1 February 14, 2011

Gerardo Rios (Air

‐ 3)

U. S. Environmental Protection Agency

Region IX

75 Hawthorne Street

San Francisco, CA 94105

‐ 3901

Re: Docket Number: EPA

‐ R09

‐ OAR

‐ 2010

‐ 1078

Revision to the South Coast Portion of the California State Implementation Plan,

CPV Sentinel Energy Project AB 1318 Tracking System

Dear Mr. Rios:

We submit these comments on the above captioned rulemaking on behalf of California

Communities Against Toxics and Communities for a Better Environment. 1 In this rulemaking,

EPA proposes to revise the South Coast Portion of the California State Implementation Plan

(“South Coast SIP”) to: 1) provide “a federally approved and enforceable mechanism for the

SCAQMD to transfer PM10 and SOx offsetting emissions reduction from the SCAQMD’s internal

bank to the Sentinel Energy Project,” and 2) “to track those emissions credits through the AB

1318 Tracking System.” 2 Approval of this proposed SIP revision would violate the Administrative

Procedures Act as well as the substantive requirements of the Clean Air Act because the

administrative record is inadequate to support the decisions of the EPA, the EPA fails to explain

the basis of its decisions and provide support therefore, the credits generated by this proposed

SIP revision violate CAA § 173 and 40 CFR 51.165, if any of the credits are creditable they are

already being relied upon for prior permitting actions in the South Coast and/or for

demonstration of attainment, and would result in a SIP relaxation. 3

1 We hereby incorporate by reference the entire record from the proceedings in Natural Res. Def.

Council et al. v. South Coast Air Quality Management Dist., U.S. Court of Appeals for the Ninth Circuit,

Case No. 09

‐ 57064 and federal District Court for the Central District, Case No. CV 08

‐ 05403; and

Natural Res. Def. Council et al. v. South Coast Air Quality Management Dist., Los Angeles Super. Ct.

Case No. BS 105728 (Priority Reserve I) and Case No. BS 110792 (Priority Reserve II) as if set forth fully

herein. For the convenience of the reviewer, copies of these public documents can be provided upon

request. We also hereby incorporate by reference Rule 1315 staff reports available at

http://www.aqmd.gov/rules/pro posed/1315/1315DraftStaffReport.pdf

, and the 2007 South Coast Air

Quality Management Plan, available at http://www.aqmd.gov/aqmp/07aqmp/index.html, as if set

forth fully herein. For the convenience of the reviewer, copies of these public documents can be

provided upon request. Further, the EPA has failed to take into consideration that the basis of the

proposed revision, AB 1318, is under scrutiny for its constitutional failings. The record of that action,

CCAT v. SCAQMD, both at the trial court and on appeal, are hereby incorporated by reference.

2 76 Fed.Reg. 2295.

3 We twice requested an extension of time to comment on this proposed SIP revision. EPA

denied both requests, resulting in submission of comments that are not as polished as we2 I. The Information Provided for Public Comment is Inadequate to Allow Meaningful

Participation, and Any EPA Approval Based on the Available Information Would Be

Arbitrary and Capricious

A. The Proposed Text of SIP Revision is too Vague and Incomplete to be Federally

Enforceable

Under the Clean Air Act, SIPs must include “enforceable emission limitations, and such other

control measures

. . . as may be necessary or appropriate to provide for attainment of such standard

in such area by the applicable attainment date specified in this part.” 4 Despite the fact that the SIP

revision says that “this SIP revision provides a federally enforceable mechanism for transferring

offsets from the AQMD’s internal accounts to the CPV Sentinel Project” in actuality it does no such

thing. As the District has argued, and a federal court has agreed, preambular or background

language in the Federal Register is not part of the SIP revision. 5 The list of credits to be transferred to

CPV Sentinel that is included in the TSD, therefore, not part of the SIP revision, and the SIP revision

contains no mechanism for transferring credits. Further, as described below, the SIP revision also

contains no mechanism for generating and validating the credits. On its face, then, the SIP revision is

too vague to be enforceable; although it directs the SCAQMD to issue credits to CPV Sentinel, and

although it says it creates a mechanism for transferring credits, there is no way to enforce the

generation, validity, and transfer of these credits from the SCAQMD’s internal accounts to the CPV

Sentinel Project.

B. Federal Register Notice and Technical Support Document Provide an Unclear and

Inconsistent Description of the Proposed SIP Amendment

Both the Clean Air Act and the Administrative Procedures Act require that prior to

adopting or approving a new rule, the agency give notice to the public of the terms of the

rule. 6 The Federal Register notice and supporting documents reference the “AB 1318

Tracking System” and describe an order from the California legislature that the SCAQMD

transfer emission credits from the SCAQMD’s internal bank to the Sentinel Power plant. That

direction from the legislature, however, is of only minor relevance for the EPA’s SIP revision.

would have preferred. We wish to make clear to the EPA that we believe that the proposed

SIP revision is wholly deficient in its proposed language, its reasoning (or lack thereof), and it

application (or lack thereof) of the Act’s requirements to the content of the South Coast’s

requested SIP revision. We would be happy to provide further clarification of any comments

we have made here in order to assist the EPA in conducting a SIP revision process that meets

the requirements of federal law and the EPA’s stated aspirations of supporting and including

environmental justice considerations in all it does.

4 42 U.S.C. § 7502(c)(6).

5 Natural Res. Def. Council v. South Coast Air Quality Management Dist

., 694 F.Supp.2d 1092, 1114

(C.D.Cal. 2010).

6 5 U.S.C. 553; 42 U.S.C. 7607(d)(6).3 What are relevant are the substantive requirements of the Clean Air Act and the

Administrative Procedures Act that apply to the South Coast’s proposed SIP revision.

Nothing in the Docket for this SIP revision indicates that the EPA has considered all the

relevant factors for the proposed SIP revision, nor does the EPA explain the basis for its

proposed approval of the South Coast’s SIP revision request. For example, the record does not

acknowledge or explain that the proposed SIP revision does three separate things: first, codify

in federal law an entirely new method for the SCAQMD to generate emission credits; second,

apply that generation method to specific reductions dating back to 1999; and third, transfer the

credits out of the SCAQMD’s internal bank. Each of these steps is a significant change in policy

and has real impacts on current and future air quality. At a minimum the Federal Register

documents must describe all three steps, and explain the EPA’s reasoning in approving each

step.

