this proposal in Irving on January 3, 2001 at 6:00 p.m. at the City of Irving Public Library Auditorium, located at 801 West Irving Boulevard and in Austin on January 4, 2001, at 2:00 p.m., at the Texas Natural Resource Conservation Commission, Building B, Room 201A, located at 12100 Park 35 Circle. The hearings will be structured forthe receiptoforal orwritten comments by interested persons. Individuals may present oral statements when called upon in orderof registration. There will be no open discussion during the hearings; however, an agency staff member will be available to discuss the proposal 30 minutes prior to the hearings and will answer questions before and after the hearings. Persons with disabilities who have special communication or other accommodation needs, who are planning to attend the hearings, should contact the Office of Environmental Policy, Analysis, and Assessment at (512) 239-4900. Requests should be made as far in advance as possible. SUBMITIAL OF COMMENTS Comments may be submitted to Lola Brown, Office of Environmental Policy, Analysis, and Assessment, MC 206, P.O. Box 13087, Austin, Texas78711-3087 orfaxed to (512) 239-4808. All commentsshould reference Rule Log Number2000-046-1 01-A/. Comments must be received by5:00 p.m., January5, 2001. For further information, please contact Matthew R. Baker at (512) 239-1091 or Beecher Cameron at (512) 239-1495.

. STATUTORYAUTHORITY The new sections are proposed under the Texas Health and Safety Code, TCAA, §382,O11, which authorizes the commission to control the quality of the state's air; §382,012, which authorizes the commission to develop a plan for control of the state's air; §382.017, which provides the commission the authority to adopt rules consistent with the policy and purposes of the TCAA; and 42 USC, §7410(a)(2)(A), which requires SIPs to include enforceable emission limitations and other control measures ortechniques, including economicincentives such asfees. marketable permits, and auction of emission rights. The proposed new sections implement TCAA, §382.011, General Powers and Duties: §382.012, State Air Control Plan; and §382.017, Rules. §lOl.380. Definitions. The following words and tenns, whenused in this division, shall have thefollowing meanings, unless the contextclearly indicates otherwise: Surplus emission allowable-The amount, greater than zero, that a source owner or operator's allowable emissions in a system cap emission limit specifiedinChapter 117 ofthis title(relating to Control ofAir Pollution from NitrogenCompounds) is greaterthan the actual emissions in that system, in: 

### ill pounds per day for a: single day; or 

# an rolling 3D-day average period; or 

### ill tons per year for a calendar year period for a source subject to Chapter 117, SubchapterB, Division 2 ofthis title (relating to UtilityElectric Generation inEastand CentralTexas). §101.382. Applicability. Trades ofemission allowables are limited to sources located within a single nonattainment area or within another single area with unique emissionlimitsidentifiedinChapter 117 ofthistitle(relatingtoControl ofAir Pollution from Nitrogen Compounds). §lOl.383. General Provisions. Systemcap limits may be eltceeded with surplus emission allowable obtained for that day fromanother source owneroroperator participating in a systemcap. The owner or operatormay exceed the: 

### ill maximum daily cap with a one-day surplus emission allowable generated on the same day; and 

### ill rolling 30-day average daily system cap-emission limitation with a surplus emission allowable generated over the same period. 

### M System cap limits for utility electric generating units as regulatedunderChapter 117, Subchapter Bt Division2 ofthis title (relating to UtilityElectric Generation inEast andCentralTexas) maybe exceeded with surplus emission allowable obtained for that calendar year from another source owner or operator participating in a system {fl Thecap requirements ofChapter 117 ofthis title (relating to ControlofAirPollution fromNitrogen Compounds)continue to apply, except as modified in subsection (a) ofthis section. §lOl.385. Recordkeeping andReporting. The owner or operator ofa source in an ozone nonattainmeet area participating with this division shall submit to the executive director a quarterly report. 

### ill Each QUarterlyreport will bebased on athree-calendar month period beginning onJanuary 1 ofeach year. 

### ill Thereport shall be submitted within 30days following the end ofthe quarterly period. 

### ill Thereport shall detail thefollowing: the daily nitrogen oltides(NO.)emissions from each source along with supportingcalculations forthemaximumdaily cap and therolling 3D-day average systemcap emission limitationj 

# an all emission trades during the reported time period including thetrade date or period, quantity traded, and trading participants.


### 25 TexReg 

### 11882 December

### 1, 2000 Texas Register

### ill Theowneroroperatorofa sourceparticipatinginasystem cap limit for sources subject to Chapter 117, SubchapterB, Division 2 ofthis title (relating to Utility Electric Generation inEast and Central Texas) shall submitto the executive directoran annualreport. 

### ill Each annualreport willbe based on a 12-monthcalendar periodbeginning on January 1 ofeach year. 

### ill Thereportshallbe submitted within 30days following the end ofthe annual period. 

### ill Thereport shall detail the following: 

### W the annual NO emissions from each source along with supporting calculations; and • 

### !ill all emissions trades during thereported timeperiod including trade date. quantity traded, and trade participants. The owner or operator ofany system participating in this division shallreport within 48 hours to the executive directorany time that the system exceeded its daily or rolling 3Q-day average system cap emission limitation, or within 30 days any time that the syStem exceeded its annual system cap, and did not obtain surplus emission allowable for thattime period. Thisreport shall include: 

### ill cause ofthe exceedence with data to demonstrate the amount ofemissions in excess ofthe applicable limit; 

### ill date or period ofexCeedencej 

### ill amount ofexceedence; and 

### ill number ofsurplus emissions allowables traded on the date ofor during the period ofthe exceedence. This agencyherebycertifiesthatthe proposal has been reviewed by legal counsel and found to bewithin the agency'slegal authorityto adopL Filed with-the Office of the Secretary of State, on November 17, 2000. TRD-2oooo8044 Margaret Hoffman Director, Environmental Law Division Texas Natural Resource Conservation Commission Earliest possible date of adoption: December31, 2000 Forfurther information, please call: (512) 239-0348 

# • • • CHAPTER 117. CONTROL OF AIR POLLUTION FROM NITROGEN COMPOUNDS SUBCHAPTERB. COMBUSTION ATMAJOR SOURCES The Texas Natural Resource Conservation Commission (commission) proposes new §117.109, System Cap Aexibility; §117.110, Change of Ownership
- System Cap; and §117.139, System Cap Flexibility. The new sections will be submitted to the United States Environmental Protection Agency (EPA) as a revision to the state implementation plan (SIP). BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULE On April 19, 2000 the commission adopted rules, which were published in the May 5, 2000 issue of the Texas Register(25 TexReg 4101 and TexReg 4140), that reqUired electric generating facilities (EGFs) in the DallaslFortWorth (DFW) ozone nonattainment area and east and central Texas to meetspecific nitrogen oxides (NO.) emission limits. The counties of Dallas, Tarrant, Collin, and Denton are included in the DFW area. The counties affected in the attainment area are: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, Hunt, Lamar, limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton. Under the adopted rules, owners or operators of EGFs were given the option of participating in a systemcapto meetthe emission requirements in Chapter 117. Undera system cap owners or operators of EGFs would have the option of averaging emissions among as long asthe facilitieswere undercommon ownershiporcontrol and an overall cap on thesystem is notexceeded. The purpose ofthis proposal is givethe owners and operators of EGFs in the affected areas additional flexibility in meeting their system caps eitherthrough the use ofemission reduction credits (ERCs), discrete emission reduction credits (DERCs), orthrough the transfer of emissions between EGFs participating in a system cap that are in the same nonattainment or attainmentarea. SECTION BY SECTION DISCUSSION The proposed new §117.109 would allow owners or operators of NO. sources in the DFW ozone nonattainment area who are participating in a system cap under proposed §117.108 to trade emissions with other participating owners or operators of NO sources in the DFW ozone nonattainment area under the re: quirements in amendments to Chapter 101, Subchapter H, Division 1, 4, or5, relating to Emission Credit Banking and Trading; Discrete Emission Creditand Trading Program; and System Cap Trading. The new Chapter 101, SubchapterH, Division 51s proposed in a concurrent rulemaking and appears in this edition of the Texas Register. The new §117.110 states that in the event that a unit of electric power generation is sold or transferred, the unit shall become subject to the transferee's emission cap. The value Ri in §117.1 08(c), System Cap is based on a unirs status as of January 1, 2000 and does not change as a result of the sale or transfer of a unit regardless of the size of the transferee's system. The proposed new §117.139 states that an owner or operator of a source of NO. in an east or central Texas attainment area who is participating in the system cap under §117.138, System Cap may exceed theirsystem cap provided the owneroroperator is complying with Chapter 101, Subchapter H, Division 1, 4, or 5, relating to Emission Credit Banking and Trading; Discrete Emission Creditand Trading Program; and System Cap Trading. The new Chapter 101, Subchapter H, Division 5 is proposed in a concurrent rulemaking and appears in this edition ofthe Texas Register. FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT John Davis, Technical Specialistwith Strategic Planning and Appropriations, determined for each year of the first five-year period the proposed rules are in effect, there may be positive fiscal implications, which are not anticipated to be significant, for owners of boilers and turbines in the four- county DFW nonattainment area and the 95-eounty central and eastTexas attainmentarea asa resultofadministration orenforcementofthe proposed rules. There are 23 investor-owned boilers and 13 boilers


### PROPOSED RULES December

### 1, 2000 

### 25 TexReg 11883owned by municipalities in the DFW area that could be affected by the proposed rules. In addition, there are approximately 65 investor-owned boilers and turbines and 36 boilers and turbines owned by municipalities, cooperatives, or river authorities in the eastand central Texas attainmentarea that could be affected by the proposed rules. The transfer of emission allowable remains restricted to the area, nonattainment or attainment, in which it originates. There will be no fiscal implications for units of state and local governmentthatdo notown oroperate boilersat EGFs. The system cap trading program is intended to prOVide another emission trading alternative for regulated EGFs in the DFW area, which consists of Collin, Dallas, Denton, and Tarrant

. Counties and in the attainment counties of east and central

Texas. The EGFs affected by Chapter 117 are in the following counties: Atascosa, 'Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton. This program is intended to provide increased flexibility for regulated NO, sources by adding another emission trading alternative to meet required emission levels. Regulated NO,sources in the affected areas that are operating under a system cap are eligible to participate in the system cap trading program. This program would allow the trading of emissions between different entities as long as participating sources are operating under a system cap. A NO, source would only be allowed to exceed the system cap by obtaining surplus emissions from other sources. The system cap trading program differs from the emission credit banking and trading program because there is no banking of emissions with the commission. All trading is done between entities with overall trading reports and emission levelsprovided for the agency on a quarterlybasis. The proposed system cap trading program is intended to enhance daily trading ofemissions by allowing direct trades between entitieswithout prior commission approval. The commission does not anticipate significant fiscal impacts to units ofstate and local government owned and operated sources due to the quarterly reporting requiremenl Since the proposed rules do not add additional regulatory requirements that have notalreadybeen proposed, the commission estimates there will be no additional costs to units of state and local government as a result of implementing the proposed rules otherthan the cost to purchase and trade emissions, which was estimated to be approximately $3,600 per ton per year for ERCs. There are 23 investor-owned boilers and 13 boilers owned by municipalities in the DFW area that could be affected by the proposed rules if the owners of these boilers decide to participate in the system cap trading program. In addition, there are approximately 65 investor-owned boiler and turbine EGFs and 36 boiler and turbine EGFs owned by river authorities, cooperatives, or municipalities in the east and central Texas attainment area which could be affected by the proposed rules if the owners of these boilers and turbines decide to participate in the system cap trading program. Actual costs for purchased and traded emissions will be dependent on availability and demand. Total costs to state and local government sites that elect to participate in the system cap trading program will depend on the amount of emissions purchased. Emission trading under this program is intended to provide flexibility for regulated NO, sources and potential cost savings in planning and determining the most economical mix of the application of emission control technology with the purchase ofothersources' surplus emissions to meet emission reduction requirements. Additionally, facilities that remain within their emission caps may receive additional revenue from selling surplus emissions to other emission sources. PUBLIC BENEFIT AND COSTS Mr. Davis also determined for each of the first five years the proposed rules are in effect, the public benefit anticipated as a result of implementing the proposed rule will be a reduction in NO. emissions in the affected areas and increased flexibility for EGFs to meet emission reduction requirements. The proposed rules would allow EGFs in the affected areas that are operating undera system cap to participate in the system cap trading program. This program is Intended to provide increased flexibility for regulated NO.sources byadding anotheremission trading alternative to meet required emission levels. Regulated NO sources in the affected areas that are operating under a system 

### cap would be eligible to participate in the system cap trading program, which would allow the trading of emissions between different entities as long as participating sources are operating under a system cap. A NO. source would only be allowed to exceed the system cap byobtaining surplus emissions from othersources, unless it was in compliance with §117.570 of this tide (relating to Use of Emissions Credits for Compliance). Since the proposed rules do not add additional regulatory requirements that have not already been proposed, the commission estimates there will be noadditional costs to individuals and businesses as a result of implementing the proposed rules other than the cost to purchase and trade emissions, which was estimated to be approximately $3,600 per ton peryear for ERCs. It is anticipated thatthe majority ofowners and operatorsof the investor-owned and operated powerboilers located at EGFs in the DFW and the eastand central TexasareaswOuld-be-affected by the proposed rulemaking byelecting to participate in the system cap trading program. Emission trading under this program is intended to provide flexibility for regulated NO.sourcesand potential cost savings in planning and determining the mosteconomical mix of the application ofemission control technologywith the purchase ofotherNO. sources' surplus emissions to meetemission reduction requirements. Additionally, facilities that remain within their emission caps may receive additional revenue from selling surplus emissions to other emission sources. SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT No adverse fiscal implications are anticipated for small or micro-businesses as a result of administration or enforcement of the proposed rules. The proposed rules would allow EGFs in the affected areas to participate in the system cap trading program. There are no known small or micro- businesses that own or operate affected EGFs in the affected areas; therefore, the commission anticipates there will be no fiscal impact forsmall or micro-businesses as a result of the proposed rules. DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION Thecommission reviewed the proposed ru/emaking in lightofthe regulatory analysis requirements of Texas Government Code, §2oo1.0225. The commission delemuried that these proposed new sections do not meetthe definition ofa "major environmental rule· as defined in Texas Government Code, §2001.0225. ·Major environmental rule" means a rule, the specifIC intent of which, is to protect the environment or reduce risks to human



### 25 TexReg 

### 11884 December

### 1, 2000 Texas Registerhealth from environmental exposure, and that mayadversely affect in a material way the economy, a sector ofthe economy. productivity, competition, jobs, the environment, orthe public health and safety of the state or a sector of the state. The commission is proposing these new sections to allow greater flexibility for EGFs in the affected areas to meet NO, emission limitations and for NO. emissions trading. The proposed new sections do 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; therefore, these proposed sections does not constitute a major environmental rule. In addition, Texas Government Code. §2001.0225, only applies to a majorenvironmental 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 proposed rules does not meet any of the four applicability requirements. Specifically, the emission banking and trading requirements were developed in order to meet the ozone national ambient air quality standard (NMOS) setbythe EPA underthe Federal Clean AirAct (FCM), §109 (42 United States Code (USC), §7409), and therefore meet a federal requirement. Provisions of 42 USC, §741 0, require states to adopt a SIP which provides for "implementation, maintenance. and enforcement" of the primary NMOS in each air quality control region of the state. While §741 0 does not require specific programs, methods, or reductions in order to meet the standard, state SIPs must include "enforceable emission limitations and other control measures, means or techniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights). as well as schedules and timetables forcompliance as may be necessaryor appropriate to meet the applicable requirements of this chapter," (meaning Chapter 85, Air Pollution Prevention and Control). It is true that 42 USC does require some specific measures for SIP purposes, like the inspection and maintenance program, but those programs are the exception, not the rule, in the SIP structure of 42 USC. The provisions of 42 USC recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NMOS. This flexibility allows states, affected industry, and the public, to collaborate on the best methods for attaining the NMOS for the specific regions in the state. Even though 42 USC allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of §7410. Thus, while specific measures are notgenerally required, the emission reductions are required. States are notfreeto ignore the requirements of §7410 and must develop programs to assure that the nonattainment areas of the state will be brought into attainment on schedule. The requirement to provide a fiscal analysis of proposed reguc lations in the Texas GovernmentCode was amended by Senate Bill (SB) 633 during the 75th Legislative Session, 1999. The intent of SB 633 was to require agencies to conduct a regulatory impactanalysis (RIA) ofextraordinary rules. These are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement of state law, federal law, or a delegated federal program. or are adopted solely under the general powers of the agency. With the understanding thatthis requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment of rules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number of rules that would require assessment under the provisions of the bill was not large. This conclusion was based, in part, on the criteriasetforth in the bill that exempted proposed rules from the full. analysis unless the rule was a major environmental rule that exceeds a federal law. As previously discussed, 42 USC does not require specific programs, methods, or reductions in order to meet the NMOS; thus, states mustdevelop programs foreach nonattainmentarea to ensure that area will meetthe attainmentdeadlines. Because of the ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The commission bases these actions on the presumption thatthe legislature understands this federal scheme. If each rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full RIA contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board (LBB) in its fiscal notes. Because it is a rule of statutory interpretation that the legislature is presumed to understand the fiscal impacts of the bills it passes, and that presumption is based on information provided by state agencies and the LBB, the commission believes that the intentof SB 633 was only to require the full RIA for rules that are extraordinary in nature. While the SIP rules will have a broad impact, thatimpact is no greaterthan is necessary orappropriate to meetthe requirements of the FCM. Forthese reasons, rules proposed for inclusion in the SIP fall under the exception in Texas Government Code. §2001.0225{a). because they are required by federal law. Thenrlemaking-dOes not exceed a standard set by federal law, exceed an express requirement of state law (unless specifically required by federal law), or exceed a requirement of a delegation agreement. The rulemaking was not developed solely under the general powers of the agency, but was specifically developed to meet the NMOS established underfederal law and authorized underTexas Clean Air Act (TCM), §§382.011, 382.012, and 382.017, as well as under 42 USC, §7410(a)(2)(A). The commission invites public comment on the draft RIA. TAKINGS IMPACTASSESSMENT The commission completed a takings impactassessmentforthe proposed rules. The following is a summary ofthat assessment The sections are proposed as part of a strategy to reduce and permanenUy cap emissions of NO. to a level which would allow the DFW nonattainmentarea to attain the NMOSforozone and to maintain air quality in east and central Texas. Promulgation and enforcement of the rules will not burden private real property. The proposed new sections do not affect private property in a mannerwhich restricts or limits an owner's rightto the propertythatwould otherwise exist in the absence ofa govemmental action. Additionally, the NO emissions under the system cap that are the subject of theserules are notproperty rights. Consequently, the proposed sections do not meetthe definition of a takings underTexas GovernmentCode, §2007.oo2(5). Although the proposed sections do notdirecUy preventa nuisance orprevent an immediate threat to life or property, they do prevent a real and substantial threat to public health and safety, and partially fulfill a federal mandate underthe USC, §741 O. Specifically,


### PROPOSEDRULES December

### 1, 2000 

### 25 TexReg 11885the emission limitations and control requirements within this proposal were developed in order to meetthe ozone NMOS set by the EPA underthe USC, §7409. States are primarily responsible for ensuring attainment and maintenance of the NMOS once the EPA has established them. Under the USC, §7410 and related provisions, states must submit, for approval by the EPA, SIPs that provide forthe attainmentand maintenance of NMOS through control programs directed to sources of the pollutants involved. Therefore, the purpose of the rule proposal is to implement a NO. strategy which is necessary for the DFW area to meetthe air quality standards established underfederal law and to maintain air quality in east and central Texas. Consequently, the exemption which applies to this proposed rules is that of an action reasonably taken to fulfill an obligation mandated by federallaw. Therefore, these proposed revisions will not constitute a takings under Texas Government Code, Chapter 2007. CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined the proposed rulemaking relates to an action or actions subject to the Texas Coastal Management Plan (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resource Code, §§33.201 et seq.), and the commission's rules in 30 TAC Chapter281, Subchapter B, concerning Consistencywith the Texas Coastal Management Program. As required by30 TAC §505.11 (b)(2) and 30 TAC §281.45(a)(3), 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 the proposed 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 31 

### "'!AC? §501.14(q). which requires the commission protectairqualIty In coastal areas. The proposed new sections would allow greater lIexibility in meeting system cap requirements by trading NO. emissions between EGFs in the affected areas. 'rhe proposed sections do not authorize any new NO, air emissions. Interested persons may submitcomments on the consistency of the proposed rule with the CMP during the public comment period. EFFECTON SITES SUBJECTTO THE FEDERALOPERATING PERMITS PROGRAM The proposed new sections, if adopted, would become part of the state's ozone attainment strategy; therefore, these revisions would be submitted as part of the SIP. As a result, the proposed sectionswould become an applicable requirement underthe federal operating permit program and source would be required to amend their permits. ANNOUNCEMENTOF HEARING !he commission will hold public hearings on this proposal in IrvIng on January 3, 2001 at 6:00 p.m. at the City of Irving Public Ubrary Auditorium, located at801 West Irving Boulevard and in Austin on January 4, 2001, at 2:00 p.m., at the Texas Natural Resource Conservation Commission, Building B, Room 201A, located at 12100 Park35 Circle. The hearings will be structured for**~~** receiptoforal orwritten comments by interested persons. IndiViduals may present oral statements when called upon in order**~f** registration. There will be no open discussion during the hearings; however, an agency staff member will be available to discuss the proposal 30 minutes prior to the hearings and will answer questions before and after the hearings. Persons with disabilities who have special communication or other accommodation needs, who are planning to attend the hearings, should contact the Office of Environmental PoliC}\ Analysis. and Assessment at (512) 239·4900. Requests should be made as far in advance as possible. SUBMITIAl OF COMMENTS Comments may be submitted to lola-Brown, Offiee of Environmental Policy, Analysis, and Assessment, MC 206, P.O. Box 13087, Austin, Texas78711-3087 orfaxed to (512)239-4808. All commentsshould reference Rule log Number2000-046-1 01 "'AI.**Comm~nts** must be received by 5:00 p.m., January5, 2001. For further Information, please contact Matthew R. Baker at (512) 239·1091 or Beecher Cameron at (512) 239-1495. 

### DIVISION 

### 1. UTILITY ELECTRIC GENERATION IN OZONENONAITAINMENT AREAS 30TAC §117.109, §117.110 STATUTORYAUTHORITY These new sections are proposed under the Texas Health and Safety Code, TCM, §382.011, which authorizes the commission to control the qUality of the state's air; §382.Q12, which authorizes the commission to develop a plan for control of the state's air; §382.017, which provides the commission the authority to adopt rules consistent with the policy and purposes of the TCM; and 42 USC, §7410(a)(2)(A), which requires SIPs to include enforceable emission limitations and othercontrol measuresortechniques, including economicincentivessuch asfees marketable permits, and auction of emission rights. .' The proposed new sections implement TCM, §382.011, General Powers and Duties; §382.012, State Air Control Plan; and §382.017, Rules. §1l7.109. System Cap Flexibility. An owner or operator ofa sourceofnitrogen oxides (NO) in the DallasIFort Worth ozone nonattainment area who is participating in the system**ca~** under §1l7.108**o~** this title (relating to SystemCap) may exceed thelC system cap prOVided that the owner or operator is complying with the requirements of§117.570 ofthis title (relating to Use**o~ ~n.ussions**  Credits f?r**~ompliance)** orChapter 101, Subchapter H,**Dlvl~lon** I,.4,or5 oftJ:1ISytle**(re~ting** toEmissionCreditBankingand TradlDg; Discrete EmiSSion Credit and Trading Program; and System Cap Trading). §117.110. Change ofOwnership

- System Cap. In the event that a unit within an electric powergenerating system is sold or transferred, the unit shall become subject to the transferee's systemcap. The value Ri in §117.108(c) ofthis title(relatingto System Cap) is based on the unit's status as part ofa large or small systemas ofJanuary I, 2000, and does notchange as aresult ofsale ortransfer oftheunit, regardless ofthe sizeofthetransferee's system. This agency hereby certifiesthatthe proposal has been reviewed by legal counsel and found to be within theagency'slegal authority to adopt Filed with the Office of the Secretary of State, on November 17, 2000. TRD-200008042


### 25 TexReg 

### 11886 December1,2000 Texas Registeresource Conservation Commission (comamendment to §328.71, Closure Cost Esssurance. The commission proposes these revisions to Chapter 328,

## ~aste Minimization and Recycling; Subchapter F, Closure Cos Estimate for Financial Assurance in order to complete cross-r ferences regarding financial assur: anca requirements for scrap 're sites. BACKGROUND AND SUM ARY OF THE FACTUAL BASIS FOR THE PROPOSED RUL The cross-references in Ch ter 328 to §37.3001 and §37.3011 need to be replaced by a ref renee to Chapter 37, Subchapter M, Financial Assurance Req irements for Scrap nre Sites. I On February 24, 2000, the

# I

C ter 37 financial assurance rule consolidation package was dopted. This package attempted to correct a cross-reference cerning financial assurance requirements for waste tire sit s in Chapter 330. However, the Chapter 330 waste tire subc apters were being repealed and placed into Chapter328 during thetime thatChapter37was processed. Changes to Chapter 328 were not made because the Chapter 37 project team did notconceptualize opening Chapter 328. The cross-reference correction is needed to direct entities that manage used or scrap tires to the location of the financial assurance requirements. 

# I SECTION BY SECTION**DI~USSION** The rule will amend cross-references in §328.71(g) by deleting the specific previous doss- references to §37.3001 and §37.3011 and adding the appropriate cross-reference to Chapter 37, Subchapter M, Financial Assurance Requirements for Scrap Tire Sites, to specify**~II** sections. These sections include: §37.3001, Applicability, §37;3003, Definitions; §37.3011, Financial Assurance Requirements; §37.3021, Financial Assurance Mechanisms; and §37.3031!, Submission of Documents. I FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT 

# ! John Davis, Technical**Speci~list** with Strategic Planning and Appropriations, determined thatforthe firstfive-yearperiod the proposed amendment is in**eff~t** there will be no significant fiscal impacts for units ofstate and local governmentas a result ofadministration or enforcement :of the proposed amendment The proposed amendment does Inot impose any new requirements on owners and operators of scrap tire siles and is administrative in nature by updating**refere~ces** to financial assurance requirements within the scrap tire site rules. There are no known units of state or local government that are affected by the proposed amendment because no units of state or local government are owners or operators of scraP tire sites. , PUBLIC BENEFITS AND CpSTS Mr. Davis also determined thatforeach yearofthefirstfiveyears the proposed amendment is in effect, the public benefit anticipated from enforcement of**~nd** compliance with the proposed amendment will be that owners and operators ofscrap tire sites will know where to find updated information and rules concerning financial assurance requ)rements. I The proposed amendment

### \S intended to provide owners and operators of scrap tire sites (with the updated location for rules covering financial**assuranc~** for scrap tire sites. Financial assurance is a key componen of the scrap tire site registration process. During registration, an owner or operator seeking approval to operate a scraptire ,ite mustprepare a written estimate detailing the total costs for**c~osingthe** site(s). Site closure consists of cleaning and**securi~** the site, and dismantling the tire shredding equipment Prior

## fO the approval of the application, 

### MANAGEMENT OFUSED 

# • CHAPTER 328. 

### RECYCLING SUBCHAPTER F. OR SCRAP**~~.L''\LJU** 30 TAC §328.71 The Texas Natural mission) proposes timate for Financial Margaret Hoffman Director, Environmental Law Division Texas Natural Resource Conservation Commission Earliest possible date of adoption: December 31, 2000 Forfurther Information, please call: (512) 239-<)348 

# • 

# • • DIVISION 2. UTILITY ELECTRIC GENERATION 

### IN EAST AND CENTRAL TEXAS 30 TAC §117.139 STATUTORY AUTHORITY This new section is proposed underthe Texas Health and Safety Code, TCAA, §382.01', which authorizes the commission to control the quality of the state's air; §382.012, which authorizes the commission to develop a plan for control of the state's air; §382.017, which provides the commission the authorityto adopt rules consistentwith the policy and purposes of the TCAA; and 42 USC, §741 0{a){2){A), which requires SIPs to include enforceable emission limitations and other control measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights. The proposed new section implements TCAA, §382.0", General Powers and Duties; §382.012, State Air Control Plan; and §382.017, Rules. §1l7.139. System Cap Flexibility. An owneroroperatorofa sourceofnitrogen oxides (NO) in eastand central Texas attainment area who is participating in the system cap under §117.138 ofthis title (relating to SystemCap) mayexceedtheir systemcap provided that the owneror operator is complying with the requirementsofChapter 101, SubchapterH, Division 1,4, or 5 ofthis title(relating toEmissionCreditBanking and Trading; DiscreteEmission Credit and Trading Program; and System CapTrading). Thisagencyhereby certifies thatthe proposal has been reviewed bylegal counsel and found to bewithin the agency'slegal authority to adopt Filed with the Office of the Secretary of State, on November 17, 2000. TRD-200008043 Margaret Hoffman Director, Environmental Law Division Texas Natural Resource Conservation Commission Earliest possible date of adoption: December 31, 2000 Forfurther Information, please call: (512) 239-<)348 

# • • WASTEMINIMIZATION AND



### PROPOSEDRULES December

### 1, 2000 

### 25 TexReg11887RobertJ. Huston, ChairmaTI R. B. "Ralph" Marquez, Commissioner John M. Baker, Commissioner JeffreyA. Saitas, ExecutiveDirector 

## TEXAS NATURAL RESOURCE CONSERVArION COMMISSION Protecting Texas byReducing andPreventingPollution

NOTICE OF PUBLIC HEARINGS BY THE TEXAS NATURAL RESOURCE CONSERVATION COMMISSION ON PROPOSED REVISIONS TO 30 TAC CHAPTERS 101 AND 117 AND THE STATE IMPLEMENTATION PLAN The Texas Natural Resource Conservation Commission (commission) will conduct public hearings to receive testimony concerning revisions to 30TAC Chapters 101 and 117 and to the State Implementation Plan (SIP) underthe requirements ofTexas Health and Safety Code, §382.017; Texas Goverrunent Code, Subchapter B, Chapter 2001; and 40 Code of Federal Regulations, §51.102 of the United States Envirorunental ProtectionAgencyregulations concerning SIPs. Therevisions to Chapters 101 and 117 are proposed as revisions to the SIP. Underrules adoptedbythecommissiononApri119, 2000, which were published inthe May 5,2000 issue ofthe 

### TexasRegister(25 TexReg 4101 and4140), electric generating facilities (EGFs) inthe Dallas/Fort Worth (DFW) nonattairunent area and the attainment counties ofeast and central Texas may voluntarily participateinaprogramwhere individual sourcesmaytransfernitrogenoxides (NOJ emissionsallowances among eachotherprovidedanoverall systemcap onemissions is notexceeded. Inthe nonattainmentarea, credits may be transferred among participants in the system cap. These credits must first be banked with thecommissionand transfers ortrades mustbeapprovedbythe executive director. Inthe attairunent area, credits may onlybe transferred among units that are under commonownership or control. This proposal would allowthesystemcapto beexceeded, provided surplus emissions allowances canbe obtained during the same time period as the exceedence occurs from any other EGF participating in a system cap. The proposal would also remove the requirement for the executive director to approve transfers in the nonattainmentarea and allow EGFs inthe attainmentcountiesanadditional optionofexceedingthe system cap provided surplus allowances are obtained for that calendar year. Public hearings onthis proposal willbeheldinIrving onJanuary 3, 2001 at 6:00p.m. atthe City ofIrving Public Library Auditorium, located at 801 West Irving Boulevard, and in Austin on January 4, 2001 at 2:00p.m., at the Texas Natural Resource Conservation Commission, Building B, Room 201A, located at 12100 Park 35 Circle. The hearings will be structured for the receipt of oral or written comments by interested persons. Individuals may present oral statements when called upon in order ofregistration. There will be no open discussion during the hearings; however, an agency staffmember will be available to discuss the proposal 30 minutes prior to the hearings and will answer questions before and after the hearings. Persons withdisabilities whohave specialcommunicationorotheraccommodationneeds who areplanning toattendthehearing shouldcontacttheOfficeofEnvironmentalPolicy, Analysis, and Assessmentat(512) 239-4900. Requests should be made as far in advance as possible.

