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 a proposed 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 of Air Pollution from Nitrogen Compounds; specifically new §§101.380, 101.382, 101.383,

101.385, 117.109, 117.110, and 117.139. The new sections add flexibility to the trading of nitrogen

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 of this SIP revision.

RP:bpk

cc: Mr. Robert J. Huston, Chairman, Texas Natural Resource Conservation Commission

Jeffrey A. 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 of Federal Regulations (~FR)

§51.104. Prior to the adoption ofthis revision, public hearings were held pursuantto 40 CFR, §51.102(a),

and notice of the hearings was given which conformed to the requirements of 40 CFR, §51.102(d). I am

the custodian of the records of the Texas Natural Resource Conservation Commission (Commission).

To certify which, witness my hand and the seal of the Commission, this the 29th

March, 2001.

day of
Texas 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-AI
INTRODUCTION

The commission held public hearings in Irving on January 3,2001, and in Austin on January 4,2001, to

receive testimony concerning new §§101.380, 101.382, 101.383, 101.385, 117.109, 117.110, and 117.139

and corresponding revisions to the State Implementation Plan (SIP). The proposed new sections would add

flexibility to the trading of nitrogen oxides emissions in the Dallas/Fort Worth 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 of the public hearings and is

divided into the following four sections:

o Public Notification and Proposal

o Written and Oral Testimony

o Evaluation of Testimony

o Staff Recommendations

Additional copies of this 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

PROPOSAL
PUBLIC NOTIFICAnON

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

1. Publication of the notice of public hearings in the following newspaper on the date listed:

Austin American Statesman; November 22, 2000

Fort Worth Star-Telegram; November 22,2000

San Antonio Express-News; November 26,2000

2. Publication ofthe proposed rules in the December 1, 2000 issue of the Texas Register

(25 TexReg 11878)

3. Publication of the Notice of Public Hearings in the December 1, 2000 issue of the Texas Register

(25 TexReg 12006)

4. Correspondence forwarding the notice of public hearings to the following officials and agencies:

Speaker of the House

Lieutenant Governor

City of El Paso

City of Victoria Planning Department

Dallas Department of Health and Human Services

El Paso City-County Health District

Federal Highway Administration
Fort Worth Public Health Department

Galveston County Health District

Houston Department of Health and Human Services

Harris County Pollution Control Department

North Central Texas Council of Governments

Houston-Galveston Area Council

South East Texas Regional Planning Commission

Texas Department of Transportation

Texas Transportation Institute

Arkansas Department of Pollution Control and Ecology

Louisiana Department of Environmental Quality

New Mexico Air Quality Bureau

Oklahoma Department of Environmental Quality

u. S. Environmental Protection Agency
EXAMPLE OF

NEWSPAPER CLASSIFIED AD

San Antonio Express-News

November 26,2000
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

78711-3087, or by fax to (512) 239-4808. All comments should

• • •

A public hearing on tliis proposal will be held in Arlington at 1:30 p.m.

on January 4,2001 at the NCI'COG, 3rd Floor Transportation Board

Room, located at 616 Six Flags Drive. The hearing will be structured

for the receipt of oral or written comments by interested persons. Individuals may present oralstatements when called upon in order ofregistration. There will be no open discussion during the hearing; however,

an agency staff member will be available to discuss the proposal 30

minutes prior to the hearing and will answer questions before and after

the hearing.

Persons with disabilities who have special communication or other accommodation needs who are planning to attend the hearing should con."

tact the Office of Environmental Policy, Analysis, and Assessment at

(512) 239-49pO. Requests should be made as far in advance as possible.

The commission commits to perform new mobile source modeling, using MOBII,.E6. within 24 months ofthe model's release. In addition,

if a trafLfportation conformity analysis is to be performed between 12

months and 24 months afterthe MOBlLE6 release, trafLfportation conformity will not be determined until Texassubmits a motor vehicle emi.fsiofLf budget (MVEB) which is developed using MOBlLE6 and which

the EPAfinds adequate. The North Central Texa.f Council ofGovernment (NCI'COG) and the Department ofTransportation have been informed ofthese commitment.f.

Correction of Error

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

TheTexas NaturalResource ConservationCommission submitteda no- 78711-3087, or by fax to (512) 239-4808. All comments should

tice to adopt the review ofChapter 290, Subchapter B. The notice ap- reference Rule Log Number 1999- 055-SIP-AL and must be received

peared in the Review of Agency Rules Section of the November 17, by 5:00 p.m., January 4,2001. For further information, please contact

2000, issue of the 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 should read, "Chapter 325, Subchapten A and D." Director, Environmemal Law Division

Under the subheading "ASSESSMENT OF WHETHER THE REA- Texas Natural Resource Conservation Commission

SONS FORTHE RULES CONTINUETO EXIST", second paragraph, Filed: November 17, 2000

fint sentence, the reference to "Chapter 325, Subchapten B and C" is •••

incorrect. It should read, "Chapter 325, Subchapten B and D. h

TRD-2oooo8172 V ~otice of Public Hearing (Chapters 101 and 117)

The Texas Natural Resource Conservation Commission (commission)

• •• will conduct public hearings to receive testimony concerning revisions

Notice of Public Hearing (Agreements with American Airlines, to 30 TAC Chapters 101 and 117 and to the State Implementation

City of Fort Worth, and DallasIFort Worth International Plan (SIP) under the requirements of Texas Health and Safety Code,

Airpo ) §382.017; Texas Government Code, Subchapter B, Chapter 2001;

rt and 40 Code of Federal Regulations, §51.102 of the 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 to Chapten 101 and 117 are proposed as revisions to the SIP.

ments with American Airlines, City of Fort Worth, and DallasIFort

Worth (DFW) International Airport and corresponding revisions to the Under rules adopted by the commission on April 19, 2000, which

state implementation plan (SIP) under the requirements of40 Code of were published in the May 5, 2000, issue of the Texas Register (25

Federal Regulations, §51.102 of the United States Environmental Pro- 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 central Texas may voluntarily participate in a program where

The commission proposed agreements with. American Airlines, the individual sources may transfer nitrogen oxides (NO.) emissions

City ofFort Worth, and DFW International Airport, as revisions 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 system cap. This proposal would allow the system cap to be exceeded,

Love Field, Fort Worth Alliance Airport, and Fort Worth Meacham provided surplus emissions allowances can be obtained on the same

International Airport in the DFW nonattainment area. day as the exceedence occun from any other EGF participating in

The commission is also proposing to incorporate the following text into a system cap. An additional option would allow a system cap to be

Chapter 7 of the DFW 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 of exceeding the system cap provided surplus

allowances are obtained for that calendar year.

Public hearings on this proposal will be held 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 NaturalResourceConservation Commission,

Building B, Room 201A, located at 12100Park 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 of 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 hearing should contact the Office of Environmental Policy, Analysis, and Assessment at

(512) 239-4900. Requests should be made as far in advance as possible.

25 TexReg 12006 December 1, 2000 Texas Register
reference Rule Log Number 2000- 046-101-AI, and must be received

by 5:00 p.m., January 5, 2001. For further information, please contact

Beecher Cameron, Policy and Regulations Division, (512) 239-1495.

TRD-200008045

Margaret Hoffman

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

. Filed: November 17, 2000

Notice ofRequest for Pu lieComment and a Non-Adjudicatory

Public Hearing for Total uimum Daily Loads and Update to

the State Water Quality anagement Plan

Notice is hereby given that urSllant to the requirements ofthe Federal

CleanWater Act, Texas Wa r Code, Chapter 26, and Part 25 ofTille 40

of the Code of Federal Reg lations, the Texas Natural Resource Conservation Commission (TN CC or commission) has made available

for public comment draft'I1 Maximum Daily Loads (l'MDLs) concerning 1,2-dichloroethane nd 1,I,2-trichloroethane in Clear Creek in

Harris, Galveston, and Fort end Counties. TheTNRCC will also conduct a non-adjudicatory pu lic hearing to complete the public comment period. This announ ment constitutes notice that a change to

the State Water Quality Ma gement Plan will occur upon approval of

these TMDLs by the Unite States Environmental ProteCtion Agency

(EPA).

Texas is required to develo TMDLs for impaired water bodies under

the 1972 Federal Clean W; er Act, §303(d). A TMDL is a detailed

water quality assessment th t provides the scientific foundation to allocate pollutant loads in a ce in body of water to restore and maintain

designated uses.

The TNRCC will conduct non-adjudicatory public hearing on these

TMDLs concerning 1,2- di hloroethaneand 1,I,2-trichloroethane in

Clear Creek. The purpose 0 the public hearing is to provide the public

an opportunity to comment n these proposed TMDLs. These water

bodies are also listed for th presence of carbon disulfide in fish tissue. TMDLs are not being epared for this pollutant because through

additional assessment it is a parent that carbon disulfide measured in

fish tissue samples was an 'fact of tissue degradation during laboratoryanalysis. TNRCC d s not deem it necessary or appropriate to

establish a TMDL for carbo disulfide in Clear Creek and will propose

to remove this pollutant fro the next §303(d) list. The commission

requests comment on each 0 the six major components ofthe TMDL:

ProblemDefinition, Endpoi tIdentification, Source Analysis, Linkage

Between Sources and Recei ng Waters, Margin ofSafety, and Loading

Allocations. After the pub comment period, TNRCC staff may revise the TMDLs, if appropritte. The final TMDLs will then be brought

to the commission for app val. Upon approval of the 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 will then be submit d to the EPA Region 6 for approval as an

update to the State ofTexas ater Quality Management Plan.

A non-adjudicatory public 'ng will be held in Webster, Texas, on

January 9,2001, beginning 7:00 p.m., at theChallenger 7 Memorial

Park. located at 2301 NASA oulevard. Agency staffwill be available

6:30 p.rn. - 7:30 p.m. for di ussion or to answer any questions. Iodividuals may present oral sta~ments when called upon iii order ofregistration. Open discussion 11 not occur during the hearing. Agency

staff. member will be avail~ e again after the public hearing for discussIon or to answer questt s.

• •

Notice ofWater District Ap

The Texas Natural Resource ~'onservation Commission (fNRCC)'

will conduct a hearing on a pet tion for dissolution of GALVESTON

COUNTY MUNICIPAL UTIL DISTRICT NO.9 (District) The

petition was signed by StePhet

.Clark. President of Cypress Realty,

Ioc., a Texas corporation, bein the owner of a majority of property

located within the District (pe tioner). The TNRCC will conduct this

hearing under the authority of~apters 49 and 54 of the Texas Water

Code, 30 Texas Administrativ9 Code Chapter 293 and the procedural

rules of the TNRCC. The TNP.CC wilt conduct the hearing at: 9:30

a.m., Wednesday, January 24l 2000 Building E, Room 201S 12100

Park 35 Circle Austin, Texas.' On January 20, 1982, the Texas Water

Commission created the Distrjct. It operates under Texas Water Code

Chapters 49 and 54 as a muwcipal utility district. The petition states

the District: (1) has Perform«id.l none of the functions for which it was

created for five consecutive r~ preceding the date of the petition.

(2) is financially dormant, atjd (3) has no outstanding bonded indebtedness. Certified copies ofilie AnnualFinancial Dormancy and FIling

Affidavits for the years 199~ through 1998 are on file. An affidavit

from the State ComptrollerJof Public Accounts has been included in

the petition, certifying thalfthe District has no bonded indebtedness.

IT the request for dissoluti~h is approved, the District's assets, if any,

will escheat to the State pf Texas and will be administered by the

State Comptroller of Pub9c Accounts and disposed of in the manner

provided by Chapter 74~Perty Code.

The TNRCC may grant contested case hearing on this application

if a written hearing req .st is filed within 30.days after the newspaper publication of this otice. The Executive Director may approve

the application unless a 'tten request for a contested case hearing is

filed within 30 days aft,r the newspaper publication of this 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, if any; (2)

the name of the appli~nt and the TNRCC Intemal Control Number;

(3) the statement "We request a contested case hearing"; (4) a

brief description of hOw you would be affected by the granting of the

request in a way not c;ommon to the genera.1p~blic. ~ou may also ~bmit your proposed ad/ustments to the application whIch would satisfy

your concerns. Requ~ts for a contested casehearing must be submitted

Comments should be sub tted to Angela Slupe, Texas Natural

Resource Conservation Co • sion, Office of Environmental Policy,

Analysis, and Assessment, 205, P.O. Box 13087, Austin, Texas

78711-3087 or faxed to (51 ) 2394808. All comments must be

received by 5:00 p.m., Jan 12, 2001, and should reference Docket

Number 2000-1285-TML. further information regarding these

proposed TMDLs, please con et Kirk Dean, Office ofEnviroomental

Policy, Analysis, and Assessm 1, (512) 239- 3667. Copies ofthe document summarizing these pro sed TMDLs can be obtained via the

commission's Web Site at ' nrcc.state.tx.uslwaterlqualityltmdl, or

by calling Angela Slupe at (51 2394712.

Persons with disabilities who h e special communication or other accommodation needs who arepla .ng to attend the meeting should contact the agency at (512) 23949 . Requests should be made as far in

advance as possible.

