GOVERNING BOARD

Tom Wheeler , Chair Supervisor, Madera County

Oliver L. Baines III , Vice Chair Councilmember, City of Fresno

Sally J. Bomprezzi Councilmember, City of Madera

Dennis Brazil Mayor, City of

John Capitman, Ph.D. Appointed by Governor

David Couch Supervisor, Ke rn County

Bob Elliott Supervisor, San Joaquin County

Harold Hanson Councilmember, City of Bakersfield

Buddy Mendes Supervisor, Fresno County

William O’Brien Supervisor, Stanislaus County

Craig Pedersen Supervisor, Kings County

Alexander C. Sherriffs, M.D. Appointed by Governor

Vacant Small City

– Tulare County

Hub Walsh Supervisor, Merced County

J. Steven Worthley Supervisor, Tulare County

Seyed Sadredin

Executive Director
Air Pollution Control Officer

Northern Region Office 4800 Enterprise Way Modesto, CA 95356

- 8718 (209) 557

- 6400 • FAX (209) 557

- 6475

Central Region Office 1990 East Gettysburg Avenue Fresno, CA 93726

- 0244 (559) 230

- 6000 • FAX (559) 230

- 6061

Southern Region Office 34946 Flyover Court Bakersfield, CA 93308

- 9 725 (661) 392

- 5500 • FAX (661) 392

- 5585

www.valleyair.org DATE: January 22, 2015

TO: SJV UAP CD G overning B oard

FROM: Seyed Sadredin, Executive Director/APCO Project Coordinator: Sheraz Gill

RE: ITEM NUMBER 11: ADOPT PROPOSED

AMENDMENTS TO RULE 4905 (NATURAL GAS

FIRED, FAN

- TYPE CENTRAL FURNACES)

RECOMMENDATION S :

1. A dopt proposed amendments to Rule 4905 (Natural Gas

- Fired,

Fan

- Type Central Furnaces)

.

2. Authorize the Chair to sign the attached Resolution.

BACKGROUND :

Rule 4905 is the District’s point of sale rule that reduces oxides of nitrogen (NOx) emissions from natural gas

- fired, fan

- type residential central furnaces (residential units) with a rated heat input capacity of less than 175,000 British thermal units p er hour (Btu/hr) and less than 65,000 Btu/hr cooling capacity for combination heating and cooling

units.

The proposed Rule 4905 amendments would lower the allowed NOx

emission rates by 65% for new units sold in the San Joaquin Valley

and extend the applicability of Rule 4905 to commercial units and units

installed in manufactured homes . These proposed amendments will satisfy the commitments included in the 2008 PM2.5 Plan

, 2012 PM2.5

Plan , and 2013 Plan for the Revoked 1

- hour Ozone Standa rd.

During the last Governing Board meeting on December 18, 2014, District staff recommended postponing rule adoption in response to late concerns raised by some manufacturers regarding their potential inability to accommodate increased production deman d in time to meet the compliance deadlines in proposed Rule 4905

. As a result, your Board elected to continue the adoption of this rule until the nextSJV U

APCD Governing Board ITEM NUMBER 11: ADOPT PROPOSED AMENDMENTS TO RULE 4905 (NATURAL GAS

- FIRED, FAN

TYPE CENTRAL FURNACES) January 22, 2015

regularly scheduled meeting of the Governing Board to allow staff time to make necessary rule amendments and fulfill California Health and Safety Code requirements for public notices regarding rule amendments

. The proposed amendments now include an additional option for manufacturers to pay emissions fees if non

- compliant units are sold during the in itial phase of implementation.

DISCUSSION :

Rule 4905 was adopted on October 20, 2005 to establish a 0.093 lb/MMBtu (or 55 ppmv) NOx emission limit for natural gas

- fired, fan

- type residential central furnaces (residential units) with a rated heat input of less than 175,000 Btu/hr and a rated cooling capacity of less than 65,000 Btu/hr for combination heating and cooling units.

