SJVUAPCD Governing Board 

ADOPT PROPOSED AMENDMENTS TO RULE 3170 (FEDERALLY MANDATED OZONE 

NONATTAINMENT FEE) 

May 19, 2011 

2 

emissions by 20% compared to their emissions during the attainment deadline year, 

they can escape paying the nonattainment fee in future years. 

Unfortunately, these penalty fees will not have the intended impact in the San Joaquin 

Valley. With the mature air pollution control programs that are in place in the Valley, 

most businesses have already made significant investments and installed the most 

advanced air pollution controls available for their facilities. These facilities would not be 

able to reduce their emissions to escape the Section 185 fees, since they were already 

controlled with the best air pollution control equipment available. The result is that 

facilities that cleaned up their emissions early would be penalized by Section 185 fee 

assessments, while facilities that have not installed the best control equipment could 

make relatively modest investments in air pollution controls after the attainment 

deadline, and escape the fees entirely. We do not believe that Congress envisioned 

areas in which major sources were largely and significantly controlled would have 

difficulty in coming into attainment, and we do not believe that they intended or 

anticipated these unfair consequences. 

The Governing Board originally adopted Rule 3170 on May 16, 2002, to implement the 

Section 185 clean air act fee penalties. In response to the unintended consequences 

noted above, the Board included special provisions to exempt well-controlled 

businesses ("clean emissions units") from the penalties, and provided for multi-year 

averaging of baseline period emissions to extend credit to businesses that invested in 

early reductions in emissions and to account for fluctuations in production rates due to 

market conditions. 

In January 2010, the U.S. Environmental Protection Agency (EPA) disapproved these 

special provisions of Rule 3170, as they were not consistent with the direct 

implementation of a Section 185 fee program. EPA’s “limited approval and limited 

disapproval” of Rule 3170 required the District to implement the rule, but to fix the 

unapproved portions within 18 months. 

However, EPA also recognized the inappropriate outcomes of a direct implementation of 

the Section 185 fees, and addressed the need for further flexibility by issuing, also in 

January 2010, a guidance memorandum that allows for the development of alternative 

equivalent approaches to satisfy the CAA fee requirements, but only if such alternatives 

are no less stringent then a direct implementation of Section 185. 

The revisions to Rule 3170 discussed in this report are designed to implement such an 

alternative, specifically a program designed to demonstrate that total existing fees 

collected from multiple sources are equivalent to the fees collected by a direct 

implementation of Section 185, but which avoids the unfair consequences of a direct 

Section 185 nonattainment fee program. 
SJVUAPCD Governing Board 

ADOPT PROPOSED AMENDMENTS TO RULE 3170 (FEDERALLY MANDATED OZONE 

NONATTAINMENT FEE) 

May 19, 2011 

3 

DISCUSSION: 

The Valley’s extreme nonattainment status for the federal one-hour ozone ambient air 

quality standard resulted in an attainment deadline of November 2010. While significant 

progress has been made in reducing the number of 1-hour ozone standard 

exceedances (reduced from 50 days over the standard in 1990 to a low of only three 

days of exceedances in 2009), the Valley did experience seven days of exceedances in 

2010, thus triggering the Section 185 fees. We must therefore implement a Section 185 

fee program, and EPA’s partial approval of our existing 2002 version of Rule 3170 

means that we will have to implement the existing rule, unless we make revisions to it 

and EPA approves those revisions. 

There would be multiple ramifications if we were to implement the existing Rule 3170 

without modifying it as proposed here. For instance, because EPA has found our rule 

to be deficient in some areas, they are now required to implement sanctions against the 

District if we do not address the deficiencies and receive EPA approval of the rule 

before August 2011. These sanctions will result in a de facto ban on new and 

expanding major business in the Valley, and the loss of federal highway funds 

throughout the region. Additionally, EPA would collect the Section 185 fees directly 

from Valley businesses and the funds would be transferred to the federal treasury, 

rather than being spent in the San Joaquin Valley. 

In recognition of these issues, your Board has taken two separate actions that are 

aimed at satisfying the applicable federal mandates while minimizing economic impacts 

on Valley residents and businesses: 

 In February 2010, your Board directed staff to develop revisions to Rule 3170 

that make use of the flexibility provided by EPA’s January 5, 2010, Section 185 

guidance memorandum and develop an equivalent program that better 

addresses the Valley’s unique circumstances. Concepts in the original version of 

Rule 3170, such as the clean emissions unit exemption, that were intended to 

facilitate an equitable distribution of responsibility and reward facilities that had 

invested in clean air technology, should be retained, and alternative sources of 

fees should be explored. 