TRD-200oo8117

Margaret Hoffman

Director, Environmental Law Diy' Ion

Texas Natural Resource Conserv tion Commission

Filed: November 21, 2000

• • •

IN ADDITION December 1, 2000 25 TexReg 12007
[(8)] Adulterated and mi branded device. If the Texas

Department of Health (department) i entifies an adulterated or misbranded device, the department may se [eafeJee] the applicable

provisions of Subchapter C of the A t including, but not limited to:

detention, emergency order, recall, co demoation, destruction, injunction, civil penalties, criminal enaiti [eBfereemest], and/or administrative penalties;[,] Administrative an civil nalties will be assessed

using the Severity Levels contained [ eul] in §229.261 of this title

(relating to Assessment ofAdminis ·ve or Civil Penalties).

This agency hereby certifieS that th proposal has been reviewed

by legal counsel and found to be wi in the agency's legal 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 of adoption: Dec mber 31,2000

For further information, please call: (51 ) 458-7236

• • •

TITLE 30. ENVIRONMENTAL QUALITY

PART 1. TEXAS NATURAL RESOURCE

CONSERVATION COMMISSION

CHAPTER 101. GENERAL AIR QUALITY

RULES

SUBCHAPTER H. EMISSIONSBANKING

AND TRADING

DMSION 5. SYSTEM CAP TRADING

30 TAC §§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 flexibility for the electric industry in 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 other facilities SUbject to a system cap under Chapter 117 in subsequent rulemaking.

Repertiag"].

.ng. Device distributors or manufac-

.cal device reponing requirements

leet approval provisions of 21 CPR.

val ofMedical Devices."

ill. Sale of contact lenses 'at flea markets. Contact lenses may

not be sold by persons at flea markets unless:

ill the person selling fue contact lenses has complied with

the uirements of Business and ' ommerceCode, §35.SS; and

ill the person selling e contact lenses has complied with

the requirements of the Texas Cdntact Lens Prescription Act, Texas

Civil Statutes, Article 45S2·A. \

§229.443. Enforcement. and pen\'{ties.

(a) - (b) (No change.)

(c) Access to records.

ill A person who is ~\quired to maintain records referenced in these sections or under th Texas Food, Drug, and Cosmetic

Act, Health and Safety Code, Chapt 431 (Act) or §519 or §520(g) of

the Federal Food, Drug, and Cosmeti Act or a person who is in charge

or custody of those records shall, at e request of an authorized agent

or health authority, permit the autho zed agent or health authority at

all reasonable times access to and to c 'py and verify the records.

ill A rson who is sub· t to licensure under these sections of this suocha ter shall at the uest of an authorized a ent or

health authorit, emit the authorized ent or health anthont at all

reasonable times access to and to co d verie all records showin :

merce; and

25 TexReg 11878 December 1, 2000 Texas Register
Emission 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 May 5, 2000 issue of the 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

NO limits because the EGFs in DFW mostly operate on days

conducive to exceedences of the 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 any emission trades which 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~stem cap on total 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 transfer of emission 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 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

another owner or operator participating in the system cap. EmiSsions caps may be increased daily oron 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.

The proposed new §1 01.385 would require owners or operators

of sources in an ozone nonattainment area participating in this

trading program to submit quarterly 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, Subchapter B, Division 2, would submit reports dated on

annual period beginning January 1 of each year and submitted

within 30 days followin~ the end of the 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 Specialist with 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 attainment area as a result of administration oumforcement of the 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

east and central Texas attainment areas that could be affected by

the proposed rules. There will be no fiscal implications for units

of state 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 of emissions for

regulated NO. sources in the affected areas.

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. 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 other sources.

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

PROPOSED RULES December 1, 2000 25 TexReg 11879
not anticipate significant fiscal impacts to units of state 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 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. 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

of emission 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 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 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 of the first five years the proposed rules are in effect, the public benefit anticipated as a result

on implementing the rules will be the reduction of emissions of

NO, 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 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

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 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 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 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 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 of the proposed rules.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the proposed rulemaking in lightof the

regulatory analysis requirements of Texas Government Code,

§2oo1.0225. The commission determined that these proposed

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 Tisks-to -human

health from environmental exposure, and that-may-adverselyaffect in a material way the economy, a sector of the economy. productivity, competition. jobs, the environment, or the public health

and safety of the state or a sector of the state. The 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

of the economy, productivity, competition, jobs, the environment,

or the public health and safety of the state or a sector of the 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 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 §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 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 requiremenl

Provisions of 42 USC, §741 0, require states to adopt a SIP which

provides for "implementation, maintenance, and enforcement"

25 TexReg 11880 December 1,2000 Texas Register
of the primary NMOS 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 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 §741 O. Thus, while specific measures

are not generally required, the emission reductions are required.

States are not free to ignore the requirements of §741 0 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 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

impact analysis (RIA) of extraordinary 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 that this 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 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 NMOS;

thus, states must develop programs for each nonattainment area

to ensure that area will meet the attainment deadlines. 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 that the 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 intent of 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, that impact is no greater than is necessary

or appropriate to meet the requirements of the FCM. 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 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 specifically developed to meet the NMOS

established under federal law and authorized under Texas 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 IMPACT ASSESSMENT

The commission completed a takings impact assessment for the

proposed rules. The following is a summary of that assessment.

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 nonattainment area to attain the NMOS for ozone and

to maintain air quality in the east and central Texas area. Promulgation and enforcement of the 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 of a governmental action. Additionally, the NO. emissions under the system

cap that are the subject of these rules are not property rights.

Consequently, the proposed sections do not meet the definition

of a 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 or property, they do prevent a real and substantial threat to public health and safety, and

partially fulfill a federal mandate under the USC, §7410. Specifically, the emission limitations and control requirements that are

the subject of this proposal were developed in order to meet the

ozone NMOS set by the EPA under the USC, §7409. States

are primarily responsible for ensuring attainment and maintenance of the NMOS on.ce 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 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 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 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 of the CMP.

The commission reviewed this action for consistency with the

PROPOSED RULES December 1, 2000 25 TexReg 11881
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

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

NO, emissions between sources in the DFW and east and central Texas areas. These proposed rules do not authorize any new

NO, air emissions. Interested persons may submit comments on

the consistency of the proposed rules with the CMP during the

public comment period.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING

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

sections would become applicable requirements under the 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

for the receipt of oral or written comments by interested persons.

Individuals may present oral statements when called upon in order of 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, Texas 78711-3087 or faxed to (512) 239-4808. All

comments should reference Rule Log Number 2000-046-1 01-A/.

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,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 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.

§lOl.380. Definitions.

The following words and tenns, 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 of this title (relating to Control

of Air Pollution from Nitrogen Compounds) is greater than 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, Subchapter B, Division 2 ofthis title (relating

to Utility Electric Generation in East and Central Texas).

§101.382. Applicability.

Trades of emission 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

of Air Pollution from Nitrogen Compounds).

§lOl.383. General Provisions.

System cap limits may be eltceeded 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:

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

regulated under Chapter 117, Subchapter Bt Division 2 ofthis title (relating to Utility Electric Generation in East and CentralTexas) may be

exceeded with surplus emission allowable obtained for that calendar

year from another source owner or operator participating in a system

{fl The cap requirements of Chapter 117 of this title (relating

to Control of Air Pollution from Nitrogen Compounds) continue to apply, except as modified in subsection (a) of this section.

§lOl.385. Recordkeeping and Reporting.

The owner or operator of a source in an ozone nonattainmeet area participating with this division shall submit to the executive

director a quarterly report.

ill Each QUarterly report will be based on a three-calendar

month period beginning on January 1 of each year.

ill The report shall be submitted within 30 days following

the end of the quarterly period.

ill The report shall detail the following:

the daily nitrogen oltides(NO.) emissions from

each source along with supporting calculations for the maximum daily

cap and the rolling 3D-day average system cap emission limitationj

an all emission trades during the reported time period

including the trade date or period, quantity traded, and trading participants.

25 TexReg 11882 December 1, 2000 Texas Register
ill The owner or operator of a source participating in a system

cap limit for sources subject to Chapter 117, Subchapter B, Division 2

of this title (relating to Utility Electric Generation in East and Central

Texas) shall submit to the executive director an annual report.

ill Each annual report will be based on a 12-month calendar period beginning on January 1 of each year.

ill The report shall be submitted within 30 days following

the end of the annual period.

ill The report shall detail the following:

W the annual NO emissions from each source along

with supporting calculations; and •

!ill all emissions trades during the reported time period

including trade date. quantity traded, and trade participants.

The owner or operator of any system participating in this

division shall report within 48 hours to the executive director any 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 that time period. This report shall include:

ill cause of the exceedence with data to demonstrate the

amount of emissions in excess of the applicable limit;

ill date or period of exCeedencej

ill amount of exceedence; and

ill number of surplus emissions allowables traded on the

date of or during the period of the exceedence.

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal 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: December 31, 2000

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

• • •

CHAPTER 117. CONTROL OF AIR

POLLUTION FROM NITROGEN COMPOUNDS

SUBCHAPTER B. COMBUSTION AT MAJOR

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 DallaslFort Worth (DFW) ozone nonattainment area and east and central Texas to meet specific 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 system cap to meetthe emission requirements in Chapter 117. Under a system cap owners

or operators of EGFs would have the option of averaging 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 of this proposal is 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), or through

the transfer of emissions 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

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, 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 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 §117.108(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 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 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 of the Texas

Register.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

John Davis, Technical Specialist with 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 east Texas attainment area as a result of administration or enforcement of the proposed rules. There are 23 investor-owned boilers and 13 boilers

PROPOSED RULES December 1, 2000 25 TexReg 11883
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 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 government that do notown 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 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 levels provided for

the agency on a quarterly basis. The proposed system cap trading program is intended to enhance daily trading of emissions by

allowing direct trades between entities without prior commission

approval. The commission does not anticipate significant fiscal

impacts to units of state 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 not already been 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 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 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 of other 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 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

under a system cap to participate in the system cap trading program.

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 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 by obtaining surplus emissions from other sources, 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 no additional 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 per year for ERCs. It

is anticipated that the majority of owners and operators of the 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 of the application of emission control technology with the

purchase of otherNO. 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 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 for small or

micro-businesses as a result of the proposed rules.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the proposed ru/emaking in light of the

regulatory analysis requirements of Texas Government Code,

§2oo1.0225. The commission delemuried that these proposed

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

25 TexReg 11884 December 1, 2000 Texas Register
health from environmental exposure, and that may adversely affect in a material way the economy, a sector of the economy. productivity, competition, jobs, the environment, or the public health

and safety of the state or a sector of the state. The 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 major environmental rule. the result of which is to: 1.) exceed a standard set by federal law, unless the rule is specifically required by state law; 2.) exceed an

express requirement of state law, unless the rule is specifically

required by federal law; 3.) exceed a requirement of a delegation agreement or contract between the state and an agency or

representative of the federal government to implement a state

and federal program; or 4.) adopt a rule solely under the general powers of the agency instead of under a specific state law.

This rulemaking is not subject to the regulatory analysis provisions of §2001.0225(b), because the 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) set by the EPA under the 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 for com pliance 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 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 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 of the state will be brought into attainment

on schedule.

The requirement to provide a fiscal analysis of proposed reguc

lations 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

impact analysis (RIA) of extraordinary 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 that this 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 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 NMOS;

thus, states must develop programs for each nonattainment area

to ensure that area will meet the attainment deadlines. 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 that the 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 intent of 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, that impact is no greater than is necessary

or appropriate to meet the requirements of the FCM. 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 nrlemaking-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 under federal law and authorized under Texas 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 IMPACT ASSESSMENT

The commission completed a takings impact assessment for the

proposed rules. The following is a summary of that 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 nonattainment area to attain the NMOS 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 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 of a govemmental

action. Additionally, the NO emissions under the system cap

that are the subject of these rules are not property rights. Consequently, the proposed sections do not meet the definition of a

takings under Texas Government Code, §2007.oo2(5). Although

the proposed sections do not direcUy 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, §741 O. Specifically,

PROPOSED RULES December 1, 2000 25 TexReg 11885
the emission limitations and control requirements within this proposal were developed in order to meet the ozone NMOS 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 for the attainment and 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

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 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 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 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 protect air qualIty 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 submit comments on the consistency of

the proposed rule with the CMP during the public comment period.

EFFECT ON SITES SUBJECT TO 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

sections would become an applicable requirement underthe federal operating permit program and source would be required to

amend their permits.

ANNOUNCEMENT OF 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 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 ~~ receipt of oral or written 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, Texas 78711-3087 or faxed to (512)239-4808. All

comments should reference Rule log Number 2000-046-101 "'AI.

Comm~nts 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.