The first significant change is the establishment, as a matter of federal law, a method

for generating credits for the SCAQMD’s internal bank that is different from the generation

method applied to all other emission credits. SCAQMD maintains an internal bank from which

it has issued emission credits in order to satisfy federal offsetting requirements. The SCAQMD

operated a system by which it stocked the internal bank prior to 2006 and 2007 invalidated

adoptions of Rule 1315. 7 The credits the SCAQMD has generated for use by Sentinel are not

pursuant to the pre

‐ existing tracking system, however. Indeed, the SCAQMD was ordered by

the California legislature to rely on its existing generation system, or to submit to EPA a new

tracking system to generate credits for Sentinel. AB 1318 provides that the SCAQMD

(1)

. . . shall rely on the offset tracking system used prior to the adoption of Rule

1315 of the South Coast SCAQMD until a new tracking system is approved by the

United States Environmental Protection Agency and is in effect, at which point

that new system shall be used by the south coast SCAQMD.

(2) In addition to using the prior offset tracking system, the SCAQMD shall also

make use of any emission credits that have resulted from emission reductions

and shutdowns from minor sources since 1990. The SCAQMD shall make any

7 The SCAQMD has now adopted Rule 1315 three times, attempting each time to codify a method of

generating emission credits. The first two adoption attempts (2006 and 2007) were voided because

the SCAQMD failed adequately to assess the rule’s impact. According to the federal register proposed

approval, the SCAQMD SIP has never contained a method for generating emission credits other than

the requirements set out in Rule 1309. In other words, in the SCAQMD, the only SIP

‐ approved

generation method that applies within the SCAQMD’s jurisdiction is in Rule 1309. In its proposed

approval, EPA states that the Rule 1309 criteria for generating emission credits do not apply to

credits in the SCAQMD’s internal bank. (Technical Support Document (“TSD”), p. 4.) Thus, to the

extent the SCAQMD maintains an internal bank, the bank is stocked with emission credits that cannot

exist for federal purposes, having no method of coming into existence that is recognized under

federal law. As discussed below, the EPA’s assertions that the SIP lacks generation criteria for the

internal bank is of great concern, independent of the approval proposed for the Sentinel project.4 necessary submissions to the United States Environmental Protection Agency

with regard to the crediting and use of emission reductions and shutdowns from

minor sources. 8

On its face, AB 1318 contemplates the SCAQMD will change the way it generates credits. The

SIP amendment would thus be a significant change in how the SCAQMD generates credits for its

internal bank. One clear example is that the SCAQMD has never looked back two decades to

collect emission reductions that purportedly occurred, and rely on them to permit future

emissions. The SCAQMD contends that the actual credits it is offering are based on reductions

that occurred between 1999 and 2008, however no evidence of the actual dates the reductions

occurred appears in the public record.

The EPA’s description of how the AB 1318 Tracking System generates the credits that

the SCAQMD deposited into its internal bank is entirely missing. Likewise absent from the

publicly

‐ available information is whether the EPA is approving a “new” tracking system of its

invention, as contemplated in section 40440.14(b)(1), or simply allowing the SCAQMD to make

use of reductions from minor sources that occurred since 1990, as contemplated in section

40440.14(b)(2). Further, even to understand what the proposed SIP amendment would do, the

EPA would have to explain in its public documents that although the SCAQMD’s internal bank

currently has a negative balance for PM10 and SOx, one SCAQMD policy that has not been

changed is SCAQMD’s “first in first out” policy. 9 With these facts in hand, the public might be

reasonably informed of the impossibility that the credits identified could go into the SCAQMD’s

internal bank (as required by the proposed SIP amendment) and then immediately come out

again. As discussed further below, any emissions reductions that are in fact creditable cannot

be issued once they are generated and then deposited into the internal bank.

Further confusing the project description, the Proposed Rule never admits that it is in

fact changing both SIP

‐ approved rules 1303 and 1309.1. Rule 1303 provides that internal bank

credits are only available through rules 1309.1 and 1304. Indeed, it is clear to all parties that

the “mechanism” for Sentinel, or any power plant, to access the internal bank would have to be

Rule 1309.1. The SCAQMD amended Rule 1309.1 once for a limited period to allow power

plants to purchase internal bank credits, and attempted to do so again in 2006 and 2007. The

SCAQMD currently maintains a public position that it does not intend to amend Rule 1309.1 for

power plants. Instead, it is pursuing a de facto, thinly veiled amendment to both Rule 1309.1

and Rule 1303. A description of the proposed SIP amendment that fails to identify the changes

to both of these rules omits vital information that the public would need to participate

meaningfully in the process.

C. Critical Documents Were Not Included in the Docket

8 Cal. Health & Saf. Code section 40440.14(b).

9 The SCAQMD does not keep track of which emission credit results from any particular source. One

compensatory system it uses is to assume that the first credits into the bank are issued first, so only

the most recent reductions are presumed in the bank.5 While the EPA contends that it “has reviewed the documents provided for each

offsetting emission reduction the SCAQMD has transferred to the AB 1318 Tracking System,” 10

the documents were not included in the Administrative Index. Those documents are the

fundamental factual support for the assertion that the offset credits that will be transferred to

the Sentinel Power Project meet CAA standards. The AB 1318 Tracking System documents are

the heart of the proposed SIP amendment and a public process that does not include those

documents in the record cannot stand. The EPA asserts that it “has reviewed” some set of

“documents” but has failed to explain the factual data on which the proposed rule is based, the

methodology used in obtaining the data and, most importantly, in analyzing the data as

required by the Act. This failure conflicts with both the text and the important policy

established by Congress that the public be able to effectively participate in the Agency’s

Rulemaking processes. Absent this information being fully available to the public and being

incorporated into the language of the SIP revision, all that is left is a hollow list of Company

Names, Location, Equipment Description, and Emission Credits (lb/yr) that is unenforceable by

either the EPA or by private citizens.

EPA offers a bewildering and implausible explanation for its failure to provide information in

the docket to support its otherwise baseless assertions about the lawfulness of the proposed

creation of emission credits. In a letter dated February 11, 2011, in response to Commenters’

second request for additional time to submit comments on this Rulemaking, the EPA writes:

While the index posted on regulations.gov did not specifically list the support

documents for each offset emission reduction as a line item, as you note in your letter,

the FR notice states that such information is available in the docket. The FR notice

includes the following standard language ...some information may be publicly available

only at the hard copy location...