P.O. Box 13087 • Austin, Texas 78711-3087 • 5121239-1000 • Internet address: www.tnrcc.state.tx.us**print~.j** on**recyc1~d pap~r**  using soy·bJ.sed ink

### Page 2
Comments may be submitted to Lola Brown, MC 205, Office ofEnvironmental Policy, Analysis, and Assessment, Texas Natural Resource Conservation Commission, P.O. Box 13087, Austin, Texas 78711- 3087, orby fax to (512) 239-4808. All comments should reference Rule Log Number2000-046-101-AI, and must be received by 5:00 p.m., January 5, 2001. For further infonnation, please contact Beecher Came. ron, Policy and Regulations Division, (512) 239-1495. Issued in Austin, Texas, on November 17,2000.Texas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI
The Texas Natural Resource Conservation Commission (commission) proposes new §101.380, Page 1

Definitions; §101.382, Applicability; §101.383, General Provisions; and §101.385, Recordkeeping and Reporting. The proposed new sections are to be grouped into Subchapter H, Emissions Banking and Trading; new Division 5, System Cap Trading. The sections will also be submitted to the United States Environmental Protection Agency (EPA) as revisions to the state implementation plan (SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULES The proposed rules would simplify emission trading for electric generating facilities (EGFs) operating under a system emission cap in the Dallas/Fort Worth (DFW) ozone nonattainment area and in the attainment counties ofeast and central Texas. The rules represent a continuing commitment by the commission to incorporate maximum flexibility for the electric industry in achieving the nitrogen oxides (NOx ) emissions reductions necessary to achieve the goal ofozone attainment in the DFW area while maintaining reliability ofservice. The proposed procedure may be applied to other facilities subject to a system cap under Chapter 117 in subsequent rulemaking.

Emission reduction credit (ERC) trading among companies is allowed under the April 19, 2000 adoption ofthe DFW ozone attainment demonstration rules for EGFs, which were published in the May 5, 2000 issue ofthe 

### Texas Register (25 TexReg 4140). In order to complete a trade under these existing rules, one source owner must bank an emission credit with the commission and another source
owner must receive the executive director's approval to use the credit. This procedure works well for trades which are made relatively infrequently, such as tend to occur when emissions are limited annually. In contrast, the ozone attainment demonstration rules for EGFs in DFW establish daily NOxTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI

limits because the EGFs in DFW mostly operate on days conducive to exceedences ofthe ozone standard. This proposed rulemaking would add a trading alternative which would facilitate daily Page 2

emission trading by reducing the steps necessary to trade allowable emissions among different owners. Under this rule proposal, the source owners would be simply required to report trades and the commission would have the opportunity to review, on a quarterly basis, the daily emissions, 30-day rolling average emissions, and any emission trades which occurred during the preceding calendar quarter.
Currently, individual sources under common ownership or control may be voluntarily grouped together in a system with a system cap on total emissions from the sources in the system. Emission allowables may be transferred from source to source within the system, provided the cap is not exceeded. This proposal would allow the increase ofsystem caps, provided that surplus emission allowables are obtained from another source ownerparticipating in a system cap. The system cap may be increased daily using a daily surplus or on a 30-day rolling average using 30-day rolling average surpluses for the

same period.

The rules adopted on April 19, 2000 also established an annual system cap for EGFs in the attainment counties ofeast and central Texas (25 TexReg 4101). This proposal would allow the exceedence of that system cap provided surplus emission allowable is obtained from another EGFs participating in the system cap. The EGFs affected by Chapter 117 are in the following counties: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison,Texas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI Page 3

Henderson, Hood, Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton.

The transfer ofemission allowable remains restricted to the area, nonattainment or attainment, in which it originates.

SECTION BY SECTION DISCUSSION The proposed new §101.380 contains definitions for use in this division. Surplus emission allowable is defined as an amount, greater than zero, by which a source's allowable source cap emissions exceed actual emissions for a single day or a 30-day average or tons per year for a calendar year for a source subject to Chapter 117, Subchapter B, Division 2, Utility Electric Generation in East and Central Texas.

The proposed new §101.382 would apply the trading provisions ofthis division to sources located within a single nonattainment area or other area with unique emission limits as defined in Chapter 117.

The proposed new §101.383 would allow the increase ofsystem cap limits provided surplus allowances

are obtained from another owner or operator participating in the system cap. Emissions caps may be increased daily or on a 30-day rolling average, provided allowances are obtained that match the period when the increase occurs. System cap limits for EGFs as regulated under Chapter 117, Subchapter B, Division 2, may be exceeded with surplus emission allowable obtained for that calendar year from another source owner or operator participating in the system cap.Texas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI Page 4

The proposed new §101.385 would require owners or operators ofsources in an ozone nonattainment

area participating in this trading program to submit quarterly reports based on a calendar year within 30 days ofthe end ofthe reporting period. The reports would contain daily NO, emissions from each

source and supporting calculations, rolling 30-day average for each source with supporting calculations, and all emission trades during the reporting period including trade date or period, quantity traded, and trading participants. Similarly, EGFs complying with Chapter 117, Subchapter B, Division 2, would submit reports dated on annual period beginning January 1 ofeach year and submitted within 30 days following the end ofthe annual period. The report would detail annual emissions with supporting calculations and all emission trades during the report period including trade date, quantity traded, and trade participants. This section would also require owners or operators to report to the commission, within 48 hours, any exceedences ofa system cap when there were not allowances available to compensate for that exceedence.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT John Davis, Technical Specialist with Strategic Planning and Appropriations, determined for each year ofthe first five-year period the proposed rules are in effect, there may be positive fiscal implications, which are not anticipated to be significant, for owners ofboilers and turbines in the four-county DFW nonattainment area and the 95-county central and east Texas attainment area as a result of administration or enforcement ofthe proposed rules. There are 23 investor-owned boilers and 13 boilers owned by municipalities in the DFW area that could be affected by the proposed rules. In addition, there are approximately 65 investor-owned boilers and turbines and 36 boilers and turbines owned by municipalities, cooperatives, or river authorities in the east and central Texas attainmentTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI Page 5

areas that could be affected by the proposed rules. There will be no fiscal implications for units ofstate and local government that do not own or operate boilers or turbines at EGFs in the affected areas. The proposed rules are intended to simplify and expand the trading ofemissions for regulated NOx sources in the affected areas.

This proposal is intended to provide increased flexibility for regulated NOx sources by adding another emission trading alternative to meet required emission levels. Regulated NOx sources in the affected

areas that are operating under a system cap are eligible to participate in the system cap trading program. This proposal would allow the trading ofemissions between different entities as long as participating sources are operating under a system cap. A NOx source would only be allowed to exceed the system cap by obtaining surplus emissions from other sources.

The system cap trading program differs from the emission credit banking and trading program, because there is no banking ofemissions with the agency. All trading is done between entities with overall trading reports and emission levels provided to the commission on a quarterly or annual basis. The proposed system cap trading program is intended to enhance daily trading ofemissions by allowing direct trades between entities without prior agency approval and to implement annual trading in the east and central Texas attainment area. The commission does not anticipate significant fiscal impacts to units ofstate and local government due to the quarterly reporting requirement.Texas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI Page 6

Examples ofNOx sources at facilities that could be affected by the proposed rules include electric utility boilers and stationary gas turbines. Currently, only EGFs are eligible under Chapter 117 rules to participate in the system cap trading program.

There are approximately 23 investor-owned boilers and 13 boilers owned by municipalities in the DFW

area that could be affected by the proposed rules ifthe owners ofthese boilers decide to participate in the system cap trading program. In addition, there are approximately 65 investor-owned boiler and turbine EGFs and 36 boiler and turbine EGFs owned by river authorities, cooperatives, or municipalities in the east and central Texas attainment area which could be affected by the proposed rules ifthe owners ofthese boilers and turbines decide to participate in the system cap trading program. The counties in the affected attainment areas are: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton. The transfer ofemission allowable remains restricted to the
area, nonattainment or attainment, in which it originates. Although the exact cost per ton for an emission credit traded in the system cap trading program is unknown, the commission estimates that the cost will be similar to ERCs currently traded in the DFW and Houston/Galveston (HGA) areas. The current cost for ERCs in HGA is approximately $3,600 per ton per year. Actual costs will be dependent on availability and demand. Total costs to state and local government sites that elect to participate in the system cap trading program will depend on the amount ofemissions purchased. Emission trading under this program is intended to provide flexibility for regulated NOx sources and potential cost savings in planning and determining the most economical mix ofthe application ofTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI Page 7

emission control technology with the purchase ofsurplus emissions from other NO. sources to meet emission reduction requirements. Additionally, facilities that remain within their emission caps may receive additional revenue from selling surplus emissions to other emission sources.

PUBLIC BENEFIT AND COSTS Mr. Davis also determined for each ofthe first five years the proposed rules are in effect, the public benefit anticipated as a result on implementing the rules will be the reduction ofemissions ofNO. in the DFW and east and central Texas areas and increased flexibility for regulated facilities to meet emission reduction requirements.

This proposal is intended to provide increased flexibility for regulated NO. sources by adding another emission trading alternative to meet required emission levels. Regulated NO. sources in the affected

areas that are operating under a system cap are eligible to participate in the system cap trading program, which allows the trading ofemissions between different entities as long as participating

sources are operating under a system cap. A NO. source would only be allowed to exceed the system cap by obtaining surplus emissions from other sources.

It is anticipated that the majority ofowners and operators ofthe approximately 23 investor-owned and operated boilers located at EGFs in the DFW area would be affected by the proposed rulemaking by electing to participate in the system cap trading program. Although the exact cost per ton for an emission credit traded in the system cap trading program is unknown, the commission estimates the cost will be similar to ERCs currently traded in the DFW and HGA areas. The current cost for ERCsTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI Page 8

in HGA is approximately $3,600 per ton per year. Actual costs will be dependent on availability and demand. Total costs to individuals and businesses that elect to participate in the system cap trading program will depend on the amount ofemissions purchased. Emission trading under this program is intended to provide flexibility for regulated NOx sources and potential cost savings in planning and determining the most economical mix ofthe application ofemission control technology with the purchase ofother NOx source's surplus emissions to meet emission reduction requirements. Additionally, facilities that remain within their emission caps may receive additional revenue from selling surplus emissions to other emission sources.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT No adverse fiscal implications are anticipated for small or micro-businesses as a result ofadministration

or enforcement ofthe proposed rules. The proposed rules would allow EGFs in the DFW and east and central Texas areas to participate in the system cap trading program. There are no known small or micro-businesses that own or operate affected EGFs in the affected areas; therefore, the commission anticipates there will be no fiscal impact for small or micro-businesses as a result ofthe proposed rules.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the proposed rulemaking in light ofthe regulatory analysis requirements of Texas Government Code, §2001.0225. The commission determined that these proposed new sections do not meet the definition ofa "major environmental rule" as defined in Texas Government Code, §2001.0225. "Major environmental rule" means a rule, the specific intent ofwhich, is to protect the environment or reduce risks to human health from environmental exposure, and that may adverselyTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI Page 9

affect in a material way the economy, a sector ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state or a sector ofthe state. The commission is proposing these new sections to allow greater flexibility for sources in the affected areas to meet NOx emission limitations and for NOx emissions trading. The proposed new sections do not adversely affect in a material way the economy, a sector ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state or a sector ofthe state; therefore, this proposal does not constitute a major environmental rule. In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the result ofwhich 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 ofa delegation agreement or contract between the state and an agency or representative ofthe federal government to implement a state and federal program; or 4.) adopt a rule solely under the general powers ofthe agency instead ofunder a specific state law. This rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the proposed rules do not meet any ofthe four applicability requirements. Specifically, the emission banking and trading requirements were developed in order to meet the ozone national ambient air quality standard (NAAQS) set by the EPA under the Federal Clean Air Act (FCAA), §l09 (42 United States Code (USC), §7409), and therefore meet a federal requirement. Provisions of42 USC, §7410, require states to adopt a SIP which provides for "implementation, maintenance, and enforcement" ofthe primary NAAQS in each air quality control region ofthe state. While §741O does not require specific programs, methods, or reductions in order to meet the standard, state SIPs must include "enforceable emission limitations and other control measures, means or techniques (including economic incentives such as fees, marketableTexas Natural Resource Conservation Commission Chapter 101

- General Air Quality Rules Rule Log No. 2000-046-101-AI Page 10

permits, and auctions ofemissions rights), as well as schedules and timetables for compliance as may be necessary or appropriate to meet the applicable requirements ofthis chapter," (meaning Chapter 85, Air Pollution Prevention and Control). It is true that 42 USC does require some specific measures for SIP purposes, like the inspection and maintenance program, but those programs are the exception, not the rule, in the SIP structure of42 USC. The provisions of42 USC recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states, affected industry, and the public, to collaborate on the best methods for attaining the NAAQS for the specific regions in the state. Even though 42 USC allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of §741O. Thus, while specific measures are not generally required, the emission reductions are required. States are not free to ignore the requirements of §741O and must develop programs to assure that the nonattainment areas ofthe state will be brought into attainment on schedule.

The requirement to provide a fiscal analysis ofproposed regulations in the Texas Government Code

was amended by Senate Bill (SB) 633 during the 75th Legislative Session, 1999. The intent ofSB 633

was to require agencies to conduct a regulatory impact analysis (RIA) ofextraordinary rules. These

are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement ofstate law, federal law, or a delegated federal program, or are adopted solely under the general powers ofthe agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment ofrules adopted by the agency in the past, it is not anticipated that the bill will haveTexas Natural Resource Conservation Commission Chapter 101

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significant fiscal implications for the agency due to its limited application." The commission also noted that the number ofrules that would require assessment under the provisions ofthe bill was not large. This conclusion was based, in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law
. As previously discussed, 42 USC does not require specific programs, methods, or reductions in order to meet the NAAQS; thus, states must develop programs for each nonattainment area to ensure that area will meet the attainment deadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The commission bases these actions on the presumption that the legislature understands this federal scheme. Ifeach rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full RIA contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board (LBB) in its fiscal notes. Because it is a rule ofstatutory interpretation that the legislature is presumed to understand the fiscal impacts ofthe bills it passes, and that presumption is based on information provided by state agencies and the LBB, the commission believes that the intent ofSB 633 was only to require the full RIA for rules that are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greater than is necessary or appropriate to meet the requirements ofthe FCAA. For these reasons, rules proposed for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are required by federal law. The rulemaking does not exceed a standard set by federal law, exceed an express requirement ofstate law (unless specifically required by federal law), or exceed a requirement ofa delegation agreement. The rulemaking was not developed solely under the general powers ofthe agency, but was specifically developed to meet theTexas Natural Resource Conservation Commission Chapter 101

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NAAQS established under federal law and authorized under Texas Clean Air Act (TCAA), §§382.011, 382.012, and 382.017 as well as under 42 USC, §741O(a)(2)(A).

The commission invites public comment on the draft RIA.

TAKINGS IMPACT ASSESSMENT The commission completed a takings impact assessment for the proposed rules. The following is a summary ofthat assessment. The sections are proposed as part ofa strategy to reduce and permanently cap emissions ofNOx to a level which would allow the DFW nonattainment area to attain the NAAQS for ozone and to maintain air quality in the east and central Texas area. Promulgation and enforcement ofthe rules will not burden private real property. The proposed new sections 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 ofa governmental action. Additionally, the NOx emissions under the system cap that are the subject ofthese rules are not property rights. Consequently, the proposed sections do not meet the definition ofa takings under Texas Government Code, §2007.002(5). Although the proposed sections do not directly prevent a nuisance or prevent an immediate threat to life orproperty, they do prevent a real and substantial threat to public health and safety, and partially fulfill a federal mandate under the USC, §741O. Specifically, the emission limitations and control requirements that are the subject ofthis proposal were developed in order to meet the ozone NAAQS set by the EPA under the USC, §7409. States are primarily responsible for ensuring attainment and maintenance ofthe NAAQS

once the EPA has established them. Under the USC, §741O and related provisions, states must submit, for approval by the EPA, SIPs thatprovide for the attainment and maintenance ofNAAQS throughTexas Natural Resource Conservation Commission Chapter 101 - General Air Quality Rules Rule Log No. 2000-046-101-AI Page 13

control programs directed to sources ofthe pollutants involved. Therefore, the purpose ofthe rule proposal is to implement a NOx strategy which is necessary for the DFW area to meet the air quality standards established under federal law and to maintain air quality in east and central Texas. Consequently, the exemption which applies to these proposed rules is that ofan action reasonably taken to fulfill an obligation mandated by federal law
. Therefore, these proposed revisions will not constitute

a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined the proposed rulemaking relates to an action or actions subject to the Texas Coastal Management Plan (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resource 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 §505.11(b)(2) and 30 TAC §281.45(a)(3), relating to actions and rules subject to the CMP, commission rules governing air pollutant emissions must be consistent with the applicable goals and policies ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the regulations ofthe Coastal Coordination Council and determined the proposed rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(l) ofprotecting and preserving the quality and values ofcoastal natural resource areas, and the policy in 31 TAC §501.14(q), which requires the commission protect air quality in coastal areas. The proposed new sections would allow greater flexibility in meeting system cap requirements by trading NOx emissions between sources in the DFW and east and central Texas areas. These proposedTexas Natural Resource Conservation Commission Chapter 101

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rules do not authorize any new NOx air emissions. Interested persons may submit comments on the consistency ofthe proposed rules with the CMP during the public commentperiod.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM The proposed new sections, ifadopted, would become part ofthe state's ozone attainment strategy; therefore, these revisions would be submitted as part ofthe SIP. As a result, the proposed sections would become applicable requirements under the federal operating permitprogram and sources would be required to amend their permits.

ANNOUNCEMENT OF HEARING The commission will hold public hearings on this proposal in Irving on January 3, 2001 at 6:00 p.m. at the City ofIrving Public Library Auditorium, located at 801 West Irving Boulevard and in Austin on January 4,2001, at 2:00 p.m., at the Texas Natural Resource Conservation Commission, Building B, Room 201A, located at 12100 Park 35 Circle. The hearings will be structured for the receipt oforal or written comments by interested persons. Individuals may present oral statements when called upon in order ofregistration. There will be no open discussion during the hearings; however, an agency staff member will be available to discuss the proposal 30 minutes prior to the hearings and will answer questions before and after the hearings.

Persons with disabilities who have special communication or other accommodation needs, who are planning to attend the hearings, should contact the Office ofEnvironmental Policy, Analysis, and Assessment at (512) 239-4900. Requests should be made as far in advance as possible.Texas Natural Resource Conservation Commission Chapter 101

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SUBMITTAL OF COMMENTS Comments may be submitted to Lola Brown, Office ofEnvironmental Policy, Analysis, and Page 15

Assessment, MC 206, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (512) 239-4808. All comments should reference Rule Log Number 2000-046-101-AI. Comments must be received by 5:00 p.m., January 5,2001. For further information, please contact Matthew R. Baker at (512) 239-1091 or Beecher Cameron at (512) 239-1495.

STATUTORY AUTHORITY The new sections are proposed under the Texas Health and Safety Code, TCAA, §382.011, which authorizes the commission to control the quality ofthe state's air; §382.012, which authorizes the commission to develop a plan for control ofthe state's air; §382.017, which provides the commission the authority to adopt rules consistent with the policy and purposes ofthe TCAA; and 42 USC, §741O(a)(2)(A), which requires SIPs to include enforceable emission limitations and other control

measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights.

The proposed new sections implement TCAA, §382.011, General Powers and Duties; §382.012, State Air Control Plan; and §382.017, Rules.Texas Natural Resource Conservation Commission Chapter 101

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SUBCHAPTER H: EMISSIONS BANKING AND TRADING DIVISION 5: SYSTEM CAP TRADING

§§101.380, 101.382, 101.383, 101.385

§101.380. Definitions. Page 16

The following words and terms, when used in this division, shall have the following meanings, unless the context clearly indicates otherwise: Surplus emission allowable

- The amount, greater than
zero, that a source owner or operator's allowable emissions in a system cap emission limit specified in Chapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds) is greater than the actual emissions in that system, in:

(1) pounds per day for a:

(A) single day: or

(B) rolling 30-day average period: or
(2) tons per year for a calendar year period for a source subject to Chapter 117, Subchapter B, Division 2 ofthis title (relating to Utility Electric Generation in East and Central Texas).Texas Natural Resource Conservation Commission Chapter 101

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### §101.382. Applicability. Page 17

Trades ofemission allowables are limited to sources located within a single nonattainrnent area
or within another single area with unique emission limits identified in Chapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds).



### §101.383. General Provisions.

(a) System cap limits may be exceeded with surplus emission allowable obtained for that day from another source owner or operator participating in a system cap. The owner or operator may exceed the:

(1) maximum daily cap with a one-day surplus emission allowable generated on the

same day; and

(2) rolling 30-day average daily system cap emission limitation with a surplus emission allowable generated over the same period.

(b) System cap limits for utility electric generating units as regulated under Chapter 117, Subchapter B, Division 2 ofthis title (relating to Utility Electric Generation in East and Central Texas) may be exceeded with surplus emission allowable obtained for that calendar year from another source
owner or operator participating in a system cap.Texas Natural Resource Conservation Commission Chapter 101

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(c) The cap requirements ofChapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds) continue to apply, except as modified in subsection (a) ofthis section.



### §101.385. Recordkeeping and Reporting.

(a) The owner or operator ofa source in an ozone nonattainment area participating with this division shall submit to the executive director a quarterly report.

(1) Each quarterly report will be based on a three-calendar month period beginning on January 1 ofeach year.
(2) The report shall be submitted within 30 days following the end ofthe quarterly period.

(3) The report shall detail the following:

(A) the daily nitrogen oxides (NOx) emissions from each source along with supporting calculations for the maximum daily cap and the rolling 30-day average system cap emission limitation;

(B) all emission trades during the reported time period including the trade date

or period, quantity traded, and trading participants.Texas Natural Resource Conservation Commission Chapter 101

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(b) The owner or operator ofa source participating in a system cap limit for sources subject to Chapter 117. Subchapter B. Division 2 ofthis title (relating to Utility Electric Generation in East and Central Texas) shall submit to the executive director an annual report.

(1) Each annual report will be based on a 12-month calendar period beginning on January 1 ofeach year.
(2) The report shall be submitted within 30 days following the end ofthe annual period.

(3) The report shall detail the following:

(A) the annual NOx emissions from each source along with supporting calculations: and

(D) all emissions trades during the reported time period including trade date. quantity traded. and trade participants.

(c) The owner or operator ofany systemparticipating in this division shall report within 48 hours to the executive director any time that the system exceeded its daily or rolling 30-day average system cap emission limitation. or within 30 days any time that the system exceeded its annual system cap. and did not obtain surplus emission allowable for that time period. This report shall include:Texas Natural Resource Conservation Commission Chapter 101

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(1) cause ofthe exceedence with data to demonstrate the amount ofemissions in excess ofthe applicable limit:

(2) date or period ofexceedence;

(3) amount ofexceedence; and

(4) number ofsurplus emissions allowables traded on the date ofor during the period ofthe exceedence.Texas Natural Resource Conservation Commission Chapter 117

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The Texas Natural Resource Conservation Commission (commission) proposes new §117
.109, System Cap Flexibility; §117.110, Change ofOwnership

- System Cap; and §117.139, System Cap Flexibility. The new sections will be submitted to the United States Environmental Protection Agency (EPA) as a revision to the state implementation plan (SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE PROPOSED RULE On April 19, 2000 the commission adopted rules, which were published in the May 5, 2000 issue ofthe Texas Register (25 TexReg 4101 and TexReg 4140), that required electric generating facilities (EGFs) in the Dallas/Fort Worth (DFW) ozone nonattainment area and east and central Texas to meet specific nitrogen oxides (NOx) emission limits. The counties ofDallas, Tarrant, Collin, and Denton are included in the DFW area. The counties affected in the attainment area are: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton.

Under the adopted rules, owners or operators ofEGFs were given the option ofparticipating in a system cap to meet the emission requirements in Chapter 117. Under a system cap owners or operators ofEGFs would have the option ofaveraging emissions among as long as the facilities were under

common ownership or control and an overall cap on the system is not exceeded. The purpose ofthis proposal is give the owners and operators ofEGFs in the affected areas additional flexibility in meeting their system caps either through the use ofemission reduction credits (ERCs), discrete emissionTexas Natural Resource Conservation Commission Chapter 117

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reduction credits (DERCs), or through the transfer ofemissions between EGFs participating in a system cap that are in the same nonattainment or attainment area.

SECTION BY SECTION DISCUSSION The proposed new §117.109 would allow owners or operators ofNOx sources in the DFW ozone nonattainment area who are participating in a system cap under proposed §117.108 to trade emissions with other participating owners or operators ofNOx sources in the DFW ozone nonattainment area under the requirements in amendments to Chapter 101, Subchapter H, Division 1, 4, or 5, relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and System Cap Trading. The new Chapter 101, Subchapter H, Division 5 is proposed in a concurrent rulemaking and appears in this edition ofthe 

### Texas Register.

The new §117.110 states that in the event that aunit ofelectric power generation is sold or transferred, the unit shall become subject to the transferee's emission cap. The value Ri in §117.108(c), System Cap is based on a unit's status as ofJanuary 1, 2000 and does not change as a result ofthe sale or transfer ofa unit regardless ofthe size ofthe transferee's system.

The proposed new § 117.139 states that an owner or operator ofa source ofNOx in an east or central Texas attainment area who is participating in the system cap under §117.138, System Cap may exceed their system cap provided the owner or operator is complying with Chapter 101, Subchapter H, Division 1,4, or 5, relating to Emission Credit Banking and Trading; Discrete Emission Credit andTexas Natural Resource Conservation Commission Chapter 117

- Control ofAir Pollution from Nitrogen Compounds Rule Log No. 2000-046-101-AI Trading Program; and System Cap Trading. The new Chapter 101, Subchapter H, Division 5 is proposed in a concurrent rulemaking and appears in this edition ofthe Texas Register.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT Page 3

John Davis, Technical Specialist with Strategic Planning and Appropriations, determined for each year ofthe first five-year period the proposed rules are in effect, there may be positive fiscal implications, which are not anticipated to be significant, for owners ofboilers and turbines in the four-county DFW nonattainment area and the 95-county central and east Texas attainment area as a result of administration or enforcement ofthe proposed rules. There are 23 investor-owned boilers and 13 boilers owned by municipalities in the DFW area that could be affected by the proposed rules. In addition, there are approximately 65 investor-owned boilers and turbines and 36 boilers and turbines owned by municipalities, cooperatives, or river authorities in the east and central Texas attainment area that could be affected by the proposed rules. The transfer ofemission allowable remains restricted to the area, nonattainment or attainment, in which it originates. There will be no fiscal implications for units ofstate and local government that do not own or operate boilers at EGFs.

The system cap trading program is intended to provide another emission trading alternative for regulated EGFs in the DFW area, which consists ofCollin, Dallas, Denton, and Tarrant Counties and in the attainment counties ofeast and central Texas. The EGFs affected by Chapter 117 are in the following counties: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, andTexas Natural Resource Conservation Commission Chapter 117

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Wharton. This program is intended to provide increased flexibility for regulated NOx sources by adding another emission trading alternative to meet required emission levels. Regulated NOx sources in the affected areas that are operating under a system cap are eligible to participate in the system cap trading program. This program would allow the trading ofemissions between different entities as long as participating sources are operating under a system cap. A NOx source would only be allowed to exceed the system cap by obtaining surplus emissions from other sources.

The system cap trading program differs from the emission credit banking and trading program because there is no banking ofemissions with the commission. All trading is done between entities with overall trading reports and emission levels provided for the agency on a quarterly basis. The proposed system cap trading program is intended to enhance daily trading ofemissions by allowing direct trades between entities without prior commission approval. The commission does not anticipate significant fiscal impacts to units ofstate and local government owned and operated sources due to the quarterly reporting requirement.

Since the proposed rules do not add additional regulatory requirements that have not already been proposed, the commission estimates there will be no additional costs to units ofstate and local government as a result ofimplementing the proposed rules other than the cost to purchase and trade emissions, which was estimated to be approximately $3,600 per ton per year for ERCs. There are 23 investor-owned boilers and 13 boilers owned by municipalities in the DFW area that could be affected by the proposed rules ifthe owners ofthese boilers decide to participate in the system cap trading program. In addition, there are approximately 65 investor-owned boiler and turbine EGFs and 36Texas Natural Resource Conservation Commission Chapter 117

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boiler and turbine EGFs owned by river authorities, cooperatives, or municipalities in the east and central Texas attainment area which could be affected by the proposed rules ifthe owners ofthese boilers and turbines decide to participate in the system cap trading program. Actual costs for purchased and traded emissions will be dependent on availability and demand. Total costs to state and local government sites that elect to participate in the system cap trading program will depend on the amount ofemissions purchased. Emission trading under this program is intended to provide flexibility for regulated NOx sources and potential cost savings in planning and determining the most economical mix ofthe application ofemission control technology with the purchase ofother sources' surplus emissions to meet emission reduction requirements. Additionally, facilities that remain within their emission caps may receive additional revenue from selling surplus emissions to other emission sources.

PUBLIC BENEFIT AND COSTS Mr. Davis also determined for each ofthe first five years the proposed rules are in effect, the public benefit anticipated as a result ofimplementing the proposed rule will be a reduction in NOx emissions in the affected areas and increased flexibility for EGFs to meet emission reduction requirements. The proposed rules would allow EGFs in the affected areas that are operating under a system cap to participate in the system cap trading program.

This program is intended to provide increased flexibility for regulated NOx sources by adding another emission trading alternative to meet required emission levels. Regulated NOx sources in the affected

areas that are operating under a system cap would be eligible to participate in the system cap trading program, which would allow the trading ofemissions between different entities as long as participatingTexas Natural Resource Conservation Commission Chapter 117

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sources are operating under a system cap. A NO, source would only be allowed to exceed the system cap by obtaining surplus emissions from other sources, unless it was in compliance with §117.570 of this title (relating to Use ofEmissions Credits for Compliance).