DIVISION 1. UTILITY ELECTRIC

GENERATION IN OZONE NONAITAINMENT

AREAS

30 TAC §117.109, §117.110

STATUTORY AUTHORITY

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 other control measures or techniques, including economic incentives such as fees

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 of a source of nitrogen oxides (NO) in the DallasIFort Worth ozone nonattainment area who is participating in the

system ca~ under §1l7.108 o~ this title (relating to System Cap) may

exceed thelC system cap prOVided that the owner or operator is complying with the requirements of §117.570 of this title (relating to Use

o~ ~n.ussions Credits f?r ~ompliance)or Chapter 101, Subchapter H,

Dlvl~lon I,.4, or 5 oftJ:1ISytle (re~ting to Emission Credit Banking and

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 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 of a large or small system as

ofJanuary I, 2000, and does not change as a result of sale or transfer

of the unit, regardless of the size of the transferee's system.

This agency hereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal authority to adopt

Filed with the Office of the Secretary of State, on November 17,

2000.

TRD-200008042

25 TexReg 11886 December 1,2000 Texas Register
esource 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, theIC 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 Chapter 328 during the time that Chapter 37 was processed. Changes to Chapter 328 were not made because the

Chapter 37 project team did not conceptualize 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 that for the first five-year period the proposed amendment is in eff~t there will be no significant fiscal

impacts for units of state and local government as a result of administration 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 that for each year of the first five years

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 of scrap 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 scrap tire ,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 OF USED

•

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

For further 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 under the 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 authority to adopt

rules consistent with 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 owner or operator of a source of nitrogen oxides (NO) in east and

central Texas attainment area who is participating in the system cap

under §117.138 of this title (relating to System Cap) may exceed their

system cap provided that the owner or operator is complying with the

requirements of Chapter 101, Subchapter H, Division 1,4, or 5 of this

title (relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and System Cap Trading).

This agencyhereby certifies that the proposal has been reviewed

by legal counsel and found to be within the agency's legal 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

For further Information, please call: (512) 239-<)348

• •

WASTE MINIMIZATION AND

PROPOSED RULES December 1, 2000 25 TexReg 11887
Robert J. Huston, ChairmaTI

R. B. "Ralph" Marquez, Commissioner

John M. Baker, Commissioner

Jeffrey A. Saitas, Executive Director

TEXAS NATURAL RESOURCE CONSERVArION COMMISSION

Protecting Texas by Reducing andPreventing Pollution

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 30 TAC Chapters 101 and 117 and to the State Implementation

Plan (SIP) under the requirements of Texas 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 Protection Agency regulations concerning SIPs. The revisions to Chapters 101 and 117 are

proposed as revisions to the SIP.

Under rules adopted by the commission on Apri119, 2000, which were published in the May 5,2000 issue

ofthe Texas Register (25 TexReg 4101 and 4140), electric generating facilities (EGFs) in the Dallas/Fort

Worth (DFW) nonattairunent area and the attainment counties of east and central Texas may voluntarily

participate in a program where individual sources may transfer nitrogen oxides (NOJ emissions allowances

among each other provided an overall system cap on emissions is not exceeded. In the nonattainment area,

credits may be transferred among participants in the system cap. These credits must first be banked with

the commission and transfers or trades must be approved by the executive director. In the attairunent area,

credits may only be transferred among units that are under common ownership or control. This proposal

would allow the system cap to be exceeded, provided surplus emissions allowances can be 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

nonattainment area and allow EGFs in the attainment counties an additional option of exceeding the system

cap provided surplus allowances are obtained for that calendar year.

Public hearings on this proposal will be held 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 of oral or written comments by

interested persons. Individuals may present oral statements when called upon in order of 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 hearing should contact the Office of Environmental Policy, Analysis, and Assessment at (512)

239-4900. Requests should be made as far in advance as possible.

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 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 reference Rule Log Number 2000-046-101-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 of east 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 of ozone attainment in the DFW area

while maintaining reliability of service. 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 of the DFW ozone attainment demonstration rules for EGFs, which were published in the

May 5, 2000 issue of the 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 NOx
Texas 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 of the 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 of system 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 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 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,

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 of emission 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 of this 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 of system 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 of sources in an ozone nonattainment

area participating in this trading program to submit quarterly 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, Subchapter B, Division 2, would

submit reports dated on annual period beginning January 1 of each year and submitted within 30 days

following the end of the 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 Specialist with 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-county central and east Texas attainment area as a result of

administration or enforcement of the 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
Texas 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 of state

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 of emissions 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 of emissions 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 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

proposed system cap trading program is intended to enhance daily trading of emissions 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 of state 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 of NOx 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 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.

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 of emission 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 of emissions 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 of the application of
Texas 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 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 of the first five years the proposed rules are in effect, the public

benefit anticipated as a result on implementing the rules will be the reduction of emissions of NO. 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 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.

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 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 ERCs
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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 of emissions 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 of the application of emission control technology with the

purchase of other 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 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 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 of the proposed rules.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the proposed rulemaking in light of the regulatory analysis requirements of

Texas Government Code, §2001.0225. The commission determined that these proposed 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
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affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the

environment, or the public health and safety of the state or a sector of the state. The 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 of the economy, productivity, competition, jobs, the

environment, or the public health and safety of the state or a sector of the 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 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 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 by the EPA

under the Federal Clean Air Act (FCAA), §l09 (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 NAAQS in each air

quality control region of the 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
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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 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 of the 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 impact analysis (RIA) of extraordinary 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 that this 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
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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 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 of the 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. 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 intent of 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, that impact is no greater than is necessary or appropriate to meet the requirements of the

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 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
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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 of that assessment. The sections are proposed as part of a strategy to reduce and permanently

cap emissions of NOx 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

of the 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 of a governmental action. Additionally, the NOx emissions under the system cap

that are the subject of these rules are not property rights. Consequently, the proposed sections do not

meet the definition of a 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 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 of 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 of the 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 of NAAQS through
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control programs directed to sources of the pollutants involved. Therefore, the purpose of the 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 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

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 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(l) 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 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 proposed
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rules do not authorize any new NOx air emissions. Interested persons may submit comments on the

consistency of the proposed rules with the CMP during the public comment period.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING 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 sections

would become applicable requirements under the 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 for the receipt of oral or

written comments by interested persons. Individuals may present oral statements when called upon in

order of 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.
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SUBMITTAL OF COMMENTS

Comments may be submitted to Lola Brown, Office of Environmental Policy, Analysis, and

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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 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,

§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.
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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.

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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 of this title (relating to Control of Air 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 of this title (relating to Utility Electric Generation in East and Central

Texas).
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§101.382. Applicability.

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Trades of emission allowables are limited to sources located within a single nonattainrnent 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).

§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 of this 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.
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(c) The cap requirements of Chapter 117 of this title (relating to Control of Air Pollution from

Nitrogen Compounds) continue to apply, except as modified in subsection (a) of this section.

§101.385. Recordkeeping and Reporting.

(a) The owner or operator of a 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 of each year.

(2) The report shall be submitted within 30 days following the end of the 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.
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(b) The owner or operator of a source participating in a system cap limit for sources subject to

Chapter 117. Subchapter B. Division 2 of this 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 of each year.

(2) The report shall be submitted within 30 days following the end of the 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 of any 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 allowable for that time period. This report shall include:
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(1) cause of the exceedence with data to demonstrate the amount of emissions in excess

of the applicable limit:

(2) date or period of exceedence;

(3) amount of exceedence; and

(4) number of surplus emissions allowables traded on the date of or during the period

of the exceedence.
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The Texas Natural Resource Conservation Commission (commission) proposes new §117.109, System

Cap Flexibility; §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 Dallas/Fort Worth (DFW) ozone nonattainment area and east and central Texas to meet specific

nitrogen oxides (NOx) 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

system cap to meet the emission requirements in Chapter 117. Under a system cap owners or operators

of EGFs would have the option of averaging 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 of this

proposal is 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
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reduction credits (DERCs), or through the transfer of emissions 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 of NOx 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 NOx 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 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 §117.108(c), System

Cap is based on a unit's 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 NOx 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 and
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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 of the Texas Register.

FISCAL NOTE: COSTS TO STATE AND LOCAL GOVERNMENT

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John Davis, Technical Specialist with 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-county central and east Texas attainment area as a result of

administration or enforcement of the 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 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 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 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
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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 of emissions 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 of emissions 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 of emissions by allowing direct trades between

entities without prior commission approval. The commission does not anticipate significant fiscal

impacts to units of state 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 of state and local

government 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 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
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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 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 NOx sources and potential cost savings in planning and determining the most economical

mix of the application of emission control technology with the purchase of other 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 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 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 of emissions between different entities as long as participating
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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 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 no additional 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 per year for ERCs. It is anticipated that the majority

of owners and operators of the 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 of the application of emission control technology with the purchase of other 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 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
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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 of the proposed rules.

DRAFT REGULATORY IMPACT ANALYSIS DETERMINATION

The commission reviewed the proposed rulemaking in light of the regulatory analysis requirements of

Texas Government Code, §2001.0225. The commission determined that these proposed 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 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 NOx

emission limitations and for NOx 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 major environmental rule, the result of which is to: 1.) exceed a

standard set by federal law, unless the rule is specifically required by state law; 2.) exceed an express

requirement of state law, unless the rule is specifically required by federal law; 3.) exceed a

requirement of a delegation agreement or contract between the state and an agency or representative of

the federal government to implement a state and federal program; or 4.) adopt a rule solely under the

general powers of the agency instead of under a specific state law. This rulemaking is not subject to
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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 of 42 USC, §7410, require states to adopt a SIP which

provides for "implementation, maintenance, and enforcement" of the primary NAAQS in each air

quality control region of the 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 of emissions 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 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

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 §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 of the state will be brought into attainment on

schedule.
Texas Natural Resource Conservation Commission

Chapter 117 - Control of Air Pollution from Nitrogen Compounds

Rule Log No. 2000-046-101-AI

Page 9

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 impact analysis (RIA) of extraordinary 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 that this 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 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 of the 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. 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
Texas Natural Resource Conservation Commission

Chapter 117 - Control of Air Pollution from Nitrogen Compounds

Rule Log No. 2000-046-101-AI

Page 10

provided by state agencies and the LBB, the commission believes that the intent of 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, that impact is no greater than is necessary or appropriate to meet the requirements of the

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 of a delegation agreement. The rulemaking was not

developed solely under the general powers of the 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 of that assessment. The sections are proposed as part of a strategy to reduce and permanently

cap emissions of NOx 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 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 of a governmental action. Additionally, the NOx emissions under the system cap that are the

subject of these rules are not property rights. Consequently, the proposed sections do not meet the
Texas Natural Resource Conservation Commission

Chapter 117 - Control of Air Pollution from Nitrogen Compounds

Rule Log No. 2000-046-101-AI

Page 11

definition of a 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 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 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 of the 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 of NAAQS through control programs

directed to sources of the pollutants involved. Therefore, the purpose of the 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 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

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
Texas Natural Resource Conservation Commission

Chapter 117 - Control of Air Pollution from Nitrogen Compounds

Rule Log No. 2000-046-101-AI

Page 12

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(l) 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 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 of the proposed

rule with the CMP during the public comment period.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING 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 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 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 for the receipt of oral or

written comments by interested persons. Individuals may present oral statements when called upon in
Texas Natural Resource Conservation Commission

Chapter 117 - Control of Air Pollution from Nitrogen Compounds

Rule Log No. 2000-046-101-AI

Page 13

order of 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.

SUBMITTAL OF COMMENTS

Comments may be submitted to Lola Brown, Office of Environmental 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 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
Texas Natural Resource Conservation Commission

Chapter 117 - Control of Air 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 of Air 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 of a source of nitrogen oxides (NOx) in the Dallas/Fort Worth ozone

nonattainment area who is participating in the system cap under §117.108 of this title (relating to

System Cap) may exceed their system cap provided that the owner or operator is complying with the

requirements of §117.570 of this title (relating to Use of Emissions Credits for Compliance) or Chapter

101. Subchapter H. Division 1. 4. or 5 of this title (relating to Emission Credit Banking and Trading;

Discrete Emission Credit and Trading Program; and System Cap Trading).

§117.110. Change of Ownership - 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) of this title

(relating to System Cap) is based on the unit's status as part of a large or small system as of January 1.

2000. and does not change as a result of sale or transfer of the unit. regardless of the size of the

transferee's system.
Texas Natural Resource Conservation Commission

Chapter 117 - Control of Air 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 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,

§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 of a source of nitrogen oxides CNOx) in east and central Texas attainment

area who is participating in the system cap under § 117.138 of this title (relating to System Cap) may

exceed their system cap provided that the owner or operator is complying with the requirements of
Texas Natural Resource Conservation Commission

Chapter 117 - Control of Air Pollution from Nitrogen Compounds

Rule Log No. 2000-046-101-AI

Page 17

Chapter 101, Subchapter H, Division 1, 4, or 5 of this title (relating to Emission Credit Banking and

Trading; Discrete Emission Credit and Trading Program; and System Cap Trading),
WRITTEN AND 

ORAL TESTIMONY 
INDEX 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 of Electric Companies of Texas, Inc.

(similar to 0-2)

Erich Birch, on behalf of the Cities of Denton 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

Gary J. Gibb.. P.E.

!/IYr. AiFai... H4T.