This response is incorrect. Rather than informing the public that only some of the relevant

information is listed in the electronic index, the federal register notice provides to the contrary

that

The index to the docket for this action is available electronically at

http://www.regulations.gov and in hard copy at EPA Region IX, 75 Hawthorne Street,

San Francisco, California. While all documents in the docket are listed in the index,

some information may be publicly available only at the hard copy location (e.g.,

copyrighted material), and some may not be publicly available in either location (e.g.,

CBI). 11

To the extent that any documents are only available in hard copy or are being withheld

as confidential, according to this notice, the federal register would still list them in the index.

The EPA is relying on documents that are not listed on the docket index, not part of the

10 76 Fed.Reg. 2296.

11 76 Fed.Reg. 2294 (introduction to federal register notice.)6 administrative record, and its failure to include those documents in the record means that the

public has been deprived of its opportunity to review and comment meaningfully on the EPA

decisions and EPA has failed established that it has considered all relevant facts related to its

decision about the creation and transfer of the emission credits at issue here.

Compounding the matter, EPA concludes that “these same support documents have

been publicly available for at least six months from other sources.” The letter does not identify

what these “same support documents” are, where they were “publically available” and what

general “public availability” means for this SIP revision 12

. Commenters cannot know what the

EPA reviewed or is relying on to make its determinations—indeed the EPA does not even

describe the documents, name them, or provide any other reference for them. There are no

documents listed in the rulemaking index that support the EPAs conclusions that the emission

credits created in this Rulemaking are creditable in compliance with the Act. The EPA alludes to

“support documents” it “reviewed” but not identified in the federal register notice and

Technical Support Document (“TSD”).

In a rulemaking such as this proposed SIP Amendment, EPA’s docket must include all the

information on which it relies. Indeed, the Act explicitly prohibits EPA from basing a rule “(in

part or whole) on any information or data which has not been placed in the docket

. . . .”

“Without supportable facts, we are unable to rely on our usual assumption that the EPA has

rationally exercised the duties delegated to it by Congress.” 13 This information must be

contained in the docket for good reason: to do otherwise would frustrate the spirit of the

Administrative Procedures Act and the Clean Air Act. Without access to the complete body of

evidence, the public cannot meaningfully participate in the rulemaking. The entire public is

entitled to review this information. 14 15

12 Oddly, the EPA included in the docket a Federal Register Notice from 1996—a document

the EPA clearly identified in the Federal Register Notice for this SIP revision—despite the fact

that it truly is “publicly available.”

13 NRDC v. EPA

, 966 F.2d 1292, 1305 (1991).

14 42 U.S.C. § 7607(d)(6)(C).

15 Commenters also assert that, the outcome of the public process having been predetermined, the

notice and hearing provided by the SCAQMD was a sham. The Clean Air Act provides that a State

may adopt amendments to its SIP after “reasonable notice and public hearing.” (42 U.S.C. § 7410(b.)

As acknowledged by EPA:

[T]he California Legislature enacted California Assembly Bill (AB) 1318, which went into

effect on January 1, 2010. AB 1318 requires the SCAQMD, upon making a specified

finding, to transfer SOX and PM 10 emission offsets from its internal bank to eligible

electric generating facilities.

. . .

AB 1318 also establishes requirements for the SCAQMD's implementation of transferring the

offsetting emission reductions from its internal bank to an eligible electric generating facility and for

tracking the transfer of offsetting emissions reductions. (76 Fed. Reg. 2295.) The SCAQMD took the

proposed SIP amendment directly from AB 1318. While some Commenters were in Sacramento

during the AB 1318 adoption process, that process bears no resemblance to a duly noticed public

hearing.7 II. SIP Approval Would be Arbitrary and Capricious Because EPA Fails to Explain the Basis of

its Fundamental Conclusion

EPA must explain both the basis for its decision and the reasoning behind it. In the absence

of such explanation, an agency’s decision is arbitrary and capricious, and violates the APA. 16

The EPA explains in its TSD that:

The term “banking,” in the context of Emission Reduction Credits (ERC) and offsets, is a

term of art which evolved out of necessity as part of the NSR program.....The “bank”

serves as a clearinghouse for all parties to track the generation and use of emission

reduction credits within a permitting jurisdiction....In South Coast, District Rule 1309

establishes the procedures that a facility must use to “bank” emission reductions,...Rule

1309 does not apply to the District’s.....bank.... 17

This is the first time in a rulemaking that the EPA has asserted that Rule 1309 does not

apply to the District’s “bank.” EPA notes that its “1996 SIP approval of this regulation provided

guidance on the appropriate types of emission reductions the District could collect as emission

reductions credits to continue funding its internal bank” 18 Nowhere does the EPA state what

the system is for the District to use to “bank” credits. EPA asserts the SIP adds a “new but

equivalent” mechanism to Regulation XIII so that the SCAQMD’s internal bank of Emission

Reduction Credits (ERCs) can satisfy the requirements for offsets required by the Clean Air Act

(CAA) § 173 and its implementing regulations. Nowhere does EPA describe the “new but

equivalent” process for the District to “bank” the credits at issue here. 19 Further, EPA fails to

explain why the credits created here are different from or the same as the requirements

actually found in the Act and its implementing regulations.

It is not sufficient simply to make a conclusionary statement that the credits offered are valid

offsets under a “new but equivalent” process that meets the requirements of the Act. For

example, in NRDC v. EPA

, EPA sought to defend a regionwide cap

‐ and

‐ trade system it

substituted for the Clean Air Act’s area

‐ specific RACT requirements. EPA relied on a “technical

analysis” that the Court concluded amounted to no more than a “statement from the preamble

to the proposed rule stating the EPA ‘believes’ participation would ‘achieve more emissions

16 See N. Baja Pipeline, LLC v. FERC, 483 F.3d 819, 821 (D.C.Cir.2007) (under arbitrary and capricious

standard, agency conclusions “must be reasonable and reasonably explained” (citing Nat'l Fuel Gas

Supply Corp. v. FERC, 468 F.3d 831, 839 (D.C.Cir.2006))); Transactive Corp. v. United States, 91 F.3d

232, 236 (D.C.Cir.1996) (“In order to ensure that an agency's decision has not been arbitrary, we

require the agency to have identified and explained the reasoned basis for its decision.” (citing F.J.