 In October 2010, as provided in EPA’s 185 guidance and to provide for equitable 

assignment of responsibility to mobile and stationary sources commensurate to 

their relative emissions and contributions to nonattainment, your Board took the 

first steps towards implementing a fee-equivalent program and approved a motor 

vehicle fee of $12 per vehicle. These funds will be reinvested in San Joaquin 

Valley communities to achieve surplus emissions reductions to remediate air 

pollution problems caused by motor vehicles, and are to sunset upon attainment 

of the one-hour ozone standard. 
SJVUAPCD Governing Board 

ADOPT PROPOSED AMENDMENTS TO RULE 3170 (FEDERALLY MANDATED OZONE 

NONATTAINMENT FEE) 

May 19, 2011 

4 

Adoption of the proposed Draft Rule 3170, and submittal to EPA, completes the 

necessary administrative processes required for a program that can be found to be 

equivalent to direct implementation of a Section 185 nonattainment penalty fee 

program. 

Rule Components: 

The rule contains the following major components: 

 Processes for determining Section 185 nonattainment penalty fees to be paid by 

major stationary sources of ozone precursors. Major sources of NOx or VOC will 

be required to pay $5000 per ton of NOx and VOC emissions that exceed 80% of 

their emissions during a baseline period defined by the rule. The fee is specified 

by federal law, in 1990 dollars, and grows with the federal Consumer Price Index, 

and is currently about $8300 per ton. The fee only applies to pollutants (NOx or 

VOC) for which a facility exceeds the major source emissions threshold. 

 An exemption from such fees for any “Clean Emissions Unit” so that sources 

which installed high efficiency emissions reduction technology do not get 

penalized for their remaining emissions. 

 A new commitment to a specific process for identifying when the fee collection 

authorized by the rule should cease, coincident with EPA’s approval of a 

demonstration that the District has met the one-hour ozone attainment standard. 

 A new tracking and reporting system to demonstrate that the major stationary 

source fees collected, plus the motor vehicle fees collected by the DMV to be 

spent by the District in programs designed to reduce NOx and VOC emissions, 

are at least equal to the fees that would have been collected under the direct 

implementation of a Section 185 fee program. 

 A new backstop provision identifying steps the District will take if there is a 

shortfall in overall fees collected, i.e., the tracking system shows that we did not 

collect total fees equivalent to a direct Section 185 program. 

Incorporating EPA’s Guidance on a Section 185 Fee-equivalent Program: 

EPA’s Section 185 guidance memorandum allows for an alternative 185 fee program 

that is ‘not less stringent’, consistent with the principles of Section 172(e) of the act, but 

the memo does not provide a template or provide a pre-approved alternative program 

model for utilizing these federal CAA’s equivalency principles. In fact, EPA makes it 

clear that a case-by-case approval will be a part of EPA’s review, as will a formal public 

notice-and-comment federal rulemaking process. 

In addition, environmental groups at the national level have taken legal action against 

EPA challenging the legality of these alternatives. Therefore, it is critical to carefully 

consider relevant issues and questions, and design a program that would be legally 

defensible and would have optimum chance for EPA approval. We have worked closely 
SJVUAPCD Governing Board 

ADOPT PROPOSED AMENDMENTS TO RULE 3170 (FEDERALLY MANDATED OZONE 

NONATTAINMENT FEE) 

May 19, 2011 

5 

with EPA since the March 8 workshop of the proposed rule, and have incorporated the 

tracking, reporting, and backstop provisions into the rule specifically to improve the 

rule’s adherence to EPA’s guidance and to ensure the rule’s legal defensibility. 

Comments and Responses: 

The District received a number of comments on the March 8, 2011 version of the rule, 

which resulted in a number of revisions. EPA commented that the rule should include 

tracking, reporting, and backstop provisions, as discussed above, to ensure the rule is 

federally approvable. We agreed to add those provisions, and EPA has expressed 

satisfaction with the rule, based on their preliminary analysis. 

District staff has also received comments from stakeholders other than EPA. In 

general, comments were positive. Commenters were appreciative of the District’s 

recognition of the inherent lack of fairness in implementing a direct Section 185 

program, and of your Board’s direction to staff to craft a more equitable solution within 

the confines of the Clean Air Act. 

Some commenters felt that the District needed to provide additional information on the 

rule implementation process and we have done so in the final draft staff report and our 

response to comments in Appendix H of the final draft staff report. 

One commenter felt the District should reevaluate whether units remain “clean 

emissions units” at some point in the future, based on an updated analysis of available 

control equipment. However, the “clean emission unit” determination is intentionally tied 

to the 2010 baseline date for determining fees, and to change that would perpetuate the 

inherent unfairness of the federal Section 185 nonattainment fees which the District was 

trying to address with the “clean emission unit” exemption, and we are therefore not 

proposing to modify the rule accordingly. Staff has addressed all of these comments 

and suggestions in additional detail, and provided the District’s responses, in 

Attachment H of the Final Draft Staff Report. 