Since the proposed rules do not add additional regulatory requirements that have not already been proposed, the commission estimates there will be no additional costs to individuals and businesses as a result ofimplementing the proposed rules other than the cost to purchase and trade emissions, which

was estimated to be approximately $3,600 per ton per year for ERCs. It is anticipated that the majority ofowners and operators ofthe investor-owned and operated power boilers located at EGFs in the DFW and the east and central Texas areas would be affected by the proposed rulemaking by electing to participate in the system cap trading program. Emission trading under this program is intended to provide flexibility for regulated NO, sources and potential cost savings in planning and determining the most economical mix ofthe application ofemission control technology with the purchase ofother NO, sources' surplus emissions to meet emission reduction requirements. Additionally, facilities that remain within their emission caps may receive additional revenue from selling surplus 

### emissions to other emission sources.

SMALL BUSINESS AND MICRO-BUSINESS ASSESSMENT No adverse fiscal implications are anticipated for small or micro-businesses as a result ofadministration

or enforcement ofthe proposed rules. The proposed rules would allow EGFs in the affected areas to participate in the system cap trading program. There are no known small or micro-businesses that ownTexas Natural Resource Conservation Commission Chapter 117

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or operate affected EGFs in the affected areas; therefore, the commission anticipates there will be no fiscal impact for small or micro-businesses as a result ofthe proposed rules.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the proposed rulemaking in light ofthe regulatory analysis requirements of Texas Government Code, §2001.0225. The commission determined that these proposed new sections do not meet the definition ofa "major environmental rule" as defined in Texas Government Code, §2001.0225. "Major environmental rule" means a rule, the specific intent ofwhich, 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 ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state or a sector ofthe state. The commission is proposing these new sections to allow greater flexibility for EGFs in the affected areas to meet NOx emission limitations and for NOx emissions trading. The proposed new sections do not adversely affect in a material way the economy, a sector ofthe economy, productivity, competition,jobs, the environment, or the public health and safety ofthe state or a sector ofthe state; therefore, these proposed sections does not constitute a major environmental rule. In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the result ofwhich is to: 1.) exceed a standard set by federal law, unless the rule is specifically required by state law; 2.) exceed an express requirement ofstate law, unless the rule is specifically required by federal law; 3.) exceed a requirement ofa 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 ofthe agency instead ofunder a specific state law. This rulemaking is not subject toTexas Natural Resource Conservation Commission Chapter 117

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the regulatory analysis provisions of §2001.0225(b), because the proposed rules does not meet any of the four applicability requirements. Specifically, the emission banking and trading requirements were developed in order to meet the ozone national ambient air quality standard (NAAQS) set by the EPA under the Federal Clean Air Act (FCAA), §109 (42 United States Code (USC), §7409), and therefore
meet a federal requirement. Provisions of42 USC, §7410, require states to adopt a SIP which provides for "implementation, maintenance, and enforcement" ofthe primary NAAQS in each air quality control region ofthe state. While §741O does not require specific programs, methods, or reductions in order to meet the standard, state SIPs must include "enforceable emission limitations and other control measures, means or techniques (including economic incentives such as fees, marketable permits, and auctions ofemissions rights), as well as schedules and timetables for compliance as may be necessary or appropriate to meet the applicable requirements ofthis chapter," (meaning Chapter 85, Air Pollution Prevention and Control). It is true that 42 USC does require some specific measures for SIP purposes, like the inspection and maintenance program, but those programs are the exception, not the rule, in the SIP structure of42 USc. The provisions of42 USC recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states, affected industry, and the public, to collaborate on the best methods for attaining the NAAQS for the specific regions in the state. Even though 42 USC allows states to develop their ownprograms, this flexibility does not relieve a state from developing a program that meets the requirements of §7410. Thus, while specific measures are not generally required, the emission reductions are required. States are not free to ignore the requirements of §7410 and must develop programs to assure that the nonattainment areas ofthe state will be brought into attainment on schedule.Texas Natural Resource Conservation Commission Chapter 117

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The requirement to provide a fiscal analysis ofproposed regulations in the Texas Government Code

was amended by Senate Bill (SB) 633 during the 75th Legislative Session, 1999. The intent ofSB 633

was to require agencies to conduct a regulatory impact analysis (RIA) ofextraordinary rules. These

are identified inthe statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement ofstate law, federal law, or a delegated federal program, or are adopted solely under the general powers ofthe agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment ofrules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number ofrules that would require assessment under the provisions ofthe bill was not large. This conclusion was based, in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law. As previously discussed, 42 USC does not require specific programs, methods, or reductions in order to meet the NAAQS; thus, states must develop programs for each nonattainment area to ensure that area will meet the attainment deadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The commission bases these actions on the presumption that the legislature understands this federal scheme. Ifeach rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full RIA contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board (LBB) in its fiscal notes. Because it is a rule ofstatutory interpretation that the legislature is presumed to understand the fiscal impacts ofthe bills itpasses, and that presumption is based on informationTexas Natural Resource Conservation Commission Chapter 117

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provided by state agencies and the LBB, the commission believes that the intent ofSB 633 was only to require the full RIA for rules that are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greater than is necessary or appropriate to meet the requirements ofthe FCAA. For these reasons, rules proposed for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are required by federal law. The rulemaking does not exceed a standard set by federal law, exceed an express requirement ofstate law (unless specifically required by federal law), or exceed a requirement ofa delegation agreement. The rulemaking was not developed solely under the general powers ofthe agency, but was specifically developed to meet the NAAQS established under federal law and authorized under Texas Clean Air Act (TCAA), §§382.011, 382.012, and 382.017, as well as under 42 USC, §741O(a)(2)(A).

The commission invites public comment on the draft RIA.

TAKINGS IMPACT ASSESSMENT The commission completed a takings impact assessment for the proposed rules. The following is a summary ofthat assessment. The sections are proposed as part ofa strategy to reduce and permanently cap emissions ofNOx to a level which would allow the DFW nonattainment area to attain the NAAQS for ozone and to maintain air quality in east and central Texas. Promulgation and enforcement ofthe rules will not burden private real property. The proposed new sections 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 ofa governmental action. Additionally, the NOx emissions under the system cap that are the subject ofthese rules are not property rights. Consequently, the proposed sections do not meet theTexas Natural Resource Conservation Commission Chapter 117

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definition ofa takings under Texas Government Code, §2007.002(5). Although the proposed sections do not directly prevent a nuisance orprevent an immediate threat to life orproperty, they do prevent a real and substantial threat to public health and safety, and partially fulfill a federal mandate under the USC, §741O. Specifically, the emission limitations and control requirements within this proposal were developed in order to meet the ozone NAAQS set by the EPA under the USC, §7409. States are primarily responsible for ensuring attainment and maintenance ofthe NAAQS once the EPA has established them. Under the USC, §7410 and related provisions, states must submit, for approval by the EPA, SIPs that provide for the attainment and maintenance ofNAAQS through control programs directed to sources ofthe pollutants involved. Therefore, the purpose ofthe rule proposal is to implement a NOx strategy which is necessary for the DFW area to meet the air quality standards established under federal law and to maintain air quality in east and central Texas. Consequently, the exemption which applies to this proposed rules is that ofan action reasonably taken to fulfill an obligation mandated by federal law. Therefore, these proposed revisions will not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined the proposed rulemaking relates to an action or actions subject to the Texas Coastal Management Plan (CMP) in accordance with the Coastal Coordination Act of 1991, as amended (Texas Natural Resource 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 §505.11(b)(2) and 30 TAC §281.45(a)(3), relating to actions and rules subject to the CMP, commission rules governing air pollutant emissions must be consistent with the applicableTexas Natural Resource Conservation Commission Chapter 117

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goals and policies ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the regulations ofthe Coastal Coordination Council and determined the proposed rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(l) ofprotecting and preserving the quality and values ofcoastal natural resource areas, and the policy in 31 TAC §501.14(q), which requires the commission protect air quality in coastal areas. The proposed new sections would allow greater flexibility in meeting system cap requirements by trading NOx emissions between EGFs in the affected areas. The proposed sections do not authorize any
new NOx air emissions. Interested persons may submit comments on the consistency ofthe proposed rule with the CMP during the public comment period.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM The proposed new sections, ifadopted, would become part ofthe state's ozone attainment strategy; therefore, these revisions would be submitted as part ofthe SIP. As a result, the proposed sections would become an applicable requirement under the federal operating permit program and source would be required to amend their permits.

ANNOUNCEMENT OF HEARING The commission will hold public hearings on this proposal in Irving on January 3, 2001 at 6:00 p.m. at the City ofIrving Public Library Auditorium, located at 801 West Irving Boulevard and in Austin on January 4,2001, at 2:00 p.m., at the Texas Natural Resource Conservation Commission, Building B, Room 201A, located at 12100 Park 35 Circle. The hearings will be structured for the receipt oforal or written comments by interested persons. Individuals may present oral statements when called upon inTexas Natural Resource Conservation Commission Chapter 117

- Control ofAir Pollution from Nitrogen Compounds Rule Log No. 2000-046-101-AI Page 13

order ofregistration. There will be no open discussion during the hearings; however, an agency staff member will be available to discuss the proposal 30 minutes prior to the hearings and will answer questions before and after the hearings.

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

SUBMITTAL OF COMMENTS Comments may be submitted to Lola Brown, Office ofEnvironmental Policy, Analysis, and Assessment, MC 206, P.O. Box 13087, Austin, Texas 78711-3087 or faxed to (512) 239-4808. All comments should reference Rule Log Number 2000-046-101-AI. Comments must be received by 5:00 p.m., January 5,2001. For further information, please contact Matthew R. Baker at (512) 239-1091 or Beecher Cameron at (512) 239-1495.

STATUTORY AUTHORITY These new sections are proposed under the Texas Health and Safety Code, TCAA, §382.011, which authorizes the commission to control the quality ofthe state's air; §382.012, which authorizes the commission to develop a plan for control ofthe state's air; §382.017, which provides the commission the authority to adopt rules consistent with the policy and purposes ofthe TCAA; and 42 USC, §7410(a)(2)(A), which requires SIPs to include enforceable emission limitations and other controlTexas Natural Resource Conservation Commission Chapter 117

- Control ofAir Pollution from Nitrogen Compounds Rule Log No. 2000-046-101-AI Page 14

measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights.

The proposed new sections implement TCAA, §382.011, General Powers and Duties; §382.012, State Air Control Plan; and §382.017, Rules.Texas Natural Resource Conservation Commission Chapter 117

- Control ofAir Pollution from Nitrogen Compounds Rule Log No. 2000-046-101-AI
SUBCHAPTER B: COMBUSTION AT MAJOR SOURCES Page 15

DIVISION 1: UTILITY ELECTRIC GENERATION IN OZONE NONATTAINMENT AREAS 

### §117.109. §117.110
§117.109. System Cap Flexibility.

An owner or operator ofa source ofnitrogen oxides (NOx) in the Dallas/Fort Worth ozone nonattainment area who is participating in the system cap under §117.108 ofthis title (relating to System Cap) may exceed their system cap provided that the owner or operator is complying withthe requirements of §117.570 ofthis title (relating to Use ofEmissions Credits for Compliance) or Chapter 101. Subchapter 

### H. Division 1. 4. or 5 ofthis title (relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and System Cap Trading).



### §117.110. Change ofOwnership

- System Cap.

In the event that a unit within an electric power generating system is sold or transferred. the unit shall become subject to the transferee's system cap. The value Ri in §117.108(c) ofthis title (relating to System Cap) is based on the unit's status as part ofa large or small system as ofJanuary 1. 2000. and does not change as a result ofsale or transfer ofthe unit. regardless ofthe size ofthe transferee's system.Texas Natural Resource Conservation Commission Chapter 117

- Control ofAir Pollution from Nitrogen Compounds Rule Log No. 2000-046-101-AI



### SUBCHAPTER B: COMBUSTION AT MAJOR SOURCES Page 16



### DIVISION 2: UTILITY ELECTRIC GENERATION IN EAST AND CENTRAL TEXAS §117.139

STATUTORY AUTHORITY This new section is proposed under the Texas Health and Safety Code, TCAA, §382.011, which authorizes the commission to control the quality ofthe state's air; §382.012, which authorizes the commission to develop a plan for control ofthe state's air; §382.017, which provides the commission the authority to adopt rules consistent with the policy and purposes ofthe TCAA; and 42 USC, §741O(a)(2)(A), which requires SIPs to include enforceable emission limitations and other control

measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights.

The proposed new section implements TCAA, §382.011, General Powers and Duties; §382.012, State Air Control Plan; and §382.017, Rules.



### §117.139. System Cap Flexibility.

An owner or operator ofa source ofnitrogen oxides CNOx) in east and central Texas attainment

area who is participating in the system cap under §117.138 ofthis title (relating to System Cap) may exceed their system cap provided that the owner or operator is complying with the requirements ofTexas Natural Resource Conservation Commission Chapter 117

- Control ofAir Pollution from Nitrogen Compounds Rule Log No. 2000-046-101-AI Page 17

Chapter 101, Subchapter H, Division 1, 4, or 5 ofthis title (relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and System Cap Trading),

# WRITTEN AND ORAL TESTIMONYINDEX OF WRITTEN TESTIMONY
Reference Number 

### W-l W-2
W-3 W-4 W-5 W-6 W-7 Submitted By Gary J. Gibbs, American Electric Power John Fainter, Association ofElectric Companies ofTexas, Inc. (similar to 0-2) Erich Birch, on behalfofthe Cities ofDenton and Garland Fred Manhart, Entergy Services, Inc. Ramon Alvarez, Environmental Defense Ben Carmine, Reliant Energy William E. Driscoll, TXU Business Services (similar to 0-1)

# ~AMIRlCArr iiill&1C'I'R1C 

# JIOWI.
400 W , ,.. St.,

### se•. 1500 

### Austin, Texas 78701 GaryJ. Gibb
.. P.E. !/IYr. AiFai
...

### H4T. 512·391-2969 "2491-2965fcIlC 8191bbs@allp.com 

### January

### S. 2001 

### Ms. Lola

### Brown TexasNatural

### RcsoUItiCIConservationCommission OfficeofEnviromnentalPolicy,Analysis. and

### Assessment P.O. Box 13087,MC·206 

## JLustin,TJe 78711·3087 Re: 

### RuleLog

### No. 200().()46.101·AI**~002/00S** 

# G

DearMs. 

### BlOwn: American Electric Power ("AEP") appreciates the opportunity to 

### submit these comments regarding the proposed revisions to Chapters 101 and 

### 117 covem1 under the above-referenced rule log. AEP is 

### a multinational energy company based 

### in Columbus, Ohio. Thecompanyowns andoperatesmorethan 

### 38.000

### megawatts ofgenerating capacity, makingit

### oneofAmerica'slargestgenerators ofelectricity. AEPprovides electric serviceto 42% 

### ofthelandarea

### ofTexas. 

### AEP strongly supports the proposed revisions to 

### Chapters 101 and 

### 117 and appreciates thD 

### do11& 

### ofthe TNRCC 

### in developing avoluntary.**fI~'ble,** 

### and

### cost-eifective approach 

### to the reducing nitrogen oxide ("NOx") emissions. AEP, however, 

### does have the 

### fOllowingcomments

### thatareprimarilydesignedto

### helpclarifytheproposedrevisions. Proposed. § 

### 117.139 Since the term "east and central Texas area" as used 

### in proposed 

### § 117.139 

### is 

### not 

### defined in 

### Chapter 117, AEP suggests thatthat 

### termbe revisedto read It

### any ofthe cast 

### and central Texas attainment counties listed 

### in §117.131(4) of this 

### ti11c (relating to 

### Applicability)"
. In 

### addition, u proposed. this section cutrelltly 

### states that 

### "an owner or operatorofa sourceofnitrogen oxides ..• 

### mayexceed their 

### systemcap ... It. ABP 

### Dotes that it is 

### not theowneroroperatorthatwouldbe allowed to 

### exceed 

### a s)'Stcm cap 

### underthis proposed. section, but instead the 

### owner or operator's sources of NOll' 

### Based on these comments. AEPrecommends that

### proposed 

### §

### 117.139bClroviscd

### to read 

### as follows:OU05/01 16: 49 F.il


### Ms. LolaBrown January

### S, 2001 Page 2



### 117.139. System Cap Flexibility. 

### Afte'+'mer 8F 

### 8f3eratelora: 

### sewee Sources of

### nitrogenoxides 

### (NOx) iB-withthe same owner or operator 

### that are located in 

### any of

### the east 

### and central Texas attainment area 

### whe is counties listed 

### in §1l7.131(4) ofthis title (relating to Applicability) 

### and are participating 

### in 

### the system 

### cap under 

### §

### 117.138 of

### this title (relating to 

### System Cap). may 

### exceed their system cap limit

### provided that 

### the owner or 'operator ofsuch sources is complying with the requirements of Chapter lOl, Subchapter 

### II, Division I, 4, or of this title (relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and 

### System CapTrading). Proposed 

### § 101.382 @003;005



### To provide necessary clarification 

### as to the 

### meaning ofthe phrase "within another single area with unique emission limits identified in Chapter 

### 117 ofthIs title (relating to Controlof

### AirPollutionfromNitrogenCompounds)", andto otherwiseimprovethe language ofthis proposed section, AEP recommends 

### that proposed §101.382 be revised to read as follows: 1101.382. Applicability. Trades of surplus emission allowables 

### m:e limited 

### te may be made between sources located 

### within a single nonattainment 

### area or 

### within another single area

### withunique emissjonlimits identified

### in Chapter 

### 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds), such as the east and central Texas area comprising those counties listed 

### in § 

### 117.131(4) ofthis title. Proposed §101.383(b) Proposed 

### § 101.383(b) refers to "utility electric generating 

### units", which is not defined in Chapter 101. In addition, this proposed subsection refers 

### to "Chapter 

### 117. Subchapter B, Division 2 ofthis title (relating to 

### Utility Electric Generation 

### in East and Central Texas)", which is a more broad reference than is**n~essary** 

### and is confusing. To address these concerns and to make this subsection otherwise read more clearly, AEP recommends that

### itberevised to read as follows: 

### (b) System. cap limits for utility electric generating units as regulated under 

### Chapter 117, SubchapterB, Division 2 ofthis title (relating to Utility Electric GenerationinEast and Central Texas) 

### maybe exceededwith SUIJ)lus emission allowable obtained for that calendar year from another source owner or operator The system cap emission limit for SOUICes 

### of**N~** 

### participating 

### in a system cap under 

### § 117.138 ofthis title may be exceeded provided 

### that the

AUS'rIN 217179v1290ll·OOO08V.L! VV· V.L .LlJ. -i(l**r~** 

## ----- Ms. LolaBrown January5,2001 

### Page 3



### owner or operatoroftheNQs sources obtains surplus emission allowables for that calendar

### year in an amount that equals the amount

### by

### whichthe sources' total 

### NO!. emissions for that 

### calendat 

### year exceeds the 

### system cap emission limit. Proposed §101.383(c) 

### AEP recommends that, 

### for clarification purposes, the 

### beginning of 

### proposed §101.383(c)

### berevisedto read as follows: 

### "Thesystem

### cap

### requirements of

### Chapter 117
..." 

### In addition, because

### it appears that 

### areferenceto 

### subsection (b) 

### was inadvertently

### leftout of proposed §I01.383(c). 

### AEP recommends that 

### such a reference 

### be added. To reflect these proposed changes, AEP recommends that proposed §101.383(c) be revised to read as follows: (c) The 

### system cap requirements 

### of Chapter 117 ofthis 

### title (relating to 

### Control of

### AirPollutionfromNitrogenCompounds) continueto apply, except asmodified in**subsectio~** 

### (a) and (b) 

### ofthis section. Proposed §101.385(b) 

### AEP believes

### thatthereference

## to "Chapter 117, SubchapterBJ 

### Division

### 2 of

### this title (relating to 

### Utility Electric Generation 

### in East and Central Texas)" is more broad than 

### it needs to 

### be and is 

### confusing. Therefore, AEP recommends 

### that proposed 

### §101.385(b) be revisedto read as follows: (b) 

### The owner or operator of a source 

### source! participating 

### in a system cap 

### limitfor sources SUbjectto Chapter 117, SUbchapterB, Division 2 ofthis title (relating to 

### Utility 

### Electric Generation in East and Central Texas) 

## .YrukI §117.138 ofthis title andthis divisionshall submitto 

### the executive directoran annualreport. AEP also believes that there needs to be a reference 

### in 30 TAC §117.149 to this annualreportingrequirement. Proposed §101.385(b)(2) AEPbelieves thatthe 30-daytimeframetha.tthis proposed subsectionwould allow for the preparation and submittal ofthe annual report is too short. AEP recommends that 

### the timeframe be changed to 60 days. A 60-day timeframe would be consistent with the timeframe allowed for the preparation and submittal ofthe 

### annual report for grandfathered electric generating 

### facilities 

### under30

### TAe §101.336(b).

AUSTIN 277179v12901I-0000S @004l00501/05/01 16:49 FAX



### -------_.--. --.-- 

## ------ -_. 

## -_.. 005/005


### Ms. LolaBrown January

### 5, 2001 Page4 ,, 

### Proposed §101.38S(b)(3)(B) To 

### avoid the potential 

### that proposed §101.385(b)(3)(B) 

### could be intexpreted 

### to 

### apply to all emissions trades, rather

### thanjust thoge under

### proposed new Subchapter

### H, Division 5, AEPrecommends

### thatproposed §101.385(b)(3)(B)berevisedto read as follows: (B) 

### all emissions trades under this division during the reported time period including tradedate, quantitytraded, 

### and tradeparticipants. Proposed 

### §10J.385(e) AEP recommends 

### that the TNRCC delete the phrase 

### in proposed §101.385(c)(1) that reads "with data to demonstrate the amount ofemissions 

### in excess ofthe applicable 

### limit" I 

### and that a phrase that 

### reads lIwith 

### supporting data" be added at the end of proposed §101.385(c)(3). AEP recommends these revisions since the above-quoted 

### language 

### in proposed 

### §101.38S(c)(l) refers to 

### the need to include data 

### regarding the amount that the emissions 

### exceed the system cap, 

### and since 

### proposed 

### §101.385(c)(3), rather than 

### proposed §101.385(c)(1), relates 

### to such exceedence. 

### AEP appreciates the opportunity to submit these comments. 

### If you have any questions, 

### please contact

### me at 512-391-2969. Sincerely,

# ~A.,~ Gary

### 1. Gibbs, P.E.

AUSTIN 277179'12**~9011-00008**

# - . I JaJ1Uaty 

### 5, 2001 . I4l 002



### Ms. LolaBrown 

### Offico

### ofEuviroam.entaJ'Policy, Analysis andAssessment TexasNaIoIalRcsoarceConseIvationCommission 12100Puk35**Cir~le,** 

## Me206 Austin, Texas**787~3** 

### :R.e:**:Propo~** 

### Revisions

### to Chapters 

### 101 and 117; 

### RuleLog

### Number2000-046-101·AI DearMs. 

### Brown: The 

### Association

# ofEloctric Companies of 

### Texas, 

### IDe. (ABC'!) submits 

### the foJlowma comments concerning the Texas 

### NatmaI Resource Conservation Commission!s 

### (TNRCC) abovc·rdO:rcDccd proposed

### tevisiom:,to Cbapter$ 

### 101 and 

### 117 as 

### published in

### the 

## Beaistex onDecember I, 2000. 

### AECT 

### is a trade a's!ociatiOD 

### representini all 

### the investor-owned 

### utilities in 

### Texas. ABCT member companies are responsible 

### for pnerating 

### ever 8S 

### percent of'thc stam·s electricity and 

### serve over 75 poroent

### of the state's electricitycustomers. ABCT strongly 

### supports 

### the proposed revisions and appreciates the 

### efforts 

### of the TNRCC in developiDS a voluntary, flexible,. and 

### cost-effective approach to 

### reducing nit:.rogen 

### oxide (N0x) 

### emissions. Allowing 

### the tradi:bg of

### NO x 

### emissions between electric utility companies in 

### tho East 

### and Cmtral 

### Texas region 

### will

### cieateaIJULIia:t-basedoptionforreducing**NO~** 

### cmissiOllS

### thatwill 

### helpminimiu: 

### the cost of 

### reducing NOz 

### emissions U> 

### Chapter 117 lUni1s. The 

### total 

### amount 

## at rcduetiODS in 

### NOlC emiSSiODS 

### made by 

### electric utilities will be the same as required by the Chapter 

### 117 rulos that 

### the TNRCC adopted 

### in April 

### of2000. These 

### proposed revisions 

### will merely allow 

### electric utilities to 

### mergetheir

### system'Caps 

### ina froe marketarenasimilarto 

### the

### U.S. Euviromnen1alProtcetiOD 

### Agency's sucussfal, market-based 

### sulfur dioxide (SQJ 

### aUowaoc:e tradini program. Furtbenuoro., to maximjUJ 

### the

### benefits of

### this

### program. 

### ABeTwps

### theTNRCC

### to QODSidcrexpansion

### ofthe proposed

### programs to

### includetheBeaumont. PortArthurareaand

### theHouston, Galveston areA. 

### Notwithstanding 

### its strong 

### support of

### theproposed revisions in 

### general. AECfbas 

### several comments that 

### are 

### primarily a.signed to 

### hoJp clarify 

### the 

### proposed revisions. lhosc 

### detailed COIDIDents 

### are auaehed. 

### Thankyou for

### the opportunity

### to comment.01/05/01 16:07 FAX**51~** 474 9670



### Proposed 6117.139 AEeT llJ003



### Since the term II

### east and 

### central Texas areaIt 

### as used in proposed 

### §117.139 is not 

### defined in Chapter 117, ABeT 

### suggests that the ternl**b~** 

### revised to read "any ofthe east and 

### central Texas attainment counties listed 

### in §117.131(4) of this title 

### (relating to 

### ApplicabilityY'. In addition, as proposed. this section 

### currently states 

### that "an owner Or 

### operator ofa 

### source ofnitrogen 

### oxides '" may exceedtheir system 

### cap .. ,\!, 

### ARCT notes that it is 

### not the 

### owner or operator

### that would be 

### allowed to exceed a system cap under this proposed section, but instead the 

### owner or opetatorls sources of

### NO". Based on these 

### comments, AECT recommends that proposed §117.139 

### be revised to read as follows:

### §117.139. System Cap Flexibility. 

### An O'Mler OfElf3erater

### ofaSOl:lfee 

### Sources ofnitrogen oxides 

### (NOlC) 

### Ht-Mth the same owner or

### operatQTthat are located in any 

### ofthe east and central Texas attainment 

### BFea ,,;he 

### i5 counties 

### listed in §

### 117.l31

### (4) ofthis title (relating to Applicability) and are participating in 

### the system cap under §117.138 

### ofthis title (relating 

### to System Cap)1 

# may exceed their system cap

## linili providedthat the owner 

### or operatorofsuch sources is complying withtherequirements ofChapter 

### 101, Subchapter H, Division 1,4. 

### or 5 of 

### this title (relating to Emission Credit Banking and Trading; Discrete .Emi&sion Credit and Trading Program; and System Cap 

### Trading). Proposed &101.382 

### To provide necessary clarification as to the meaning ofthe phrase "within 

### another single area

### with unique emission limits identified in Chapter 117 ofthis title (relating to Control ofAir

### Pollution from Nitrogen 

### Compounds)", and to 

### otherwise improve the language of this proposed section, 

### ABeT recommends that proposed §lO1.382 be revised to read as follows:§101.382. Applicability. 

### Trades of 

### surplus emission allowables &fe 

### HameEi to may be made between sources located within a single nonattainment area or within another single area with unique emission limits identified 

### in Chapter 117 of this 

### title (relating to 

### Control of Air Pollution from Nitrogen Compounds), 

### such as the 

### east and central 

### Texas area comprising those 

### c.ounties 1 isted in 

### § 117.131

### (4) ofthistitle. Proposed §1010383(b) 

### Proposed §lOl.383(b) 

### refers to "utility electric generating units" which is not defined in Chapter 

### 101. In 

### addition, this proposed subsectionrefers to llChapter 

### 117, SubchapterB, Division 2 oftbis 

### title (relating to 

### Utility Electric 

### Generation inEast and Central 

### Texas)lI. 

### whioh is confusing and is a broader 

### reference than 

### is necessary. To addresft these01/05:' 01 16: 08 F.U 512 4i 4 9870 

### AECT 004



### concerns and to make this subsection read more clearly, AECT recollunends that the language 

### be revised to read 

### as follows: (b) System 

### 61iJ' limits for utility eIeetrie geaeratiag-tiftit:s as 

### fegulatea 

### 'trader**Chapt~** 

### 117,**SHBeB~ter** 

### :8,**Di'"fisi~** 

### this title (telatit'lg to 

### Bleetfi6 

### GeHeratieH ill Bi!5t 

## ana CefttMJ**Te~a5)** 

### may ee**~E6eedeG** 

### witA 

### sufPlus emi

### ssiaH allmval:lle eetaifted fer that ealefltiaf year 

### fFem**~setif6e** 

### O'.Vfler er 6peratef The system 

### cap emission limit 

### foJ;' sources ofNQ! participating in 

### a system cap under § 117.138 ofthis title may be ex:ceeded provided. that the owner or operator ofthe NO! sources obtains surplus emission allowables for that calendar year in an amount that 

### equals the 

### amountby 

### which the sources' total

### NOll: emissions for that calendaryearexceeds the system cap emissionlimit. 

### Proposed §101.383(e) It 

### appears that a reference to subsection (b) was inadvertently left out in 

### proposed §101.383(c) in pointing outthat the current system 

### cap requirements under Chapter 117 

### continue to 

### apply except 

### for those modified in subsections 

### (a) .§Ild

## ill· Subsection (b) contains the 

### new requirements for trading in east and 

### central Texas. The subsection should

### be revisedto read 

### asfollows: (c) The system cap requlrements 

### ofChapter 117 

### ofthis title (relating to Control of

### Air Pollution 

### from Nitrogen Compounds) continue to 

### apply, except as modified 

### in**subsectio~** 

### (a) and

# av ofthis section. 

### Proposed §101.38S(b) AECT believes that the reference to "Chapter 117, Subchapter B, Division 2 ofthis title 

### (relating to Utility Electric Generation in East and Central Texas)" is more broad than 

### it needs to 

### be and is 

### confusing. Therefore, ABeT recommends that proposed §101.385(b) be revised to read as 

### follows: (b) The owner or operator 

### ofa -sel:lfoe**source~** 

### participating in a system 

### cap limit foF S08!'EieS 

### sl:K3jeetto Cfiatlter H7, S1::!behflop1:erB, 

### Di'/isiel1 2 of this title 

### (felatlftg to 

### Utility Eleebie Generatioft

### iH Bast 

### B:Re Cefltral**T~as)** 

### under 

### §117.138 ofthis title and this division shall submit to the ex.ecutive director an annual report 

### ABCT also 

### believes thatthere needs to be a reference in 30 TAC 

### §117.149to this 

### annual reporting requirement. Proposed §101.385(b)(2l AEeT 

### believes that 

### the 30-day 

### timeframe that this 

### proposed subsection would 

### allow for the preparation and submittal ofthe annual 

### report is too 

### 5hort. AECT recommends that the timeframe be changed to 

### 60 days. A 60-day 

### timeframe would be consistent with the1J.l..**U~(Ul** Ul:Uo f.u 512 H4 9670 

### AEeT**~005**



### timeframe allowed for the preparation and submittal of the annual report for grandfathered electric generating facilities under 30 TAC §lOL336(b). Proposed §101.385(b)(3\OO To avoid the potential that proposed §101.385(b)(3)(B) could be interpreted 

### to apply to 

### all emissions trades, ratherthanjustthose underproposednew 

### SubchapterH, Division 5, 

### ABCT recommends that proposed §lOl.38S(b)(3)(B) be

### revised to read as follows: (B) all emissions trades under this diVision during the reported time period including

### tradedate, quantity traded, and trade participartts. Proposed 

### §10I.385(c) ABeTrecommends that the 

### tNRCC 

### delete the phrase in proposed §I01.38S(c)(1) that 

### reads "v,,'ith 

### data to demonstrate the amoWlt 

### of

### emissions in excess 

### of the 

### applicable limit'" and that 

### aphrasethatreads "with

### supporting data" be added atthe end ofproposed §101.385(c)(3). 

### ABeT recommends these revisions since the 

### above-quoted language in proposed §101.385(c)(1) refers to the need to include 

### dataregarding the amount thatthe emissions exceed the system cap, and since proposed §101.385(c)(3), 

### rather than proposed §101.385(c)(l), relatesto such exceedence.

### Law Office ofErichBirch, P.e. 7000 N. MoPacExpressway, 2ndFloor Austin, Texas 78731 (512) 514-6748, (512) 258-9582

- fax ebirch@erichbirch.com 

### January 5, 2001 LolaBrown Office ofEnvironmental Policy, Analysis, and Assessment MC 206, P.O. Box 13087 Austin, Texas 78711-3087 Re: Rule Log Number 2000-046-101-AI Dear Ms. Brown: 

### Hl=CcIVt:u 

## JAN 08 f!CTI c,=;=iCE OF ENVIRONMENTAL ,'OLICY. ANALYSIS

# '8

FILED VIA FAX

The following comments are submitted onbehalfofthe City ofDenton, Texas, and the City ofGarland, Texas ("the Cities"), regarding the above referenced "System Cap Trading" rules that have beenproposed by TNRCC forthe Dallas-Fort Worth ("DFW") area. Inthe four-county DFW nonattainment area, the Cities operatethe only municipally-owned electric generating facilities and are the only operators ofelectric generating facilities otherthanTXU. The TNRCC should be commended for implementing aprogramto provide flexibility for electric generating facilities that are being called uponto drastically reduce emissions to help meet DFW area air quality goals, while simultaneously working to maintain electric reliability inthe area as it continues its strong growth. The ability to trade emissions between utilities withoutthe delays inherentto apre-approvalprocess should help the area utilities more quickly respondto area electricity demands underthe upcoming SIP emissionreductions. The Cities have submitted comments onprevious rule packages encouraging TNRCC to develop a flexible emissions trading system, and aretherefore supportive ofthe currently proposed emissiontrading rules. Althoughthe Cities are fully supportive ofan emissiontrading program, the Cities have some reservations about how successfulthe programwill be inthe DFWarea. These concerns are expressed inthe following comments regarding the proposedrules:

• Potential for a monopolistic trading program. As noted above, otherthanTXU, the Cities are the only operators ofelectric generating facilities inthe DFWarea and willtherefore be the only otherparties eligible to participate inthe 

### proposed trading program. Togetherthe two cities generate approximately 10 percent ofthe total electricity generated inthe DFWarea, and TXU generates the other 90percent. The Cities do not anticipate having tradable surplus emissions capacity that would be ofany significance to TXU. Onthe other hand, ifeither City should need to acquire emissions, the most likely source of

### surplus emissions will be TXU. Without implying any bad motive on the part ofTXU, the Cities have a great concern since TXU, like any near-monopoly, will be in controlofthe "marketprice" for emissiontrades. New electric generating operators may eventually enterthe DFW market throughthe construction ofnew facilities or as aresult ofthe electric industry restructuring process. Atthattime the DFWtrading programmay more truly reflect open market conditions. However, untilthattime the Cities proposethat TNRCC tie the DFWemissiontrading price to some independent standard. For example, the costofemissiontrades could be indexedto the average costof installing emission controltechnology on facilities inthe DFW area. Another option could be to establish a ceilingprice onemissiontrades based ontheprice ofcredits in othermarkets similarto the DFW area. Regardless ofthe system, the Cities strongly encourage TNRCC to place some controls onthe price of emission trades untilthere are more trading options inthe DFW area. It is unrealistic to expect atrue supply and demand trading systemto work where there is a fIxed customerbase and a supplierthat controls 90 percent ofthe market.