Vollmer Co. v. Higgins, 23 F.3d 448, 451 (D.C.Cir.1994); Nat'l Treasury Employees Union v. Horner, 854

F.2d 490, 498

‐ 99 (D.C.Cir.1988))).

17 TSD 4.

18 Id.

19 76 Fed.Reg. 2296.8 reductions in the nonattainment area than would application of RACT” to all sources in the

area.’” The Court found this bald statement, without supporting evidence, in the proposed rule,

lacking, as were several other references to technical analyses that were not presented as on

point analysis in the final rule. 20 Here, as in NRDC v EPA, the EPA has filed establish that the

emission credits listed meet the requirements of the Clean Air Act.

III. Proposed SIP Revision Violates CAA §173(c) & 40 CFR 51.165(a)(3)(ii)(C)(1)(i)

‐ (ii )

The Clean Air Act requires that owners or operators of new major stationary sources comply

with the offset requirements under 42 U.S.C. § 7503(c) and 40 C.F.R. § 51.165(a)(3)(ii)(C)(1)(i)

‐ (ii). Emission reductions are not creditable as offsets unless such reductions are real, surplus,

permanent, quantifiable, and enforceable. 21 Nor are emission reductions creditable as offsets

unless:

[t]he shutdown or curtailment occurred after the last day of the base year for

the SIP planning process. For purposes of this paragraph, a reviewing authority

may choose to consider a prior shutdown or curtailment to have occurred after

the last day of the base year if the projected emissions inventory used to

develop the attainment demonstration explicitly includes the emissions from

such previously shutdown or curtailed emission units. However, in no event may

credit be given for shutdowns that occurred before August 7, 1977. 22

In addition, emission reductions generated in another nonattainment area may be used only if

the other area has an equal or higher nonattainment classification than the area in which the

source is located and the emissions from the other area contribute to a violation of the NAAQS

in the nonattainment area which the source is located. 23

The emission reductions underlying the Sentinel transaction do not meet the offset

requirements in U.S.C. § 7503(c) and 40 C.F.R. § 51.165(a)(3)(ii)(C)(1)(i)

‐ (ii) for several reasons.

It should be noted that, although our arguments below are raised in the context of violations of

specific offset requirements, they highlight shortcomings relevant to other offset requirements,

problems with the source

‐ specific SIP revision in question, and overarching issues of agency

rulemaking under the Administrative Procedure Act and applicable case law. 24

First

, the emission reductions are not real. As noted in the Technical Support Document for

EPA’s Rulemaking for the

. . . CPV Sentinel Energy Project AB 1318 Tracking System—Source

Specific SIP Revision

, December 29, 2010 (TSD), real “requires that a pollutant was actually

20 NRDC v. EPA 571 F.3d 1245,1257 (D.C. Cir. 2009).

21 42 U.S.C. § 7503(c); 40 C.F.R. § 51.165(a)(3)(ii)(C)(1)(i).

22 40 C.F.R. § 51.165(a)(3)(ii)(C)(1)(ii).

23 42 USC §7503(c)(1).

24 5 U.S.C. 553.9 emitted into the air and is no longer being emitted.” 25 Here, the emission reductions are

admittedly part of a system—the SCAQMD’s existing banking system—that has been found by

both state court and EPA to contain no spare emission reductions. 26 All emission credits in the

SCAQMD’s internal bank are being emitted.

As the TSD notes, the emission reductions dedicated for the Sentinel project “were transferred

out of the SCAQMD’s internal offset accounts and into the AB 1318 Tracking System.” 27 The

SCAQMD, in justifying the AB 1318 Tracking System, claims that “the PM10 and SOx offsets

have been removed from the AQMD’s internal accounts and have not been used by any source

permitted by AQMD, nor will they be used as offsets for any other source in the future if they

are used for the CPV Sentinel Energy Project.” 28 This claim is inaccurate and unfounded.

The SCAQMD’s internal offset accounts are balanced in the aggregate. The SCAQMD credits

emission reductions into its internal bank and debits emission increases on a programmatic

basis

– no given emission reduction is associated with any given emission increase. The

SCAQMD’s practice has been documented extensively in several lawsuits challenging this

method for crediting and debiting emission reductions.

In addition, the internal offset accounts for which the emission reductions are being withdrawn

have a negative balance. 29 Indeed, there should be no dispute that the existing tracking system

for the SCAQMD’s internal offset accounts has negative balances. The negative balance is the

primary justification for a series of efforts by the SCAQMD to generate additional emission

reductions in novel ways, efforts that have yet to pass muster under state and federal law. 30 At

the present, there are no emission credits to transfer. Indeed, the internal offset accounts must

be brought back to a positive balance before any emission reductions can be transferred out of

it for purpose of the AB 1318 Tracking System. This can be done in one of two ways:

maintaining the existing tracking system and waiting for the balances to again be in the positive

or adopting a new tracking system into the SIP that demonstrates positive balances. Neither

has been done.

Finally, there simply is no evidence on which to base a conclusion that the emission credits

identified in the proposed SIP

‐ amendment were real emissions that actually ceased. The

SCAQMD’s submission lacks documentation that would show when the emissions occurred,

when they ceased, and how much was emitted during the years immediately preceding

cessation.

25 TSD, p.5.

26 Judge Ann I. Jones, Decision on Ruling on Respondent’s Motion for Summary Adjudication, BS

110792, July 29, 2008.

27 TSD, p.5.

28 CPV Sentinel Energy Project AB 1318 Tracking System, p. 2.

29 NRDC v. SCAQMD

, CV 08

‐ 05806(GW); BS 110792; Staff Report, 2010 Rule 1315.

30 Rule 1315, 2010; staff report.10 Second

, the record does not support the claim that the emission reductions are quantifiable. As

noted in the TSD, quantifiable “requires an accurate assessment of the quantity of emissions

previously emitted by the source prior to modification or shutdown of the subject equipment.”