The District did not receive any further comments on the rule after the revisions 

discussed above, during the public hearing notice and comment period which ended on 

May 2, 2011. In addition, on May 3, 2011, all three interest groups within the District’s 

Citizens’ Advisory Committee, representing industries, environmental groups, and 

Valley cities, voted unanimously to support the Board’s adoption of Rule 3170. 

Cost Effectiveness Analysis:

Pursuant to California Health and Safety Code Section 40728.5, the District is required 

to analyze the cost effectiveness of new rules that implement Best Available Retrofit 

Control Technology (BARCT). The proposed amendments do not add BARCT 

requirements and therefore are not subject to the cost effectiveness analysis mandate. 
SJVUAPCD Governing Board 

ADOPT PROPOSED AMENDMENTS TO RULE 3170 (FEDERALLY MANDATED OZONE 

NONATTAINMENT FEE) 

May 19, 2011 

6 

Socioeconomic Impact Analysis:

State law requires the District to analyze the socioeconomic impacts of any proposed 

rule amendment that significantly affects air quality or strengthens an emission 

limitation. The draft rule does not significantly change the impact of the existing rule and 

does not directly affect air quality nor change any existing emissions limit, and is 

therefore not subject to the socioeconomic analysis mandate. 

Rule Consistency Analysis:

Pursuant to CH&SC Section 40727.2 (g) a rule consistency analysis of the draft rule is 

not required. Regardless, we have changed reporting schedules originally proposed in 

this rule to be consistent with similar reporting requirements for Rule 4320. In addition, 

we are attempting to eliminate any duplicative facility reporting requirements by aligning 

this rule with future emissions inventory reporting requirements. 

Environmental Assessment:

Pursuant to the California Environmental Quality Act (CEQA), staff investigated possible 

environmental impacts on proposed amendments to Rule 3170. A proposed negative 

declaration has been issued by the District and made available for public review and 

comment. This public review period ended on May 3, 2011, and no negative comments 

were received. 

Since publication of the proposed negative declaration on April 1, 2011, the proposed 

rule amendments have undergone some revision. Staff concludes that the proposed 

revisions do not constitute a "substantial revision" as defined in CEQA Guidelines 

section 15073.5(b) and recirculation of the Negative Declaration is not required (CCR 

§15073.5(c). Thus, upon approval of the proposed amendments by the District's 

Governing Board, District staff will file a Notice of Determination with each County Clerk 

within the boundaries of the District, indicating the District’s determination that the 

project will not have a significant effect on the environment (CCR §15075(d)) 

Rule Development Process:

As part of the rule development process, a public workshop was held March 8, 2011 to 

present the draft rule amendments and seek additional public participation and input 

regarding legal and technical concerns for inclusion in the rule development process. 

Staff incorporated comments received during the rule development process as 

appropriate. 

Finally, your board received and filed the draft rule at your April board meeting. The 

notice of the public hearing for the proposed rule amendments was published in a timely 
SJVUAPCD Governing Board 

ADOPT PROPOSED AMENDMENTS TO RULE 3170 (FEDERALLY MANDATED OZONE 

NONATTAINMENT FEE) 

May 19, 2011 

7 

manner in general circulation newspapers in each of the eight San Joaquin Valley 

counties, and was made available for review on the District website. The public notice 

solicited written comments to be submitted, and identified the name and telephone 

numbers of the District staff who can answer questions and respond to comments. No 

comments have been received subsequent to the April board meeting. 

FISCAL IMPACT: 

This action does not significantly impact the amount of fees to be generated by this rule, 

as the changes do not impact the facilities affected, nor do they significantly change the 

units that are exempted from the fees. 

The fee-equivalent program, in total, will require significant staffing resources for the 

collection and administration of the revenues generated. However, to minimize these 

administrative costs, the District will utilize and leverage existing permitting and grant 

programs. With this approach, it is anticipated that the bulk of additional administrative 

work can be absorbed by the existing staff. Additional staffing, if needed, will be subject 

to Board approval in future budgeting actions. 

Attachments: 

Attachment A: Proposed Rule 3170 (8 pages) 

Attachment B: Resolution for Proposed Amendments to Rule 3170 (5 pages) 

Attachment C: Initial Study and Negative Declaration for Proposed Amendments to Rule 3170 

(28 pages) 

Attachment D: Final Staff Report for Rule 3170 (133 pages) 

Appendices to Final Staff Report: 

A – EPA’s Final Rule partially approving and partially disapproving District Rule 3170 

B – EPA’s “Guidance on Developing Fee Programs Required by CAA Section 185...” 

C – District Staff’s Report, October 21, 2010 

D – District’s ARB Findings Request and Signed Board Resolution, October 21, 2010 

E – Assembly Bill 2522 

F – ARB’s Executive Order G-10-126, making findings required by AB 2522 

G – ARB’s request to the California Department of Motor Vehicles 

H – District’s Response to Comments on the 3/8/11 version of Rule 3170 

I – Sample Facility Fee Calculation Worksheet