512·391-2969

"2491-2965 fcIlC

8191 bbs@allp.com

January S. 2001

Ms. LolaBrown

Texas Natural RcsoUItiCI Conservation Commission

Office ofEnviromnentalPolicy, Analysis. and Assessment

P.O. Box 13087, MC·206

JLustin,TJe 78711·3087

Re: Rule LogNo. 200().()46.101·AI

~002/00S

G

Dear Ms. 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. The company owns and operates more than 38.000 megawatts ofgenerating capacity,

making it one ofAmerica's largest generators of electricity. AEP provides electric service to

42% ofthe land area ofTexas.

AEP strongly supports the proposed revisions to Chapters 101 and 117 and

appreciates thD do11& of the TNRCC in developing a voluntary. fI~'ble, and cost-eifective

approach to the reducing nitrogen oxide ("NOx") emissions. AEP, however, does have the

fOllowing comments that are primarily designed to help clarify the proposed revisions.

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 that that term be revised to read Itany 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

operator of a source ofnitrogen oxides ..• may exceed their system cap ...It. ABP Dotes

that it is not the owner or operator that would be allowed to exceed a s)'Stcm cap under this

proposed. section, but instead the owner or operator's sources of NOll' Based on these

comments. AEP recommends that proposed §117.139 bCl roviscd to read as follows:
OU05/01 16: 49 F.il

Ms. Lola Brown

January S, 2001

Page 2

117.139. System Cap Flexibility.

Aft e'+'mer 8F 8f3eratel ora:sewee Sources of nitrogen oxides (NOx) iB-with the

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) of this title (relating to

Applicability) and are participating in the system cap under §117.138 ofthis

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 Cap Trading).

Proposed § 101.382

@003;005

To provide necessary clarification as to the meaning of the phrase "within another

single area with unique emission limits identified in Chapter 117 of thIs title (relating to

Control ofAir Pollution from Nitrogen Compounds)", and to otherwise improve the language

of this 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 with unique emissjon limits identified in Chapter 117 ofthis title (relating

to Control of Air Pollution from Nitrogen Compounds), such as the east and

central Texas area comprising those counties listed in § 117.131(4) of this

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 of this 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 it be revised to read as follows:

(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 SUIJ)lus emission

allowable obtained for that calendar year from another source owner or

operator The system cap emission limit for SOUICes ofN~ participating in a

system cap under § 117.138 of this title may be exceeded provided that the

AUS'rIN 217179v1290ll·OOO08
V.L! VV· V.L .LlJ. -i(l r~

-----

Ms. Lola Brown

January 5,2001

Page 3

owner or operator ofthe NQs sources obtains surplus emission allowables for

that calendar year in an amount that equals the amount by which the 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) be revised to read as follows: "The system cap requirements ofChapter 117..."

In addition, because it appears that a reference to subsection (b) was inadvertently left out 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 of this title (relating to

Control ofAir Pollution from Nitrogen Compounds) continue to apply, except

as modified in subsectio~(a) and (b) ofthis section.

Proposed §101.385(b)

AEP believes that the reference to "Chapter 117, SubchapterBJ 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, AEP recommends that proposed §101.385(b) be

revised to read as follows:

(b) The owner or operator of a source 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) .YrukI

§117.138 ofthis title and this division shall submit to the executive director an

annual report.

AEP also believes that there needs to be a reference in 30 TAC §117.149 to this

annual reporting requirement.

Proposed §101.385(b)(2)

AEP believes that the 30-day timeframe tha.t this proposed subsection would allow for

the preparation and submittal of the 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 of the annual report for grandfathered

electric generating facilities under 30 TAe §101.336(b).

AUSTIN 277179v12901I-0000S

@004l005
01/05/01 16:49 FAX

-------_.--.--.---------_.-_.. 005/005

Ms. LolaBrown

January 5, 2001

Page 4 ,

,

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 than just thoge under proposed new Subchapter H, Division 5,

AEP recommends that proposed §101.385(b)(3)(B) be revised to read as follows:

(B) all emissions trades under this division during the reported time period

including trade date, quantity traded, and trade participants.

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 of emissions 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,

Gary

~A.,~ 1. Gibbs, P.E.

AUSTIN 277179'12 ~9011-00008
.I

-

JaJ1Uaty 5, 2001 .

I4l 002

Ms. Lola Brown

Offico ofEuviroam.entaJ 'Policy, Analysis and Assessment

Texas NaIoIal Rcsoarce ConseIvation Commission

12100 Puk 35 Cir~le, Me 206

Austin, Texas 787~3

:R.e: :Propo~ Revisions to Chapters 101 and 117;

Rule Log Number 2000-046-101·AI

Dear Ms. Brown:

The Association of Eloctric 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 on December 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 ofthe state's electricity customers.

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 NOx emissions between electric utility companies in tho East and Cmtral

Texas region will cieate a IJULIia:t-based option for reducing NO~ cmissiOllS that will help minimiu: 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 of 2000. These proposed revisions will merely allow electric utilities to

merge their system 'Caps in a froe market arena similar to the U.S. Euviromnen1al ProtcetiOD Agency's

sucussfal, market-based sulfur dioxide (SQJ aUowaoc:e tradini program. Furtbenuoro., to maximjUJ

the benefits ofthis program. ABeT wps the TNRCC to QODSidcr expansion ofthe proposed programs

to include the Beaumont. Port Arthur area and the Houston, Galveston areA.

Notwithstanding its strong support ofthe proposed revisions in general. AECf bas several comments

that are primarily a.signed to hoJp clarify the proposed revisions. lhosc detailed COIDIDents are

auaehed.

Thank you for the opportunity to comment.
01/05/01 16:07 FAX 51~ 474 9670

Proposed 6117.139

AEeT llJ003

Since the term IIeast 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 of the 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 of nitrogen oxides '" may exceed their 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 Of Elf3erater of a SOl:lfee Sources ofnitrogen oxides (NOlC) Ht-Mth

the same owner or operatQT that are located in any of the east and central

Texas attainment BFea ,,;he i5 counties listed in §117. l31(4) of this titl e

(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 provided that the owner or operator of such sources is complying

with the requirements of Chapter 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 of this title (relating to Control

of Air 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 1isted in § 117.131(4) ofthis title.

Proposed §1010383(b)

Proposed §lOl.383(b) refers to "utility electric generating units" which is not defined in

Chapter 101. In addition, this proposed subsection refers to llChapter 117, Subchapter B,

Division 2 oftbis title (relating to Utility Electric Generation in East and Central Texas)lI.

whioh is confusing and is a broader reference than is necessary. To addresft these
01/05:' 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 emissiaH 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 of the NO! sources

obtains surplus emission allowables for that calendar year in an amount

that equals the amount by which the sources' total NOll: emissions for that

calendar year exceeds the system cap emission limit.

Proposed §101.383(e)

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

§101.383(c) in pointing out that 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 revised to read as follows:

(c) The system cap requlrements of Chapter 117 of this 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 of a -sel:lfoe source~ participating in a system

cap limit foF S08!'EieS sl:K3jeet to Cfiatlter H7, S1::!behflop1:er B, 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 that there needs to be a reference in 30 TAC §117.149 to 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 of the annual report is too 5hort. AECT recommends that

the timeframe be changed to 60 days. A 60-day timeframe would be consistent with the
1J.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, rather than just those under proposed new Subchapter H, 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 trade date, quantity traded, and trade participartts.

Proposed §10I.385(c)

ABeT recommends 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 a phrase that reads "with supporting data" be added at the 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 data regarding the amount that the

emissions exceed the system cap, and since proposed §101.385(c)(3), rather than

proposed §101.385(c)(l), relatesto such exceedence.
Law Office ofErich Birch, P.e.

7000 N. MoPac Expressway, 2nd Floor

Austin, Texas 78731

(512) 514-6748, (512) 258-9582 - fax

ebirch@erichbirch.com

January 5, 2001

Lola Brown

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 on behalfofthe City ofDenton, Texas,

and the City ofGarland, Texas ("the Cities"), regarding the above referenced "System

Cap Trading" rules that have been proposed by TNRCC for the Dallas-Fort Worth

("DFW") area. In the four-county DFW nonattainment area, the Cities operate the only

municipally-owned electric generating facilities and are the only operators ofelectric

generating facilities other than TXU.

The TNRCC should be commended for implementing a program to provide

flexibility for electric generating facilities that are being called upon to drastically reduce

emissions to help meet DFW area air quality goals, while simultaneously working to

maintain electric reliability in the area as it continues its strong growth. The ability to

trade emissions between utilities without the delays inherent to a pre-approval process

should help the area utilities more quickly respond to area electricity demands under the

upcoming SIP emission reductions. The Cities have submitted comments on previous

rule packages encouraging TNRCC to develop a flexible emissions trading system, and

are therefore supportive ofthe currently proposed emission trading rules.

Although the Cities are fully supportive ofan emission trading program, the

Cities have some reservations about how successful the program will be in the DFW area.

These concerns are expressed in the following comments regarding the proposed rules:

• Potential for a monopolistic trading program. As noted above, other than TXU,

the Cities are the only operators of electric generating facilities in the DFW area

and will therefore be the only other parties eligible to participate in the

proposed trading program. Together the two cities generate approximately 10

percent ofthe total electricity generated in the DFW area, and TXU generates

the other 90 percent. The Cities do not anticipate having tradable surplus

emissions capacity that would be of any significance to TXU. On the other

hand, if either 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 control ofthe "market price" for emission trades.

New electric generating operators may eventually enter the DFW market

through the construction ofnew facilities or as a result ofthe electric industry

restructuring process. At that time the DFW trading program may more truly

reflect open market conditions. However, until that time the Cities propose that

TNRCC tie the DFW emission trading price to some independent standard. For

example, the cost ofemission trades could be indexed to the average cost of

installing emission control technology on facilities in the DFW area. Another

option could be to establish a ceiling price on emission trades based on the price

of credits in other markets similar to the DFW area. Regardless ofthe system,

the Cities strongly encourage TNRCC to place some controls on the price of

emission trades until there are more trading options in the DFW area. It is

unrealistic to expect a true supply and demand trading system to work where

there is a fIxed customer base and a supplier that controls 90 percent ofthe

market.

• SignifIcant undervaluing ofthe price of emissions. In its Fiscal Note in the

preamble to the proposed rules TNRCC indicates that emission reduction

credits in the Houston-Galveston nonattainment area are currently priced at

approximately $3,600 per ton per year. The market for NOx emission credits in

the DFW area, like in the HGA area, will tighten severely as the deadlines for

making SIP reductions approach. It is very difficult to predict what the price of

emission credits will be as the SIP is implemented, however, costs often times

or even a hundred times this current fIgure would not be surprising. In the

preamble to the proposed rules TNRCC indicates that the trading program is a

voluntary program, and explains that each facility will determine the most

economical mix for applying control technology and the purchase ofsurplus

emissions. However, the actual cost to enter the trading program after the SIP

controls are in place will in all likelihood be much greater than the 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 should be expanded to include other trading options. The

ultimate purpose ofthe DFW area SIP is to reduce emissions to bring the area

back into attainment. The trading program will provide for additional flexibility

for electric generating facilities to meet the required reductions, however, the

rules could provide incentives for reducing emissions from other sources as

well. Trading between electric generating facilities will produce fairly

predictable results based on the known options for reducing emissions from

these types offacilities. However, NOx emissions are generated by a wide

variety ofother point and mobile sources. The ability to trade emission credits

with electric generating facilities could provide signifIcant incentives for other
sources to make reductions that would provide even greater flexibility to area

electric generating facilities while further benefiting air quality in the DFW

area. A more open trading system could also reduce concerns about the

potential for a monopolistic market, as explained above.

The Cities of Denton 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 of Garland at (972) 205-2653, Ms.

Sharon Mays with the City ofDenton at (940) 382-2193, or me at the above number.

Sincerely,

cc: Chairman Robert Huston, TNRCC

Commissioner Ralph Marquez, TNRCC

Commissioner John Baker, TNRCC

Jeff Saitas, Executive Director, TNRCC

Sharon Mays, Director, Electric Utilities, City ofDenton

Mike Copeland, Assistant City Attorney, City ofDenton

Jim Harder, Director, Electric Utilities, City ofGarland

Charles M. Hinton, Jr., City Attorney, City ofGarland
•

-===-Entergy

January 4,2001

Ms. Lola Brown

Office ofEnvironmental Policy,

Analysis, and Assessment, MC 206

Texas Natural Resource Conservation Commission

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 Support8M.

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

Dear Ms. Brown:

Entergy Services, Inc. appreciates being provided the opportunity to comment on the proposed rules

for System Cap Trading, which are set forth in 25 Tex. Reg. 11878-11887 (December 1, 2000).

Entergy fully supports the adoption ofthis rule, but urges the TNRCC to revise proposed 30 TAC

117.1 09 so that it applies not only to the DallaslFort Worth ozone nonattainment area ("DFW area"),

but also to the Beaumont/Port Arthur ozone non-attainment area ("BPA area"). The reasons for this

suggested change in the proposed rules are set forth below.