To be quantifiable means that sources can reliably calculate the amount of emissions and

reductions that will occur during implementation of the program, and replicate those

calculations. The same method of calculating emissions should generally be used to quantify

emission levels both before and after the reduction. 31 The emission reductions being

“transferred” into the AB 1318 Tracking System do not meet these requirements.

The record only includes a simple descriptive statement regarding how the SCAQMD generally

treats emission sources, and then lists in a table the facilities that are claimed to have

undergone this process. The tables do not provide sufficient information to demonstrate that

the individual emission reductions from the specific sources cited in the tables are quantifiable.

Indeed, neither the EPA nor the SCAQMD have made available the permits or summaries of the

equipment and their associated emissions to demonstrate compliance with the quantifiable

requirement. The tables include only four headings—company name, location, equipment

description, and emission credits (lb/year)—with no substantiating information anywhere in the

administrative record for this rulemaking for the 242 pieces of equipment. Here, the EPA must

perform an individual analysis of each underlying emission reduction being claimed—in line

with the requirements on source

‐ specific SIP revisions—and make that information available to

allow the public the opportunity to participate in the rulemaking process. This the EPA has not

done.

Third

, the emission reductions are not surplus. As noted in the TSD, surplus “requires that

emission reductions used as offsets be ‘surplus’ to any other federal requirement to reduce

emissions.” To be surplus means that an emission reduction is not required for compliance with

a SIP, SIP

‐ related program, other State air quality program not covered by a SIP, or federal rule

that focuses on reducing precursors of criteria pollutants. 32 Critically, these credits must be

surplus at time of use.

The emission reductions are not surplus for a couple of reasons. The California SIP requires that

calculations for emission decreases shall be the actual emissions reduced to the amount which

would be actual if current BACT were applied, in accordance with the procedure outlined in

Rule 1306(c)(1)

‐ (4) and (e). The emission reductions being placed in the 1318 Tracking System

do not comply with the requirements of SIP

‐ approved version of Rule 1306, specifically the

discount to BACT. As SIP

‐ approved rules, these are federal requirements that apply according to

their clear terms. Rule 1306 states “the basis for calculating daily emission increases and

decreases used for offset requirements...” 33 Under the SIP

‐ approved version of Rule 1306,

31 See U.S. EPA, EPA

‐ 452/R

‐ 01

‐ 001, I MPROVING A IR Q UALITY WITH E CONOMIC I NCENTIVE P ROGRAMS 40

‐ 41

(Jan. 2001).

32 40 C.F.R. § 51.852; see also U.S. EPA, EPA

‐ 452/R

‐ 01

‐ 001, I MPROVING A IR Q UALITY WITH E CONOMIC

I NCENTIVE P ROGRAMS 38

‐ 39, 172 (Jan. 2001).

33 SCAQMD Rule 1306(a).11 “emission decreases from sources which are modified or removed from service shall be actual

emissions reduced to the amount which would be actual if current BACT were applied.” 34 It

appears from the documents available for review that the emission reductions have not been

discounted to BACT, inflating and invalidating the emission credits for “transfer” into the AB

1318 Tracking System.

Moreover, the emission reductions are not surplus for the reasons outlined below, namely they

have been relied upon for prior permitting decisions by the District and are included in the 2007

AQMP baseline.

Fourth

, the emission reductions are not enforceable. Enforceable means that an emission

reduction is independently verifiable; program violations are defined; parties liable for

violations can be determined; the State and EPA maintain the ability to apply penalties and

require corrective action as necessary; citizens have access to all emissions

‐ related information

obtained from the polluting source; citizens can file lawsuits against sources for violations; and

an emission reduction is practicably enforceable in accordance with EPA guidance on

practicable enforceability. 35

Here, neither party has provided access to all emissions

‐ related information obtained from the

polluting source or the tracking system and its associated account balances from which the

transfer is occurring. To the extent there are violations of the offsetting requirements, the

proposed SIP amendment provides citizens with no opportunity to enforce against the Sentinel

facility. Finally, the docket index notes, specifically, “Copies of the listed documents are located

at EPA Region 9 offices.” As the EPA is well aware, anything that is not part of the SIP cannot be

enforced either by the EPA or by citizens. See El Comité para el Bienestar de Earlimart v.

Warmerdam

, 539 F.3d 1062 (9th Cir. 2008). As discussed above, any emission

‐ related

information EPA has reviewed was not listed in the index to the docket. EPA now contends that

there may be documents available at its offices that are not provided electronically or listed in

the index, despite its clear assertion that all docket documents are listed in the index. Asserting

that some documents may be available is far below the clear standard established by CAA law

for enforceable SIP provisions. The failure to include that information in the docket and in the

SIP renders the SIP revision unenforceable and violates the CAA requirement of section 173(a)

and Section 173(c). The emission credits are thus not enforceable.

Fifth

, at least some of the emission reductions are not creditable. As noted in the TSD, the

emission reductions being “transferred” into the AB 1318 Tracking system occurred between

1999 and 2008 as a result of shutdowns. 36 That means that a certain number of the shutdowns

(and their associated emission reductions) occurred before the last day of the base year for the

SIP planning process. Under the 2007 Air Quality Management Plan (AQMP), the base year for

34 SCAQMD Rule 1306(c).

35 See U.S. EPA, EPA

‐ 452/R

‐ 01

‐ 001, I MPROVING A IR Q UALITY WITH E CONOMIC I NCENTIVE P ROGRAMS 35

‐ 36, 40

(Jan. 2001).

36 TSD, p. 5.12 the emissions inventory was 2002. 37 Therefore, unless the SCAQMD specifically included these

emission reductions in its projected emissions inventory, those emission reductions are

ineligible. A review of the 2007 AQMP reveals that the emission reductions pre

‐ dating 2002

have not been included in the emissions inventory and therefore violate 40 C.F.R. §

51.165(a)(3)(ii)(C)(1)(ii). 38

IV. The Clean Air Act Bars the EPA’s Approval of the Proposed Transfer of Emission Credits

from the SCAQMD to the Sentinel Energy Project, Because the Reductions Have Been

Relied Upon for Other Permitting Actions and for Demonstration of Attainment

The EPA has proposed in this Rulemaking to allow the SCAQMD to “transfer specified credits

from its PM10 and SOx internal offset balances” to the Sentinel Energy Project. The EPA’s TSD

states that “The SCAQMD reviewed each of the actions that created the creditable emission

reduction and submitted this documentation to EPA for review as part of this source

‐ specific

SIP revision.” 39 As noted above, the reductions are not creditable and the EPA has failed to

include whatever documentation it received from the SCAQMD to support its claim in the

record for public review and comment, and the EPA failed to demonstrate that it considered all

of the relevant facts related to the creation of these credits. Such failures violate both the

requirements of the Administrative Procedures Act and the Clean Air Act. 40

A. The Proposed Offsets do not Meet the Requirements of Federal Regulations;

Therefore, They Cannot be Relied Upon for the Sentinel Energy Project.