• SignifIcant undervaluing ofthe price ofemissions. In its FiscalNote inthe preamble to the proposed rules TNRCC indicates that emissionreduction credits inthe Houston-Galvestonnonattainment area are currentlypriced at approximately $3,600 pertonperyear. The market forNOx emission credits in the DFW area, like inthe HGA area, willtighten severely as the deadlines for making SIP reductions approach. 

### It is 

### very difficult to predict whatthe price of emission credits will be as the SIP is implemented, however, costs often times oreven a hundred times this current fIgure would not be surprising. Inthe preamble to the proposedrules TNRCC indicates thatthe trading program is a voluntaryprogram, and explains that each facility will determine the most economical mix for applying controltechnology and the purchase ofsurplus emissions. However, the actual costto enterthe trading program afterthe SIP controls are inplace will in all likelihoodbe muchgreaterthanthe fIgure used in the fIscal analysis. The fmancial consequences could be signifIcant for a facility that decides to forego the installation ofcontrol technology based on an economical analysis using the current emission credit prices.

• The trading program shouldbe expandedto include othertrading options. The ultimate purpose ofthe DFW area SIP is to reduce emissions to bring the area back into attainment. The trading programwillprovide for additional flexibility for electric generating facilities to meetthe required reductions, however, the rules couldprovide incentives for reducing emissions from other sources as well. Trading between electric generating facilities willproduce fairly predictable results based onthe known options forreducing emissions from these types offacilities. However, NOx emissions are generated by a wide variety ofotherpoint and mobile sources. The ability to trade emissioncredits with electric generating facilities couldprovide signifIcant incentives forother

### sourcesto make reductions that wouldprovide even greaterflexibilityto area electric generating facilities while furtherbenefiting airquality inthe DFW area. A more opentrading systemcould also reduce concerns aboutthe potential for a monopolistic market, as explained above.
The Cities ofDenton and Garland appreciate the opportunity to comment on the proposed trading rules. Should you have questions or wish to further discuss the Cities' comments, please call Mr. Jim Harder with the City ofGarland at (972) 205-2653, Ms. SharonMays withthe City ofDenton at (940) 382-2193, orme atthe above number. Sincerely,

cc: ChairmanRobert Huston, TNRCC CommissionerRalph Marquez, TNRCC CommissionerJohn Baker, TNRCC JeffSaitas, Executive Director, TNRCC Sharon Mays, Director, Electric Utilities, City ofDenton Mike Copeland, Assistant CityAttorney, City ofDenton Jim Harder, Director, Electric Utilities, City ofGarland Charles M. Hinton, Jr., City Attorney, CityofGarland

# • -===-

# Entergy

January 4,2001

Ms. LolaBrown Office ofEnvironmental Policy,

Analysis, and Assessment, MC 206 Texas Natural Resource ConservationCommission P.O. Box 13807 Austin, TX 78711-3087 Eotergy Services, Inc. P.O. Box 2951 Beaumont, TX 77704 Tel. 409-981-3200 Fax 409-981-3270
Fred Manhart Environmental Support

# 8

M. 

## Hl:.Ct=.1Vt:u W-4 

## JANoa**~C1l** J::FICE OF ENVIRONMENTAL POLICY, ANALYSIS &ASSESSMENT



### Re: Comments on System Cap Trading Rules 30TAC §§ 101.380,101.382,101.383,101.385,1)7.109,117.110 Rule Log No. 2000-046-101-AI DearMs. Brown: Entergy Services, Inc. appreciates being providedthe opportunity to comment onthe proposedrules for System Cap Trading, which are setforth in 25 Tex. Reg. 11878-11887 (December 1, 2000). Entergy fully supports the adoption ofthis rule, buturges the TNRCC to revise proposed 30 TAC 117.109 so that it applies not onlyto the DallaslFort Worth ozone nonattainment area ("DFW area"), butalso to the Beaumont/PortArthurozone non-attainment area ("BPA area"). Thereasons for this suggested change inthe proposed rules are setforth below. In May 2000, the TNRCC promulgated daily NOx emission limits for utility boilers inthe DFW area as part ofthe attainment demonstration for that arearequired by the federal Clean AirAct. See 30 TAC § 117.106(b) and 25 Tex. Reg. 4169 (May 5, 2000). As an alternative method of compliance, the TNRCC allowed owners and operators ofelectric power generating systems encompassing the regulatedboilers to comply with daily and 30-day rolling NOx caps covering all boilers inthe system. See 30 TAC §§ 117.106(d)(1)(A) and 117.108. The TNRCC recognizedthat the existing scheme for the trading ofemissionreduction credits

- which requires the TNRCC to serve as a banking intermediary

- is too cumbersome andtime-consuming to facilitate NOx trading between owners and operators ofsystems that selectthis compliance option. Underthe current emission banking andtrading rules, trading to comply with daily limits simply is notpossible. In orderto provide the needed flexibility, the TNRCC has proposed a streamlinedtrading mechanism applicable to the new NOx system caps. This would result in the creation ofanew Chapter 101, SubchapterH, Division 5, "System Cap Trading," as an alternative to the TNRCC's

### January4,2001 Page 2
emissionbanking andtrading rules. Underthe new mechanism, companies subjectto theNOx systemcaps may trade "surplus emission allowables" directly, reportthese trades to the TNRCC, and maintain appropriate records. The NOx system caps may be exceeded as long as surplus emission allowables are obtained forthe relevantdate or 30-dayperiod. Althoughthe proposed System Cap Trading rules apply to sources subjectto NOx system caps located inany ozone nonattainmentarea, proposed 30 TAC 

### § 117.109 would allow system cap participants only inthe DFW areato avail themselves ofthe newtrading mechanism. The TNRCC's May 2000 rule-making addressed the BPA area was well as the DFW area. Inthat action, the TNRCC also imposeddailyNOx emission limits onutility boilers inthe BPA areaand providedthe NOx system caps as acompliance alternative for owners and operators ofelectric powergenerating systems in that area. See 30 TAC 

### §§ 117.106(a), 117.106(d)(l)(A) and 117.108. Thus, owners and operators ofelectric powergenerating systems inthe BPA areamay electto comply withNOx system caps underChapter 117 that are functionally identical to those available in the DFW area. Forthatreason, the need for anew emissions trading mechanism thatis more flexible than the existing TNRCC banking system is as greatinthe BPA area as itis inthe DFW area. Inthe preamble to the proposed System Cap Trading rules, the TNRCC acknowledgedthat "[t]he proposedprocedure may be applied to otherfacilities subjectto a system cap underChapter 117 in subsequentrulemaking." 25 Tex. Reg. 11878 (December 1,**2000)~** 

### Thus, the TNRCC acknowledges thatthe proposed System Cap Trading rules were not intendedto beunique to the DFW area. There is no reason whatsoeverwhy this importantflexibility shouldnotbe extendedto the BPA areaas partofthe currentrulemaking. Accordingly, the proposed 30 TAC 117.109 should be revisedto apply also to owners and operators ofelectric powergenerating systems inthe BPA areathatelectto comply with the NOx system caps. Ifyou have any questions aboutthese comments, please do nothesitate to call me at (409) 981- 3204. Sincerely,

# ~~~V~· FredManhart Environmental SupportManager

# e eNVIRONMeNTAL DeFeNse finding the ways that work



### January 5, 2001 LolaBrown Office ofEnvironmental Policy, Analysis, andAssessment Texas Natural Resource Conservation Commission MC206 P.O. Box 13087 Austin, TX 78711-3087 Re: Rule LogNumber2000-046-101-AI DearMs. Brown, 

## Ht:::G,=IVt:u JAN 08 RECTI uF:=ICE OF ENWlONMHJTAL POLICY, ANALYSIS &ASSESSMENT

# G

Please accept the following comments from EnvironmentalDefense regardingthe proposed revisions to Chapter 101**an~** 

### 117. These rules seekto provide operators ofelectricgeneratingfacilities (EGFs) with additional flexibilityto achieve emissionslimits necessaryto attain the ozone standard inTexas. We understand that this proposalis part ofa settlementof two lawsuits filed byTXU. We applaudthe. TNRCC's abilityto settle thesesuitswithout compromisingthe emissions limits containedinthe SIP. In summary, we believe theTNRCC's proposal toallowthe trading ofemissions between two capped systems will ensure thatthe desired emissionreductions willbe achievedat the lowest cost. However, the proposed rules also allow additional types oftrading thatwe fearwill ultimatelycompromise the overall emissioncap assigned to electricgeneratingfacilities in the SIP, and, therefore, adverselyimpact airquality. ExistingTNRCC rules offerowners oroperators ofEGFs located in attainmentareas afair degree of flexibilityby allowingthe use ofasystem cap (§1l7.138). Forfacilities inside anonattainmentarea, existing rules allowcompliance flexibilitythrough the use of

### eithera systemcap ortradingunder §117.570 (§117.106(d». TNRCC's proposed amendments to Chapters 101 and 117 seekto extend this flexibility. Proposed Chapter 101, SubchapterH, Division 5 allows tradingbetween owners oroperators oftwo different system caps. We supportthis proposalbecause it maintains the same overall emissioncap, but encourages the lowestcostreductions to be made through amarket-based system. Mostimportantly, this proposal does not compromise the integrityofthe SIP. On the other

### ha~d, proposed §117.109 and §1l7.139 allow othertypes.oftrading thatplacethe

# sip in jeopardy. Proposed §117.109 and §117.139 allow tradingbetween owners oroperators ofdifferent system caps (through Chapter 101, SubchapterH, Division 5), but also allow the use ofemission

Texas Office' 44 East Avenue· Austin, TX 78701

. Tel 512 478 5161

. Fax 512 4788140· www.environmentaldefense.org New York, NY

. Washington, DC

. Oakland, CA

. Boulder, CO

. Raleigh, NC Project Offices· Boston, MA

. Los Angeles, CA Totally chlorine free 100% post-consumer recycled paper

### reduction credits (ERCs) and discrete emission reduction credits (DERCs). This creates theveryreal possibilitythatbanked emissionreduction credits

- possiblygenerated through acontrol strategythat mayno longerbe inplace atthe time the reduction creditis used (as is the case for DERCs)

- couldbe used to satisfyemissionreduction requirements at some future date. Under such a scenario, actual emissions on anygiven day could exceed the limits establishedin the SIP as necessaryto achieve attainment. In effect, allowing capped sources to use ERCs and DERCs for compliance with emission limitations is asure recipe to "bust" the cap. Forthe above reasons, we stronglyurge the Commission to exclusivelylimitthe additional flexibilityin proposed §117.109 and §117.139 to compliancewith the requirements ofChapter 101, SubchapterH, Division 5 ofthis title (relatingto System CapTrading). Thankyou for the opportunityto provide these comments. Sincerely,

# l~4L. RamonAlvarez,

# p~ Scientist H. LJ

# l

. cc: Chairman RobertHuston

# 8 P.02 80392394800 

# I t f I

# I 

# I ! TO HIPG ENVIROr-ENTAL FRUi'1

i I, iI II 

### :1 

## I: JaPuaryS, 2001 q

"



### .LolaBrown 0: 

### ce ofEnvironmental Policy, I 

### alysist 

### andAsSessment ; Te asNatw'al ResourceConserva1ionCommissions ,"'206 : ! 

## P'R" Box 13807 ,

## AUs~ Texas

## 787lt~3087 !

I" 

# I 

# :I Re:

# Co~ents onSystemCap TradingRules 

# I, 

# J : 301'AC 

### §§ 

### I01.38Q. 101.382,101.383,101.385,117.109, i17.qO : Rule LogNo. 2000t046-101-AI
.**~,** ; .. . i 

# :,alMs. Brown:. 

# :!
.

# i

I· • 

# Ii Reliant

## E~gy, Inc. ("REII") appreciates the opportunity to

## c4aknen~l~n 

# the proposed**T~es** for 

### System qap 

### Trading. 

## wmch are set 

### forth 

### in 25 Tex. Reg.**11~~8-ll.7** (December 

### I.' 2QPO). 

### REI ful1y**s~pports** 

### theadoption ofthis rule. buturges the**TNRt~** to 

### tdvise proposed 30 T4C 

### 117.109 so that it 

### applies Iilot only to the DallasIFort Worth

## o~dne n nattainment area FW area") and the attainment areas in East and Central texas, ut 

### also 10 

### the H'

### ustonlGalve~10n ozone

### nona~nment area ("HGA area") 

### and the 

# iBea ant/Port 

### ArthW'**o~** 

### nenon-attainment area ("BPA!area"). Thereasons forthis**suggeste~** 

### fhang 

### in.the proposed· 

### sare setforthbelow. I ': I.

!. .: • !I' ;: t 

## p In 

### May 

### 2000. the:TNRCC 

### promulgated daily NO"

### emission limits

### ~or**~lity** boilers in 

### the 

# o#w area as

### part

# ofthe anainmetit 

### demonstration for 

### that 

### arearequired.\iy thefederal Clean Air

## A~t 

## See 30 TAC § 

### l17.106(b) 25 

## Tex. Reg. 4169 (May 

## 5. 2000).**:A~** 

## an**~temative** method**o~lcompliance,** 

### the'TNRCC allowe.d owners and operators ofelectric

# P,01ver 8Cfnerating 

## systems.**~iX>mp8Ssing** 

### the regulated boilers to comply with daily and 3o-day**r~llling** 

## NO" caps covering 

### alfl boilers in the system. 

## See '30 

## rAe §§ 

### 117.106(d)(I)(A) and**i117.10~.** 

### The TNRCC

## te~ognized that

### the;existing scheme for

### thetradingofemission

## teductio~**~redj~** - 

### whichrequires**t~TNRCC** 

### to 

### senre as, a bankiIlj 

### intetmedi8r)'

-**i~** 

### too cumbersom,**~d** 

### time-consuming to fl' 

### ilitate 

### NOx 

### trading between**o~ers** 

### and**op..~tors** 

### of systems that**~CI~** 

### this compliance oJ?
.on. Under the current emission banking and trading 

### rules.

### tr~g to mply 

### with daily 

# Ii!its simply 

### is nDt

### possible. 

# !
. , In 

### orderto 

### providethe necked flexibility, the TNRCChas

# propo~d asJeamlinedtrading m: hanism applicable to 

### the

### new:N~ system caps. This would result the trcation 

### of-a new**C~apter** 

### 101 t**Subc~apter** 

### H, Division S, 

### "System Cap Trading." as an**al~ativ~** 

### to the -fNRCC's 

### erWssion banking**~1,ld t~ding**  

### roles. Under the new mechanism.**com~e4s** I

### bjectto 

### the NOx 

## sY'tem

### ca~5 

### may trade "swplus**~ssion** 

### allowablcs" directly, report**the~** s to

### the TNRCC,

. I i I 

# I '.

. ! 

### i

. I I

. ! I 

### ! t 

## I 

# !JAN-05-2001 15:13 FROM HIPG**ENVI~OMENTRL** TO 80392394808 P.03 !I 

## ii ii ;1 

### 'Ii I
• I

### ~~ maintain 

### apprqpriate 

### records.

## I The NOx 

### system caps 

### may be 

### exceeded as! along as 

### sLLrp1us**e~ission allowab1~**  

### are obtained for the relevantdate or 

### 3D-day period.**:Alth~gh** 

### the proposed

### Sy~tem Cap Trading rules apply

### ~o sources subject to 

### NOx 

### system

### c~ps located 

### in any ozone

### n~~lattainment**area~** proposed 30lAC 

### § 

### 117.109 would 

### allow system

### c~p!particlipants only inthe D I 

### Wareato 

### avail themselves oftfe newtrading mechanism. , : I 'i ,: 

## I The TNRCC's 

### May 2000

### ~le-making 

### also imposed 

### daily NO"

### emissio~ 

### limits on utility**b~** 

### lers in 

### the BPA area and 

### projVided the NQ" 

### system caps 

### as a**coniplian~e** 

### alternative for () .! 

### ers 

### and operators of electriq power 

### generating systems in that: area.**~ee** 

### 30 TAC §§ ]**~~.106(a),.** 

### 117.106(d)(1)(A)**~d** 

### 117.108. On December 6, 

### 2<)QO. tl1e TNRCC also**~~mulgated** 

### NOx

### ~mission 

### limits 'orutili!?'**boi1ers~** 

### auxiliary boilers**~di** 

### stati$ary gas turbines 

### 1n:1 the HGA area: as part of tfie reqwred attaimnent**demonstratJb~** 

### for 

## Ithat 

### area. 

### See**<ftttp:l/www.tnrcc.~tafe.tx.us/oprd(rule** 

### _libladOOOllhpdf>. 

### The HGA:rules**r~Uire** 

### owners and 

### operators ofelectrjc power generiClting systems to 

### comply with daHy:al1d 

### 30,day rolling NOx

### c~rs. 

### 'See**propose~** new 

### 30

# TAe! §1l7.106(c). Thus, 

### owners and 

### Op,e18tOrs**~felectric** 

### power**g~herating** 

### systems in the HGA

# areas are subjed to, and 

### owners and 

### pperatots ofthose in the

## ~~fA. area

## potentiall~ subj.ect 

### to,' NO" 

### system caps under 

### Chapter 

# 1111**that~** ,are functionally 1 

### ntlcal to those avallab1e In

### the IDFW 

### area. ' .;: ,

: " : I • I I I I

. . 

### !! 

### In the

### pre~ble 

### to the pr9posed System Cap 

### Trading rules, the ifNRdC 

### acknowledged

### It "[t]he

### pTopose~ procedure may be applied to 

### other facilities subject to 

### a

### ~ystem cap under 

### C, apter 117 in subsequent

### ru1em~ng." 25 

### Tex. Reg. 11878 (Decembbr 

### 1. :2000).' Thus, the

, RCe acknowledges 

### that the

### S~stem Cap Trading rules should apply to

### th~ HGA and 

### BPA
I 

### as as well as the 

### DFW area. 

### There is no reason whatsoever, 

### hOWe,\!er, 

### wpy this important

### fl~ibi1ity should dot 

### be 

### extended!tothe HGA and BPA areas as part

# oflhe crtrent rulemaking. ttie BPA area shohld have been ihc1uded 

### as part of

### the proposed

### Syst~ CapiTrading rule and

### t~ HGA area sliould be 

### addeil as well now that the HGA

### rule~ have been finalized.

il :: : l : 

### A cordingly, the proposed 30 T.p.C 

### 117.109 should be revised to 

### apply alsP 

### to O'l:','netS and

### ()~ ators ofelectnc power genetjating systems in the HGA areas that

### ~e stlbject to the NO"

### s~ ·tern 

### caps, and to owners and operators ofelectric power generating system$ inthe SPA area t 1 :t

### electto comply 

### withtheNO"

### ~ystem caps., 

# ..! .1

# i Ifyou

# h.v~ any questiooJ obout the.. comments, 

### pl.... do 

# 'l"j

# hesi~te to call me at 

## np) 945-819]. I .: i

:; I I !' I

### Si~cerely , 

# .)p ,

# O-{,~

,I • 

### s!ln Cannine. 

### P.E. 

# !

fl

. I 

# Jkgerl 

### Air ResOurces 

### Division II!



## II " . Environmental Department



## ,I :1 

# IIi 

# i i I 

## I TOTriL P.03

## FAX NO, 214 812 2294 p, 

## 02 

# eTXU

TXU Business 5ervic&$ 1601 Bryan Street Dallas.TX 75101·3411 Tel: :l14 8115151**F~x::lt4** 812 <I36S 

### batdrlscoll@txu.com WilliimE.-,llll" PrlSC411 Vice President,Envlronmtntal,Health and saret)'



### January 3. 2001
Ms. LolaBrown OfflceofEnviromnentalPolicy, Analysis andAssessment Texas NaturalResource Conservation Commission 12100Park35 Circle, 

## Me 206 Austin. Texas 78753 Re: Proposed 

### Rule on Emissions Bankinl:andTradini (Rule

### LogNumber2000-046-101-Al) DearMs. 

### Brown: TXU Business Services Company**~ubmits** 

### the following comments on behalfofTXU Electric Company (hereinafter referred to as TXU) concerning the 

## rex.a...; Natural Resource Con:;ervation Commission',s (TNRCC) proposed revisions.to the State 

### Implementation Plan (SIP) for Emissions Banking and Trading for the Oa1JaslFort WOlth 

### (DFW) areaand Eastand

### Central Texas as published in the**Texa.~** 

### ReGister 

### on December I, 2000. The principaJ business ofTXU 

### is the 

### production ofelectricity in north. 

### central. east. andwestTexas for 

### approximately one-third ofthe population and areaofthe State. TXU 

### strongly supports 

### the proposed role and**appreciate~** 

### the efforts ofthe TNRCC in developing a voluntary. flexible. and cost-effective approach to reducing nitrogen oxide (NOx) 

### emissions. Allowing rho trading ofemissions betweenelectric utility 

### companies in theDFW area 

### and a separate program in the**Ea~t** 

### and Central Texas region 

### will create a marketbasedoption forreducing NOx 

### emissions that

### will help minimize the cost ofreducing 

### emissions to 

### the reqUired level. The 

### total amount ofreductions in NOx

### emissions made by 

### electric utilities 

### will remain identical to those reductions approved by 

### the TNRCC on 

### April 19. 

### 2000. The proposed rule merely allows electric utilities to merge their system caps in a fl"ee 

### market arena similar [0 

### the U.S. 

### Envjromnental Protection Agency'!.> successful. marketwbased 

### sulfurdioxide**(SO~)** 

### allowance trading program.

## JAN-04-2001 THU 10:54 AM TXU 

## ES MINING GROUP

TXUComments on Propo,;ed Trading Rille Page:! 

## FAX NO. 214 812 2294 P. 03 '

TXU wouldlike [0 

### paintout one omission in the proposedrole under §101.383(c). It 

### appears areference to subsection (b) was inadvertentlyleftout inpointingoutthatthe current cap**requirement~** 

### under Chapter 117 continue to apply except for those modifiedin subsections (a) and

# au. Subsection (b) 

### contains the new requirements for tradingin BastandCentralTexas. The s.ubsectionshouldread as follows: §

### IOl.383(c) The cap requirements ofChapter 117 ofthis title (relating to Control of A

### ir Pollution 

### from Nitrogen Compounds) continue to 

### apply, except as modified

### in subsectioIl§ (a) and 

### (bl 

### ofthis section. Thank you for tbe 

### opponunlty to 

### comment. 

### TXU will 

### continue its proactive environmentalefforts toenhance airquality inTexas. Sincerely.



### WiIIi

## amE. DriscollReference Number
0-1

Reference Number 

### 0-2 INDEX OF ORAL TESTIMONY

January 3, 2001

- City ofIrving Public Library Auditorium
Submittedby
Shawn Glacken, TXU Business Services

January 4,2001, TNRCC

Submitted by Shawn Glacken, Association ofElectric Compnay ofTexas

- AECT

January 4,2001, NCTOG, Arlington Hearing concerning Agreements with American Airlines, City ofFortWorth, DFW International Airlines, and the the State Implementation Plan Reference Number 0-3 Submittedby Michael Morris, North Central Texas Council ofGovernments (NCTOG)

# Texas Natural Resource Conservation Commission Public Hearing Registration Location: 

# City ofIrving Public Library Auditorium Date: 

# January 3,2001 Concerning: 30 T

# AC Chapters 101 & 

# 117 

# and corresponding revisions to the SIP

Name and Address Representing Presenting Oral Testimony? (Circle One) (please Print) 

### '-';c.)(- 

## AnC[.Q 

# I ba. r 

# i

# I,']

# J**T~c..\+** 

### Su...\1\ 

## SoLQ.r**cL~c:::.+("** 

# ''-.. Yes 

# -r;.de 

## 5 c= 

## 5"'0 ! c...r 

## £1**~'f** rt

### ~cf**S"~** 

### So (o-r 

### ;:.C:-IS2--c.-

# "f-, , 

# €)**W~1.L1 ~v.J~d**  Yes 

# C ErR) '5 

# k(fiv S 

# NCTC0

# 9 Yes 

# 6)**S~'" G-l0d~**  

# IX\A 

# @ No

# j)avIJDlk~~~ 

# (@ 1 

# XU Yes

# Lhr-~s**'D~ck** 

# . 

# T r-; f\

### ~i-y 

# C-Ci I\. 5 C/ 

### (.j. Ol VI.

## +-~ Yes 

# G)

# Texas Natural Resource Conservation 

# Commission Public Hearing Registration Location: 

# City ofIrving Public Library Auditorium Date: 

# January 3, 2001 Concerning: 

# 30 TAC Chapters 101 & 

# 117 and corresponding revisions to the SIP

Narne and Address Representing Presenting Oral Testimony? (Circle One) 

### (please Print) (""'\

# \~~G\~

# ~'t- Yes

Yes No

Yes No

Yes No

Yes No

Yes No

### TRANSCRIPT OF PROCEEDINGS BEFORE THE TEXAS NATURAL RESOURCE CONSERVATION COMMISSION AUSTIN, TEXAS

IN THE MATTER OF: ) PROPOSED REVISIONS TO ) 30 TAC CHAPTERS 101 AND ) 117 AND THE STATE ) IMPLEMENTATION PLAN )

PUBLIC HEARING WEDNESDAY, JANUARY 3, 2001 

### BE IT REMEMBERED THAT at approximately 6:00 p.m. on Wednesday, the 3rd day of January 2001, the above-entitled matter came on for public comment at the City of Irving Public Library Auditorium, 801 West Irving Boulevard, Irving, Texas, before BEECHER CAMERON, and the following proceedings were reported by Aloma J. Kennedy, a Certified Shorthand Reporter of:

## 81~11:\?lGl~ 

# arecordof excellence
800 Brazos • Suite 340 • Austin, Texas 78701 • 512-474-2233

### 2



### (6:03 p.m.) PRO C E E DIN G S WEDNESDAY, JANUARY 3, 

### 2001 1 2 3 4
06:03 PM 

### 5 

### everyone. 6 

### MR. CAMERON: How are you? MS. GLACKEN: Good evening,

Good. 7 

### MR. CAMERON: Good. We'll go and 8 convene the hearing. I would like to thank' 9 everyone for corning here tonight on this .hearing

06:03 PM 

### 10 concerning certain trading enhancements to the 11 DFW banking rules. 12 For those of you who are not 13 familiar with the process, I will remind you of 14 a few things. This hearing is for the receipt

06:04 PM 

### 15 of oral and/or written testimony only. Once the 16 hearing is open, there is no cross-examination 17 of the staff or other witnesses. We were here 18 at 5:30 to answer any questions you might have 19 about the proposal, and we'll be sticking around

06:04 PM 

### 20 as long as necessary after we close the hearing, 21 to answer any further questions you may have. 22 Let me pause just one moment. 23 (Brief pause in the proceedings) 24 

### Sorry. And with that being said,

06:05 PM 

### 25 I beli eve I wi 11 go ahead and open up the KENNEDY REPORTING SERVICE, INC. (512}474-22333



### right now Ms. Shawn Glacken, representing TXU. And you can either take the podium

It's a little easier to transcribe that or wherever you might feel comfortable.

. 

### , 

### I think

her a copy. of Okay. I thought I might And I have signed up

MS. GLACKEN: MR. CAMERON:

How about if I just sit right MS. GLACKEN:

this. just give everyone can hear everybody.

way. hearing to our speakers. 06:05 PM 

### 1 2 3 4
06:05 PM 

### 5 6 7 8 9
06:05 PM 

### 10 11 12

COMMENTS ON BEHALF OF TXU I'm going to read 13 ·here? 14 15 16 this. 

# 0- \ 17 18 MR. CAMERON: MS. GLACKEN:

MS. GLACKEN: That is fine.

Good evening. My 19 name is Shawn Glacken. I'm Environmental

06:05 PM 

### 20 Programs Manager for TXU. We're responsible for 21 the distribution, transmission, and production 22 of electrical energy and the transmission and 23 distribution of natural gas to approximately 24 one-third of the population and, area of Texas.

06:05 PM 

### 25 TXU strongly supports the propos ed KENNEDY REPORTING SERVICE, INC. (512)474-2233

### 4

06:05 PM 

### 1 

### 2 3 4
06:06 PM 

### 5 6 7 

### rule which will allow voluntary emissions trading between electric utility companies in the DFW area and a separate trading program in the East and Central Texas region. We appreciate the efforts of the TNRCC and the staff in proposing the rule in a timely manner to facilitate planning for the 8 significant NOx reductions that will be made by 9 our company. This proposal will allow us
06:06 PM 

### 10 

### greater flexibili ty in our efforts to reduce NOx 11 

### emissions, result in a more cost-effective 12 approach, and help alleviate certain daily 13 operational concerns 1n the DFW area. 14 Increased flexibility may be

06:06 PM 

### 15 

### especially important for owners of small 16 electric generating systems. The rule should 17 also facilitate the sale of power plants that we 18 believe will occur as a result of the 19 restructuring of the electric utility industry.

06:06 PM 

### 20 We think it's important to note 21 that the total amount of reductions in NOx 22 emissions made by electric utilities will remain 23 the same. The proposal merely allows electric 24 utilities to merge their system. caps in a free

06:06 PM 

### 25 market arena, thereby reducing cos ts
. KENNEDY REPORTING SERVICE, INC. (512)474-2233

### 5



### program.

to, to please indicate so now. comment, and I would be happy to answer any

particular proposal closes on January 5th of . 