In May 2000, the TNRCC promulgated daily NOx emission limits for utility boilers in the DFW

area as part ofthe attainment demonstration for that area required by the federal Clean Air Act. See

30 TAC § 117.1 06(b) and 25 Tex. Reg. 4169 (May 5, 2000). As an alternative method of

compliance, the TNRCC allowed owners and operators of electric power generating systems

encompassing the regulated boilers to comply with daily and 30-day rolling NOx caps covering all

boilers in the system. See 30 TAC §§ 117.106(d)(1)(A) and 117.108. The TNRCC recognized that

the existing scheme for the trading of emission reduction credits - which requires the TNRCC to

serve as a banking intermediary - is too cumbersome and time-consuming to facilitate NOx trading

between owners and operators ofsystems that select this compliance option. Under the current

emission banking and trading rules, trading to comply with daily limits simply is not possible.

In order to provide the needed flexibility, the TNRCC has proposed a streamlined trading

mechanism applicable to the new NOx system caps. This would result in the creation of a new

Chapter 101, Subchapter H, Division 5, "System Cap Trading," as an alternative to the TNRCC's
January 4,2001

Page 2

emission banking and trading rules. Under the new mechanism, companies subject to the NOx

system caps may trade "surplus emission allowables" directly, report these trades to the TNRCC,

and maintain appropriate records. The NOx system caps may be exceeded as long as surplus

emission allowables are obtained for the relevant date or 30-day period. Although the proposed

System Cap Trading rules apply to sources subject to NOx system caps located in any ozone

nonattainment area, proposed 30 TAC § 117.109 would allow system cap participants only in the

DFW area to avail themselves ofthe new trading mechanism.

The TNRCC's May 2000 rule-making addressed the BPA area was well as the DFW area. In that

action, the TNRCC also imposed daily NOx emission limits on utility boilers in the BPA area and

provided the NOx system caps as a compliance alternative for owners and operators of electric

power generating systems in that area. See 30 TAC §§ 117.106(a), 117.106(d)(l)(A) and 117.108.

Thus, owners and operators of electric power generating systems in the BPA area may elect to

comply with NOx system caps under Chapter 117 that are functionally identical to those available in

the DFW area. For that reason, the need for a new emissions trading mechanism that is more

flexible than the existing TNRCC banking system is as great in the BPA area as it is in the DFW

area.

In the preamble to the proposed System Cap Trading rules, the TNRCC acknowledged that "[t]he

proposed procedure may be applied to other facilities subject to a system cap under Chapter 117 in

subsequent rulemaking." 25 Tex. Reg. 11878 (December 1, 2000)~ Thus, the TNRCC

acknowledges that the proposed System Cap Trading rules were not intended to be unique to the

DFW area. There is no reason whatsoever why this important flexibility should not be extended to

the BPA area as part ofthe current rulemaking. Accordingly, the proposed 30 TAC 117.109 should

be revised to apply also to owners and operators of electric power generating systems in the BPA

area that elect to comply with the NOx system caps.

If you have any questions about these comments, please do not hesitate to call me at (409) 981-

3204.