The SCAQMD’s proposed transfer from its internal bank of emission credits must meet the

requirements of Section 173(c) and Section 110(1). This action, however, fails to meet the

requirements of either because even if creditable, the reductions have been relied upon for

other permitting actions and for demonstration of attainment.

1. The SCAQMD’s “Internal Offset Balances” are negative; therefore no creditable

offsets deposited into the “internal bank” can be transferred out

In or around 2002 the EPA found that the SCAQMD had been crediting to its internal bank

emission reduction credits that are not allowed under the Clean Air Act. As a result, the

SCAQMD’s PM10 and SOx internal offset accounts have a negative balance for both PM10 and

37 See South Coast Air Quality Management SCAQMD, Air Quality Management Plan (2007), Chapter

3, p. 3

‐ 8.

38 See South Coast Air Quality Management SCAQMD, Air Quality Management Plan (2007), Chapter

3, Appendix III, and Appendix V. ́

39 TSD 4.

40 5 U.S.C. 553; CAA sections 173; 110; 307.13 SOx. 41 Since the SCAQMD has not, and cannot, demonstrate that the aggregate of its banked

ERCs exceeds the number of ERCs required by Section 173, any and all creditable offsets that

are in or are deposited into the internal account cannot be transferred out of the SCAQMD’s

account for use in a new permitting action. They are already being relied upon for the

SCAQMD’s past permitting actions. 42

2. 40 CFR section 51.165 limits the creation of offsets from shutdowns to those

occurring after the base year for the SIP planning process

In the TSD, EPA notes that “when properly quantified and adjusted” emissions reductions that

are “orphaned” by their owners can “meet the requirements of 40 CFR 51.165(a)(3)(C)(1)(i). 43

The TSD is silent, however, about the second half of the regulation section cited, which reads:

(C)( 1 ) Emissions reductions achieved by shutting down an existing emission unit

or curtailing production or operating hours may be generally credited for offsets

if they meet the requirements in paragraphs (a)(3)(ii)(C)( 1 )( i ) through ( ii ) of

this section.

( i ) Such reductions are surplus, permanent, quantifiable, and federally

enforceable.

( ii ) The shutdown or curtailment occurred after the last day of the base year for

the SIP planning process

. For purposes of this paragraph, a reviewing authority

may choose to consider a prior shutdown or curtailment to have occurred after

the last day of the base year if the projected emissions inventory used to

develop the attainment demonstration explicitly includes the emissions from

such previously shutdown or curtailed emission units. However, in no event may

credit be given for shutdowns that occurred before August 7, 1977.

(emphasis added.)

To the extent that there is any information about when these purported reductions took place,

the Federal Register notice and the TSD simply assert:

The AB 1318 Tracking System includes specific offsetting emission reductions

that were identified from reductions of SOX and PM10 occurring between 1999

and 2008 from permitted equipment that has either permanently ceased

operations in the District or became subject to federally enforceable conditions

that reduced actual emissions. 44

41 See AQMD Staff Report.

42 See staff report for Rule 1315

43 Our review of 40 CFR 51.165 suggests that the citation in the TSD is incorrect and, instead, should

be identified as 40 CFR 51.165(a)(3)(ii)(C)(1)(i).

44 76 Fed.Reg. 2295.14 In addition to being relied upon for the SCAQMD’s past permitting actions, as

demonstrated by the negative balance in its bank of emissions credits, these emission

reductions have been relied upon by the SCAQMD in its 2007 Air Quality Management Plan

. They are, therefore, unavailable for crediting to the SCAQMD’s internal bank and unavailable

for the SCAQMD to sell to the Sentinel Energy Project.

3. Crediting these purported emissions reductions to the SCAQMDs Offset Accounts

Violates CCA section 110(l)

For the same reasons detailed above, the use of the proposed offsets violates CAA

section 110(l) which prohibits the EPA from approving “any SIP revision that would interfere

with attainment, reasonable further progress (RFP) or any other CAA requirement.” 45

The EPA’s entire “analysis” of the proposed plan revision’s compliance with Section 110(l)

consists of the following 136 words found in both the FR notice and the TSD:

We believe this revision will not interfere with attainment or RFP because the emission

credits in the AB 1318 Tracking System are not relied on for attainment or RFP in the

District’s most recent attainment demonstrations. We are also not aware of this revision

interfering with any other CAA requirement. For example, this source specific SIP revision

provides a new but equivalent mechanism to provisions in Regulation XIII for satisfying the

offset requirements of CAA § 173 because the offsetting emission reductions the District is

transferring from its internal bank to the AB 1318 Tracking System meet all Federal

requirements. In addition, the District supplied a copy of its air quality analysis for the CPV

Sentinel Energy Project which shows that operation of the facility will not interfere with the

ability of the District to reach attainment.

Each of these four sentences, however, are fatally flawed and do not provide the type of

analysis necessary to show that the EPA has “rationally exercised the duties delegated to it by

Congress”:

• We believe this revision will not interfere with attainment or RFP because the emission

credits in the AB 1318 Tracking System are not relied on for attainment or RFP in the

District’s most recent attainment demonstrations.

In addition to being relied upon for the SCAQMD’s past permitting actions, as demonstrated

by the negative balance in its bank of emissions credits, these emission reductions have been

relied upon in the SCAQMD in its 2007 AQMD therefore not making them available to the

SCAQMD to sell to the Sentinel Energy Project.

• We are also not aware of this revision interfering with any other CAA requirement.

45 76 Fed.Reg. 2296.15 Asserting a simple lack of awareness of interference with other CAA requirements

is inadequate to meet the EPAs burden for demonstration of rational decision

‐ making regarding

this proposed plan amendment.