T he District committed in its 2008 PM2.5 Plan to lower the NOx emissions limitation for residential units subject to Rule 4905. The District further committed in the 2012 PM2.5

Plan and 2013 Plan for the Revoked 1

- hour Ozone Standard to evaluate the potential of including commercial units within the applicability of Rule 4905. In 2010

, the District determined that advanced low NOx technology for residential furnaces was still in the early stages of development and was not yet commerc ially available. Therefore, your Board approved an extension to amend the rule to allow for the development of new advanced low NOx residential furnace technology in partnership with the South Coast Air Quality Management District (SCAQMD). The extension resulted in a revision to the State Implementation Plan (SIP) and committed the District to amending Rule 4905 in 2014, with compliance starting in 2015.

The District partnered with the SCAQMD and provided $50,000 to fund a $1.5 million technology assess ment project to develop and test low

- NOx furnace technologies that could meet more stringent NOx limits. The assessment project was completed in early

2014 and resulted in the successful development and testing of compliant units. To provide manufacturer s sufficient time to complete the commercialization process for the new technologies, and to provide for regulatory consistency in California, the pro posed compliance deadlines are analogous with those in SCAQMD Rule 1111, including the

300

- day periods for manufacturers and retailers to sell through existing inventor ies

.

However, while some manufacturers indicated that they would be able to produce enough compliant units to meet projected demands, the District received comments

from a few manufacturers r aising concerns regarding the compliance deadlines and their ability to comply.

One manufacturer indicated that their primary focus has been on meeting expected

demand in Southern California and additional time is needed to meet expected demand

in the San Joaquin Valley. Another manufacturer has developed compliant units, but expressed the need for additional time to demonstrate the reliability and durability necessary to be able to go to market. However, information obtained through the multi

agency technology assessment project indicated that due to low anticipated demand,

2SJV U

APCD Governing Board ITEM NUMBER 11: ADOPT PROPOSED AMENDMENTS TO RULE 4905 (NATURAL GAS

- FIRED, FAN

TYPE CENTRAL FURNACES) January 22, 2015

high cost to produce, new and costly tooling, and other products with higher potential return on investment currently using development resources , the manufacturer is not actively pursuing the development and manufacturing of complying units.

To help minimize unfair competitive disadvantage for manufacturers that will provide compliant units to the San Joaquin Valley

, the proposed amendments will allow the sale

of non

- compliant u nits during the initial implementation period (36

- months) in exchange for the payment of an emissions fee for each non

- compliant unit sold. This allowance is necessary to ensure adequate supply for the expected demand for new units in the San Joaquin Vall ey. However, the emissions fee is set at a level to provide a financial

disincentive for continued sale of non

- compliant units as follows:

It is estimated that the retail value for non

- compliant units will be approximately $150

less for non

- condensing un its and $200 less for condensing units. One way to

disincentivize the sale of non

- compliant units would have been to set the emissions fees at this price differential. However, to encourage manufacturers to produce compliant

units with lower emissions th e proposed emissions fees include an additional surchar ge of $75 for non

- condensing units and $90 for condensing units . This surcharge equates to the incentive rebate currently provided by South Coast AQMD and is expected to put the Valley in a more favor able position for receiving compliant units. Therefore, the emissions fee would be set to $225 for each non

- condensing unit and $290 for each condensing unit.

Summary of Proposed Amendments to Rule 4905

The District is proposing the following amendments to Rule 4905:

• L ower the NOx emission limit for residential units to 14 ng/J, effective on April 1, 2015 for condensing units

, October 1, 2015 for non

- condensing units , and October 1, 2016 for weatherized unit s

• Expand applicability to include commercial units with a 14 ng/J NOx emission

limit effective on April 1, 2015 for condensing units

, October 1, 2015 for non

condensing units , and October 1, 2016 for weatherized units

• Expand applicability to include units installed in manufactured homes with a 40 ng/J NOx emission limit effective January 1, 2015

• Lower the NOx emission limit for units installed in manufactured homes to 14 ng/J in 2018