### , 

### Thank you,

Seeing no one, I will come up with MR. CAMERON:

The comment period for this I have no other speakers

And any comments, any further Thank you for the opportunity to To ensure compliance, the proposed

this year. Ms. Glacken. questions.

a few items. now if there is anyone in here who has signed 1n who did not register to speak, who would like similar to the federal S02 allowance trading rule has monitoring and reporting requirements

registered to speak, but I will ask the audience 06:06 PH 

### 1 2 3 4
06:07 PH 

### 5 6 7 8 9
06: 07PH 

### I0 11 12 13 14
06: 07PM 

### 15 16 17 18 19 .written comments, should reference Rule No.
06:07 PM 

### 20 2000-046-101-AI. 21 I would also mention just in 22 passing that I do not believe that this proposal 23 actually made it to our Web site. I'm actually 24 not certain of that. I do know, that the agency
06: 08PM 

### 25 is a little bit behind in posting these rules up KENNEDY REPORTING SERVICE, INC. (512)474-22336



### site. individual staff members a call, and we can current rule proposals, please give the

either e-mail them to you or get you them some But I think

6:08 

### p.m.) Thank you. And we'll be glad to stick around
(Hearing closed: With that being said, I 

### will close So if you have any questions about there, and we apologize for that.

the hearing. in the next two or three weeks, the next month,
we will start to catch up with those postings.

for any further questions. way or other until we catch up with our Web' 06:08 PM 

### 1 2 3 4
06:08 PM 

### 5 6 7 8 9
06:08 PM 

### 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 KENNEDY REPORTING SERVICE, INC. (512)474-2233

### 7


### 1 

### C E R T I F I CAT E 2 

### 3 STATE OF TEXAS } } 

### 4 COUNTY OF TRAVIS } 5 

### 6 I, Aloma J. Kennedy, Certified 7 Shorthand Reporter in and for the State of 8**Texa~,** 

### do hereby certify that the above- . 

### , 

### 9 mentioned matter occurred as hereinbefore set 10 out. 11 I FURTHER CERTIFY THAT the proceedings 12 of such were reported by me or under my 13 supervision, later reduced to typewritten form 14 under my supervision and control and that the 15 foregoing pages are a full, true, and correct 16 transcription of the original notes. 17 IN WITNESS WHEREOF, I have hereunto set 18 my hand and seal this 12th day of January 2001,

# ~A~l~~---~**~edY** ---- Certified Shorthand R porter CSR No. 494

- Expires 12/31/02 Kennedy Reporting Service, Inc. 800 Brazos, Suite 340 Austin, Texas 78701 21 20

22 

### 19

24 23

25 KENNEDY REPORTING SERVICE, INC. (512)474-2233

# Texas Natural Resource Conservation Commission Public Hearing Registration Location: TNRCC

- Austin 

# Date: January 

# 4, 2001 Concerning: 30 TAC Chapters 

# 101 & 

# 117 and corresponding revisions to the SIP

Name and Address Representing Presenting Oral Testimony? (Circle One) (please Print) 

# <;**k~"1 ~lo.d~**  

## A

# E:-r-.,- 

# tSJ No

Yes No

Yes No

Yes No

Yes No

Yes No

### TRANSCRIPT OF PROCEEDINGS BEFORE THE TEXAS NATURAL RESOURCE CONSERVATION COMMISSION AUSTIN, TEXAS

IN THE MATTER OF: ) PROPOSED REVISIONS TO ) 30 TAC CHAPTERS 101 AND ) 117 AND THE STATE ) IMPLEMENTATION PLAN )

PUBLIC HEARING THURSDAY, JANUARY 4, 2001 

### BE IT REMEMBERED THAT at approximately 2:05 p.m. on Thursday, the 4th day of January 2001, the above-entitled matter came on for public comment at the Texas Natural Resource Conservation Commission, Building B, Room 201A, located at 12100 Park 35 Circle, Austin, Texas, before LOLA BROWN, and the following proceedings
were reported by Steven Stogel, a Certified Shorthand Reporter of:



# arecordof excellence
800 Brazos • Suite 340 • Austin, Texas 78701 • 512-474-2233

### 1 

### 2 3 

### PRO C E E DIN G S THURSDAY, JANUARY 4, 2001 (2:05 p.m.) 2



### 4 MS. BROWN: Good afternoon. I 

### 5 would like to welcome everyone to this public 6 hearing being conducted by the Texas Natural 7 Resource Conservation Commission. My name 1S 

### 8 Lola Brown, and I'm with the Office of 9 Environmental Policy, Analysis and Assessment. 10 I would also like to introduce Beecher Cameron, 11 Regulations and Development Section, and Matt 12 Baker, Technicai Program Support Section. 13 We are here to receive oral and/or 14 written testimony on proposed revisions to 15 30 TAC, Chapter 101 and 117, and corresponding 16 revisions to the State Implementation Plan. We 17 will continue to accept written comments on this 18 proposal until Friday, January 5th, at 5:00 p.m. 19 

### For those of you who do not have access 20 to the Internet to download the rules, we will 21 have sheets available at the registration table. 22 On the way out, you can stop by and fill in your 23 name and address, and we'll mail you a copy of 24 the final version. 25 This hearing is structured strictly for KENNEDY REPORTING SERVICE, INC. (512)474-2233

### 3



### AECT is the trade association of Electric Companies of Texas, AECT. call your name, please state your name and who

electricity. Open

I will Good Once I

Thank you. MS. GLACKEN: My name is Shawn Glacken,

AECT member companies are responsible

AECT strongly supports the proposed We will now begin to recelve testimony

Environmental Programs Manager for TXU.

for generating over 85 percent of the state's afternoon. the receipt of oral or written comments.

the DFW area and a separate trading program ln trading between electric utility companies in Shawn Glacken.

representing all the investor-owned utilities ln Texas. or comments regarding the proposal, there will

in the order in which you registered.

be testifying today on behalf of The Association discussion during the hearing is not allowed.

be another opportunity after the hearing to have

rule which will allow voluntary emissions However, if anyone has any additional questions

you represent, and then present your testimony. your questions answered. 1 2 3 4 5 6 7 8 9 10 11

### O-~ 12 13 14 15 16 17 18 19 20 21 22 23 24 25 KENNEDY REPORTING SERVICE, INC. (512}474-2233

### 4


### 1 the East and Central Texas region. 2 We appreciate the efforts that the 3 TNRCC in proposing the rule in a timely manner 4 to facilitate planning for the significant NOx 5 reductions that will be made by AECT member 6 companies. 7 This proposal will allow us greater 8 flexibility in our efforts to reduce NOx 9 emissions, result in a more cost-effective 10 approach, and help alleviate certain daily 11 operational concerns in the DFW area. 12 Increased flexibility may be especially 13 important for owners of small electric 14 generating systems. The rule should also 15 facilitate the sale of power plants that we 16 believe will occur as the result of the 17 restructuring of the electric utility industry. 18 It's important to note that the total 19 amount of NOx emissions made by electric 20 utilities will remain the same. The proposal 21 merely allows electric utilities to merge their 22 system caps in a free market arena, thereby 23 reducing costs. 24 

### To ensure compliance, the proposed rule 25 has monitoring and reporting requirements KENNEDY REPORTING SERVICE, INC. (512)474-2233

### 1 similar to the federal S02 allowance trading 2 program. 3 AECT would like to encourage the TNRCC 4 to expand the applicability of the voluntary 5 em1SS1ons trading rule to the Houston-Galveston 6 non-attainment areas 1n a future rulemaking. 7 

### Thank you for the opportunity to 8 

### comment. 5



### 9 

### MS. BROWN: Thank you. Once 10 aga1n, the Commission will continue to accept 11 written comments on this proposal until 12 5:00 p.m., January 5th. 13 If there are no further comments, this 14 hearing 1S closed. Thank you for coming. 15 (Proceedings concluded at 16 

### 2:09 p.m.) 17 18 19 20 21 22 23 

### 24 25 KENNEDY REPORTING SERVICE, INC. (512)474-2233

### 1 

### 2 

### C E R T I F I CAT E 6



### 3 STATE OF TEXAS 4 COUNTY OF TRAVIS 5 

### 6 

### I, Steven Stogel, Certified Shorthand 7 Reporter ln and for the State of Texas, do 8 hereby certify that the above-mentioned matter 9 occurred as hereinbefore set out. 10 I FURTHER CERTIFY THAT the proceedings 11 of such were reported by me or under my 12 supervision, later reduced to typewritten form 13 under my supervision and control and that the 14 foregoing pages are a full, true, and correct 15 transcription of the original notes. 16 IN WITNESS WHEREOF, I have hereunto set 17 my hand and seal this 19th day of January 2001. 18 19 20 21 22 23 24 25

# s~~-------------- Certified Shorthand Reporter CSR No. 6174

- Expires 12/31/02 Kennedy Reporting Services, Inc. 800 Brazos, Suite 340 Austin, Texas 78701

KENNEDY REPORTING SERVICE, INC. 

### (512)474-2233

### TRANSCRIPT OF PROCEEDINGS BEFORE THE TEXAS NATURAL RESOURCE CONSERVATION COMMISSION AUSTIN, TEXAS

IN THE MATTER OF: ) AGREEMENTS WITH AMERICAN AIRLINES, ) CITY OF FORT WORTH, AND DALLAS/ ) FORT 

### .WORTH INTERNATIONAL AIRPORT ) AND THE STATE IMPLEMENTATION PLAN )

PUBLIC HEARING THURSDAY, JANUARY 4, 2001 

### BE IT REMEMBERED THAT at approximately 1:30 p.m. on Thursday, the 4th day of January 2001, the above-entitled matter came on for public comment at the NCTCOG, 616 six Flags Drive, 3rd Floor Transportation Board Room, Arlington, Texas, before HEATHER EVANS, and the following proceedings were reported by Aloma J. Kennedy, a Certified Shorthand Reporter of:



# arecordof excellence
800 Brazos • Suite 340 • Austin, Texas 78701 • 512-474-2233

### 2



### in Austin. the Texas Natural Resource Conservation

Fort Worth, with American Airlines, and with comments on agreements with the City of I'm with Good afternoon, (1:33 p.m.) MS. EVANS:

We're here today to receive PRO C E E DIN G S

With me today is Bill Jordan. I guess we'll go ahead and get THURSDAY, JANUARY 4, 

### 2001

My name is Heather Evans. everyone.

are both from the Office of Environmental Policy started.

Commission. 1 2 3 4
01 :-33 PM 

### 5 6 7 

### 8 9
01:33 PM 

### 10 11 12 13 14 Dallas/Fort Worth International Airport

01:33 PM 

### 15 regarding NOx reductions from sources at the 16 area airports, that being**~ove** 

### Field, DFW, Fort 17 Worth Meacham and Fort Worth Alliance Airports. 18 We're also here to receive 19 comments on specific language that we are
01:34 PM 

### 20 proposing to incorporate into the SIP regarding 21 the Commission's commitment to perform new 22 mobile source modeling using MOBILE6. If you're 23 interesting in finding out the exact language, 24 

### we do have copies of the**hearin~** 

### notice which
01:34 PM 

### 25 contains that language, and I believe we also KENNEDY REPORTING SERVICE, INC. (512}474-22333



### comments, there is also information in the comments until 5 o'clock today, so if anyone

long way up here

-- but if you could go ahead anyone is interested.



# .. We do have two folks who have We will continue to accept

If you could, please

-- I know it's a that.

and come up to the podium so that it will make indicated that they would like to speak**~oday,** 

### so I guess we'll go ahead and get started with notice on how to do so. would like to submit any additional written have some copies of the actual agreements if 01:34 PM 

### 1 2 3 4
01:34 PM 

### 5 6 7 

### 8 9
01:34 PM 

### 10 11 12 13 14 

### it easier for the Court Reporter to hear your 01: 34PM 

### 15 

### comments. 

# 0-3 16 

### Mr. Morris. 17 

### COMME'NTS ON BEHALF OF NCTCOG 18 

### MR. MORRIS: Good afternoon. I'm 19 Michael Morris. I'm the Director of
01: 34PM 

### 20 Transportation here at the North Central Texas 21 

### Council of Governments. Welcome, Ms. Evans and 22 Mr. Jordan, to where the Regional Transportation 23 

### Council meets, who have been strong supporters 24 

### of your State Implementation**PI~n** 

### in the 01:35 PM 

### 25 

### Dallas/Fort Worth**reg~on.** 

### KENNEDY REPORTING SERVICE, INC. 

### (512)474-2233

### 4



### Plan.

control measures. We have basically three comments

the spirit of both- flexibility as well as I**think~ith** 

### the The first is a comment

Your particular plan

The same emission reductions sought in to bring forward today.

We support your willingness and

The second comment is with reg"ard to the agreement with American Airlines, the trading between the power plants as long as the

the plan will be achieved. flexibility to permit those power plants to do in the State Implementation Plan for electric

emissions and to permit the**fle~ibility** 

### of those that.

City of Fort Worth, DFW International Airport, and the flexibility you have shown in this particular agreement to reduce nitrogen oxide regarding the flexibility that you're proposing

ensuring the health of our citizens from those budget is maintained in the State Implementation generating facilities.

entities to meet those requirements established permits the voluntary participation of emission

cost to consumers, your proposal I think is in recent experiences in California and impacts on 01 :35 PM 

### 1 2 3 4
01:35 PM 

### 5 6 7 8 9
01:35 PM 

### 10 11 12 13 14
01:35 PM 

### 15 16 17 18 19
01:36 PM 

### 20 21 22 23 24
01:36 PM 

### 25 KENNEDY REPORTING SERVICE, INC. 

### (512)474-2233

### 5



### of work has been done in the last two or three

called MOBILE6 and the process in which that materials deals with the use of new EPA software

the Texas interagency consultation process . 

### , 

### A lot

We have a few thoughts and I think it shows in good We again support this particular It meets the emission reduction

The third element included in your

first is that we would recommend that you use together to meet the emission reduction you've

with regard to this particular suggestion. The those emission reductions through a whole host

faith the public and private sector working.

software will be used. targets in the State Implementation Plan.

of strategies,

stated in the State Implementation Plan. months to ensure the ability of establishing in the State Implementation Plan.
provision. 01:36 PH 

### 1 2 3 4
01:36 PH 

### 5 6 7 8 9
01:36 PH 

### 10 11 12 13 14
01:37 PH 

### 15 16 17 18 19 already established on how new-level software
01:37 PH 

### 20 and other items should be introduced in Texas, 21 in a conformity process, because this has 22 implications on how our plans and tips that are 23 on the wall today can continue in the future. 24 The second thought is, you may 01:37 PH 

### 25 wish to separate an element like this, which is KENNEDY REPORTING SERVICE, INC. (512)474-22336



### And then finally we would The third is, we would suggest

of EPA's new software when it comes to. mobile different when it comes to such elements as

I think you' 'can the users and the**constituen~s** 

### are very very different than your aviation element, into

therefore, its implications on conformity in a different public involvement process because

additional work should be done.

other ways that**~ou** 

### can meet that spirit and, airports.

establishing budgets and the like. using MOBILE6 in the near term, taking best use software versus' real-world control measures at

meet the spirit of your interest with regard to

source controls, but we think there's maybe 01:37 PM 

### 1 2 3 4
01:38 PM 

### 5 6 7 8 9
01:38 PM 

### 10 11 12 13 14
01:38 PM 

### 15 16 17 recommend to you establishing a new track using 18 new methodologies in the future, use MOBILE6 to 19 evaluate the effectiveness of all the mobile

01: 38 PM 

### 2 0 sour c e cont r 01 

### s t hatare in theState 21 Implementation Plan, meet the spirit and use of 22 this new software without necessarily having to 23 establish new budgets, opening up the State 24 Implementation Plan to a lot of, those planning

01:39 PM 

### 25 elements tJ1at hopefully later today we'll hear KENNEDY REPORTING SERVICE, INC. (512)474-22337



### the focus now should be shifted from the

COMMENTS ON BEHALF OF THE CITY OF FORT WORTH And we have worked hard and will continue to

s umme r 0 

### f 2 0 0 5 , I 

### 06, and the 2 0 0 7 dea d line . . 

### ,



### Thank you. MS. EVANS: Lisa Pyles. Thank you very much for coming We'll be more than happy to work with I guess the summary is, we think

today. taking the spirit of the flexibility you're

additional control measures to ensure the region proposing in such things and developing new and

comes .into attainment of the standard by the to be approved. from EPA, indicating that this plan is proposed

work hard implementing the control strategies, planning process to the implementation process.

you on these strategies in the future. 01:39 PM 

### 1 2 3 4
01:39 PM 

### 5 6 7 8 9
01:39 PM 

### 10 11 12 13 14
01:39 PM 

### 15 16 17 18 19 MS. PYLES: Thank you and good
01:40 PM 

### 20 afternoon. My name is Lisa Pyles. I'm the 21 Director of Aviation for the City of Fort Worth. 22 I'm here to speak in support of 23 the Memorandum of Agreement between TNRCC and 24 the City. Meacham Airport and**~lriance** 

### Airport 01:40 PM 

### 25 are both general aviation/industrial airports, KENNEDY REPORTING SERVICE, INC. (512)474-2233

# EVALUATION OF TESTIMONY

# Texas Natural Resource Conservation Commission INTEROFFICEMEMORANDUM

To: 

### Commissioners Date: 

### March 2, 2001
Thru:

From:
Subject: Caption: 

### LaDonna Castanuela Chief Clerk Randolph Wood, Deputy Director Office ofEnvironmental Policy, Analysis, and Assessment
Commission Approval for Adoption ofProposed Rulemaking
CAPTION: Docket No. 2000-0969-RUL. Consideration for adoption ofthe following new sections to 30 TAC Chapter 101, General Air Quality Rules and 30 TAC Chapter 117, Control ofAir Pollution from Nitrogen Compounds: Section 101.380, Definitions Section 101.382, Applicability Section 101.383, General Provisions Section 101.385, Recordkeeping and Reporting Section 117.109, System Cap Flexibility Section 117.110, Change ofOwnership

- System Cap Section 117.139, System Cap Flexibility The new sections would add flexibility to the trading of nitrogen oxides emission allowables among electric generating facilities in the Dallas/Fort Worth nonattainment area by allowing daily trading among system cap participants without prior executive director approval. Electric generating facilities in the attainment counties in east and central Texas would be allowed to exceed their emissions cap, provided emission reductions are obtainedfrom anotherparticipantinasystemcapto offsetthe exceedence. The new sections will be submitted as revisions to the state implementation plan. The proposal was published inthe December 1, 2000 issue ofthe 

### TexasRegister(25 TexReg 11878 and 11883) (Matt Baker/Beecher Cameron) (Rule Log No. 2000-046-101-AI). What the Adopted Rules Would Do: 

### Under rules adopted by the commission on April 19, 2000, electric generating facilities (EGFs) in the Dallas/Fort Worth (DFW) nonattainment area may voluntarily participate in a program where individual sources may transfer nitrogen oxides (NO.) emission allowables among each other. The excess emission allowables must firstbebanked withthe commission and the transfer must be approved by the executive director (ED). The rules adopted on April 19, 2000 also establishedthevoluntaryparticipationinanannualemissioncapforEGFslocatedintheattainment counties ofeast and central Texas.Commissioners Page 2 March 2, 2001 Re: Docket No. 2000-0969-RUL
This adoption would allow the system cap to be exceeded, provided surplus emission allowables canbe obtained on the same day as the exceedence occurs from any other EGF participating in a systemcap. The surplus would nothave tobebanked with the commissionand the transfer would notrequire ED approval. An additional optionwould allow a system cap to be exceeded on a 30- day rolling average, provided sufficient surplus emission allowables are obtained from another systemfor the identical time period. Systemcap limits for electric generating units located ineast and central Texas may be exceeded with surplus emission allowables obtained for that calendar year from another source owner or operator participating in the system cap. The transfer ofemission allowables remains restricted to the area, attainment or nonattainment, in which it originates. The adoption also states that in the event aunit within an electric powergenerating system is sold or transferred then the unit shall become subject to the transferee's emission cap. 

### Applicable Law: The amendments are adopted under the Texas Health and Safety Code, Texas Clean Air Act (TCAA), §382.011, which authorizes the commission to control the quality ofthe state's air; §382.012, which authorizes the commission to develop a plan for control of the state's air; §382.017, which provides the commission the authority to adopt rules consistent with the policy and purposes of the TCAA; and United States Code, §741O(a)(2)(A), which requires state implementationplans (SIPs) to includeenforceableemissionlimitations andothercontrolmeasures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights. Reason Rules Are Needed: These rules will provide additional flexibility to meet NOx emission standards for EGFs in the DFW area and the attainment area ofeast and central Texas. 

### Public Comment: The staffconductedpublic hearings onJanuary 3 and 4,2000 in Irving and Austin. Commenters generally supported the proposal with requests for rule and citation clarifications. The staff recommends that the commission adopt these clarifications in §101.383, General Provisions; §101.385, Recordkeeping and Reporting; and §1l7.139, System Cap Flexibility. Entergy andReliantrequestedthatthe same flexibility to conductdailytrades withoutED approval be extended to electric generating facilities in Houston/Galveston (HGA) and Beaumont/Port Arthur (BPA). The staffrecommends thatthe commissionconsiderthis for future rulemaking but first provide a chance for public comment from HGA and BPA before extending the flexibility.Commissioners Page 3 March 2, 2001 Re: Docket No. 2000-0969-RUL
The cities ofGarland and Denton stated that the relative scarcity ofcredits in DFW would cause the price ofcreditto far exceed the estimate inthe proposal and couldbe burdensome for owners that choose to purchase credit in lieu ofinstalling additional controls. Their representatives also expressed concern about a possible TXU Business Services monopoly on credits. The staff recommends responding that the estimate ofthe price ofemission credits was based on the best information available at the time ofproposal and that 

### it was realistic to expect prices to rise. However, the flexibility in cap and trade type programs is that businesses can choose the least expensive option ofinstalling control orpurchasing credit. The staffrecommends that the rules not be changed in response to this comment. The staffalso recommends stating that an increased demand for generation would affectboththe large and small suppliers ofelectric power inDFW. This would cause any surplus credit available from a small supplier to retain its value when the large generator might require it. 

### Final Regulatory Impact Analysis Determination: These rules are intended to protect the environment or reduce risks to human health from environmental exposure. The adoptionwillnotaddregulatory requirements, nor adversely affect in a material way the economy, \a sector ofthe economy, productivity, competition, jobs, the environment, orthepublic healthand safety ofthe state ora sectorofthestate. The adoptedrules, therefore, do notmeetthe definitionofamajorenvironmentalrule. This rulemaking is notsubject tothe regulatoryanalysisprovisions ofTexas GovernmentCode, §2001.0225(b), becausetherules do not meet any ofthe four applicability requirements. 

### Takings Impact Assessment: Promulgationandenforcementoftherules will notburdenprivate realproperty. Thenew sections do not affectprivateproperty inamannerwhichrestricts orlimits anowner's rightto theproperty that would otherwise exist in the absence ofa governmental action. Additionally, the emissions transfers that are the subject ofthese rules are not property rights. Consequently, these new sections do not meet the defmition ofa takings under Texas Government Code, §2007.002(5). 

### Consistency with the Coastal Management Program: The staffhas reviewed this action for consistency with the Texas Coastal Management Program (CMP) goals andpolicies in accordance withthe regulations ofthe Coastal Coordination Council and determined the rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) ofprotecting and preserving the quality and values ofcoastal natural resource areas, andthepolicy in31 TAC §501.14(q), whichrequires the commissionprotectairquality incoastal areas. Theserules addflexibility forcompliancewithNOxemissionstandards anddo notauthorize new emissions ofair contaminants.Commissioners Page 4 March 2,2001 Re: Docket No. 2000-0969-RUL


### Mfected.Agency Programs: The Emission Banking and Trading Program, in the Office of Permitting, Remediation, and Registration, will administerandtrackthecap andtradeprogramandisprimarilyaffectedbythese rules. 

### Agency Contacts: Jill Burditt, Office ofEnvironmental Policy, Analysis, and Assessment, 239-0560 Matthew R. Baker, Emissions Banking and Trading, 239-1091 Janis Hudson, Environmental Law Division, 239-0466 Lola Brown, Texas Register!Administrative Support Team, 239-0348

cc: 7 copies to the Chief Clerk for distributionEVALUATION OF TESTIMONY

The Texas Natural Resource Conservation Commission (commission) adopts new §lO1.380, Definitions; §lO1.382, Applicability; §lO1.383, General Provisions; and §lO1.385, Recordkeeping and Reporting. Sections 101.383 and 101.385 are adopted with changes to the proposed text as published in the December 1, 2000 issue ofthe Texas Register (25 TexReg 11878). Sections 101.380 and 101.382 are adopted without changes and will not be republished. The new sections are grouped into Subchapter H, Emissions Banking and Trading; new Division 5, System Cap Trading. The new sections will also be submitted to the United States Environmental Protection Agency (EPA) as a revision to the state implementation plan (SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULES The adopted rules will simplify emission trading for electric generating facilities (EGFs) operating under a system emission cap in the Dallas/Fort Worth (DFW) ozone nonattainment area and in the attainment counties ofeast and central Texas. The rules represent a continuing commitment by the commission to incorporate maximum flexibility for the electric industry in achieving the nitrogen oxides (NO.) emissions reductions necessary to achieve the goal ofozone attainment in the DFW area while maintaining reliability ofservice. The DFW area includes Collin, Dallas, Denton, and Tarrant counties. The adopted procedure may be applied to other facilities subject to a system cap under Chapter 117 in subsequent rulemaking.

Emission reduction credit (ERC) trading among companies is allowed under the April 19, 2000 adoption ofthe DFW ozone attainment demonstration rules for EGFs, which were published in the May 5, 2000 issue ofthe Texas Register (25 TexReg 4140). In order to complete a trade under these 1existing rules, one source owner must bank an emission credit with the commission and another source
owner must receive the executive director's approval to use the credit. This procedure works well for trades which are made relatively infrequently, such as tend to occur when emissions are limited annually. In contrast, the ozone attainment demonstration rules for EGFs in DFW establish daily NOx limits because the EGFs in DFW are more likely to emit the most NOx on days conducive to exceedences ofthe ozone standard. This adoption adds a trading alternative which will facilitate daily emission trading by reducing the steps necessary to trade allowable emissions among different owners. Under these rules, the source owners will be simply required to report trades and the commission will have the opportunity to review, on a quarterly basis, the daily emissions, 3D-day rolling average emissions, and any emission trades which occurred during the preceding calendar quarter.

Individual sources under common ownership or control may be voluntarily grouped together in a system with a system cap on total emissions from the sources in the system. Emission allowables may be transferred from source to source within the system, provided the cap is not exceeded. This adoption allows the increase ofsystem caps, provided that surplus emission allowables are obtained from another source owner participating in a system cap. The system cap may be increased daily using

a daily surplus or on a 3D-day rolling average using 3D-day rolling average surpluses for the same period.

The rules adopted on April 19, 2000 also established an annual system cap for EGFs in the attainment counties ofeast and central Texas (25 TexReg 4101). This adoption allows the exceedence ofthat system cap, provided surplus emission allowables are obtained from another EGF participating in the system cap. The EGFs affected are in the following counties: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, 

### 2Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton.

The transfer ofemission allowables remains restricted to the area, nonattainment or attainment, in which it originates.

SECTION BY SECTION DISCUSSION The new §101.380 contains definitions for use in this division. Surplus emission allowables are defined

as an amount, greater than zero, by which a source's allowable source cap emissions exceed actual emissions for a single day or a 30-day average or tons per year for a calendar year for a source subject to Chapter 117, Subchapter B, Division 2, Utility Electric Generation in East and Central Texas.

The new §101.382 applies the trading provisions ofthis division to sources located within a single nonattainment area or other area with unique emission limits as defined in Chapter 117.

The new §101.383 allows the increase ofsystem cap limits provided surplus allowances are obtained from another owner or operator participating in the system cap. Emissions caps may be increased daily

or on a 30-day rolling average, provided allowances are obtained that match the period when the increase occurs. System cap limits for EGFs as regulated under Chapter 117, Subchapter B, Division 2, may be exceeded with surplus emission allowables obtained for that calendar year from another

source owner or operator participating in the system cap. In response to comments, the commission has modified §101.383(b) to use the term "units within an electric power generating system" and to
more specifically reference the computation ofsystem cap limits in §117.138. The commission has modified §101.383(c) to correctly reference subsections (a) and (b) ofthis section. 

### 3The new §101.385 requires owners or operators ofsources in an ozone nonattainment area participating in this trading program to submit quarterly reports based on a calendar year within 30 days ofthe end ofthe reporting period. The reports will contain daily NO, emissions from each source and supporting calculations, rolling 30-day average for each source with supporting calculations, and all emission trades during the reporting period including trade date or period, quantity traded, and trading participants. Similarly, EGFs complying with Chapter 117, Subchapter B, Division 2, will submit reports dated on annual period beginning January 1 ofeach year and submitted within 30 days following the end ofthe annual period. The report will detail annual emissions with supporting calculations and all emission trades during the report period including trade date, quantity traded, and trade participants. This section also requires owners or operators to report to the commission, within 48 hours, any exceedences ofa system cap when there were not allowances available to compensate for that exceedence. In response to comments, the commission has modified §101.385(b) to more specifically reference the computation ofsystem cap limits in §117.138. Also in response to comments, the commission has added the clarifying phrase "conducted under this division" to §101.385(b)(3)(B) and has additionally added this clarification to §101.385(a)(3)(B). The commission has also modified §101.385(c) in response to comments. The phrase "with data to demonstrate the amount ofemissions in excess ofthe applicable limit" has been deleted from §101.385(c)(I) and replaced with the phrase "with supporting data" and the deleted phrase has been more appropriately located in §101.385(c)(3).

FINAL REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the adopted rulemaking in light ofthe regulatory analysis requirements of Texas Government Code, §2001.0225. The commission determined that these new sections do not meet the definition ofa "major environmental rule" as defined in Texas Government Code, 

### 4§2001.0225. "Major environmental rule" means a rule, the specific intent ofwhich, 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 ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state or a sector ofthe state. The commission is adopting these new sections to allow greater flexibility for sources in the affected areas to meet NO, emission limitations and for NO, emissions trading. The new sections do not adversely affect in a material way the economy, a sector ofthe economy, productivity, competition, jobs, the environment,

or the public health and safety ofthe state or a sector ofthe state; therefore, this proposal does not constitute a major environmental rule. In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the result ofwhich is to: 1.) exceed a standard set by federal law, unless the rule is specifically required by state law; 2.) exceed an express requirement ofstate law, unless the rule is specifically required by federal law; 3.) exceed a requirement ofa delegation agreement or contract between the state and an agency or representative ofthe federal government to implement a state and federal program; or 4.) adopt a rule solely under the general powers ofthe agency instead ofunder 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 ofthe four applicability requirements. Specifically, the emission banking and trading requirements were developed in order to meet the ozone national ambient air quality standard (NAAQS) set by the EPA under the Federal Clean Air Act (FCAA), §109 (42 United States Code (USC), §7409), and therefore meet a federal requirement. Provisions of42 USC, §741O, require states to adopt a SIP which provides for "implementation, maintenance, and enforcement" ofthe primary NAAQS in each air quality control region ofthe state. While §741O does not require specific programs, methods, or reductions in order to meet the standard, state SIPs must include "enforceable emission limitations and other control
measures, means or techniques (including economic incentives such as fees, marketable permits, and 

### 5auctions ofemissions rights), as well as schedules and timetables for compliance as may be necessary
or appropriate to meet the applicable requirements ofthis chapter," (meaning Chapter 85, Air Pollution Prevention and Control). It is true that 42 USC does require some specific measures for SIP purposes, like the inspection and maintenance program, but those programs are the exception, not the rule, in the SIP structure of42 USC. The provisions of42 USC recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states, affected industry, and the public, to collaborate on the best methods for attaining the NAAQS for the specific regions in the state. Even though 42 USC allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of §741O. Thus, while specific measures are not generally required, the emission reductions are required; and these rules provide additional flexibility to meet emission limits. States are not free to ignore the requirements of §741O and must develop programs to assure that the nonattainment areas ofthe state will be brought into attainment on schedule.

The requirement to provide a fiscal analysis ofproposed regulations in the Texas Government Code

was amended by Senate Bill (SB) 633 during the 75th Legislative Session, 1999. The intent ofSB 633

was to require agencies to conduct a regulatory impact analysis (RIA) ofextraordinary rules. These

are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement ofstate law, federal law, or a delegated federal program, or are adopted solely under the general powers ofthe agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment ofrules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number ofrules that would require assessment under the provisions ofthe bill was not large. 

### 6This conclusion was based, in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law. As previously discussed, 42 USC does not require specific programs, methods, or reductions in order to meet the NAAQS; thus, states must develop programs for each nonattainment area to ensure that area will meet the attainment deadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The commission bases these actions on the presumption that the legislature understands this federal scheme. Ifeach rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full RIA contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board (LBB) in its fiscal notes. Because it is a rule ofstatutory interpretation that the legislature is presumed to understand the fiscal impacts ofthe bills it passes, and that presumption is based on information provided by state agencies and the LBB, the commission believes that the intent ofSB 633 was only to require the full RIA for rules that are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greater than is necessary or appropriate to meet the requirements ofthe FCAA. For these reasons, rules proposed for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are required by federal law. The rulemaking does not exceed a standard set by federal law, exceed an express requirement ofstate law (unless specifically required by federal law), or exceed a requirement ofa delegation agreement. The rulemaking was not developed solely under the general powers ofthe agency, but was specifically developed to allow greater flexibility for EGFs in the affected areas to meet NOx emission limitations and for NOx emissions trading in order to meet the NAAQS established under federal law and authorized under Texas Clean Air Act (TCAA), §§382.011, 382.012, and 382.017 as well as under 42 USC, §741O(a)(2)(A). 