• For example, this source specific SIP revision provides a new but equivalent mechanism to

provisions in Regulation XIII for satisfying the offset requirements of CAA 173 because the

offsetting emission reductions the District is transferring from its internal bank to the AB

1318 Tracking System meet all Federal requirements.

The EPA fails to describe the “new but equivalent mechanism...for satisfying

the offset requirements of CAA § 173.” Further, the simple assertion that emission reduction

credits meet all Federal requirements with no further proof, facts, or analysis in the record is

insufficient to establish that the EPA engaged in a rational consideration of all relevant facts

and factors for its decision.

• In addition, the District supplied a copy of its air quality analysis for the CPV Sentinel Energy

Project which shows that operation of the facility will not interfere with the ability of the

District to reach attainment.

In the permitting process that occurred before the California Energy Commission, there

was an analysis undertaken by the Commission Staff of the emissions from the Sentinel Energy

Project. As part of that analysis, the Staff concluded that the facility would contribute to

existing exceedences in the area:

Operation and Startup Impact Analysis

The applicant provided a refined modeling analysis (CPV 2007a, CPV 2009), using the

AERMOD model to quantify the potential impacts of the project during both full load

operation and startup conditions. The worst case (maximum) results of this modeling

analysis are shown in AIR QUALITY Table 13.16 Startup impacts (NOx and CO) are much larger than full load impacts not only because

the emissions are greater, but also because the flue gas stream is at a lower velocity

and temperature. This reduced emissions velocity means the plume will level off at a

lower height and thus have less time to dilute before reaching the ground. Note that the

values presented are very conservative, based on worst case startup emission

estimates from the turbine manufacturer. Typical startup events are likely to generate

significantly fewer emissions and impacts. This analysis is additionally conservative with

regard to the assumed background measurements. The assumption is that the highest

background measurements from the last four years coincide (in both location and

timing) with the maximum project emission impacts. Because such a high background

level is unlikely to occur at the same time and location as the maximum impacts from

the project, these modeled conditions are considered worst case, conservative, and not

likely to occur.

The modeled impact values in AIR QUALITY Table 13 show that during worst case

startup and full load operations, the facility will potentially contribute to the existing

PM10 violations. These violations could exceed 400 percent of the ambient air quality

standard. The air dispersion modeling predicted the location of the highest PM10/PM2.5

ambient air quality impacts 600 meters (or just over 1/3 a mile) to the south of the

project site. Staff uses the federal and state ambient air quality standards, which are

health

‐ based standards, as the indication of possible adverse ambient air quality

impacts. Since the project PM10/PM2.5 emission impacts will contribute to an existing

exceedance of the PM10 and PM2.5 state and federal ambient air quality standards,

staff presumes that these impacts may also contribute to existing human health impacts

(generally in the form of respiratory impacts). Thus, staff considers the project

PM10/PM2.5 emission impacts to be significant if left unmitigated.

Since the project’s impacts alone do not cause a violation of any NO2, CO, or SO217 ambient air quality standards under such conservative assumptions, staff concluded

that the project impacts for those pollutants are insignificant. Although the direct NO2

impacts from the CPV Sentinel project do not cause a violation of the NO2 ambient air

quality standard, all NO2 emissions from the facility will need to be offset with RECLAIM

Trading Credits (RTCs) to maintain district wide progress toward attainment with the

ozone ambient air quality standards because NO2 is a precursor emission to ozone

formation (see Conditions of Certification AQ

‐ 2 and AQ

‐ 16). Similarly, the direct SO2

impacts from the CPV Sentinel project, which do not cause a violation of the SO2

ambient air quality standards, will need to be offset with Emission Reduction Credits

(ERCs) or Priority Reserve Credits (PRCs) to maintain district

‐ wide progress toward

attainment with the PM10 ambient air quality standards because SO2 is a precursor

pollutant to secondary PM10/PM2.5 formation. Please see the “Operations Mitigation”

section below for a detailed discussion of the proposed mitigation. 46

This analysis by the CEC call into question the air quality modeling submitted by the District

in support of this proposed SIP revision and indicates that the EPA did not consider all the

relevant facts related to this revision.

In examining the Sentinel SIP submission in light of the SCAQMD’s failure to submit an

approvable PM2.5 attainment demonstration, EPA must also analyze this submission

together with the SCAQMD’s recently approved Rule 1315. The Sentinel AB 1318 Tracking

System’s ability to generate and distribute credits from retroactive minor source

shutdowns is a piece of a larger project undertaken by the SCAQMD. Under Rule 1315,

which the SCAQMD has recently approved and will be submitted to EPA for approval in the

very near future, the SCAQMD seeks to expand the Sentinel credit

‐ generation mechanism

to allow the SCAQMD to generate emission credits from minor sources that have shutdown

since 1990. Despite the SCAQMD’s effort to piecemeal this entire credit

‐ generating project

by first submitting the 1318 SIP Revision, EPA must analyze the effects of Rule 1315 along

with Rule 1318 on PM2.5 attainment. EPA knows the SCAQMD approved Rule 1315, it

knows the 1318 Tracking System is a small part of what the SCAQMD is trying to

accomplish. Ignoring “evidence indicating an existing SIP might be substantially

inadequate and choos[ing] to do nothing.

. .” is arbitrary and capricious, especially “in light

of the Act’s overall purpose of ensuring states come into compliance with clean air

standards.” 47

V. EPA has Reopened its 1996 Approval of the California SIP’s Creation of a SCAQMD

Internal Bank, and How the Credits in the Bank are Generated, Tracked, and Validated

In its 1996 approval of California’s SIP, the EPA approved SCAQMD Regulation XIII, New

Source Review. Rule 1304 provided that certain exempt facilities could obtain Emissions

46 California Energy Commission, AIR QUALITY Analysis, 2.1

‐ 31, April 2010 (available online,

copies provided by request.)