Sincerely,

~~~V~·

Fred Manhart

Environmental Support Manager
e

eNVIRONMeNTAL DeFeNse

finding the ways that work

January 5, 2001

Lola Brown

Office ofEnvironmental Policy, Analysis, and Assessment

Texas Natural Resource Conservation Commission

MC206

P.O. Box 13087

Austin, TX 78711-3087

Re: Rule LogNumber 2000-046-101-AI

Dear Ms. Brown,

Ht:::G,=IVt:u

JAN 08 RECTI

uF:=ICE OF ENWlONMHJTAL

POLICY, ANALYSIS &ASSESSMENT

G

Please accept the following comments from Environmental Defense regarding the proposed revisions to

Chapter 101 an~ 117. These rules seek to provide operators of electric generating facilities (EGFs) with

additional flexibility to achieve emissions limits necessary to attain the ozone standard in Texas. We

understand that this proposal is part of a settlement oftwo lawsuits filed by TXU. We applaud the.

TNRCC's ability to settle these suits without compromising the emissions limits contained in the SIP.

In summary, we believe the TNRCC's proposal toallow the trading of emissions between two capped

systems will ensure that the desired emission reductions will be achieved at the lowest cost. However,

the proposed rules also allow additional types oftrading that we fear will ultimately compromise the

overall emission cap assigned to electric generating facilities in the SIP, and, therefore, adversely impact

air quality.

Existing TNRCC rules offer owners or operators of EGFs located in attainment areas a fair degree of

flexibility by allowing the use of a system cap (§1l7.138). For facilities inside a nonattainment area,

existing rules allow compliance flexibility through the use of either a system cap or trading under

§117.570 (§117.106(d».

TNRCC's proposed amendments to Chapters 101 and 117 seek to extend this flexibility. Proposed

Chapter 101, Subchapter H, Division 5 allows trading between owners or operators oftwo different

system caps. We support this proposal because it maintains the same overall emission cap, but

encourages the lowest cost reductions to be made through a market-based system. Most importantly,

this proposal does not compromise the integrity ofthe SIP.

On the other ha~d, proposed §117.109 and §1l7.139 allow other types.oftrading that place the sip in

jeopardy. Proposed §117.109 and §117.139 allow trading between owners or operators of different

system caps (through Chapter 101, Subchapter H, 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 the very real

possibility that banked emission reduction credits - possibly generated through a control strategy that

may no longer be in place at the time the reduction credit is used (as is the case for DERCs) - could be

used to satisfy emission reduction requirements at some future date. Under such a scenario, actual

emissions on any given day could exceed the limits established in the SIP as necessary to achieve

attainment. In effect, allowing capped sources to use ERCs and DERCs for compliance with emission

limitations is a sure recipe to "bust" the cap.

For the above reasons, we strongly urge the Commission to exclusively limit the additional flexibility in

proposed §117.109 and §117.139 to compliance with the requirements ofChapter 101, Subchapter H,

Division 5 ofthis title (relating to System Cap Trading).

Thank you for the opportunity to provide these comments.

Sincerely,

l~4L. Ramon Alvarez, p~ Scientist H.

LJl

. cc: Chairman Robert Huston
8

80392394800 P.02

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FRUi'1 HI PG ENV IROr-ENTAL TO

i

I,

iIII:1I:

JaPuary S, 2001

q

"

. Lola Brown

0: ce ofEnvironmental Policy,

I alysist and AsSessment ;

Te as Natw'al Resource Conserva1ion Commissions

,"'206 : !

P'R" Box 13807 , AUs~ Texas 787lt~3087 !

I" I

:I Re: Co~ents on System Cap Trading Rules I,

J

: 301'AC §§ I01.38Q. 101.382,101.383,101.385,117.109, i17.qO

:

;

Rule Log No...2000t046-101-AI . . i~,

I·

:,al Ms.Brown:. :! . 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 the adoption ofthis rule. but urges 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~ ne non-attainment area ("BPA!area"). The reasons for this suggeste~ fhang in.the proposed·

!.

s are set forth below. 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 of the anainmetit demonstration for that area required.\iy the federal 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 of electric 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 the trading ofemission teductio~ ~redj~ - which requires

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 order to provide the necked flexibility, the TNRCC has propo~d a sJeamlined trading

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~e4sI bject to the NOx

sY' tem ca~5 may trade "swplus ~ssion allowablcs" directly, report the~ s to the TNRCC, . I

i I

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

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~~ maintain apprqpriate records.I The NOx system caps may be exceeded as! along as sLLrp1us

e~ission allowab1~ are obtained for the relevant date 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 30 lAC § 117.109 would allow system c~p!particlipants only in the

DI W area to avail themselves oftfe new trading 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 'or utili!?' 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 of electrjc 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 of those 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!to the HGA and BPA areas as part of lhe 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 of electnc power genetjating systems in the HGA areas that ~e stlbject to the NO"

s~ ·tern caps, and to owners and operators of electric power generating system$ in the SPA area

t 1 :t elect to comply with the NO" ~ystem caps., ..!

.1 i If you 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

II

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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

bat drlscoll@txu.com

Williim E.-,llll" PrlSC411

Vice President, Envlronmtntal, Health and saret)'

January 3. 2001

Ms. Lola Brown

Offlce of Enviromnental Policy, Analysis and Assessment

Texas Natural Resource Conservation Commission

12100 Park 35 Circle, Me 206

Austin. Texas 78753

Re: Proposed Rule on Emissions Bankinl:and Tradini

(Rule Log Number 2000-046-101-Al)

Dear Ms. Brown:

TXU Business Services Company ~ubmits the following comments on behalf of TXU

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) area and East and Central Texas as published in the Texa.~ ReGister on

December I, 2000. The principaJ business of TXU is the production of electricity in

north. central. east. and west Texas for approximately one-third of the population and

area of the State.

TXU strongly supports the proposed role and appreciate~ the efforts of the TNRCC in

developing a voluntary. flexible. and cost-effective approach to reducing nitrogen

oxide (NOx) emissions.

Allowing rho trading of emissions between electric utility companies in the DFW area

and a separate program in the Ea~t and Central Texas region will create a marketbased option for reducing NOx emissions that will help minimize the cost of reducing

emissions to the reqUired level. The total amount of reductions 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 sulfur dioxide (SO~) allowance trading

program.
JAN-04-2001 THU 10:54 AM TXU ES MINING GROUP

TXU Comments on Propo,;ed Trading Rille

Page:!

FAX NO. 214 812 2294 P. 03 '

TXU would like [0 paint out one omission in the proposed role under §101.383(c). It

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

current cap requirement~ under Chapter 117 continue to apply except for those

modified in subsections (a) and au. Subsection (b) contains the new requirements for

trading in Bast and Central Texas. The s.ubsection should read as follows:

§IOl.383(c)

The cap requirements of Chapter 117 of this title (relating to Control of

Air Pollution from Nitrogen Compounds) continue to apply, except as

modified in subsectioIl§ (a) and (bl of this section.

Thank you for tbe opponunlty to comment. TXU will continue its proactive

environmental efforts to enhance air quality in Texas.

Sincerely.

WiIIi am E. Driscoll
Reference Number

0-1

Reference Number

0-2

INDEX OF ORAL TESTIMONY

January 3, 2001 - City of Irving Public Library Auditorium

Submitted by

Shawn Glacken, TXU Business Services

January 4,2001, TNRCC

Submitted by

Shawn Glacken, Association of Electric Compnay of Texas -

AECT

January 4,2001, NCTOG, Arlington

Hearing concerning Agreements with American Airlines, City of Fort Worth, DFW International

Airlines, and the the State Implementation Plan

Reference Number

0-3

Submitted by

Michael Morris, North Central Texas Council of Governments

(NCTOG)
Texas Natural Resource Conservation Commission

Public Hearing Registration

Location: City of Irving Public Library Auditorium Date: January 3,2001

Concerning: 30 TAC 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~'frt ~cf S"~ So (o-r ;:.C:-I S2-- c.-"f-, , W~1.L1 ~v.J~d Yes €)

CErR) '5 k(fivS N CTC0 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 of Irving 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~

a record ofexcellence

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 bel i eve I wi 11 go ahead and open up the

KENNEDY REPORTING SERVICE, INC.

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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

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COMMENTS ON BEHALF OF TXU

I'm going to read

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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

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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 NO x

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 costs .

KENNEDY REPORTING SERVICE, INC.

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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

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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, tha t the agency

06: 08PM 25 is a little bit behind in posting these rules up

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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'

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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

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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~ AE:-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:

a record ofexcellence

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.

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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

MS. GLACKEN: Thank you.

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.

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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.

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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.)

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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

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23

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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:

a record ofexcellence

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.

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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.

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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

that. If you could, please -- I know it's a

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

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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.

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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

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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.

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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

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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

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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 con t r 01 s t ha tare 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

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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 0 6, and the 2 0 0 7 de a d line .

. ,

MS. EVANS: Thank you.

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.

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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.

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EVALUATION OF 

TESTIMONY 
Texas Natural Resource Conservation Commission

INTEROFFICE MEMORANDUM

To: Commissioners Date: March 2, 2001

Thru:

From:

Subject:

Caption:

LaDonna Castanuela

Chief Clerk

Randolph Wood, Deputy Director

Office of Environmental Policy, Analysis, and Assessment

Commission Approval for Adoption of Proposed Rulemaking

CAPTION: Docket No. 2000-0969-RUL. Consideration for adoption of the following

new sections to 30 TAC Chapter 101, General Air Quality Rules and 30 TAC Chapter

117, Control of Air 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 of Ownership - 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 obtained from another participant in a system cap to offset the exceedence.

The new sections will be submitted as revisions to the state implementation plan. The

proposal was published in the December 1, 2000 issue ofthe Texas Register(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 first be banked with the commission and the transfer

must be approved by the executive director (ED). The rules adopted on April 19, 2000 also

established the voluntary participation in an annual emission cap for EGFs located in the attainment

counties of east 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

can be obtained on the same day as the exceedence occurs from any other EGF participating in a

system cap. The surplus would not have to be banked with the commission and the transfer would

not require ED approval. An additional option would allow a system cap to be exceeded on a 30-

day rolling average, provided sufficient surplus emission allowables are obtained from another

system for the identical time period. System cap limits for electric generating units located in east

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 of emission allowables remains restricted to the area, attainment or nonattainment,

in which it originates.

The adoption also states that in the event a unit within an electric power generating 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 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 United States Code, §741O(a)(2)(A), which requires state

implementation plans (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.

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 of east and central Texas.

Public Comment:

The staff conducted public hearings on January 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 and Reliant requested that the same flexibility to conduct daily trades without ED approval

be extended to electric generating facilities in Houston/Galveston (HGA) and Beaumont/Port

Arthur (BPA). The staffrecommends that the commission consider this 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 of Garland and Denton stated that the relative scarcity of credits in DFW would cause

the price of credit to far exceed the estimate in the proposal and could be burdensome for owners

that choose to purchase credit in lieu of installing additional controls. Their representatives also

expressed concern about a possible TXU Business Services monopoly on credits. The staff

recommends responding that the estimate of the price of emission credits was based on the best

information available at the time of proposal 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 of installing control or purchasing credit. The staff recommends that the rules

not be changed in response to this comment. The staff also recommends stating that an increased

demand for generation would affect both the large and small suppliers of electric power in DFW.

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 adoption will not add regulatory requirements, nor adversely affect

in a material way the economy, \a sector of the economy, productivity, competition, jobs, the

environment, or the public health and safety ofthe state or a sector ofthe state. The adopted rules,

therefore, do not meet the definition ofa major environmental rule. This rulemaking is not subject

to the regulatory analysis provisions ofTexas Government Code, §2001.0225(b), because the rules

do not meet any of the four applicability requirements.

Takings Impact Assessment:

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 of a governmental action. Additionally, the emissions

transfers that are the subject of these rules are not property rights. Consequently, these new

sections do not meet the defmition of a takings under Texas Government Code, §2007.002(5).

Consistency with the Coastal Management Program:

The staff has reviewed this action for consistency with the Texas Coastal Management Program

(CMP) goals and policies in accordance with the regulations 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 protect air quality in coastal

areas. These rules add flexibility for compliance with NOx emission standards and do not authorize

new emissions of air 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 administer and track the cap and trade program and is primarily affected by these

rules.

Agency Contacts:

Jill Burditt, Office of Environmental 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 distribution
EVALUATION 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 of the 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 of east 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 of ozone attainment in the DFW area

while maintaining reliability of service. 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 of the DFW ozone attainment demonstration rules for EGFs, which were published in the

May 5, 2000 issue of the Texas Register (25 TexReg 4140). In order to complete a trade under these

1
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 NOx

limits because the EGFs in DFW are more likely to emit the most NOx on days conducive to

exceedences of the 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 of system 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 of east and central Texas (25 TexReg 4101). This adoption 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,

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Hunt, Lamar, Limestone, Marion, McLennan, Milam, Morris, Nueces, Parker, Red River, Robertson,

Rusk, Titus, Travis, Victoria, and Wharton.

The transfer of emission 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 of this 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 of system 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 of system cap limits in §117.138. The commission has

modified §101.383(c) to correctly reference subsections (a) and (b) of this section.

3
The new §101.385 requires owners or operators of sources in an ozone nonattainment area

participating in this trading program to submit quarterly reports based on a calendar year within 30

days of the end of the 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 of each year and submitted within 30 days

following the end of the 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 of a 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 of system 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 of emissions in excess of the 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 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,

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§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 health and safety of the state or a sector of the 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 of the economy, productivity, competition, jobs, the environment,

or the public health and safety of the state or a sector of the 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 of which is to: 1.) exceed a standard set by federal law,

unless the rule is specifically required by state law; 2.) exceed an express requirement of state law,

unless the rule is specifically required by federal law; 3.) exceed a requirement of a delegation

agreement or contract between the state and an agency or representative of the federal government to

implement a state and federal program; or 4.) adopt a rule solely under the general powers of the

agency instead of under a specific state law. This rulemaking is not subject to the regulatory analysis

provisions of §2001.0225(b), because the adopted rules do not meet any of the four applicability

requirements. Specifically, the 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 of 42 USC, §741O, require states to adopt a SIP which provides for

"implementation, maintenance, and enforcement" of the primary NAAQS in each air quality control

region of the 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

5
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 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 of the 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 impact analysis (RIA) of extraordinary 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 that this 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.

6
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 of the 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. 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 intent of 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, that impact is no greater than is necessary or appropriate to meet the requirements of the

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 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 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).

7
TAKINGS IMPACT ASSESSMENT

The commission evaluated 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 NOx 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 of the 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 of a

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 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 partially fulfill a federal mandate under the USC, §741O. Specifically,

the emission limitations and control requirements that are the subject of 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 of the 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 of NAAQS through control programs directed to

sources of the pollutants involved. Therefore, the purpose of the 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 of an 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.

8
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 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

rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(l) 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 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 of the state's ozone attainment strategy; therefore, these revisions are to be

submitted as part of the SIP. As a result, the new sections are applicable requirements under the

federal operating permit program and sources are required to revise their permits if they 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

9
closed on January 5, 2001.

American Electric Power (AEP), the Association of Electric Companies of Texas, 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 of the 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, P.C. (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 of the

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 of surplus

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 of a 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 of system

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 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-

11
day 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 of existing 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 commenter that 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 of emissions in

excess of the 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 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

12
Beaumont/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 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 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 of two system caps and stated

that this would not jeopardize 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 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 of the 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.

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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 amount of DERCs 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 of electric generating facilities in the

DFW area with the Cities supplying about 10% of the 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 of significance 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 of allowables to some independent standard such as the average cost of

installation of electric generator emission controls in DFW. Another option would be to establish a