### 7TAKINGS IMPACT ASSESSMENT The commission evaluated this rulemaking action and performed an analysis ofwhether the rules are subjectto Texas Government Code, Chapter 2007. The following is a summary ofthat analysis. The

new sections are adopted as part ofa strategy to reduce and permanently cap emissions ofNOxto a level which would allow the DFW nonattainment area to attain the NAAQS for ozone and to maintain air quality in the east and central Texas area. Promulgation and enforcement ofthe rules will not burden private real property. The new sections 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 ofa governmental action. Additionally, the NO, emissions under the system cap that are the subject of these rules are not property rights. Consequently, the sections do not meet the definition ofa takings under Texas Government Code, §2007.002(5). Although the new sections do not directly prevent a nuisance or prevent an immediate threat to life or property, they do prevent a real and substantial threat to public health and safety, and partially fulfill a federal mandate under the USC, §741O. Specifically, the emission limitations and control requirements that are the subject ofthis rulemaking were developed in order to meet the ozone NAAQS set by the EPA under the USC, §7409. States are primarily responsible for ensuring attainment and maintenance ofthe NAAQS once the EPA has established them. Under the USC, §741O and related provisions, states must submit, for approval by the EPA, SIPs that provide for the attainment and maintenance ofNAAQS through control programs directed to
sources ofthe pollutants involved. Therefore, the purpose ofthe rules is to implement a NO, strategy which is necessary for the DFW area to meet the air quality standards established under federal law and to maintain air quality in east and central Texas. Consequently, the exemption which applies to these rules is that ofan action reasonably taken to fulfill an obligation mandated by federal law. Therefore, these revisions do not constitute a takings under Texas Government Code, Chapter 2007.



### 8CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined the rulemaking relates to an action or actions subject to the Texas Coastal Management Plan (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 §505.11(b)(2) and 30 TAC §281.45(a)(3), relating to actions and rules subject to the CMP, commission rules governing air pollutant emissions must be consistent with the applicable goals and policies ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the regulations ofthe Coastal Coordination Council and determined the rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(l) ofprotecting and preserving the quality and values ofcoastal natural resource areas, and the policy in 31 TAC §501.14(q), which requires the commission protect air quality in coastal areas. The new sections allow greater flexibility in meeting system cap requirements by trading NOx emissions among sources in the DFW and east and central Texas areas. These rules do not authorize any new NOx air emissions.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM The new sections are part ofthe state's ozone attainment strategy; therefore, these revisions are to be submitted as part ofthe SIP. As a result, the new sections are applicable requirements under the federal operating permit program and sources are required to revise their permits ifthey choose to participate in the system cap.

HEARINGS AND COMMENTERS The commission held public hearings on the proposal in Irving on January 3, 2001 and in Austin on January 4, 2001. Eight commenters submitted comments during the public comment period which 

### 9closed on January 5, 2001.

American Electric Power (AEP), the Association ofElectric Companies ofTexas, Inc. as submitted by Jenkins and Gilchrist (AECT), and TXU Business Services (TXU), generally supported the proposal but suggested changes for clarity. Entergy Services, Inc. (Entergy) and Reliant Energy, Inc. (Reliant) supported the concept ofthe proposal but advocated its expansion to other regions ofthe state. The City ofGarland and the City ofDenton as submitted by the Law Office ofErich Birch, P.C. (the Cities) supported the concept ofthe proposal but suggested specific changes. The North Central Texas Council ofGovernments supported the proposal. Environmental Defense opposed specific parts ofthe proposal.

ANALYSIS OF TESTIMONY AECT, AEP, and TXU supported the proposal but commented on an apparent omission from §101.383(c) where subsection (b) was not cited as an exception to Chapter 117 cap requirements. Subsection (b) contains the new requirement for trading in east and central Texas.



### The commission has revised the rule in 

### response to this comment. The citation in 

### §101.383(c) has been corrected.

AECT and AEP commented that §101.382 should be modified to clarify the term "within another single area with unique emission limits
.... " They suggested stating specifically that trading ofsurplus emission allowabies would be limited to sources located within a single nonattainment area or within another single area with unique emission limits "such as the east and central Texas area comprising those counties listed in §117.131(4). " 

### 10

### The commission has not changed the rule based on this comment. Chapter 117 contains specific emission limits for NOx 

### based on attainment status ofa defined geographic area and other factors. Because emission credits or allowances are based on meeting the standards in Chapter 117, the commission believes it is appropriate to retain the language that restricts trading based on the Chapter 117 language that specifies to what geographic area those standards apply.

AECT and AEP commented that §101.383(b) be modified to remove the term "utility electric generating units" which is not defined in Chapter 101. They also commented that the proposed subsection refers to "Chapter 117, Subchapter B, Division 2" which is a broader reference than is necessary and suggested narrowing the reference to §117.138, System Cap. They repeated this comment concerning a similar reference to Chapter 117, Subchapter B, Division 2 in §101.385(b). AECT also commented that the annual reporting requirement that is the subject of §101.385(b) should also be referenced in §117.149.



### The commission has modified §101.383(b) to use the term "units within an electric power generating system." This term is consistent with that used in §117.138. The commission has also modified §101.383(b) and §101.385(b) to more specifically reference the computation ofsystem cap limits in §117.138. The commission did not propose amendments to §117.149 in this rulemaking and therefore cannot amend the section at this adoption. The commission may examine the need to include the reporting requirement of §101.385(b) in §117.149 for future rulemaking.

AECT and AEP commented that the 30-day schedule for submission ofan annual activity report as required by §101.385(b)(2) is too short and should be expanded to 60 days. They stated that the 60- 

### 11day schedule would be consistent with the schedule required for grandfathered electric generating facilities under §101.336(b).

The commission has not changed the rule based on this comment. The annual activity report will be a compilation ofexisting records on trades that have occurred during a calendar year, and the commission believes 30 days is adequate time to accomplish this.

AECT and AEP commented that §101.385(b)(3)(B) be modified to state that the applicability to emission trades referenced in the subparagraph is limited to the trades conducted under Chapter 101, Subchapter H, Division 5.

The commission agrees with the commenterthat the suggested change clarifies intent and has made the appropriate change to §101.385(b)(3)(B) and additionally to §101.385(a)(3)(B).

AECT and AEP commented that the phrase "with data to demonstrate the amount ofemissions in

excess ofthe applicable limit" be deleted from .§ 101.385(c)(1) and be replaced with the phrase "with supporting data." The deleted phrase should be relocated to §101.385(c)(3) since the subject ofthat paragraph is exceedences oflimits.

The commission agrees that the suggested reorganization clarifies the rule and has had made the recommended deletion and relocation.
Entergy and Reliant commented that in the May 2000 rulemaking which established daily NOx emission limits for utility boilers in the DFW area, similar limits were established for utility boilers in the 12Beaumont/Port Arthur (BPA) nonattainment area. They stated that the requirement for flexibility in meeting NO. limits is as great in BPA as it is in DFW and that the flexibility that is proposed for DFW be extended to BPA as well. They stated that in the preamble for the System Cap Trading rules (25 TexReg 11878) the commission stated that the proposed procedure may be applied to other facilities subject to a system cap under Chapter 117 in subsequent rulemaking. Reliant also commented that the trading flexibility should apply in the Houston/Galveston (HGA) nonattainment area.



### The commission has not changed the rule in response to this comment. The commission desires to extend maximum flexibility to any group ofelectric generating facilities subject to emission limits

or system caps. However, these amendments were proposed for the DFW area and certain other counties ofeast and central Texas, and there was no opportunity for full public comment from the BPA or HGA areas. Trading flexibility is an issue closely related to the SIPs for the BPA and HGA areas, and the commission believes there should be an opportunity for comment in 

### a separate rulemaking before this flexibility is further extended. The commission may consider extending this flexibility in future rulemaking.

Environmental Defense supported trading between owners or operators oftwo system caps and stated that this would notjeopardize the overall regional cap. They expressed concern over the proposed §117.109 and §117.139 which allow the use ofERCs and discrete emission reduction credits (DERCs). Environmental Defense stated that the use ofthese credits creates the possibility that reduction credits generated from a control strategy no longer in place can be used to meet system cap requirements (in the case ofDERCs) and would lead to exceedences ofthe cap. They urged the commission to limit the trading flexibility in §117.109 and §117.139 to compliance with the requirements ofChapter 101, Subchapter H, Division 5. 13The commission has not changed the rule in response to this comment. The commission has previously examined the use ofERCs and DERCs and their effect on system caps and adopted §117.570 to extend the flexibility ofusing these credits within a system cap. The commission has analyzed the use ofDERCs within the DFW system caps. A DERC represents one ton ofemission credit and may only be used once. Because ofthe limited amount ofDERCs available for use in the DFW area, the commission believes their use under the system caps will not significantly affect the SIP. Sections 117.109 and 117.139 clarify an existing flexibility that was created with the adoption of §117.570 in December 2000.

The Cities commented that they and TXU are the only operators ofelectric generating facilities in the DFW area with the Cities supplying about 10% ofthe power and TXU supplying the other 90%. The trading program would therefore be limited to these three participants. The Cities do not anticipate having any surplus allowables that would be ofsignificance to TXU and the only source ofallowables to the Cities would be TXU. The Cities do not imply any bad motive to TXU, but stated that they are concerned that TXU's near monopoly will allow them to control the price ofallowables. The Cities suggested that, until such time as other electric generating operators move into the DFW area, the commission tie the price ofallowables to some independent standard such as the average cost of installation ofelectric generator emission controls in DFW. Another option would be to establish a ceiling on prices based on the price ofcredits in markets similar to DFW.

The commission has not changed the rules in response to this comment. The trading ofallowables is an alternative to meeting emission limitations, and the commission would expect that, under the flexibility oftrading programs, an owner ofan electric generating unit would choose the least expensive option ofeither obtaining additional allowables or lowering emissions. The commission 

### 14

### acknowledges the relative size ofthe generating capacity ofthe eligible participants in the DFW program but disagrees that the Cities would not have excess allowables that would be of significance to TXU. The price ofallowabIes will be detennined by several factors including the need ofa supplier to increase generation and the amount ofa1lowables available. Even a small amount ofexcess a1lowables available from a relatively small generator could be important when maximum generation is required from a larger generator. The commission will continually monitor the operation ofthe program and will address problems ifand when they emerge.

The Cities commented that the estimated price ofreduction credits of$3,600 per ton, as based on prices in HGA, is significantly underestimated. The market will tighten as SIP deadlines approach resulting in aprice for credits that can be from ten to 100 times as much. They stated that the program
as proposed allows the option ofcontrol installation or participating in the trading program. As the market tightens those operators that chose to forego the installation ofcontrols could find the cost of credits prohibitively expensive.



### The commission has not changed the rules in response to this comment. The estimate ofthe price ofreduction credits was based on the best data available to the commission. The commission understands that the conditions affecting the cost ofcredits will change and has purposely established this program to allow individual operators to analyze their operation and its relation to other operations and make their best businessjudgement. The commission expects that the market for credits will tighten based on the relative stringency ofthe DFW emission standards. Owners ofelectric generating facilities should consider this possibility when making the decision whether to install additional emission controls or to purchase credits for compliance.

15The Cities commented that the trading option should be extended to other NOx sources, stationary and mobile, as an incentive to reductions and as a method ofreducing the potential ofa monopolistic market.



### The commission has not changed the rules in response to this comment. This rule was proposed

as applicable to electric generating facilities in the DFW area and certain counties in east and central Texas. Trading flexibility is an issue closely related to the SIP, and the commission believes there should be an opportunity for public comment before this flexibility is further extended. The commission may examine extending this flexibility for future rulemaking.

STATUTORY AUTHORITY The new sections are adopted under the Texas Health and Safety Code, TCAA, §382.011, which authorizes the commission to control the quality ofthe state's air; §382.012, which authorizes the commission to develop a plan for control ofthe state's air; §382.017, which provides the commission the authority to adopt rules consistent with the policy and purposes ofthe TCAA; and 42 USC, §741O(a)(2)(A), which requires SIPs to include enforceable emission limitations and other control

measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights.



### 16

### EVALUATION OF TESTIMONY

The Texas Natural Resource Conservation Commission (commission) adopts new §117.109, System Cap Flexibility; §117.110, Change ofOwnership

- System Cap; and §117.139, System Cap Flexibility. Section 117.139 is adopted with changes to the proposed text as published in the December 1, 2000 issue ofthe Texas Register (25 TexReg 11883). Sections 117.109 and 117.110 are adopted without changes and will not be republished. The new sections will be submitted to the United States Environmental Protection Agency (EPA) as a revision to the state implementation plan (SIP).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULE On April 19, 2000 the commission adopted rules, which were published in the May 5, 2000 issue ofthe Texas Register (25 TexReg 4101 and TexReg 4140), that required electric generating facilities (EGFs) in the Dallas/Fort Worth (DFW) ozone nonattainment area and east and central Texas to meet specific nitrogen oxides (NOx) emission limits. The counties ofCollin, Dallas, Denton, and Tarrant are included in the DFW area. The counties affected in the attainment area are: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton.

Under the adopted rules, owners or operators ofEGFs are given the option ofparticipating in a system cap to meet the emission requirements in Chapter 117. Under a system cap owners or operators of EGFs will have the option ofaveraging emissions among facilities as long as the facilities are under

common ownership or control and an overall cap on the system is not exceeded. The purpose ofthis adoption is to give the owners and operators ofEGFs in the affected areas additional flexibility in -1-meeting their system caps either through the use ofemission reduction credits (ERCs), discrete emission reduction credits (DERCs), or through the transfer ofemission allowables among EGFs participating in a system cap that are in the same nonattainment or attainment area.

SECTION BY SECTION DISCUSSION The new §117.109 allows owners or operators ofNO, sources in the DFW ozone nonattainment area who are participating in a system cap under §117.108, System Cap, to trade emissions with other participating owners or operators ofNO, sources in the DFW ozone nonattainment area under the requirements in amendments to Chapter 101, Subchapter H, Division 1, 4, or 5, relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and System Cap Trading. The new Chapter 101, Subchapter H, Division 5 is being adopted in a concurrent rulemaking in this issue ofthe Texas Register.

The new §117.110 states that in the event that a unit ofelectric power generation is sold or transferred, the unit shall become subject to the transferee's emission cap. The value Ri in §117.108(c), System Cap is based on a unit's status as ofJanuary 1, 2000 and does not change as a result ofthe sale or transfer ofa unit regardless ofthe size ofthe transferee's system.

The new §117.139 states that an owner or operator ofa source ofNO, in an east or central Texas attainment area who is participating in the system cap under §117.138, System Cap may exceed his or her system cap provided the owner or operator is complying with Chapter 101, Subchapter H, Division 1,4, or 5. In response to comment, the commission has changed the phrase "east and central Texas area" to "any ofthe east and central Texas attainment counties listed in §117.131(4) ofthis title (relating to Applicability)." -2-FINAL REGULATORY IMPACT ANALYSIS DETERMINATION The commission reviewed the rulemaking in light ofthe regulatory analysis requirements ofTexas Government Code, §2001.0225. The commission determined that these new sections do not meet the definition ofa "major environmental rule" as defined in Texas Government Code, §2001.0225. "Major environmental rule" means a rule, the specific intent ofwhich, 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 ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state or a sector ofthe state. The commission is adopting these new sections to allow greater flexibility for EGFs in the affected areas to meet NOx emission limitations and for NOx emissions trading. The new sections do not adversely affect in a material way the economy, a sector ofthe economy, productivity, competition, jobs, the environment, or the public health and safety ofthe state or a sector ofthe state; therefore, these proposed sections does not constitute a major environmental rule. In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the result ofwhich is to: 1.) exceed a standard set by federal law, unless the rule is specifically required by state law; 2.) exceed an express requirement ofstate law, unless the rule is specifically required by federal law; 3.) exceed a requirement ofa delegation agreement or contract between the state and an agency or representative ofthe federal government to implement a state and federal program; or 4.) adopt a rule solely under the general powers ofthe agency instead ofunder a specific state law. This rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the rules do not meet any ofthe four applicability requirements. Specifically, the emission banking and trading requirements were developed in order to meet the ozone national ambient air quality standard (NAAQS) set by the EPA under the Federal Clean Air Act (FCAA), §109 (42 United States Code (USC), §7409), and therefore meet a federal requirement. Provisions of42 

### -3-USC, §741O, require states to adopt a SIP which provides for "implementation, maintenance, and enforcement" ofthe primary NAAQS in each air quality control region ofthe state. While §741O does not require specific programs, methods, or reductions in order to meet the standard, state SIPs must include "enforceable emission limitations and other control measures, means or techniques (including economic incentives such as fees, marketable permits, and auctions ofemissions rights), as well as schedules and timetables for compliance as may be necessary or appropriate to meet the applicable requirements ofthis chapter," (meaning Chapter 85, Air Pollution Prevention and Control). It is true that 42 USC does require some specific measures for SIP purposes, like the inspection and maintenance program, but those programs are the exception, not the rule, in the SIP structure of42 USC. The provisions of42 USC recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NAAQS. This flexibility allows states, affected industry, and the public to collaborate on the best methods for attaining the NAAQS for the specific regions in the state. Even though 42 USC allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of §741O. Thus, while specific measures are not generally required, the emission reductions are required; and these rules provide additional flexibility to meet emission limits. States are not free to ignore the requirements of §741O and must develop programs to assure that the nonattainment areas ofthe state will be brought into attainment on schedule.

The requirement to provide a fiscal analysis ofproposed regulations in the Texas Government Code

was amended by Senate Bill (SB) 633 during the 75th Legislative Session, 1999. The intent ofSB 633

was to require agencies to conduct a regulatory impact analysis (RIA) ofextraordinary rules. These

are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement ofstate law, federal law, or a delegated federal program, or are -4-adopted solely under the general powers ofthe agency. With the understanding that this requirement would seldom apply, the commission provided a cost estimate for SB 633 that concluded "based on an assessment ofrules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number ofrules that would require assessment under the provisions ofthe bill was not large. This conclusion was based, in part, on the criteria set forth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law. As previously discussed, 42 USC does not require specific programs, methods, or reductions in order to meet the NAAQS; thus, states must develop programs for each nonattainment area to ensure that area will meet the attainment deadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The commission bases these actions on the presumption that the legislature understands this federal scheme. Ifeach rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full RIA contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board (LBB) in its fiscal notes. Because it is a rule ofstatutory interpretation that the legislature is presumed to understand the fiscal impacts ofthe bills it passes, and that presumption is based on information provided by state agencies and the LBB, the commission believes that the intent ofSB 633 was only to require the full RIA for rules that are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greater than is necessary or appropriate to meet the requirements ofthe FCAA. For these reasons, rules proposed for inclusion in the SIP fall under the exception in Texas Government Code, §2001.0225(a), because they are required by federal law. The rulemaking does not exceed a standard set by federal law, exceed an express requirement ofstate law (unless specifically required by federal law), or exceed a requirement ofa delegation agreement. The rulemaking was not 

### -5-developed solely under the general powers ofthe agency, but was specifically developed to allow greater flexibility for EGFs in the affected areas to meet NOx emission limitations and for NOx emissions trading in order to meet the NAAQS established under federal law and authorized under Texas Clean Air Act (TCAA), §§382.011, 382.012, and 382.017, as well as under 42 USC, §7410(a)(2)(A).

TAKINGS IMPACT ASSESSMENT The commission evaluated this rulemaking action and performed an analysis ofwhether the rules are subject to Texas Government Code, Chapter 2007. The following is a summary ofthat analysis. The

new sections are adopted as part ofa strategy to reduce and permanently cap emissions ofNOx to a level which would allow the DFW nonattainment area to attain the NAAQS for ozone and to maintain air quality in east and central Texas. Promulgation and enforcement ofthe rules will not burden private real property. The new sections do not affect private property in a manner which restricts or limits an owner rS right to the property that would otherwise exist in the absence ofa governmental action. Additionally, the NOx emissions under the system cap that are the subject ofthese rules are not property rights. Consequently, the new sections do not meet the definition ofa takings under Texas Government Code, §2007.002(S). Although the new sections do not directly prevent a nuisance or prevent an immediate threat to life or property, they do prevent a real and substantial threat to public health and safety, and partially fulfill a federal mandate under the USC, §741O. Specifically, the emission limitations and control requirements within this rulemaking were developed in order to meet the ozone NAAQS set by the EPA under the USC, §7409. States are primarily responsible for ensuring attainment and maintenance ofthe NAAQS once the EPA has established them. Under the USC, §7410 and related provisions, states must submit, for approval by the EPA, SIPs that provide for the attainment and maintenance ofNAAQS through control programs directed to sources ofthe 

### -6-pollutants involved. Therefore, the purpose ofthe rules is to implement a NOx strategy which is necessary for the DFW area to meet the air quality standards established under federal law and to maintain air quality in east and central Texas. Consequently, the exemption which applies to these rules is that ofan action reasonably taken to fulfill an obligation mandated by federal law
. Therefore, these adopted revisions do not constitute a takings under Texas Government Code, Chapter 2007.

CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined the rulemaking relates to an action or actions subject to the Texas Coastal Management Plan (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 §505.11(b)(2) and 30 TAC §281.45(a)(3), relating to actions and rules subject to the CMP, commission rules governing air pollutant emissions must be consistent with the applicable goals and policies ofthe CMP. The commission reviewed this action for consistency with the CMP goals and policies in accordance with the regulations ofthe Coastal Coordination Council and determined the rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(l) ofprotecting and preserving the quality and values ofcoastal natural resource areas, and the policy in 31 TAC §501.14(q), which requires the commission protect air quality in coastal areas. The new sections allow greater flexibility in meeting system cap requirements by trading NOx emissions among EGFs in the affected areas. The new sections do not authorize any new NOx air emissions.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING PERMITS PROGRAM The new sections are part ofthe state's ozone attainment strategy; therefore, these revisions are to be submitted as part ofthe SIP. As a result, the new sections are applicable requirements under the 

### -7-federal operating permit program and sources are required to revise their permits ifthey choose to participate in the system cap.

HEARINGS AND COMMENTERS The commission held public hearings on the proposal in Irving on January 3, 2001 and in Austin on January 4,2001. Eight commenters submitted comments during the public comment period which closed onJanuary 5, 2001.

American Electric Power (AEP), the Association ofElectric Companies ofTexas, Inc. as submitted by Jenkins and Gilchrist (AECT), and TXU Business Services (TXU), generally supported the proposal but suggested changes for clarity. Entergy Services, Inc. (Entergy) and Reliant Energy, Inc. (Reliant) supported the concept ofthe proposal but advocated its expansion to other regions ofthe state. The City ofGarland and the City ofDenton as submitted by the Law Office ofErich Birch, P.C. (the Cities) supported the concept ofthe proposal but suggested specific changes. The North Central Texas Council ofGovernments supported the proposal. Environmental Defense opposed specific parts ofthe proposal.

ANALYSIS OF TESTIMONY AECT and AEP commented that §117.139 should be clarified to state that it is not owners or operators that may exceed a NOx cap but sources with the same owner or operator. They also commented that, since the term "east and central Texas area" is not defined in Chapter 117, the applicability of §117.139 be referenced as "any ofthe east and central Texas attainment counties listed in §117.131 (4) ofthis title (relating to Applicability). "



### -8-

### The commission has not changed the rule in response to the conunent on system caps. A system cap is determined by a group ofsources under conunon ownership or control located within the

same area that has unique NOx 

### emission limits, and management ofthe system cap is the responsibility ofthe owner or operator. In order for that system cap to be exceeded, the owner
or operator ofthe cap must obtain surplus emission allowabies from another owner or operator also participating in a system cap. The conunission has made the reconunended change concerning the designation ofthe "east and central Texas area" because the suggested Chapter 117 citation contains a listing ofspecific counties.

Entergy and Reliant commented that in the May 2000 rulemaking which established daily NOx emission limits for utility boilers in the DFW area, similar limits were established for utility boilers in the Beaumont/Port Arthur (BPA) nonattainrnent area. They stated that the requirement for flexibility in meeting NOx limits is as great in BPA as it is in DFW and that the flexibility that is proposed for DFW be extended to BPA as well. They stated that in the preamble for the System Cap Trading rules (25 TexReg 11878) the commission stated that the proposed procedure may be applied to other facilities subject to a system cap under Chapter 117 in subsequent rulemaking. Reliant also commented that the trading flexibility should apply in the Houston/Galveston (HGA) nonattainrnent area.



### The commission has not changed the rule in response to this conunent. The conunission desires to extend maximum flexibility to any group ofelectric generating facilities subject to emission limits

or system caps. However, these amendments were proposed for the DFW area and certain other counties ofeast and central Texas, and there was no opportunity for full public conunent from the BPA or HGA areas. Trading flexibility is an issue closely related to the SIPs for the BPA and HGA areas, and the conunission believes there should be an opportunity for conunent in a -9-

### separate rulemaking before this flexibility is further extended. The conunission may consider extending this flexibility in future rulemaking.

Environmental Defense supported trading between owners or operators oftwo system caps and stated that this would notjeopardize the overall regional cap. They expressed concern over the proposed §117.109 and §117.139 which allow the use ofERCs and DERCs. Environmental Defense expressed that the use ofthese credits creates the possibility that reduction credits generated from a control strategy no longer in place can be used to meet system cap requirements (in the case ofDERCs) and would lead to exceedences ofthe cap. They urged the commission to limit the trading flexibility in §117.109 and §117.139 to compliance with the requirements ofChapter 101, Subchapter H, Division 

### 5.

The conunission has not changed the rule in response to this comment. The conunission has previously examined the use ofERCs and DERCs and their effect on system caps and adopted §117.570 to extend the flexibility ofusing these credits within a system cap. The conunission has analyzed the use ofDERCs within the DFW system caps. A DERC represents one ton ofemission credit and may only be used once. Because ofthe limited amount ofDERCs available for use in the DFW area, the conunission believes their use under the system caps will not significantly affect the SIP. Sections 117.109 and 117.139 clarify an existing flexibility that was created with the adoption of §117.570 in December 2000.

The Cities commented that they and TXU are the only operators ofelectric generating facilities in the DFW area with the Cities supplying about 10% ofthe power and TXU supplying the other 90%. The trading program would therefore be limited to these three participants. The Cities do not anticipate 

### -10-having any surplus allowables that would be ofsignificance to TXU and the only source ofallowables
to the Cities would be TXU. The Cities do not imply any bad motive to TXU, but stated that they are concerned that TXU's near monopoly will allow them to control the price ofallowables. The Cities suggested that, until such time as other electric generating operators move into the DFW area, the commission tie the price ofallowables to some independent standard such as the average cost of installation ofelectric generator emission controls in DFW. Another option would be to establish a ceiling on prices based on the price ofcredits in markets similar to DFW.



### The commission has not changed the rules in response to this comment. The trading ofaUowables is an alternative to meeting emission limitations, and the commission would expect that, under the flexibility oftrading programs, an owner ofan electric generating unit would choose the least expensive option ofeither obtaining additional a1lowables or lowering emissions. The commission acknowledges the relative size ofthe generating capacity ofthe eligible participants in the DFW program but disagrees that the Cities would not have excess a1lowables that would be of significance to TXU. The price ofa1lowables will be determined by several factors including the need ofa supplier to increase generation and the amount ofaUowables available. Even a small amount ofexcess a1lowables available from a relatively small generator could be important when maximum generation is required from a larger generator. The commission will continually monitor the operation ofthe program and will address problems ifand when they emerge.

The Cities commented that the estimated price ofreduction credits of$3,600 per ton, as based on prices in HGA, is significantly underestimated. The market will tighten as SIP deadlines approach resulting in a price for credits that can be from ten to 100 times as much. They stated that the program
as proposed allows the option ofcontrol installation or participating in the trading program. As the -11-market tightens those operators that chose to forego the installation ofcontrols could find the cost of credits prohibitively expensive.

The commission has not changed the rules in response to this comment. The estimate ofthe price ofreduction credits was based on the best data available to the commission. The commission understands that the conditions affecting the cost ofcredits will change and has purposely established this program to allow individual operators to analyze their operation and its relation to other operations and make their best businessjudgement. The commission expects that the market for credits will tighten based on the relative stringency ofthe DFW emission standards. Owners ofelectric generating facilities should consider this possibility when making the decision whether to install additional emission controls or to purchase credits for compliance.

The Cities commented that the trading option should be extended to other NOx sources, stationary and mobile, as an incentive to reductions and as a method ofreducing the potential ofa monopolistic market.

The commission has not changed the rules in response to this comment. This rule was proposed

as applicable to electric generating facilities in the DFW area and certain counties in east and central Texas. Trading flexibility is an issue closely related to the SIP, and the commission believes there should be an opportunity for public comment before this flexibility is further extended. The commission may examine extending this flexibility for future rulemaking.

-12-STATUTORY AUTHORITY The new sections are adopted under the Texas Health and Safety Code, TCAA, §382.011, which authorizes the commission to control the quality ofthe state's air; §382.012, which authorizes the commission to develop a plan for control ofthe state's air; §382.017, which provides the commission the authority to adopt rules consistent with the policy and purposes ofthe TCAA; and 42 USC, §741O(a)(2)(A), which requires SIPs to include enforceable emission limitations and other control

measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights.



### -13-

# STAFF RECOMMENDATIONSCHAPTER 101: GENERAL AIR QUALITY RULES SUBCHAPTER H: EMISSIONS BANKING AND TRADING DIVISION 5: SYSTEM CAP TRADING §§101.380, 101.382, 101.383, 101.385

§101.380. Definitions.

The following words and terms, when used in this division, shall have the following meanings, unless the context clearly indicates otherwise: Surplus emission allowables

- The amount, greater than
zero, that a source owner or operator's allowable emissions in a system cap emission limit specified in Chapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds) is greater than the actual emissions in that system, in:

(1) pounds per day for a:

(A) single day; or

(B) rolling 30-day average period; or

(2) tons per year for a calendar year period for a source subject to Chapter 117, Subchapter B, Division 2 ofthis title (relating to Utility Electric Generation in East and Central Texas).

-1-§101.382. Applicability.

Trades ofemission allowables are limited to sources located within a single nonattainment area
or within another single area with unique emission limits identified in Chapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds).

§101.383. General Provisions.

(a) System cap limits may be exceeded with surplus emission allowables obtained for that day from another source owner or operator participating in a system cap. The owner or operator may exceed the:

(1) maximum daily cap with a one-day surplus emission allowables generated on the

same day; and

(2) rolling 30-day average daily system cap emission limitation with a surplus emission allowables generated over the same period.

(b) System cap limits for units within an electric power generating system as regulated under §117.138 ofthis title (relating to System Cap) may be exceeded with surplus emission allowables obtained for that calendar year from another source owner or operator participating in a system cap.

-2-(c) The cap requirements ofChapter 117 ofthis title (relating to Control ofAir Pollution from Nitrogen Compounds) continue to apply, except as modified in subsections (a) and (b) ofthis section.



### §101.385. Recordkeeping and Reporting.

(a) The owner or operator ofa source in an ozone nonattainment area participating with this division shall submit to the executive director a quarterly report.

(1) Each quarterly report will be based on a three-calendar month period beginning on January 1 ofeach year.
(2) The report shall be submitted within 30 days following the end ofthe quarterly period.

(3) The report shall detail the following:

(A) the daily nitrogen oxides (NOx) emissions from each source along with supporting calculations for the maximum daily cap and the rolling 30-day average system cap emission limitation;

(B) all emission trades conducted under this division during the reported time period including the trade date or period, quantity traded, and trading participants.

-3-(b) The owner or operator ofa source participating in a system cap limit for sources subject to §117.138 ofthis title (relating to System Cap) shall submit to the executive director an annual report.

(1) Each annual report will be based on a 12-month calendar period beginning on January 1 ofeach year.

(2) The report shall be submitted within 30 days following the end ofthe annual period.

(3) The report shall detail the following:

(A) the annual NOx emissions from each source along with supporting calculations; and

(B) all emissions trades conducted under this division during the reported time period including trade date, quantity traded, and trade participants.

(c) The owner or operator ofany system participating in this division shall report within 48 hours to the executive director any time that the system exceeded its daily or rolling 30-day average system cap emission limitation, or within 30 days any time that the system exceeded its annual system cap, and did not obtain surplus emission allowables for that time period. This report shall include:

(1) cause ofthe exceedence with supporting data;

-4-(2) date or period ofexceedence;

(3) amount ofexceedence with data to demonstrate the amount ofemissions in excess ofthe applicable limit; and

(4) number ofsurplus emission allowables traded on the date ofor during the period of the exceedence.

-5-

### CHAPTER 117: CONTROL OF AIR POLLUTION FROM NITROGEN COMPOUNDS SUBCHAPTER B: COMBUSTION AT MAJOR SOURCES DIVISION 1: UTILITY ELECTRIC GENERATION IN OZONE NONATTAINMENT AREAS §117.109, §117.110

§117.109. System Cap Flexibility.