47 AIR, 2011 WL at 7.18 Reduction Credits (ERCs) from an internal bank. Rule 1309.1 created a Priority Reserve from

which the SCAQMD could distribute credits to essential public services. Regulation XIII did not,

however, create a mechanism by which these “banked” credits could be generated, tracked, or

validated. Because the internal credits are used to offset new emissions, as is any other ERC,

the only way these credits could be generated and validated was and is through Rule 1309,

which requires ERCs to be real, quantifiable, permanent, federally enforceable, and discounted

to BACT. 48

Through the 1318 SIP submission process, however, EPA has reopened the issue of how or

whether the SCAQMD’s rules apply to the Emissions Reductions Credits that are deposited in its

internal bank, then used by facilities to offset new emissions. In the TSD, EPA states:

In [the] South Coast, SCAQMD Rule 1309 establishes the procedures that a

facility must use to “bank” emission reductions, including provisions to ensure

the emission reductions meet the federal requirements of being real,

quantifiable, permanent, and enforceable prior to use. Rule 1309 does not

apply to the SCAQMD’s internal tracking system

, where the SCAQMD quantifies

various types of emission reductions that are real, quantifiable, surplus,

permanent, and enforceable. 49

This is the first time EPA has stated in an official rulemaking that Rule 1309, which

articulates federally mandated requirements for valid credits used to offset new emissions,

does not apply to the SCAQMD’s bank of ERCs. Until now, we have believed, and still believe,

to the contrary, that Rule 1309 does apply to the banked ERCs, and have asserted that in the

Ninth Circuit. 50 On its face, Rule 1309 does not exclude emission credits destined for the

internal bank; neither Rule 1309.1 (which establishes the Priority Reserve, an internal account

of credits) nor any other SIP

‐ approved rule establishes an alternate generation system. Yet,

under EPA’s newly articulated regulatory structure, even though all emission credits are used

for the same purpose

– to offset new emissions—only some credits are subject to the federally

mandated validity requirements. The EPA’s newly enunciated interpretation of the SIP ignores

the fact that validity requirements for ERCs are universal and fixed. They contain no exception

for situations when an air SCAQMD deposits credits into an internal bank. On the contrary, as

early as 1986, EPA issued a policy statement outlining universal requirements for banked

emission reductions, noting that “only reductions which are surplus, enforceable, permanent,

and quantifiable can qualify as ERCs and be banked....” 51 Indeed, 40 C.F.R., Pt. 51, App. S §

IV(C)(5) states that a “reviewing authority may not approve the construction of a source using

48 Rule 1309(b)(4).

49 TSD, p. 4 (emphasis added).

50 Natural Res. Def. Council et al. v. South Coast Air Quality Management Dist., United States Court of

Appeals for the Ninth Circuit, Case No. 09

‐ 57064, “Appellants’ Joint Opening Brief,” June 22, 2010,

and “Appellants’ Reply Brief,” September 9, 2010.

.

51 Emissions Trading Policy Statement: General Principles for Creation, Banking and Use of Emission

Reduction Credits, p. 234 (51 Fed. Reg. 43,814, 43,831, 43,838 (Dec. 4, 1986)).19 banked offsets if... such use would violate any other condition set forth for use of offsets.”

“[O]ther condition[s] set forth for use of offsets” include the creditability requirements. 52

Commenters could not have “reasonably anticipated” that Rule 1309, which articulates

the clear requirements of the Clean Air Act for all emission reductions that are used as offsets,

does not apply to the emission credits the SCAQMD distributes to facilities to offset increases in

pollution, because it is nonsensical. 53 Furthermore, EPA’s statement changes the “basic

regulatory scheme” 54 and opens a gaping hole in the SCAQMD’s approved SIP. If Rule 1309

does not apply to the internal bank emission credits, what generation requirements do apply?

EPA has not articulated any coherent system, absent Rule 1309, to ensure that the internal

bank’s emission credits meet the validity requirements of the Clean Air Act, or as articulated in

40 C.F.R. § 51.165(a)(3)(ii)(C)(1)(i). 55 EPA’s new pronouncement has reopened the issue of

whether the SCAQMD can and does ensure that its internal ERCs comply with the Clean Air Act.

The Proposed SIP Revision Violates CAA §172(e)

172(e) is the Act’s anti

‐ backsliding provision. “Although section 172(e) expressly applies only

when the EPA “relaxes” a NAAQS, the EPA has interpreted the language to also apply when it

strengthens a NAAQS.” 56 In South Coast Air Quality Management SCAQMD v. EPA, 472 F.3d 882

(D.C.Cir.2006), the federal court of appeals for the SCAQMD of Columbia Circuit further

expressly concluded that New Source Review is a “control” subject to section 172(e)'s

backsliding prohibition. 57 In EPA’s interpretation articulated in the proposed approval, the

SCAQMD’s SIP currently contains no method for generating emission credits to stock the

SCAQMD’s internal bank. For purposes of federal law, all emission reductions that do not

generate ERCs under Rule 1309 must accrue to the benefit of air quality. Converting emission

reductions that have occurred in 1999 58 to present

‐ day emissions credits weakens the

SCAQMD’s NSR implementation by allowing more pollution than the SIP’s current approved

NSR program allows. Further, under the existing rules, power plants have no access to internal

bank credits. Amending the SIP to allow the transfer also weakens the NSR program.

52 40 C.F.R., Pt. 41, App. S § IV(A)(3)(i)(1).

53 Cf. NRDC v. EPA

, 571 F.3d at 1266, where, in the original rulemaking, EPA proposed two alternative

amendments to a regulation, both of which contained the basic provisions Commenters later

disputed.

54 Cf. Id.

55 As discussed above, the new credits proposed by the SCAQMD do not provide the necessary

replacement system for Rule 1309 for the SCAQMD’s ERCs. See also NRDC v. EPA

, 571 F.3d at 1267.

(2009), where EPA’s elimination of a “fully

‐ approved SIP requirement without adding any other

safeguard to ensure that issuing a particular permit is consistent with CAA 173’s mandate that total

reductions ‘represent

. . . reasonable further progress,’” was arbitrary and capricious. Similarly, here,

EPA has proposed no other safeguard to ensure that issuing a particular permit is consistent with the

CAA’s mandate that the permit be based on valid credits.

56 NRDC v. EPA 571 F.3d 1245,1271 (D.C. Cir. 2009).

57 472 F.3d 882 at 902.

58 or 1990, depending on which subdivision of AB 1318 the SCAQMD believes it is getting approved

–

the public documents are unclear.20 Conclusion

For the reasons set forth above, EPAs approval of this Proposed SIP revision would violate the

Administrative Procedures Act and the Clean Air Act.