ceiling on prices based on the price of credits in markets similar to 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 expect that, under the

flexibility of trading programs, an owner of an electric generating unit would choose the least

expensive option of either obtaining additional allowables or lowering emissions. The commission

14
acknowledges the relative size of the generating capacity of the 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 of allowabIes will be detennined by several factors including the

need of a supplier to increase generation and the amount of a1lowables available. Even a small

amount of excess 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 of the program and will address problems if and when they emerge.

The Cities commented that the estimated price of reduction 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 of control installation or participating in the trading program. As the

market tightens those operators that chose to forego the installation of controls could find the cost of

credits 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 that the conditions affecting the cost of 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

market for 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.

15
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 of reducing 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 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 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,

§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.

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EVALUATION OF TESTIMONY

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 changes to the proposed text as published in the December 1, 2000

issue of the 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 of the

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 of Collin, 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 of EGFs are given the option of participating 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 of averaging 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 of this

adoption is to give the owners and operators of EGFs in the affected areas additional flexibility in

-1-
meeting their system caps either through the use of emission reduction credits (ERCs), discrete

emission reduction credits (DERCs), or through 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, 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 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 §117.108(c), System

Cap is based on a unit's 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 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) of this title

(relating to Applicability)."

-2-
FINAL REGULATORY IMPACT ANALYSIS 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 health and safety of the state 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 NOx emission limitations and

for NOx 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 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 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 by the EPA under the Federal Clean Air Act (FCAA), §109

(42 United States Code (USC), §7409), and therefore meet a federal requirement. Provisions of 42

-3-
USC, §741O, require states to adopt a SIP which provides for "implementation, maintenance, and

enforcement" of the primary NAAQS in each air quality control region of the 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 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 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 of the 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 impact analysis (RIA) of extraordinary 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

-4-
adopted solely under the general powers of the 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 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 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 of the 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. 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 intent of 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, that impact is no greater than is necessary or appropriate to meet the requirements of the

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 of state law (unless specifically

required by federal law), or exceed a requirement of a delegation agreement. The rulemaking was not

-5-
developed solely under the general powers of the 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 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 NOx 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 not affect private property in a manner which restricts or

limits an ownerrS right to the property that would otherwise exist in the absence of a governmental

action. Additionally, the NOx emissions under the system cap that are the subject of these rules are not

property rights. Consequently, the new sections do not meet the definition of a 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 of the 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 of NAAQS through control programs directed to sources of the

-6-
pollutants involved. Therefore, the purpose of the 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 of an 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 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

rules are consistent with the applicable CMP goal expressed in 31 TAC §501.12(l) 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 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 of the state's ozone attainment strategy; therefore, these revisions are to be

submitted as part of the 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 if they 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 on January 5, 2001.

American Electric Power (AEP), the Association of Electric Companies of Texas, 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 of the 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, P.C. (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 of the

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 of the east and central Texas attainment counties listed in §117.131 (4)

of this 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 of sources under conunon ownership or control located within the

same area that has unique NOx emission limits, and management of the system cap is the

responsibility of the owner or operator. In order for that system cap to be exceeded, the owner

or operator of the 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 of the "east and central Texas area" because the suggested Chapter

117 citation contains a listing of specific 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 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 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 of two system caps and stated

that this would not jeopardize 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 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 of the 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.

The conunission has not changed the rule in response to this comment. The conunission 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 conunission 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 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 of electric generating facilities in the

DFW area with the Cities supplying about 10% of the 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 of significance 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 of allowables to some independent standard such as the average cost of

installation of electric generator emission controls in DFW. Another option would be to establish a

ceiling on prices based on the price of credits in markets similar to DFW.

The commission has not changed the rules in response to this comment. The trading of aUowables

is an alternative to meeting emission limitations, and the commission would expect that, under the

flexibility of trading programs, an owner of an electric generating unit would choose the least

expensive option of either obtaining additional a1lowables or lowering emissions. The commission

acknowledges the relative size of the generating capacity of the 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 of a1lowables will be determined by several factors including the

need of a supplier to increase generation and the amount of aUowables available. Even a small

amount of excess 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 of the program and will address problems if and when they emerge.

The Cities commented that the estimated price of reduction 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 of control installation or participating in the trading program. As the

-11-
market tightens those operators that chose to forego the installation of controls could find the cost of

credits 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 that the conditions affecting the cost of 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

market for 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 NOx sources, stationary and

mobile, as an incentive to reductions and as a method of reducing 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 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 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,

§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 

RECOMMENDATIONS
CHAPTER 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 of this title (relating to Control of Air 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 of this title (relating to Utility Electric Generation in East and Central

Texas).

-1-
§101.382. Applicability.

Trades of emission allowables are limited to 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).

§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 of this 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 of Chapter 117 of this title (relating to Control of Air Pollution from

Nitrogen Compounds) continue to apply, except as modified in subsections (a) and (b) of this section.

§101.385. Recordkeeping and Reporting.

(a) The owner or operator of a 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 of each year.

(2) The report shall be submitted within 30 days following the end of the 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 of a source participating in a system cap limit for sources subject to

§117.138 of this 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 of each year.

(2) The report shall be submitted within 30 days following the end of the 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 of any 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 of the exceedence with supporting data;

-4-
(2) date or period of exceedence;

(3) amount of exceedence with data to demonstrate the amount of emissions in excess

of the applicable limit; and

(4) number of surplus emission allowables traded on the date of or 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 of a source of nitrogen oxides (NO,) in the Dallas/Fort Worth ozone

nonattainment area who is participating in the system cap under §117.108 of this title (relating to

System Cap) may exceed their system cap provided that the owner or operator is complying with the

requirements of §117.570 of this title (relating to Use of Emissions Credits for Compliance) or Chapter

101, Subchapter H, Division 1, 4, or 5 of this title (relating to Emission Credit Banking and Trading;

Discrete Emission Credit and Trading Program; and System Cap Trading).

§117.110. Change of Ownership - 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) of this title

(relating to System Cap) is based on the unit's status as part of a large or small system as of January 1,

2000, and does not change as a result ofsale or transfer of the unit, regardless of the size of the

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 of a source of nitrogen oxides (NO.) in any of the east and central Texas

attainment counties listed in §117.131(4) of this title (relating to Applicability) who is participating in

the system cap under §117.138 of this title (relating to System Cap) may exceed their system cap

provided that the owner or operator is complying with the requirements of Chapter 101, Subchapter H,

Division 1, 4, or 5 of this 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 certify that this j. a lIUe and COrTCCt copy oCa Toxaa Natural urce Col1JetVatiOD Commiuion documcat, WhIch· 1iIed'- ~entrecordJ oCllie CommWion. 1& iii&be

GIVen \Inder my h~d !he seal oCoffiee on

---'&L..~.",H~R2 9 ZOOl ~nna CulaAuela, ChieCCIerIr. .. Texas Natural RCJOu:ree

Conservation Commission

ORDER ADOPTING AMENDMENTS TO RULES

AND REVISIONS TO THE STATE IMPLEMENTATION PLAN

Docket No. 2000-0969-RUL

On March 21, 2001, the Texas Natural Resource Conservation Commission (Commission), during

a public meeting, considered amendments to 30 TAC Chapter 101, General Air Quality Rules, and Chapter

117, Control of Air Pollution from Nitrogen Compounds, specifically new §§101.380, 101.382, 101.383,

101.385, 117.109, 117.110, and 117.139; and revisions to the State Implementation Plan (SIP). The new

sections add flexibility to the trading of nitrogen 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 of the Texas Clean Air Act, Chapter 382 of the Tex. Health &

Safety Code.

Pursuant to Tex. Health & Safety Code Ann. §382.017 (Vernon Supp. 2000), Tex. Gov't Code

Chapter 2001 (Vernon 2000), and 40 Code of Federal Regulations §51.102, and after proper notice, the

Commission conducted public hearings to consider the proposed new rules and revisions to the SIP. Proper

notice included prominent advertisement in the areas affected at least 30 days prior to the dates of the

hearings. The public hearings were held in Irving on January 3, 2001 and in Austin on January 4, 2001.

The Commission circulated hearing notices ofits intended action to the public, 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 comment period. Prior to the scheduled hearings copies of the proposed new rules and SIP

revisions were available for public inspection at the Commission's central office and regional office in

Arlington. . .

Data, views, and recommendations ofinterested persons regarding the proposed new rules and SIP

revisions were submitted to the Commission staff during the comment period, and were considered by the

Commission staff as reflected in the analysis of testimony appended to this Order. The Commission fmds

that the analysis of testimony includes the names of all interested groups or associations offering comment

on the proposed new rules and the SIP revisions and their position concerning the same.

1
IT IS THEREFORE ORDERED BY THE COMMISSION that the new rules and revisions to the

SIP appended to this Order are hereby adopted. These rules and the preamble to the adopted rules and the

revisions to the SIP are incorporated by reference in this Order as if set forth at length verbatim in this

'. Order. : Legal counsel has reviewed and certified that these rules, as adopted, are a valid exercise of the

Commission's legalauthority. The certification is incorporated by reference in this Order as if set forth

verbatim.

.",

i

IT IS FURTHER ORDERED BY THE COMMISSION that on behalf of the Commission, the

Chairman should transmit a copy of this Order, together with the adopted new rules and revisions to the

SIP, to the Governor of Texas for submittal to the Regional Administrator of EPA as a proposed 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.

If any portion ofthis Order is for any reason held to be invalid by a court of competent jurisdiction,

the invalidity of any 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: October 27,2000

For further informalio " please call: (512) 458-7236

• •

SUBCHAPTE G. CONTRACT TERMINATION

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 authority to administer the state's medi al assistance program and are submitted by

the department und r its agreement with the Health and Human

Services Commissi n to operate the purchased health services

program as author" ed under Acts 1991, 72nd Legislature, First

Called Session, Ch pter 15, §1.07.

This agency hereby ertifies that the adoption has been reviewed

by legal counsel an found to be a valid exercise of the 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

For further information, pie se call: (512) 458-7236

• • •

SUBCHAPTER H. TRANSPORTATION

SERVICES FOR DIGENT CANCER PATIENTS

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 authority to administer the state's medical a sistance program and are submitted by

the departmenfunder it agreement with the Health and Human

Services Commission t operate the purchased health services

program as authorized nder Acts 1991, 72nd Legislature, First

Called Session, Chapte 15, §1.07.

This ag~ncy hereby cert les that the adoption has been reviewed

by legal counsel and fou d to be a valid exercise of the agency's

legal authority.

SUBCHAPTER

Filed with the Office of the ecretary ofState on March 21, 2001.

TRD-200101642

Filed with the Office f the Secretary ofState on March 21, 2001. Filed with the Office ofth Secretary ofState on March 21, 2001.

TRD-200101641 TRD-200101643

Susan K. Steeg Susan K. Steeg

General Counsel General Counsel

.Texas Department of alth Texas Department of Heal

Effective date: April 10 2001 Effective date: April 10, 2 1

Proposal publication d e: October 27,2000· Proposal publication date: ctober 27,2000

For further information, lease call: (512) 458-7236 For further information, pI se call: (512) 458-7236

• • • • •

CONTRACT TERMINATION jTITLE 30. ENVIRONMENTAL QUALITY

AND SANCTIO PART 1. TEXAS NATURAL RESOURCE

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 under Acts 1991, DIVISION 5. SYSTEM CAP TRADING

72nd Legislature, First C lied Session, Chapter 15, §1.07. 30 TAC §§101.380, 101.382, 101.383, 101.385

This agency hereby certifi s that the adoptionhas been reviewed The Texas Natural Resource Conservation Commission

by legal counsel and foun to be a valid exercise of the 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 changes to the proposed text as published in

the December 1, 2000 issue of the 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

26 TexReg 2730 April 6, 2001 Texas Register
Agency (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 for the 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 of service. 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 rules for EGFs. which were published in

theMay5,2000 issue ofthe Texas Register(25 TexReg 4140). In

order to 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 exceedences ofthe ozone standard. This adoption adds a trading alternativewhich will facilitate

daily emission trading by reducing the steps necessary to tra.de

allowable emissions among diffe:rentown-ers. Uoderthese rules,

the source owners will be simply required to report trades andthe

commission will have the opportunity to review, on a quarterly basis,· the daily emissions,30-day rolling average emissions, and

any emission trades wh ich occurred during the preceding calendar quarter.

Individual sources under common ownership or control 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 not exceeded. 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 surpluses for the 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, nonattainment or attainment, 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 for a single day or a 3D-day average or

tons per year for a calendar year for a source subjectto Chapter

117, Subchapter B, Division 2, Utility Electric Generalion in East

and Central Texas.

The new §101.382 applies the trading provisions of this 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 at system 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 calendar yearfrom 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) of this section.

The new §101.385 requires owners or operators of sources in an

ozone nonattainment area participating in this trading program to

submit quarterly reports based on a calendar year within 30 days

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~

. ingtrade date or period, 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 of the 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 of

a system cap when there were not allowances 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 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 §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

of emissions in excess of the 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 of the

regUlatory analysis requirements of Texas Government Code.

§2001.0225. The commission determined that these new sel>-

lions 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

protectthe environment orreduce risks to human health from en~

vironmental exposure, and that may adversely affectIn a material

ADOPTED RULES Apri/6, 2001 26 TexReg 2731
way the economy, a sector ofthe economy, productivity, competition, jobs, the environment, or the public health and safety of the

state or a sector of the 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 environinent, or the public health and safety of the

state or a sector of the 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 of which 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 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 of the agency instead of under a specific state

law. This rulemaking is not sUbject to the regulatory analysis

provisions of §2001.0225(b), because the adopted rules do not

meet any of the four applicability requirements. Specifically, the

emission banking and trading requirements were developed in

order to meet the ozone national ambient air quality standard

(NMOS) set by the EPAunderthe Federal Clean Air Act (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 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 IimitaJions and other control measures. means or techniques (including economic inCentives such as fees, marketable permits. and

auctions of emissions rights). as well as schedules arid timetables for compliance as may be necessary or appropriate to meet

the applicable requirements of this 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 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 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 §7410 and must develop programs to assure

that the nonattainment ·areas of the 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

impact analysis (RIA) of extraordinary 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

26 TexReg 2732 April 6, 2001 Texas Register

..:.,

F'~'

the understanding that this'ltEl.quirement 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 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 NMOS;

thus. states must develop programs for each nonattainment area

to ensure that area will meet the attainment deadlines. 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 that the 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 intent of 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, that impact is no greater than is necessary

or appropriate to meet the requirements of the FCM. 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 of state 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 greater flexibility

for EGFs in the affected areas to meet NO emission limitations

and for NO, emissions trading in orderto meet the NMOS established under federal 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 IMPACT ASSESSMENT

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

for ozone and to maintain air quality in the east and central Texas

area. Promulgation and enforcement of the 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 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 partially
fulfill a federal mandate under the USC, §7410. Specifically, the

emission limitations and control requirements that are the subject of this rulemaking were 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 once the EPAhas established them. Underthe USC,

§7410 and related provisions, slates mustsubmit, for approval by

the EPA, SIPs that provide fpr the attainment and maintenance

of NMOS through control programs directed to sources of the

pollutants involved. Therefore, too purpose of the rules is to implement a NO. strategy which is necessary for the DFW area

to meet the air quarlty standards established under federal law

and to maintain air quality in east and central Texas. Consequel)tiy, the exemption which applies to these rules Is that of an

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.

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 of the

GMP. The commission reviewed this action for-consistency"with

the CMP goals and policies in accordance with 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 authorize any new NO. air emissions.

EFFECT ON SITES SUBJECT TO THE FEDERALOPERATING

PERMITS PROGRAM

The new sections are part of the state's ozone attainment.strategy; therefore, these revisions are to be submitted as part of the

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

on January 3, 2001 and in Austin on January 4, 2001. Eight commenters submitted comments during the public comment period

which closed on January 5, 2001.