An owner or operator ofa source ofnitrogen oxides (NO,) in the Dallas/Fort Worth ozone nonattainment area who is participating in the system cap under §117.108 ofthis title (relating to System Cap) may exceed their system cap provided that the owner or operator is complying with the requirements of §117.570 ofthis title (relating to Use ofEmissions Credits for Compliance) or Chapter 101, Subchapter H, Division 1, 4, or 5 ofthis title (relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and System Cap Trading).



### §117.110. Change ofOwnership

- System Cap.

In the event that a unit within an electric power generating system is sold or transferred, the unit shall become subject to the transferee's system cap. The value Ri in §117.108(c) ofthis title (relating to System Cap) is based on the unit's status as part ofa large or small system as ofJanuary 1, 2000, and does not change as a result ofsale or transfer ofthe unit, regardless ofthe size ofthe transferee's system.

-1-SUBCHAPTER B: COMBUSTION AT MAJOR SOURCES DIVISION 2: UTILITY ELECTRIC GENERATION IN EAST AND CENTRAL TEXAS 

### §117.139

§117.139. System Cap Flexibility.

An owner or operator ofa source ofnitrogen oxides (NO.) in any ofthe east and central Texas attainment counties listed in §117.131(4) ofthis title (relating to Applicability) who is participating in the system cap under §117.138 ofthis title (relating to System Cap) may exceed their system cap provided that the owner or operator is complying with the requirements ofChapter 101, Subchapter H, Division 1, 4, or 5 ofthis title (relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and System Cap Trading).

-2-**~.**i 

### TEXAS NATURAL RESOURCE

### CONSERVAT~ION**~bY** certifythatthis j. alIUe andCOrTCCtcopyoCaToxaaNatural urce Col1JetVatiODCommiuiondocumcat,WhIch· 1iIed'-**~ent** recordJoCllieCommWion. 1& iii&be GIVen\Indermy**h~d** !heseal oCoffieeon

# ---'&L..~.",H~R 2 9ZOOl**~nna** CulaAuela, ChieCCIerIr.
.. TexasNatural RCJOu:ree Conservation Commission ORDERADOPTING AMENDMENTS TO RULES AND REVISIONS TO THE STATE IMPLEMENTATION PLAN Docket No. 2000-0969-RUL
OnMarch21, 2001, theTexas NaturalResource ConservationCommission(Commission), during apublicmeeting, consideredamendmentsto 30TAC Chapter 101, GeneralAirQualityRules, and Chapter 117, Control ofAirPollutionfrom Nitrogen Compounds, specifically new §§101.380, 101.382, 101.383, 101.385, 117.109, 117.110, and 117.139; and revisions to the State ImplementationPlan (SIP). The new sections add flexibility to the trading ofnitrogen oxides emission allowables among electric generating facilities in the DallasfFort Worth nonattainment area by allowing daily trading among system cap participants. Under Tex. Health & Safety Code Ann. §§382.011, 382.012, and 382.023 (Vernon Supp. 2000), the Commission has the authority to control the quality of the state's air and to issue orders consistent with the policies and purposes ofthe Texas Clean Air Act, Chapter 382 ofthe Tex. Health & Safety Code. Pursuant to Tex. Health & SafetyCode Ann. §382.017 (Vernon Supp. 2000), Tex. Gov't Code Chapter 2001 (Vernon 2000), and 40 Code ofFederal Regulations §51.102, and after proper notice, the Commissionconductedpublichearingstoconsidertheproposednewrules andrevisions tothe SIP. Proper notice included prominent advertisement in the areas affected at least 30 days prior to the dates ofthe hearings. The public hearings were held in Irving onJanuary 3, 2001 and in Austin onJanuary 4, 2001. The Commissioncirculatedhearing notices ofits intendedactionto thepublic, including interested persons, the Regional Administrator of the U.S. Environmental Protection Agency (EPA), and all applicable local air pollution control agencies. The public was invited to submit data, views, and recommendations on the proposed new rules and SIP revisions, either orally or in writing at the hearing or during the commentperiod. Priorto the scheduledhearings copies ofthe proposed new rules and SIP revisions were available for public inspection at the Commission's central office and regional office in Arlington.
. . Data, views, andrecommendationsofinterestedpersonsregarding theproposednewrules andSIP revisions were submittedto the Commissionstaffduring the commentperiod, and were consideredby the Commissionstaffas reflected inthe analysis oftestimony appendedto this Order. The Commission fmds that the analysis oftestimony includes thenames ofall interestedgroups or associations offering comment on the proposed new rules and the SIP revisions and their position concerning the same.

1IT IS THEREFORE ORDERED BYTHE COMMISSION that the new rules and revisions to the SIP appendedtothis Order are hereby adopted. Theserules andthe preambleto the adopted rules and the revisions to the SIP are incorporated by reference in this Order as ifset forth at length verbatim in this '. Order. : Legal counsel has reviewed and certified that these rules, as adopted, are a valid exercise ofthe Commission's legalauthority. The certification is incorporated by reference 

### in this Order as ifset forth verbatim
.

. ", i IT IS FURTHER ORDERED BY THE COMMISSION that on behalfofthe Commission, the

Chairman should transmit a copy ofthis Order, together with the adopted new rules and revisions to the SIP, to the Governor ofTexas for submittal to the Regional Administrator ofEPA as aproposed revision to the Texas SIP pursuantto the Federa' Clean Air Act, §110, codified at 42 U.S. Code Ann. §§7410

- 7671q, as amended. This Order constitutes the Order of the Commission required by the Texas Administrative Procedure Act, Tex. Gov't Code §2001.033. Ifanyportionofthis Orderis foranyreasonheldtobeinvalidby acourtofcompetentjurisdiction, the invalidity ofany portion shall not affect the validity

## ofthe remaining portions.

Date issued: 

# MAR 

# 26 2001

2**~1.** 

## ."", Susan K. Steeg 

# 1 General Counsel Texas Department of Ijealth Effective date:**APri11~,** 2001 Proposal publication date: October27,2000 Forfurther informalio " please call: (512) 458-7236 

# • • SUBCHAPTE G. CONTRACTTERMINATION ANDEXP ON 25 TAC §40.601,**§~0.602** The repeals are

## a~Pted under Human Resources Code, Chapter 22 and Chapte 32, the Health and Safety Code, §12.001 and the Governme t Code §531.021, which provides the Health and Human Servi s Commission with the authorityto administerthe state's medi al assistance program and are submitted by the department und r its agreementwith the Health and Human Services Commissi n to operate the purchased health services program as author" ed underActs 1991, 72nd Legislature, First Called Session, Ch pter 15, §1.07. This agencyhereby ertifiesthatthe adoption has been reviewed by legal counsel an found to be avalid exercise ofthe agency's legal authority. Susan K. Steeg General Counsel Texas Department of Heal Effective date: April 10, 20 1 Proposal publication date: ctober 27, 2000 Forfurther information, pie se call: (512) 458-7236 

# • • 

# • SUBCHAPTER H. TRANSPORTATION SERVICES FOR DIGENT CANCERPATIENTS 25 TAC §40.701, §40. 02 The repeals are adopte under Human Resources Code, Chapter 22 and Chapter 32 the Health and Safety Code, §12.001 and the Government C de §531.021, which provides the Health and Human Services C mmission with the authorityto administerthe state's medical a sistance program and are submitted by the departmenfunderit agreementwith the Health and Human Services Commission t operate the purchased health services program as authorized nderActs 1991, 72nd Legislature, First Called Session, Chapte 15, §1.07. This**ag~ncy** herebycert lesthatthe adoption has been reviewed by legal counsel and fou d to be a valid exercise ofthe agency's legal authority.



### SUBCHAPTER

Filedwith the Office ofthe ecretaryofState on March 21, 2001. TRD-200101642 Filed with the Office fthe SecretaryofState on March 21, 2001. Filed with the Office ofth SecretaryofState on March 21, 2001. TRD-200101641 TRD-200101643 Susan K. Steeg Susan K. Steeg General Counsel General Counsel

.Texas Departmentof alth Texas Department of Heal Effective date: April 10 2001 Effective date: April 10, 2 1 Proposalpublication d e: October27,2000· Proposal publication date: ctober27,2000 Forfurther information, lease call: (512) 458-7236 Forfurther information, pI se call: (512) 458-7236 

# • • • 

# • 

# • CONTRACTTERMINATION

### jTITLE 30. ENVIRONMENTAL QUALITY AND SANCTIO 

### PART 1. TEXAS NATURALRESOURCE 25TAC§§40.601-4 603 

### CONSERVATION COMMISSION The new sections are dopted under Human Resources Code, 

### CHAPTER 101. GENERAL AIR QUALITY Chapter 22 and Cha er 32, the Health and Safety Code, §12.001 and the Gover ment Code §531.021, which provides 

### RULES the Health and Human ervices Commission with the authority 

### SUBCHAPTER H. EMISSIONS BANKING to administer the state' medical assistance program and are submitted by the depa ment under its agreement with the 

### AND TRADING Health and Human Se ices Commission to operate the purchased health services p gram as authorized underActs 1991, 

### DIVISION5. SYSTEM CAP TRADING 72nd Legislature, First C lied Session, Chapter 15, §1.07. 30 TAC §§101.380, 101.382, 101.383, 101.385 This agencyherebycertifi sthattheadoptionhas been reviewed The Texas Natural Resource Conservation Commission by legal counsel and foun to beavalid exercise ofthe agency's (commission) adopts new §101.380, Definitions; §101.382, legal authority. Applicability; §101.383, General Provisions; and §101.385, Recordkeeping and Reporting. Sections 101.383 and 101.385 are adopted with changesto the proposed text as published in the December 1, 2000 issue ofthe Texas Register(25 TexReg 11878). Sections 101.380 and 101.382 are adopted without changes and will not be republished. The new sections are grouped into Subchapter H, Emissions Banking and Trading; new Division 5, System Cap Trading. The new sections will also be submitted to the United States Environmental Protection


### 26TexReg2730 April6, 

### 2001 Texas RegisterAgency (EPA) as a revision to the state implementation plan (SIP). BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTEO RULES The adopted rules will simplify emission trading for eleclric generating facilities (EGFs) operating under a system emission cap in the Dallas/Fort Worth (DFW) ozone nonaltainment area and in the attainment counties of east and central Texas. The rules represent a continuing commitment by the commission to incorporate maximum flexibility forthe electric industry in achieving the nitrogen oxides (NO.) emissions redlJctions necessary to achieve the goal of ozone attainment in the DFW area while maintaining reliability ofservice. The DFW area includes Collin. Dallas, Denton, and Tarrant counties. The adopted procedure may be applied to other facilities subject to a system cap under Chapter 117 in sUbsequent ruremaklng. Emission reduction credit (ERC) trading among companies is allowed under the April 19,2000 adoption of the DFW ozone attainment demonstration rulesfor EGFs. which were published in theMay5,2000 issueofthe TexasRegister(25TexReg 4140). In orderto complete a trade underthese existing rules, one source owner must bank an emission credit with the commission and another source owner must receive the executive director's**ap~** proval to use the credit. This procedure works well for trades which are made relatively infrequently, such as tend to occur when emissions are limited annually. In contrast, the ozone attainment demonstration rules for EGFs in DFW establish daily NO,limits because the EGFs In DFW are more likely to emil the most NO. on days conducive to exceedencesofthe ozone standard. This adoptionadds atrading alternativewhichwill facilitate daily emission trading by reducing the steps necessary to tra.de allowableemissions among diffe:rentown-ers. Uoderthese rules, thesourceownerswill besimplyrequired to reporttradesandthe commission will havetheopportunityto review, on aquarterlybasis,·the daily emissions,30-day rolling average emissions, and anyemission trades which occurred during the preceding calendar quarter. Individual sources undercommon ownership orcontrol may be voluntarily grouped together in a system wilh a system cap on total emissions from the sources in the system. Emission atlowabIes may be transferred from source to source within the system, provided the cap is notexceeded. This adoption allows the increase of system caps, provided that surplus emission aJlowabies are obtained from another source owner participating in a system cap. The system cap may be increased daily using a daily surplus or on a 30-day rolling average using 30-day rolling average surplusesforthe same period. The rules adopted on April 19, 2000 aiso established an annual system cap for EGFs in the attainment counties of east and central Texas (25 TexReg 4101). This adopUon allows the exceedence of that system cap, prOVided surplus emission allowables are obtained from another EGF participating in the system cap. The EGFs affected are in the follOWing counties: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, Hunt, Lamar, limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton. The transfer of emission alJowables remains restricted to the area, nonattainmentorattainment, in which it originates. SECTION BY SECTION DISCUSSiON The new §101.380icontains definitions for use in this diVisiol; Surplus emission allowables are defined as an amount, greater than zero, by which a source's allowable source cap emissions exceed actual emissions fora single dayor a 3D-day average or tons peryearfora calendaryearforasource subjectto Chapter 117, Subchapter B, Division 2, Utility Electric Generalion in East and Central Texas. The new§101.382 applies the trading provisions ofthis division to sources located within a**~ingle** nonattainment area or other area with unique emission limits as defined in Chapter 117. The new §1 01.383 allows the increase atsystem cap limns provided surplus allowances are obtained from another owner or operator participating in the system cap. Emissions .caps may be increased daily or on a 3D-day rolling average, provided allowances are obtained that match the period when the increase occurs. System cap limits for EGFs as regulated under Chapter 117, Subchapter B, Division 2, may be exceeded with 'surplus emission allowables obtained forthat calendaryearfrom another source owner oroperator participating in the system cap. In response to comments,the commission has modified §101.383(b) to usetheterm "unitswithin an electric powergeneratingsystem" and to morespecificallyreferencethe computation ofsystem cap limits in §117.138. The commission has modified §101.383(c) to correctly reference subsections (a) and (b) ofthis section. The new§101.385 requires owners oroperatorsofsources in an ozone nonattainmentarea participating in thistrading programto submitquarterlyreports based on a calendaryearwithin 30days of the end of the reporting period. The reports will conlain daily NO. emIssions from each source and supporting calculations, rolling 30-day average for each source with supporting calcula-

_ tions, and aJlemission trades during the reporting period**includ~**

. ingtradedateorperiod,**q~antity** traded, and trading participants.

Similarly, EGFs complying with Chapter 117, SUbchapter B, Division 2, will submit reports dated·on annual period beginning January 1 of each year and submilted within 30 days following the end ofthe annual period. The reportwill detail annual emissionswith supporting calculations and all emission trades during the report period including trade date, quantitytraded, and trade participants. This section also requires owners or operators to report to the commission, within 48 hours, any exceedences of asystem cap when there were notallowances available to**com~** pensate for that exceedence. In response to comments, the commission has modified §101.385(b) to more specifically reference the computation ot system cap limits in §117.138. Also in responseto comments, the commission hasadded the clarifying phrase "conducted under this division" to §101.385(b)(3)(B) and hasadditionallyaddedthis clarificationto §1 01.385(a)(3)(8). The commission has also modified §101.385(c) in response to comments. The phrase "with data to demonstrate the amount ofemissions in excess ofthe applicable limit" has been deleted from §101.385(c)(I) and replaced with the phrase "with supporting data" and the deleted phrase has been more appropriately located in §101.385(c)(3). FINAL REGULATORY IMPACTANALYSIS DETERMiNATION The commission reviewed the adopted rulemaking in light ofthe regUlatory analysis requirements of Texas Government Code. §2001.0225. The commission determined that these new sel>- lions do not meet the definition ofa "major environmental rule" as defined in Texas Government Code, 2001.0225."Major environmental rule" means a rule, the specific intent of which, is to protectthe environmentorreduceriskstohuman health from**en~** vironmentalexposure, and thatmayadverselyaffectIn amaterial


### ADOPTEDRULES Apri/6, 2001 26 

### TexReg2731waythe economy, asectorofthe economy, productivity, competition, jobs, the environment, orthe public health and safetyofthe state or a sectorofthe state. The commission is adopting these newsections to allowgreaterflexibilityforsources in the affected areas to meet NO emission limitations and for NO emissions trading. The new sections do not adversely affect in a material waythe economy, asectorofthe economy, productivity, competition, jobs, the environinent, orthe public health and safety ofthe state or a sector of the state; therefore, this proposal does not constitute a majorenvironmental rule. In addition, Texas Government Code, §2001.0225, only applies to a major environmental rule, the result ofwhich is to: 1.) exceed a standard set by federallaw, 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 orcontract between the state and an agencyorrepresentative ofthe federal governmentto implement a state and federal program; or4.) adopt a rule solely underthe 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 ofthe four applicability requirements. Specifically, the emission banking and trading requirements were developed in order to meet the ozone national ambient air quality standard (NMOS) setbythe EPAunderthe Federal CleanAirAct (FCM), §109 (42 United States Code (USC), §7409), and therefore meet a federal requirement. Provisions of 42 USC, §7410, require states to adopt a SIP which provides for "implementation, maintenance, and enforcement" of the primary NMOS in each air quality control region ofthe state. While §7410 does not require specific programs, methods, or reductions in order to meet the standard. state SIPs must include "enforceable emission IimitaJions and other control measures. means ortechniques (including economic inCentives such as fees, marketable permits. and auctions of emissions rights). as well as schedules arid timetables forcompliance as may be necessaryorappropriate to meet the applicable requirements ofthis chapter," (meaning Chapter 85. Air**Pollu~ion** Prevention and Control). It is true that 42 USC does require some specific measures for SIP purposes. like the inspection and maintenance program. but those programs are the exception, not the rule. in the SIP structure of42 USC. The provisions of42 USC recognize that states are in the best position to determine what programs and controls are necessary or appropriate in order to meet the NMOS. This flexibility allows states, affected industry, and the public, to collaborate on the best methods for attaining the NMOS forthe specific regions in .the state. Even though 42 USC allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of §7410. Thus, while specific measures are notgenerally required, the emission reductions are required; and these rules provide additional flexibility to meet emission limits. States are not free to ignore the requirements of §7410 and must develop programs to assure that the nonattainment·areas ofthe state will be brought into atiainment on schedule. The requirement to provide a fiscal analysis of proposed regulations in the Texas Government Code was amended by Senate Bill (SB) 633 during the 75th Legislative Session. 1999. The intent of SB 633 was to require agencies to conduct a regulatory impactanalysis (RIA) ofextraordinary rules. These are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement of state law. federal law, or a delegated federal program. or are adopted solely under the general powers of the agency. With


### 26TexReg2732 

### April6, 

### 2001 Texas Register ..:.,**F'~'**
the understanding thatthis'ltEl.quirement would seldom apply, the commission provided a cost estimate forSB 633 that'concluded "based on an assessment of rules adopted by the agency in the past, it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number of rules that would require assessment underthe provisions ofthe bill was not large. This conclusion was based, in part, on the criteria setforth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law. As previously discussed, 42 USC does not require specific programs, methods, or reductions in orderto meet the NMOS; thus. states mustdevelop programs foreach nonattainmentarea to ensure that area will meetthe attainment deadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The commission bases these actions on the presumption thatthe legislature understands this federal scheme. If each rule proposed for inclusion in the SIP was considered to be a major environmental rule that exceeds federal law, then every SIP rule would require the full RIA contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative Budget Board (LBB) in its fiscal notes. Because it is a rule of statutory interpretation that the legislature is presumed to understand the fiscal impacts of the bills it passes, and that presumption is based on information provided by state agencies and the LBB. the commission believes thatthe intentof SB 633was onlyto require the full RIA for rulesthat are extraordinary in nature. While the SIP rules will have a broad impact, that impact is no greaterthan is necessary orappropriate to meet the requirements ofthe FCM. Forthese reasons, rules proposed for inclusion in the SIP fall under the exception in Texas Government Code; §2001.0225(a), because they are required by federal law. The rulemaking does not exceed a standard set by federal law, exceed an express requirement ofstate law (unless specifically required by federal law), or exceed a requirement of a delegation agreement. The ruJemaking was not developed solely under the general powers of the agency, but was specifically developed to allow greaterflexibility for EGFs in the affected areas to meet NO emission limitations and forNO, emissionstrading in orderto meetthe NMOSestablished underfederal law and authorized under Texas Clean Air Act (TCM). §§382.011, 382.Q12, and 382.017 as well as under 42 USC, §7410(a)(2)(A). TAKINGS IMPACTASSESSMENT The commissionevaluated this rulemaking action and performed an analysis of whether the rules are subject to Texas Government Code, Chapter 2007. The following is a summary of that analysis. The new sections are adopted as part of a strategy to reduce and permanently cap emissions of NO, to a level which would allow the DFW nonattainment area to attain the NMOS forozone and to maintain airquality in the eastand central Texas area. Promulgation and enforcementofthe rules will not burden private real property. The newsectionsdo notaffectprivate property in a mannerwhich restricts or limits an owner's right to the property that would otherwise exist in the absence of a governmental action. Additionally. the NO. emissions underthe system cap that are the subject of these rules are not property rights. Consequently, the sections do not meet the definition of a takings under Texas Government Code, §2007.002(5). Although the new sections do not directly prevent a nuisance or prevent an immediate threat to life or property, they do prevent a real and substantial threat to public health and safety, and partiallyfulfill a federal mandate underthe USC, §7410. Specifically, the emission limitations and control requirements that are the subjectofthis rulemakingwere developed in orderto meetthe ozone NMQS set by the EPA under the USC, §7409. Slates are primarily responsible for ensuring attainment and maintenance of the NMOS oncethe EPAhas establishedthem. Underthe USC, §7410and related provisions, slates mustsubmit, forapproval by the EPA, SIPs that provide fprthe attainment and maintenance of NMOS through control programs directed to sources of the pollutants involved. Therefore, too purpose ofthe rules is to implement a NO. strategy which is necessary for the DFW area to meet the air quarlty standards established underfederal law and to maintain air quality in east and central Texas. Consequel)tiy, the exemption which applies to these rules Is that ofan action reasonably taken to fulfill an obligation mandated by federal law. Therefore, these revisions do not constitute a takings underTexas Government Code, Chapter2007. CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined the rulemaking relates to an action or actions subject to the Texas Coastal Management Plan (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 Coaslal Management Program. As reqUired by 30 TAC §505.11(b)(2) and 30 TAC §281,45(a)(3), relating to actions and rules SUbject to the CMp, commission rules governing air pollutant emissions must be consislent with the applicable goals and policies ofthe GMP. The commission reviewed this action for-consistency"with the CMPgoals and policies in accordancewith the regUlations of the Coastal Coordination Council and determine.d the rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(1) of protecting and preserving the qualitY and val.ues of coastal natural resource areas, and the policy in 31 TAC §501.14(q), which requires the commission protect air quality in coastal areas. The new sections allow greater fleXibility in meeting system cap requirements by trading NO emissions among sources in the DFW and east and central Texas areas. These rules do not authorizeany new NO. airemissions. EFFECTON SITES SUBJECTTOTHE FEDERALOPERATING PERMITS PROGRAM The new sections are part ofthe state's ozone attainment.strategy; therefore, these revisions areto be submitted as partofthe S,p. Asa result, the, new sections are applicablerequireOients underthe federal operating permit program and sources are re" quired to revise their permits jf they choose to participate in the system cap. HEARINGS AND COMMENTERS The commission held public hearings on the proposal in Irving onJanuary3, 2001 and inAustinon January4, 2001. Eightcommenters submitted comments during the public comment period which closed on January 5, 2001. American Electric Power (AEP). the Association of Electric Companies ofTexas, Inc. as submitted by Jenkins and Gilchrist (AECT), and TXU Business Services (TXU), generally supported the proposal but suggested changes for clarity. Ernergy Services, Inc. (Entergy) and Reliant Energy, Inc. (Reliant) supported the concept ofthe proposal but advocated its expansion to other regions of the state. The City of Garland and the City of Denton as submitted by the Law Office of Erich Birch, RC. (the Cities) suppo,fu·o the concept of the proposal but Sl gested specific changes. The North Central Texas Councii or Governments supported the proposal. Environmental Defense opposed specific parts ofthe proposal. ANALYSIS OF TESTIMONY AECT, AEp, and TXU supported the proposal but commented on an apparentomission from §1ol.383(c)where subsection (b) was not cited as an exception to Chapter 111 cap requirements. Subsection (b) contains the new requirement for trading in east and central Texas. The commission has revised the rule in response to this comment. The**cita~on** in §101.383(c) has been corrected. AECT and AEP commented that §101.382 should be modified to clarify the term "within anothersingle area with unique emission limits

...." They suggested stating specifically thatlrading of surplus emission allowabJes would be limited to sources located within a single nanattainment a.rea orwithin anothersingle area with unique emission limits "such as the east and central Texas area comprising those**coun~es** listed in §117.131(4)." The commission has not changed the rule based on this comment. Chapter 117 contains specific emission limits for NO based on attainment status of a defined geographic area and otherfactors. Becauseemission credits orallowances are based on meeting the standards in Chapter 117. the commission believes it is appropriate to retain the language that restricts trading based on the Chapter 117 language that specilies to what geographic area those standards apply. AECT and AEP commented that §101.383(b) be modified to remove the term "utility electric generating units" which is not**de~** fined in Chapter 101. They alsocommeilted that the proposed subsection refers to "Chapter 117, Subchapter B, Division 2" which is i3 broader reference than is necessary and suggested narrowing the reference to §117.138, System Cap. They repeated this comment concerning a similar reference to Chapter 117, SUbchapter B. Division 2 in §101.385(b). AECT also commented that the annual reporting requirement that is the SUbject of §lol.385(b) should also be referenced in §117.149. The commission has mOdified §101.383(b) to usetheterm "units within an electric powergenerating system." This term is**consis~** tentwith that used in §117.138. The commission has also modified §101.383(b) and §1 o1.385(b) to more specificallyreference the computation ofsystem cap limits in §117.138.The commission did notpropose amendmentsto §117.149 in this rulemaking and therefore cannot amend the section at this adoption. The commission may examine the need to include the reporting requirement of§101.385(b) in §117.149 forfuture rulemaking. AECTandAEP commented thatthe3o-dayschedule forsubmissian of an annual activity report as required by §101.385(b)(2) is too short and should be expanded to 60 days. They stated that the 60-day schedule would be consistent with the schedule required forgrandfathered electric generating facilities under §lOl.336(b). The commission has not changed the rule based on this**com~** ment. The annual activity reportwill be a compilation ofexisting records on tradesthathave occurred during acalendaryear. and the commission believes 30 days is adequatetimeto accomplish this. AECT and AEP commented that §101.385(b)(3)(B) be modified to statethatthe applicabilityto emission trades referenced in the


### ADOPTEDRULES April 6, 

### 2001 26 

### TexReg2733subparagraph is limited to the trades conducted under Chapter 101, SUbchapter H, Division 5. The commission agrees with the commenterthat the suggested change clarifies intent and has made the appropriate change to §1 01.385(b)(3)(8) and additionallyto §101.385(a)(3)(B). AECTand AEP commented thatthe phrase "with datato demonstrate the amount of emissions in excess ofthe applicable limit" be deleted from §101.385(c)(1) and be replaced with the phrase "with supporting data." The deleted phrase should be relocated

. to §101.385(c)(3) since the subject of that paragraph is exceedences of limits. The commission agrees thatthe suggested reorganization clarifies the rule and has had made the recommended deletion and relocation. Entergyand Reliantcommented thatinthe May2000 rulemaking which established dailyNO. emission limitsforutilityboilers in the DFWarea, similar limits were established for utility boilers in the Beaumont/Port Arthur (BPA) nonattainment area. They stated thatthe requirementforflexibility in meeting NO. limits is as great in BPA as it is in DFW and that the flexibility that is proposed for DFW be extended to SPA as well. They stated that in the preamble for the System Cap Trading rules (25 TexReg 11878) the commission stated thatthe proposed procedure may be applied to other facilities sUbject to a system cap under Chapter 117 in subsequent rulemaking. Reliant also commented thatthe trading flexibility should apply in the Houston/Galveston (HGA) nonattainment area. The commission has not changed the rule in response to this comment. The commission desires to extend maximum flexibility to any group of electric generating facilities sUbject to emission limits or system caps. However. these amendments were proposed for the DFW area and· certain other counties of east
. and central Texas, and there was no opportunity for full public comment from the SPA or HGA areas. Trading flexibility is an issue closely related to the SIPs for the SPA and HGA areas, and the commission believes there should be an opportunity for comment in aseparate rUlemaking before thisflexibility is further extended. The commission may consider extending this flexibility in future rulemaking. Environmental Defense supported trading between owners or operators oftwo system caps and stated thatthis would notjeopardize the overall regional cap. Theyexpressed concern overthe proposed §117.109 and §117.139 which allowthe use of ERCs and discrete emission reduction credits (DERCs). Environmental Defensestated thatthe useofthese credits createsthe possibilitythat reduction credits generated from a control strategy no longer in place can be used to meet system cap requirements (in the case of DERCs) and would lead to exceedences of the cap. They urged the commission to limitthe trading flexibility in §117.109 and §117.139 to compliance with the requirements of Chapter 101, Subchapter H, Division 5.

. The commission has not changed the rule in response to this comment. The commission has previously examined the use of ERCs and DERCs and their effect on system caps and adopted §117.570 to extend the flexibility of using these credits within a system cap. The commission has analyzed the use of DERCs within the DFW system caps. A DERC represents one ton of emission credit and may only be used once. Because of the limited amountof DERCs available for use in the DFW area, the commission believes theiruse underthe system capswill notsignificantlyaffectthe SIP. Sections 117.109 and 117.139clarify an


### 26 TexReg2734 

### April 6, 

### 2001 Texas Register existing flexibility that was oreated with the adoption of§117.570 in December 2000."

. The Cities commented thatthey and TXU are the onlyoperators of electric generating facilities in the DFW area with the Cities supplying about 10% ofthe powerand TXU supplying the other 90%. The trading program would therefore be limited to these three participants. The Cities do not anticipate having any surplus allowables thatwould be ofsignificance to TXU and the only source of allowables to the Cities would be TXU. The Cities do not imply any bad motive to TXU, but stated that they are concerned that TXU's near monopoly will allow them to control the price of allowables. The Cities suggested that, until such time as other electric generating operators move into the DFW area, the commission tie the price ofallowables to some independent standard such as the average cost ofinstallation ofelectric generatorelJlission controls in DFW. Anotheroption would be to establish aceiling on prices based on the price ofcredits in markets similarto DFW.