• A llow the sale of non

- compliant units during the initial implementation p eriod (36

- months) in exchange for the payment of an emissions fee for each non

- compliant

unit sold

• Revise definitions to remove redundancy and improve clarity

• Expire the exemptions for units installed in manufactured homes, units using fuel

other than natu ral gas, and nonfan

- type units

• Add labeling requirements to ensure compliance with proposed amendments

3SJV U

APCD Governing Board ITEM NUMBER 11: ADOPT PROPOSED AMENDMENTS TO RULE 4905 (NATURAL GAS

- FIRED, FAN

TYPE CENTRAL FURNACES) January 22, 2015

Emission Reduction Analysis

The District did not commit to a specific quantity of emission reduction s for this rule

amendment in the state implementation plans

. Since Rule 4905 is a point

- of

- sale rule,

emission reductions w ould occur over the 20 year lifespan of existing units as they are replaced with new units. Proposed rule amendments would result in approximately 2. 10 tpd of NOx emissio n reductions upon full turnover of existing units by 2036, reflecting a greater than 50 % redu ction from projected emissions. The complete Emission Reduction Analysis is presented in Appendix B of th e Final Draft Staff Report.

Cost Effectiveness Analysis

Pursuant to California Health and Safety Code (CH&SC) Section 40920.6(a), the District analyze d the cost effectiveness of proposed amendments. The cost effectiveness of implementing the proposed amendments is conservatively estimated to range from $30, 5 98 to $40, 808 per ton of NOx emission reductions , based on a cost increase of $150 to $200 to purchase new compliant units

. The c ost e ffectiveness a nal ysis is attached as Appendix C of the Final Draft Staff Report.

Socioeconomic Impact Analysis

Pursuant to CH&SC Section 40728.5, the District analyze d the socioeconomic impacts of proposed rule amend ments

. No significant socioeconomic impacts are expected

from these proposed rule amendments. The s ocioeconomic a nalysis is attached as Appendix D of t he Final Draft Staff Report.

Rule Consistency Analysis

Pursuant to CH&SC Section 40727.2, the District compare d the elements of the proposed amendments for Rule 4905 with the corresponding elements of other District

rules and federal regulations and guidelines that apply to the same type of equipment or source category. Proposed amendments would not conflic t with other District rules,

federal regulations, or policies covering similar stationary sources. The rule consistency analysis is presented in Appendix E of the Final Draft Staff Report.

Environmental Impacts

According to the California Environmental Quality Act ( CEQA ) statu t es and pursuant to

Section 15061 (b)(3) of the CEQA Guidelines, the District investigated the possible environmental impacts of the proposed amendments to Rule 4905. Based on the District’s investigation and lack of evidence to the contrary, the District has concluded

that the proposed rule am endments will not have any significant adverse effects on the environment. As such, the District finds that the rule amendment s do not constitute a project under the provisions of the California Environmental Quality Act of 1970 (CEQA). Furthermore, the rule amendments are exempt per the general rule that CEQA applies only to projects which have the potential for causing a significant effect

4SJV U

APCD Governing Board

ITEM NUMBER 11: ADOPT PROPOSED AMENDMENTS TO RULE 4905 (NATURAL GAS

- FIRED, FAN

TYPE CENTRAL FURNACES) January 22, 2015

on the environment (CEQA Guidelines §15061 (b)(3)) . Therefore pursuant to Section 15062 of the CEQA Guidelines, th e Staff will file a Notice of Exemption upon Governing Board approval of amendments to Rule 4905

.

Rule Development Process

The District hosted a public workshop to present, discuss, and hear comments on the draft rule and draft staff report on October 16 , 201 4

. C omments received were considered and incorporated into Proposed R ule 4905 and the Final Draft S taff R eport

, as appropriate

.

In accordance with CH& SC Section 40725, the P roposed Amendments to R ule 4905

and F inal D raft S taff R eport were publicly noticed prior to the Governing Board public hearing to consider adoption of the proposed amendments

. The proposed amendments to Rule 4905, F inal D raft S taff R eport , and other supporting documents were made available for public comment on December 22 , 201 4

. Comments received during the subsequent two

- week comment period were considered and incorporated into the Final Draft Staff Report, as appropriate

. The public is also invited to provide comments during the public hearing for propose d adoption of this rule

.

FISCAL IMPACT :

The District expects no fiscal impact to result from this action.

Attachments:

Attachment A: Resolution for Proposed Amendments to Rule 490 5 ( 5 pages)

Attachment B: Proposed Amendments to Rule 490 5 ( 6 pages)

Attachment C : Final Draft Staff Report with Appendices for Proposed Amendments to Rule 4905 ( 50 pages)

5