American Electric Power (AEP). the Association of Electric

Companies of Texas, 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 of the 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 of the proposal.

ANALYSIS OF TESTIMONY

AECT, AEp, and TXU supported the proposal but commented

on an apparent omission 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 another single 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 or within another single 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. 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 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 use the term "units

within an electric power generating system." This term is consis~

tent with that used in §117.138. The commission has also modified §101.383(b) and §1 o1.385(b) to more specifically reference

the computation of system 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 andAEP commented that the 3o-day schedule 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 for grandfathered electric generating facilities under

§lOl.336(b).

The commission has not changed the rule based on this com~

ment. The annual activity report will be a compilation of existing

records on trades that have occurred during a calendar year. and

the commission believes 30 days is adequatetimeto 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

ADOPTED RULES April 6, 2001 26 TexReg 2733
subparagraph is limited to the trades conducted under Chapter

101, SUbchapter H, Division 5.

The commission agrees with the commenter that the suggested

change clarifies intent and has made the appropriate change to

§1 01.385(b)(3)(8) and additionally to §101.385(a)(3)(B).

AECT and AEP commented that the phrase "with data to demonstrate the amount of emissions in excess of the 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 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 NO. emission limits for utility boilers in the

DFWarea, similar limits were established for utility boilers in the

Beaumont/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 SPA 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 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 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 of ERCs

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 of DERCs) and would lead to exceedences of the

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. .

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 amount of DERCs available for use in the DFW area, the

commission believes their use underthe system caps will not significantly affect the SIP. Sections 117.109 and 117.139 clarify an

26 TexReg 2734 April 6, 2001 Texas Register

existing flexibility that was oreated with the adoption of §117.570

in December 2000." .

The Cities commented that they and TXU are the only operators

of electric generating facilities in the DFW area with the Cities

supplying about 10% of the 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 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 of allowables to some independent

standard such as the average cost of installation of electric generator elJlission 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 of allowables is an alternative to meeting emission limitations, and the commission would expect that:

under the flexibility of trading programs, an owner of an electric

generating unit would choose the least expensive option of either

obtaining additional allowables or lowering emissions. The commission acknowledges the relative size of the generating capacity of the eligible participants iii the DFW program but disagrees

that the Cities would not have excess allowables that would 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 amount of allowables available. Even a small

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·

monitor the operation of the program and will address problems.

if and 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 of control installation or participating in the trading program. As the market tightens those operators that chose

to forego the installation of controls could find the cost of credits

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 that the conditions affecting the cost of

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 market for 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

incentive to reductions and as a method of reducing the potential

of a monopolistic market.
:/

CHAPTER 117. CONTROL OF AIR

POLLUTION FROM NITROGEN COMPOUNDS

SUBCHAPTER B. COMBUSTION AT MAJOR

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

changes to the proposed text as published in the December 1,

2000 issue of the 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) The report shall be submitted within 30 days following

the end ofthe annual penod. .

(3) The report shall detail the following:

(A) the annual NO. emissions from each source along

with supporting calculations; and

(B) all emissions trades conducted under this division

during the reported time period induding trade date, quantity traded,

and trade participants. .

(c) The owner or operator of any 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:

(I) cause ofthe exceedence with supporting data;

(2) date or period of exceedence;

(3) amount of exceedence with data to demonstrate the

amount ofemissions in excess oftbe applicable limit; and

(4) number of surplus emission aIIowables traded on the

date of or during the period ofthe exceedence.

This agencyhereby certifies thatthe adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secrelary ofState on March 23, 2001.

TRD-200101694

Margaret Hoffman

pirector, Environmental law Division

Texas Natural Resource Conservation Commission

Effective. date: Apnl12, 2001

Proposal publication date: December 1, 2000

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

++ +

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

Sl~ 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 underthe Texas 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 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 other control measures or techniques, including economic incentives such as fees, marketable

permits, and auction of emission rights.

§JOJ.383. General Provisions.

(a) System cap limits may be exceeded with surplus emission

allowables obtained for tbat day from another source owner or operator

participating in a system cap. The owner Or operator may exceed the:

(I) maximom daily cap with a one-da.y surplus emission

allowabJes generated on the same day; and

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

(b) System cap limitsfor units within an electric power generating system as regulated under §117.138 oft~is title (relating to System Cap) may be exceeded with surplus emission allowab~es,obta.ined

for that calendar year from another. source. owner or operator participating in a system cap..

(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 R.eporting.

(a) The owner or operator ofa source in an ozone nonattainment area participating with this division shan submit to the executive

director a quarterly report.

(l) Each quarterly report will be based on.3 three-calendar

month period beginning on January I 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 (NO) emissions from

each source along with supporting calculations for the maximum daily

cap and the rolling 30-day average system cap emission )imitation;

(B) all emission trades conducted under this division

duringtbe reported time period including the trade date or period, quantity traded, and trading participants.

(b) The owner or operator ofasource participating in a system

<:ap limitfor sourcessubjectto §111.138 ofthistitle (relating to System

Cap) shall submit to the executive director an annual report.

(l) Each annual report will be based on a J2-rnonth calendar period beginning on January I of each year.

ADOPTED RULES Apri/6, 2001 26 TexReg 2735
TexReg 4101 and TexReg 4140), that required electric generating facilities (EGFs) in the Dallas/FortWorth (DFW) ozone nonattainment area and east and central Texas to meet specific nitrogen oxides (NO,) emission limits. The counties of Collin, 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.

Underthe adopted rules, owners or operators of EGFs are given

the option of participating in system cap to meet the emission requirements in Chapter 117. Under a system cap owners or operators of EGFs will have the option of averaging 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 of this 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), or through 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, or 5,

relating to Emission Credit Banking and Trading; Discrete Emission Credit and Trading Program; and System Gap Trading". The

new Chapter 101., Subchapter H, Division 5 is being adopted in

a concurrent rulemaking in this issue 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 §117.108(c), System Cap is based on a unit's 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 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) of this title (relating to Applicability)."

FINAL REGULATORY IMPACT ANALYSIS 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 Texas Register

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 under the general powers of the 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 by the EPA under the Federal

Clean Air Act (FCAA), §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

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 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 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 §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 §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 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

impact analysis (RIA) of extraordinary 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 that this requirement would seldom apply, the
commission provided a cost estimate for S8 633 that concluded

"based on an assessment of rules adopted by the agency in 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 under the provisions of the 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 developprograms for each nonattainment area

to ensure that area will meet the attainment deadlines. 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 that the 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 <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 it is a rule of statutory interpretation thatthe legislature is presumed to understand the fiscal impacts of the bills

it passes, and \hat presumption is based on information provided

by state agencies and the LBB, the commission believes that the

intent of SB 633 was only to require the full RIA for rules that are

extraordinary in nature. While the SIP rules will have a broad

imp8ct, that impact is no greater than is necessary or appropriate 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 by federa/law. The rulemaking does D0\.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 allow greater flexibility for EGFs in

the affected areas to meet NO emission limitations and for NO

emissions trading in orderto meet the NAAQS established 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

The commission evaluated 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 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 not affect private property in a manner which restricts or limits an owner's right to the

property that would otherwise exist in the absence of a governmental action. Additionally, the NO. emissions under the system

cap that are the subject of these rules are not properly rights.

Consequently, the new sections do not meet the definition of a

takings under Texas Gove~nment Code, §2007.002(5). Although

the new sections do not directly prevent a nuisance or prevent an

immediate threat to life or properly, they do prevent a real and

substantial threat to public health and safety, and partially fulfill a

federal mandate under the 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 for the attainment and maintenance of NAAQS

through control programs directed to sources of the pollutants

involved. Therefore, the purpose of the 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 of an 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 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 and policies of the

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 new sections

do not authorize any new NO. air emissions.

EFFECT ON SITES SUBJECT TO THE FEDERAL OPERATING

PERMITS PROGRAM

The new sections are part of the state's ozone attainment .strategy; therefore, these revisions are to be ,submitted as part·ofthe

SIP. Asa result, the new sections are applicable requirements

under the federal operating permit program and sources are re- _

qUired to revise their permits if they 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 January 4, 2001. Eight commenters submitted comments during the public comment period

which closed on January 5, 2001.

American Electric Power (AEP), the Association of Electric

Companies of Texas, 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 of the 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.

ADOPTED RULES Apri/6,2001 26 TexReg 2737
(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 of the 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

not defined in Chapter 117, the applicability of§117.139 be referenced as "any of the east and central Texas attainment counties

listed in §117.131(4) of this 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 of the system cap is the responsibility of the 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 commission has made the recommended change

concerning the designation of the "east and central Texas area"

because the suggested Chapter 117 citation contains a listing of

specific counties.

Entergy and Reliant commented that in the May2000 rulemaking

which established daily NO, emission limits for utility boilers in the

DFW area, similar limits were established for utility boilers in the

BeaumonUPort Arthur (BPA) nonattainment area. They stated

that the reqt,lirement 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 ap- .

plied to other facilities SUbject to a system cap under Chapter

117 in subsequent rulemaking. Reliant also commented that the

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 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 of two system caps and stated that this would notjeopardize the overall regional cap. They expressed concern overthe

proposed §117.109 and §117.139 which allow the 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 of the 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.

26 TexReg 2738 April 6, 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 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 amount of DERCs 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

of electric generating facilities in the DFW area with the Cities

supplying about 10% of the power and 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 of significance 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 of allowables to some independent

standard such as the average cost of installation of electric generator emission controls in DFW. Another option would be to establish a ceiling on prices based on the price of credits in markets

similar to 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,

under the flexibility of trading programs, an owner of an electric

generating unit would choose the I~ast expensive option of either

. obtaining additional allowables or lowering emissions. The come

mission acknowledges the relative size of the generating capacity of the 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 of allowables will be determined

by several factors including the need of a supplier to increase

generation and the amount of allowables available. Even a small

amount of excess allowables 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 of the program and will address problems

if and when they emerge.

The Cities commented that the estimated price of reduction 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 of control installation or participating in the trading program. As the market tightens those operators that chose

to forego the installation of controls could find the cost of credits

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 that the conditions affecting the cost of

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 market for 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

incentive to reductions 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-

. eTating 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.

DIVISION 1. UTILITY ELECTRIC

GENERATION IN OZONE NONATTAINMENT

AREAS

30 TAC §1l7.109, §1l7.1l0

STATUTORY AUTHORITY

The new sections are adopted underthe Texas Health and Safety

Code, TCAA, §382.011, which authorizes the commission to

control the quality of the state's air; §382.D12, which authorizes

the commission to develop a plan for control of the state's air;

§387.017, which provides the commission ihe 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 emissionliniitations and 'other control measures or techniques, including economic incentives such as fees, marketable.

permits, and auction of emission rights.

This agency hereby certifies that the adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Filed with the Office of the Secretary ofState on March 23, 2001.

TRD-200101692

Margaret Hoffman

Director, Environmental Law Division

Texas Natural Resource Conservation Commission

Effective date: April 12. 2001

Proposal publication date: December 1, 2000

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

• • •

DIVISION 2, UTILITY ELECTRIC

GENERATION IN EAST AND CENTRAL

TEXAS

30 TAC §1l7.139

. STATUTORY AUTHORITY

The new section is adopted under the Texas Health and Safety

Code, TCAA, §382.011, which authorizes the commission to

control the quality of the state's air; §382.D12, which authorizes

"the commission to develop a plan for control of the state's air;

§382.017, which provid",s the commission the authority to adopt

rules consistent with the policy and purposes of the 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.

§117.139. System Cap Flexibility.

An o'>...ner or operator of a source of nitrogen oxi4es (NO) in any of

the east and central Texas attainment counties 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

their system cap provided that the owner or operator is complying with

the requirements ofChapter 101, Subchapter H, Division 1.4, or 5 of

this title (relating to Emission Credit Banking and Trading; Discrete

Emission Credit and Trading Program; and System Cap Trading).

This agency hereby certifies thatthe adoption has been reviewed

by legal counsel and found to be a valid exercise of the agency's

legal authority.

Fiied with the Office of the Secretary ofState 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

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

• • •

CHAPTER 305. 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 ent to §305.69, Solid Waste Permit

Modification at the Reques of the Permittee. Amended §305.69

is adopted without change to lhe proposed text as pUblished in

the December 8, 2000 issu of the 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 by the 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 t certain conditions as described

in the Section by Section Dis ssion portion of this preamble. tn

addilion to this amendment t Chapter 305, requirements concerning military munitions weare concurrently being adopted

as amendments to Chapter 3 5, Industrial Solid Waste and Municipal Hazardous Waste, 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

ADOPTED RULES Apri/6, 2001 26 TexReg 2739
at this annOWlcement has been reviewed

be a valid exucise ofthe agency's legal

• •

Mental Health and Mental

Due to a typographical error in the agency's submission, the word' "a"

should not appear in paragraphs (I) and (2) of §101.383(a) on page 26,

TexReg 2735.

The paragraphs should read:

"(1) maximum daily cap withone-day surplus emission allowables generated on the same day; and

"(2) rolling 3D-day average daily system cap emission limitation with

surplus emission allowables generated over the same period."

TRD-200102033

•• •

Notice ofOpportunity to Co ment on Settlement Agreements

ofAdministrative Enforcem nt Actions

The Texas Natural Resource nservation Commission (TNRCC or

commission) staifis providing opportunity for written public comment on the listed Agreed Old (AOs) pursuant to TeXas Water Code

(the Code), §7.075, which req 'res that the TNRCC may not approve

these AOs unless the public has een provided an opportunity to submit

written eomtnerits: Section 7. 5 requites that notice of the proposed

orders and of the opportunity 0 comment must be published in the

Texas Register no later than th 30th day before the date on which the

public commentperiod closes, hich in this case is May 21, 2001. Section 7.075 also requires that th TNRCC promptly consider any written comments received and tha the TNRCC may withhold approval of

an AO ifa corrunent discloses cts or considerations that indicate the

proposed AD is inappropriate, improper, inadequate. or inconsistent

with the requirements ofthe C de, the Texas Health and Safety Code

(THSC), and/or the Texas Cle AirAct (the Act). Additional notice is

not required ifchanges to an A are made in response to written comments.

A copy of each ofthe propose AOs is available for public 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

at the applicable Regional oro e listed as follows. Written comments

about these AOs should be sen to the enforcement coordinator desig~

nated for each AO at the TNR C's Central Office at P.O. Box 13087,

Austin, Texas 78711-3087 and ust be received by 5:00 p.m. on May

21,2001. Written comments m y also be sent by facsimile machine to

the enforcement coordinator at 12) 239-2550. The lNRCC enforcement coordinators are available discuss the AOs and/or the comment

procedure at the listed phone n bers; however, §7.075 provides that

comments on the AOs should b submitted to 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, Harris COll , Texas; TYPE OFFACILITY: electrical power generation; RULE V OLATED: 30TAC §116.l15(c), Special Condition I ofPermit 9276, d the Code, §382.085(b), by haviog

an upset emission of more than 000 pounds of sulfur dioxide; and

30 TAC §101.6 and the Code, §3 2.085(b), by failing to report an 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 ; DOCKET NUMBER: 2000-1251-

MWD-E; IDENTIFIER: Texas P lIutant Discharge Elimination Syslem (TPDES) Permit Number 030 2-000; LOCATION: Aransas Pass,

San Patricio County, Texas; T E OF FACILITY: structural metal

fabrication; RULE VIOLATED: TAC §305.125(I), TPDES Permit

Number 03012-000, and the Code §26.121, by failing to comply with

This agency hereby cerrifie

by legal counsel and found

authority.

TRD-200102041

William H. Kuntz, Jr.

Executive Director

Texas Department of Licensi 9 and Regulat on

Filed: April 10, 2001

•

Texas Department 0

Retardation

Notice ofJoint Public Hea 'ng on Reimbursement Rates for

Services in Institutions for ental Dis< ases (IMD)

The Health and Human Servi es Commission and the Texas Department of Mental Health and ental Retar, ation will conduct a joint

public hearing to receive publ c comment (,n the extension ofcurrent

reimbursement rates for Insti tions for Me ltal Diseases (IMDs). The

rates will be effective May 1, 2001, throu.~h August 31, 2001, The

joint hearing will be held in c mpliance wi th Title ], Texas Administrative Code, Chapter 355, Sub hapter F, §3::5.702(h), which requires a

public hearing on proposed rei bursement rate for medical assistance

programs. Payment rates are p posed to btl effective May 1,2001, as

follows:

$367.97 per day

Methodology and justification The propo. ied rates were determined

in accordance with the rate se ting method ology codified as I Texas

Administrative Code Chapter 55, Subch!.pter F (relating to Reimbursement Methodology for all medical ass .stance programs (!MOs»,

§355.761(c)(3,4).

The public hearing will be held n Monday, May 7, 2001, at ·1 :00 p.m.

in room 2-328, ofTDMHMR entral Oflke building (Building 2) at

909 West 45th Street, Austin, as 78751.

Written comments may be sub itted to the Reimbursement and Analysis Section, Medicaid Admini tration, Te: :as Department of Mental

Health and Mental Retardation, . O. Box 12 668, Austin, Texas 7871 1-

2668, or faxed to (512) 206-569 . Hand de:iveries will be accepted at

909 West 45th Street, Building 4, Austin, Texas 78751. Comments

must be received by 4:00 p.m. 0 Monday, May 7, 200 I.

Persons reqliiring an interpreter or deaf or hearing impaired or other

accommodation should contact m Woold! idge by calling (512) 206-

5753 or the TDY phone number fTexas FeIay, which is 1-800-735-

2988, at least 72 hours prior to t hearing.

TRD-200102035

Andrew Hardin

Chairman, Texas MHMR Board

Texas Department of Mental Healt and Mer tal 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 appeared in the April 6, 200 1, Texas RegisterI 26 TexReg 2730).

INADDITION April 20, 2001 26 TexReg 3045