. The commission has not changed the rules in response to this comment. The trading of allowables is an alternative to meeting emission limitations, and the commission would expectthat: under the flexibility oftrading programs, an owner ofan electric generating unitwould choose the leastexpensiveoption ofeither obtaining additional allowables or lowering emissions. The commission acknowledges the relative size ofthe generating capacityofthe eligible participants iii the DFW program but disagrees thatthe Citieswould nothave excess allowables thatwould be of significance to TXU. The price of allowables will be determined by several factors including the need of a supplier to increase generation and the amountofallowables available. Even asmall amount of excess allowables available from a relatively small .generator could be important when maximum generatiol') is required from a larger generator. The commission will continually· monitorthe operation oftheprogram and will address problems. if and when they emerge. ' The Cities commented thatthe estimated priceofreduction credits of $3,600 perton, as based on prices in HGA; is significantly underestimated. The market will tighten as SIP deadlines approach resulting in a price for credits that can be from ten to 100 times as much. They stated that the program as proposed allows the option of control installation or participating in the trading program. As the markettightens those operators that chose to forego the installation ofcontrols could find the cost ofcredits prohibitively expensive. The commission has not changed the rules in response to this comment. The estimate of the price of reduction credits was based on the best data available to the commission. The commission understandsthatthe conditions affecting the costof credits will change and has purposely established this program to allow individual operators to analyze their operation and its relation to other operations and make their best business judgement. The commission expects that the marketfor credits will tighten based on the relative stringency of the DFW emission standards. Owners of electric generating facilities should consider this possibility when making the decision whether to install additional emission controls, or to purchase credits for compliance. The Cities commented that the trading option should be extended to other NO. sources, stationary and mobile, as an incentiveto reductions and as a method ofreducing the potential of a monopolistic market.:/

CHAPTER 117. CONTROL OF AIR POLLUTIONFROM NITROGEN COMPOUNDS SUBCHAPTERB. COMBUSTIONATMAJOR SOURCES The Texas 'Natural Resource Conservation Commission (commission) adopts new §117.109, System Cap Flexibility; §117.110, Change of Ownership
- System Cap; and §117.139, System Cap FleXibility. Section 117.139 is adopted with changesto the proposed text as published in the December 1, 2000 issue ofthe Texas Regisfer(25 TexReg 11883). Sections 117.109 and 117.110 are adopted without changes and will not be republished. The new sections will be submitted to the United States Environmental Protection Agency (EPA) as a revision to the state implementation plan (SIP). BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED RULE On April 19, 2000 the commission adopted rules, which were published in the May 5, 2000 issue of the Texas Register(25 (2) Thereportshallbesubmittedwithin30days following theend oftheannual penod.
. (3) The report shall detail the following: (A) the annual NO. emissions from each source along withsupportingcalculations; and (B) all emissions trades conducted under this division duringthe reported time period induding trade date, quantity traded, and tradeparticipants.
. (c) The owneroroperator ofany system participating in this division shallreport within 48 hours to theexecutive directorany time that the system exceeded its daily or rolling 30-day average system cap emission limitation, or within 30 days any time thatthe system exceeded its annual system cap, and did not obtain surplus emission allowables for thattimeperiod. Thisreportshall include: (I) cause ofthe exceedencewith supportingdata; (2) date orperiodofexceedence; (3) amount ofexceedence with data to demonstrate the amount ofemissionsin excess oftbe applicable limit; and (4) number ofsurplus emission aIIowables traded on the date oforduring theperiod ofthe exceedence. This agencyherebycertifiesthattheadoption hasbeen reviewed by legal counsel and found to beavalid exercise ofthe agency's legal authority. Filed with the Office ofthe SecrelaryofState on March 23, 2001. TRD-200101694 MargaretHoffman pirector,Environmental law Division Texas Natural Resource Conservation Commission Effective. date: Apnl12, 2001 Proposal publication date: December 1, 2000 Forfurtherinformation, please call: (512) 239-0348 

## + 

## ++ The commission has notchanged the rules in response to this comment. This rule was proposed as applicable to electric generatingfacilities inthe DFWareaandcertain counties ineastand central Texas. Trading flexibility is an issue closely related to the**Sl~** and the commission believes there should be an opportunityfor public comment before this flexibility is further extended. The commission mayexamine extending thisflexibilityforfuture rulemaking. STATUTORYAUTHORITY The newsections are adopted undertheTexas Health and Safety Code, TCM, §382.011, which authorizes the commission to control the quality of the stale's air; §382.Q12, which authorizes the commission to develop a plan for control of the state's air; §382.017, which provides the commission the authorityto adopt rules consistentwith the policy and purposes of the TCM; and 42 USC, §7410(a)(2)(A), which requires SIPs to include enforceable emission limitations and other control measures or techniques, including economic incentivessuch as fees, marketable permits, and auction of emission rights. §JOJ.383. GeneralProvisions. (a) System cap limitsmaybe exceededwith surplus emission allowablesobtainedfortbatdayfromanothersourceowneroroperator participatinginasystemcap. TheownerOroperatormay exceedthe: (I) maximom daily cap with a one-da.y surplus emission allowabJes generated on the same day; and (2) rolling,O-dayaverage dailysystemcapemissionlimitation with asurplus emissionallowables generated over the same period. (b) System caplimitsforunits within an electricpowergenerating system as regulated under§117.138**oft~is** title (relating to System Cap) maybeexceeded withsurplusemission**allowab~es,obta.ined** for that calendar year from another. source. owneror operatorparticipatingin asystem cap.. (c) The cap requirements ofChapter 117ofthis title (relating toControl ofAirPollutionfrom Nitrogen Compounds) continuetoapply,except asmodified in subsections (a) and (b) ofthis section. §101.385. RecordkeepingandR.eporting. (a) The owneroroperatorofasource in an ozone nonattainmentareaparticipatingwith thisdivision shan submittothe executive directoraquarterly report. (l) Each quarterlyreport willbe basedon.3three-calendar monthperiod beginningon January Iofeachyear. (2) Thereportshall besubmittedwithin30daysfollowing theend ofthe quarterlyperiod. (3) The report shall detail the following: (A) the daily nitrogen oxides (NO) emissions from eachsourcealongwith supportingcalculations forthemaximumdaily capandtherolling 30-dayaverage system capemission)imitation; (B) all emission trades conducted under this division duringtbereportedtimeperiodincludingthetradedateorperiod,quantitytraded, andtrading participants. (b) Theowneroroperatorofasourceparticipatinginasystem <:aplimitforsourcessubjectto§111.138 ofthistitle(relatingtoSystem Cap) shall submittothe executivedirector anannual report. (l) Eachannualreportwillbebasedona J2-rnonthcalendarperiodbeginningon January I ofeach year. 

### ADOPTEDRULES Apri/6, 2001 26 TexReg2735TexReg 4101 and TexReg 4140), that required electric generatingfacilities (EGFs) in the Dallas/FortWorth (DFW) ozone nonattainment area and east and central Texas to meetspecific nitrogen oxides (NO,) emission limits. The counties ofCollin, Dallas, Denton, and Tarrant are included inthe DFWarea. The counties affected in the attainment area are: Atascosa, Bastrop, Bexar, Brazos, Calhoun, Cherokee, Fannin, Fayette, Freestone, Goliad, Gregg, Grimes, Harrison, Henderson, Hood, Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson, Rusk, Titus, Travis, Victoria, and Wharton. Underthe adopted rules, owners oroperators of EGFs are given the option of participating in system cap to meet the emission requirements in Chapter 117. Under a system cap owners oroperators of EGFs will have the option ofaveraging emissions among facilities as long as the facilities are under common ownership or control and an overall cap on the system is not exceeded. The purpose ofthis adoption is to give the owners and operators of EGFs in the affected areas additional flexibility in meeting their system caps either through the use of emission reduction credits (ERCs), discrete emission reduction credits (DERCs), orthrough the transfer of emission allowables among EGFs participating in a system cap that are in the same nonattainment or attainment area. SECTION BY SECTION DISCUSSION The new §117.109 allows owners or operators of NO. sources in the DFW ozone nonattainment area who are participating in a system cap under §117.108, System Cap, to trade emissions with other participating owners or operators of NO. sources in the DFW ozone nonattainment area under the requirements in amendments to Chapter 101, Subchapter H,· Division 1,4, or5, relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and SystemGapTrading". The new Chapter 101., Subchapter H, Division 5 is being adopted in a concurrent rulemaking in this issue ofthe Texas Register. The new §117.110 states that in the event that a unit of electric power generation is sold or transferred, the unit shall become subject to the transferee's emission cap. The value Ri in §117.108(c), System Cap is based on a unit's status as of January 1, 2000 and does not change as a result ofthe sale or transfer of a unit regardless of the size of the transferee's system. The new §117.139 states that an owner or operator of a source of NO. in an east or central Texas attainment area who is participating in the system cap under §117.138, System Cap may exceed his or her system cap provided the owner or operator is complying with Chapter 101, Subchapter H, Division 1,4, or 5. In response to comment, the commission has changed the phrase "east and central Texas area" to "any of the east and central Texas attainment counties listed in §117.131(4) ofthis title (relating to Applicability)." FINAL REGULATORY IMPACTANALYSIS DETERMINATION The commission reviewed the rulemaking in light of the regulatory analysis requirements of Texas Government Code, §2001.0225. The commission determined that these new sections do not meet the definition of a "major environmental rule" as defined in Texas Government Code, 2001.0225. "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


### 26 TexReg 2736 

### April 6, 

### 2001 TexasRegister health and safety of the**st~te** or a sector of the state. The commission is adopting these new sections to allow greater fleXibility for EGFs in the affected areas to meet NO. emission limitations and for NO. emissions trading. The new sections do 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; therefore, these proposed sections does not constitute a major environmental rule. In addition, Texas Government Code, §2001.0225, only applies to a major environmental ru1e, 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 underthe general powers ofthe agency instead of**und~r** a specific state law. This rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the rules do not meet any of the four applicability requirements. Specifically, the emission" banking and trading requirements were developed in order to meet the ozone national ambient air quality standard (NAAQS) set bythe EPA underthe Federal Clean Air Act (FCAA), §109 (42 United States Code (USC), §7409). and therefore meeta federal requirement. Provisions of 42 USC, §741 0, require states to adopt a SIP which provides for "implementation, maintenance, and enforcement" ofthe primary NAAQS in each air quality control region of the state. While §7410 does not reqUire specific programs, methods. or reductions in order to meet the standard, state SIPs must include

."enforceable emission limitations and other control measures, means or techniques (including economic incentives such as fees, ·marketable permits, and auctions of emissions rights), as well as schedules and timetables for compliance .as may be necessary or appropriate to meet the applicable requirements of this chapter," (meaning Chapter 85, Air Pollution Prevention and Control). It is true that 42 USC does require some specific measures for SIP purposes, like the inspection and maintenance program, but those programs are the exception, not the rule, in the SIP structure of42 USC. The provisions of42 USC recognize that states are in the best position to determine what programs and controls are necessary orappropriate in orderto meetthe NAAQS. This flexibility allows states, affected industry, and the public to collaborate on the best methods for attaining the NAAQS forthe specific regions in the state. Even though 42 USC allows states to develop their own programs, this flexibility does not relieve a state from developing a program that meets the requirements of §7410. Thus, while specific measures are not generally required, the emission reductions are required; and these rules provide additional fleXibility to meet emission limits. States are not free to ignore the requirements of §741 0 and must develop programs to assure that the nonattainment areas ofthe state will be brought into attainment on schedule. The requirement to provide a fiscal analysis of proposed regulations in the Texas Government Code was amended by Senate Bill (SB) 633 during the 75th Legislative Session, 1999. The intent of SB 633 was to require agencies to conduct a regulatory impactanalysis (RIA) ofextraordinaryrules. These are identified in the statutory language as major environmental rules that will have a material adverse impact and will exceed a requirement of state law, federal law, or a delegated federal program, or are adopted solely under the general powers of the agency. With the understanding thatthis requirementwould seldom apply, thecommission provided a cost estimate forS8 633 that concluded "based on an assessment of rules adopted bythe agencyin the**pas~** it is not anticipated that the bill will have significant fiscal implications for the agency due to its limited application." The commission also noted that the number of rules that would require assessment underthe provisions ofthe bill was not large. This conclusion was based, in part, on the criteria setforth in the bill that exempted proposed rules from the full analysis unless the rule was a major environmental rule that exceeds a federal law. As previously discussed, 42 USC does not require specific programs, methods, or reductions in orderto meet the NAAQS; thus, states mustdevelopprograms foreach nonattainmentarea to ensure that areawill meetthe attainmentdeadlines. Because ofthe ongoing need to address nonattainment issues, the commission routinely proposes and adopts SIP rules. The commission basesthese actions on the presumption thatthe legislature understandsthisfederal scheme. Ifeach rule proposed forinclUsion in the SIPwas considered to bea majorenvironmental rule that exceeds federal law, then <Nery SIP rule would require the full RIA contemplated by SB 633. This conclusion is inconsistent with the conclusions reached by the commission in its cost estimate and by the Legislative BUdget Board (LBB) in its fiscal notes. Because itis aruleofstatutory interpretation thatthe legislature is presumed to understand the fiscal impacts ofthe bills itpasses, and\hatpresumption is based on information provided bystate agencies andthe LBB, the commission believesthatthe intent ofSB 633was only to require the full RIA for rules thatare extraordinary in nature. While the SIP rules will have a broad imp8ct, that impact is no greaterthan is necessary orappropriate to meet the requirements of the FCAA. For these reasons,**rUle~** proposed for inclusion in the SIP fall under the exception

.. in'TeXas GOvernment Code, §2001.0225(a), because they are

required byfedera/law. The rulemaking does D0\.exceed astandard set by federal law, exceed an express requirement ofstate law (unless specifically reqUired .by federal law), or exceed a requirement of a delegation agreement. The rulemaking was not developed solely under the general powers of the agency, but was specifically developed to allow greaterflexibility for EGFs in the affected areas to meet NO emission limitations and for NO emissionstrading in ordertomeetthe NAAQSestablished under federal law and authorized under Texas Clean Air Act (TCAA), §§382.011, 362.012, and 382.017, as well as under 42 USC, §7410(a)(2)(A). TAKINGS IMPACT ASSESSMENT Thecommission evaluated thisrulemaking action and performed an. analysis .of Whether the.rules are subject to Texas Government Code, Chapter 2007. The follOWing is a summary of that analysis. The new sections are adopted as part ofa strategyto reduce and permanently cap emissions of NO. to a level which would allow the DFW nonattainment area to attain the NAAQS for ozone and to maintain air quality in east and central Texas. Promulgation and enforcement of the rules will not burden private real property. The new sections do notaffect private property in a mannerwhich restricts or limits an owner's right to the property that would otherwise exist in the absence ofa governmental action. Additionally, the NO. emissions underthe system cap that are the subject ofthese rules are not properly rights. Consequently, the new sections do not meet the definition of a takings underTexas**Gove~nment** Code, §2007.002(5). Although the newsections do notdirectly preventanuisanceorpreventan immediate threat to life or properly, they do prevent a real and substantial threatto public health and safety, and partiallyfulfill a federal mandate underthe USC, §7410. Specifically, the er sion limitations and control requirements within this**rUlemaklll~** were developed in order to meet the ozone NAAQS set by the EPA under the USC, §7409. States are primarily responsible for ensuring attainment and maintenance of the NMOS once the EPA has established them. Under the USC, §7410 and related provisions, states must submit, for approval by the EPA, SIPs that provide forthe attainmentandmaintenance ofNAAQS through control programs directed to sources of the pollutants involved. Therefore, the purpose of the rules is to implement a NO. strategywhich is necessaryforthe DFW area to meetthe air quality standards established under federal law and to maintain air quality in east and central Texas. Consequently, the exemption which applies to these rules is that of an action reasonably taken to fulfill an obligation mandated by federal law. Therefore, these adopted revisions do notconstitute atakings underTexas Government Code, Chapter2007. CONSISTENCY WITH THE COASTAL MANAGEMENT PROGRAM The commission determined the rU,lemaking relates to an action or actions SUbject to the Texas Coastal Management Plan (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 §505.11 (b)(2) and 30 TAC §281.45(a)(3), relating to actions and rules subject to the CMP, commission rules governing air pollutant emissions must be consistent with the applicable goals andpolicies ofthe CMP. The commission reviewed this action for consistency with the CM? goals and policies in accordance with the,regulati90s of .the Coastal,Coordination Council and determined the·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 31 TAC §501.14(q), which requires the commission protecl air quality in coastal areas. The new sections allow greater flexibility in meeting system cap requirements by trading NO emissions among EGFs in the affected areas. The newsections do notauthorize any new NO. air emissions. EFFECTON SITES SUBJECTTOTHE FEDERAL OPERATING PERMITS PROGRAM The newsections are part ofthe state's ozone attainment .strategy; therefore, these revisions are to be,submitted as part·ofthe SIP. Asa result, the new sections are applicable requirements underthe federal operating permitprogram and sources are re-

_ qUired to revise their permits ifthey choose to participate in the system cap. HEARINGS AND COMMENTERS The commission held pUblic hearings on the proposal in Irving on January 3, 20()1 and in Auslin on January4, 2001. Eightcommenters submitted comments during the publiccomment period which closed on January 5, 2001. American Electric Power (AEP), the Association of Electric Companies ofTexas, Inc. as submitted byJenkins and Gilchrist (AECT), and TXU Business Services (TXU), generally supported the proposal but suggested changes for clarity. Entergy Services, Inc. (Entergy) and Reliant Energy, Inc. (Reliant) supported the concept ofthe proposaf but advocated its expansion to other regions of the state. The City of Garland and the City of Denton as submitted by the Law Office of Erich Birch. P.C.


### ADOPTEDRULES Apri/6,2001 26 

### TexReg2737(the Cities) supported the concept of the proposal but suggested specific changes. The North Central Texas Council of Governments supported the proposal. Environmental Defense opposed specific parts ofthe proposal. ANALYSIS OF TESTIMONY AECT and AEP commented that §117.139 should be clarified to state that it is not owners or operators that may exceed a NO, cap but sources with the same owner or operator
.. They also commented that, since the term "east and central Texas area" is notdefined in Chapter 117, the applicabilityof§117.139 be referenced as "any ofthe east and central Texas attainment counties listed in §117.131(4) ofthis title (relating to Applicability)." The commission has not changed the rule in response to the comment on system caps. A system cap is determined by a group of sources under common ownership or control located within the same area that has unique NO, emission limits, and management ofthe system cap is the responsibility ofthe owner or operator. In order for that system cap to be exceeded, the owneroroperatorofthe cap mustobtain surplus emission allowabies from anotherowneroroperator also participating in a system cap. The commission has made the recommended change concerning the designation ofthe "east and central Texas area" because the suggested Chapter 117 citation contains a listing of specific counties. Entergyand Reliantcommented thatin the May2000 rulemaking which established daily NO, emission limitsforutilityboilers in the DFW area, similar limits were established for utility boilers in the BeaumonUPort Arthur (BPA) nonattainment area. They stated thatthe reqt,lirement forflexibility in meeting NO, limits is asgreat in BPA as it is in DFW and that the flexibility that is proposed for DFW be extended to BPA as well. They stated that in the preamble for the System Cap Trading rules (25 TexReg 11878) thecommission stated thatthe proposed procedure may be ap- . plied to other facilities SUbject to a system cap under Chapter 117 in subsequent rulemaking. Reliant alsocommented thatthe tradi 'd flexibility should apply in the Houston/Galveston (HGA) nonattainment area. The r.ommission has not changed the rule in response to "this comment. The commission desires to extend maximum flexibility to any group of electric generating facilities subject to emission limits or system caps. However, these amendments were proposed for the DFW area and certain other counties of east and central Texas, and there was no opportunity for full public comment from the BPA or HGA areas. Trading flexibility is an issue closely related to the SIPs for the BPAand HGA areas, and the commission believes there should be an opportunity for comment in a separate rulemaking beforethis flexibility is further extended. The commission may consider extending this flexibility in future rulemaking. Environmental Defense supported trading between owners or operators oftwo system caps and statedthatthis would notjeopardizethe overall regional cap. Theyexpressed concern overthe proposed §117.109 and §117.139 which allowthe use of ERCs and DERCs. Environmental Defense expressed that the use of these credits creates the possibility that reduction credits generated from a control strategy no longer in place can be used to meet system cap requirements (in the case of DERCs) and would lead to exceedences ofthe cap. They urged the commission to limit the trading flexibility in §117.109 and §117.139 to compliance with the requirements of Chapter 101, Subchapter H, Division 5.


### 26TexReg 2738 

### April6, 

### 2001 Texas Register The commission has not**dh~:mged** the rule in response to this comment. The commission tias previously examined the use of ERCs and DERCs and theireffect on system caps and adopted §117.570 to extend the flexibility of using these credits within a system cap. The commission has analyzed the use of DERCs within the DFW system caps. A DERC represents one ton of emission credit and may only be used once. Because of the limited amount of DERCs available for use in the DFW area, the commission believes theiruse underthe system capswill notsignificantly affectthe SIP. Sections 117.109 and 117.139 clarify an existing flexibility thatwas created with the adoption of§117.570 in December 2000. The Cities commented thatthey and TXU are the only operators of electric generating facilities in the DFW area with the Cities supplying about 10% ofthe powerand TXU supplying the other 90%. Tl1e trading program would therefore be limited to these three participants. The Cities do not anticipate having any surplus allowables that would be ofsignificance toTXU and the only source of allowables to the Cities would be TXU. The Cities do not imply any bad motive to TXU, but stated that they are concerned that TXU's near monopoly will allow them to control the price of allowables. The Cities suggested that, until such time as other electric generating operators move into the DFW area, the commission tie the price ofallowables to some independent standard such as the average cost ofinstallation of electric generatoremission controls in DFW. Anotheroption would be to establish a ceiling on prices based on the priceofcredits in markets similarto DFW. The commission has not changed the rules in response to this comment. The trading ofaflowables is an alternative to meeting emission limitations, and the commission would expect that, underthe flexibility oftrading programs, an owner of an electric generating unitwould choosethe**I~ast** expensive option ofeither

. obtaining additional allowables or lowering emissions. The come

mission acknowledges the relative size ofthe generating capacityofthe eligible participants in the DFW program but disagrees thatthe Citieswould not have excess allowables thatwould be of significance to TXU. The price of allowables will be determined by several factors including the need of a supplier to increase generation and the amountofallowables available. Even asmall amount of excess allowables available from a relatively small generator could be important when maximum generation is required from a largergenerator. The commission will continually monitorthe operation ofthe program and will address problems if and when they emerge. The Cities commented thatthe estimated price ofreduction credits of$3,600 perton, as based on prices in HGA, is significantly underestimated. The market will tighten as SIP deadlines approach resulting in a price for credits that can be from ten to 100 times as much. They stated that the program as proposed allows the option ofcontrol installation or participating in the trading program. As the market tightens those operators that chose to forego the installation ofcontrols could find the cost ofcredits prohibitively expensive. The commission has not changed the rules in response to this comment. The estimate of the price of reduction credits was based on the best data available to the commission. The commission understands thatthe conditions affecting the costof credits will change and has purposely established this program to allow individual operators· to analyze their operation and its relation to other operations and make their best business judgement. The commission expects that the marketfor creditswill tighten based on the relative stringency of the DFW emission standards. Owners of electric generating facilities should consider this possibility when making the decision whether to install additional emission controls or to purchase credits for compliance. The Cities commented that the trading option should be extended to other**NO~** sources, stationary and mobile, as an incentivetoreductions and as a method ofreducing the potential of a monopolistic market. The commission has not changed the rules in response to this comment. This rule was proposed as applicable to electric gen-

.eTatingfacilities in the DFWarea and certain counties in eastand central Texas. Trading flexibility is an issue closely related to the SIp, and the commission believes there should be an opportunity for public comment before this flexibility is further extended. The commission may examine extending this flexibilityforfuture rulemaking. 

### DIVISION 1. 

### UTILITY ELECTRIC GENERATION IN OZONE NONATTAINMENT AREAS 30 TAC §1l7.109, §1l7.1l0 STATUTORYAUTHORITY Thenewsections are adopted undertheTexas Health and Safety Code, TCAA, §382.011, which authorizes the commission to control the qualityof the state's air; §382.D12, which authorizes the commission to develop a plan for control ofthe state's air; §387.017, whichprovides the commission ihe authorityto adopt rules consistent with the policy and purposes ofthe TCAA; and 42 USC, §7410(a)(2)(A), which requires SIPs to include enforceable emissionliniitations and 'other control measures or techniques, including economic incentives such asfees, marketable. permits, and auction of emission rights. This agencyherebycertifiesthattheadoption has been reviewed by legal counsel and found to be a validexerciseofthe agency's legal authority. Filedwith the Office ofthe SecretaryofState on March 23, 2001. TRD-200101692 Margaret Hoffman Director, Environmental Law Division Texas Natural Resource Conservation Commission Effectivedate: April 12. 2001 Proposal publication date: December 1, 2000 Forfurther information, please calt: (512) 239-0348 

# • 

# • • DIVISION 2, UTILITY ELECTRIC GENERATION IN EAST AND CENTRAL TEXAS 30 TAC §1l7.139

. STATUTORYAUTHORITY The newsection is adopted under the Texas Health and Safety Code, TCAA, §382.011, which authorizes the commission to control the qualityofthe state's air; §382.D12, which authorizes "the commission to develop a plan for control ofthe state's air; §382.017, which provid",s the commission the authorityto adopt rules consistent with the policy and purposes ofthe TCAA; and 42 USC, §741 O(a)(2}(A), which requires SIPs to include enforceable emission limitations and other control measures or techniques, including economic incentives such as fees, marketable permits, and auction of emission rights. §117.139. System Cap Flexibility. An o'> ...ner or operator ofa source ofnitrogen oxi4es (NO) in any of theeastandcentral Texas attainmentcounties listed in §1 17.131(4) of this title (relating to Applicability) who is participating in the system cap under §117.138 ofthis title (relating to System Cap)may exceed theirsystemcap providedthattheowneroroperatoris complyingwith the requirements ofChapter 101, SubchapterH, Division 1.4, or5 of this title (relating to Emission Credit Banking and Trading; Discrete Emission CreditandTradingProgram; and System CapTrading). This agencyherebycertifiesthattheadoption has been reviewed by legal counsel andfound to be a valid exercise ofthe agency's legal authority. Fiied with the Office ofthe SecretaryofState on March 23, 2001. TRD-200101693 Margaret Hoffman Director, Environmental Law Division Texas Natural Resource Conservation Commission Effective date: April 12. 2001 Proposal publication date: December 1, 2000 Forfurther information, please call: (512) 239-0348 

# • • • CHAPTER305. C NSOLIDATED PERMITS SUBCHAPTER D. NDMENTS, RENEWALS, TRAN FERS, CORRECTIONS, REVOCATION, AN SUSPENSION OF PERMITS 30 TAC §305.69 The Texas Natural Rescur e Conservation Commission (commission) adopts an amend entto §305.69, Solid Waste Permit Modification atthe Reques ofthe Permittee. Amended §305.69 is adopted withoutchange to lhe proposed text as pUblished in the December 8, 2000 issu ofthe Texas Register(25 TexReg 12134) and will not be repu lished. BACKGROUND AND SU MARY OF THE FACTUAL BASIS FOR THE ADOPTED RUL The primary purpose of thi adoption is to revise commission rules to conform to the fede I military munitions regulation promulgated bythe United State Environmental Protection Agency (EPA) on February 12, 1997 at 62 FedReg 6622. The adopted rule provides that a permit! e is authorized to continue to accept waste military munition notwithstanding any permit conditions barring the permittee from accepting off-site wastes, if the facility and permittee me tcertain conditions as described in the Section by Section Dis ssion portion ofthis preamble. tn addilion to this amendment t Chapter 305, requirements concerning militarymunitionsweare concurrentlybeing adopted as amendments to Chapter3 5, Industrial Solid Waste and Municipal HazardousWaste, whi h define when military munitions become solid wastes. As a res It, some military installations**re~** ceiving materials that were not previously wastes may become


### ADOPTEDRULES Apri/6, 2001 26 TexReg2739atthisannOWlcementhasbeenreviewed be a validexucise ofthe agency's legal



# • • Mental Health and Mental Due to a typographical error inthe agency's submission, the word' "a" shouldnotappearinparagraphs (I) and (2) of§101.383(a) onpage 26, TexReg 2735. The paragraphs should read: "(1)maximumdailycapwithone-daysurplusemissionallowablesgenerated onthe same day; and "(2) rolling 3D-day average daily system cap emission limitationwith surplus emissionallowables generatedoverthe sameperiod." TRD-200102033 

# • •• Notice ofOpportunityto Co ment on SettlementAgreements ofAdministrative Enforcem nt Actions The Texas Natural Resource nservation Commission (TNRCC or commission) staifis providing opportunity for writtenpublic commentonthe listedAgreed Old (AOs)pursuantto TeXas WaterCode (the Code), §7.075, whichreq 'res thatthe TNRCC may not approve theseAOsunlessthepublichas eenprovidedanopportunitytosubmit written eomtnerits: Section 7. 5 requites thatnotice ofthe proposed orders and ofthe opportunity 0 comment must be published in the TexasRegisterno laterthanth 30th day beforethe date on whichthe public commentperiodcloses, hichinthiscaseisMay21,2001. Section 7.075 also requires that th TNRCC promptly considerany written commentsreceived andtha theTNRCC maywithhold approval of an AO ifa corrunentdiscloses cts orconsiderations thatindicatethe proposed AD is inappropriate, improper, inadequate. or inconsistent with the requirements ofthe C de, the Texas Health and Safety Code (THSC), and/ortheTexas Cle AirAct (theAct). Additionalnoticeis notrequiredifchanges to an A are made inresponse to written comments. A copy ofeach of the propose AOs is available forpublic inij)ection at both the TNRCC's Central ffice, located at ·12100 Park 35 Circle, Building C, 1st Floor, Au tin, Texas 78753, (512) 239-1864 and atthe applicable Regional

### oro e listed as follows. Writtencomments aboutthese AOs shouldbe sen to the enforcementcoordinator**desig~** nated for eachAO atthe TNR C's Central Office at P.O. Box 13087, Austin,Texas78711-3087 and ustbereceivedby5:00p.m. onMay 21,2001. Writtencommentsm y also be sentby facsimile machineto the enforcementcoordinatorat 12) 239-2550. The lNRCC enforcementcoordinatorsareavailable discusstheAOsand/orthecomment procedure at the listedphone n bers; however, §7.075 provides that comments on the AOs shouldb submittedto the TNRCC in writing. (I) COMPANY: AES Deepwat r, Inc.; DOCKET NUMBER: 2000- 1434-AIR-E; IDENTIFIER: Ai Account Number HG-1495-V; LOCATION: Pasadena, HarrisCOll ,Texas; TYPEOFFACILITY: electricalpowergeneration; RULEV OLATED: 30TAC §116.l15(c), Special Condition I ofPermit9276, dtheCode, §382.085(b), byhaviog an upset emission ofmore than 000 pounds ofsulfur dioxide; and 30 TAC §101.6 andthe Code, §3 2.085(b), by failing to reportan upset; PENALTY: $4,000; ENFOR EMENT COORDINATOR: Kevin Keyser, (713) 767-3500; REG! AL OFFICE: 5425 Polk Avenue, Suite H, Houston, Texas 77023-1 86, (713) 767-3500. (2) COMPANY: AkerGulfMarin ; DOCKETNUMBER: 2000-1251- MWD-E; IDENTIFIER: Texas P lIutant Discharge Elimination Syslem (TPDES) PermitNumber030 2-000; LOCATION: Aransas Pass, San Patricio County, Texas; T E OF FACILITY: structural metal fabrication; RULE VIOLATED: TAC §305.125(I), TPDES Permit Number03012-000, andthe Code §26.121, by failing to comply with Thisagencyherebycerrifie by legal counsel and found authority. TRD-200102041 William H. Kuntz, Jr. Executive Director Texas Department of Licensi 9 and Regulaton Filed: April 10, 2001

# • Texas Department 0 

### Retardation Notice ofJointPublic Hea 'ng on ReimbursementRates for Services in Institutions for ental Dis< ases (IMD) The Health and Human Servi es Commission and the Texas Department ofMental Health and ental Retar,ation will conduct ajoint public hearing to receive publ c comment (,n the extension ofcurrent reimbursementrates forInsti tions forMeltalDiseases (IMDs). The rates will be effective May 1, 2001,**throu.~h** August 31, 2001, The jointhearing willbe held in c mpliance wi th Title ], Texas Administrative Code, Chapter355, Sub hapterF, §3::5.702(h), whichrequiresa public hearing onproposedrei bursement rate formedical assistance programs. Paymentrates are p posedto btl effectiveMay 1,2001, as follows: $367.97 perday Methodology andjustification The propo.ied rates were determined in accordance with the rate se ting methodology codified as I Texas Administrative Code Chapter 55, Subch! .pter F (relating to ReimbursementMethodology for all medical ass .stanceprograms (!MOs», §355.761(c)(3,4). Thepublichearing willbeheld n Monday, May 7, 2001, at·1 :00p.m. in room 2-328, ofTDMHMR entral Oflke building (Building 2) at 909 West45th Street, Austin, as 78751. Written comments may be sub itted to the Reimbursementand Analysis Section, Medicaid Admini tration, Te: :as Department ofMental HealthandMental Retardation,
. O. Box 12668, Austin, Texas 7871 1- 2668, orfaxed to (512) 206-569
. Hand de:iveries will be accepted at 909 West 45th Street, Building 4, Austin, Texas 78751. Comments mustbereceived by 4:00 p.m. 0 Monday, May 7, 200I. Persons reqliiring an interpreter ordeafor hearing impaired or other accommodation shouldcontact mWoold! idge bycalling (512) 206- 5753 orthe TDY phone number fTexas FeIay, which is 1-800-735- 2988, atleast72 hours priorto t hearing. TRD-200102035 Andrew Hardin Chairman, Texas MHMR Board Texas Department of Mental Healt and Mertal Retardation Filed: April 10, 2001

# ...

. 

### 'I;exas Natural Resource Conservation CommissIOn Correction ofError The, Texas Natural Resource Conservation Commission adopted 30 TAC §IOl.383, concerning General Air Qt ality Rules. The rule appearedin the April 6, 2001, TexasRegisterI 26 TexReg 2730).



### INADDITION April20, 2001 26 TexReg3045