Sections I, XII and XVIII

Per C.R.S. 25-7-1 10.5

September 18, 2008

I. REQUIREMENTS FOR ECONOMIC IMPACT ANALYSIS (EIA)

Section 25-7-110.5 (4)(a), C.R.S. sets forth the requirements for initial and final Economic Impact Analysis, as stated below:

“Before any permanent rule is proposed pursuant to this section, an initial economic impact analysis shall be conducted in compliance with this subsection (4) ofthe proposed rule or alternative proposed rules. Such economic impact analysis shall be in writing, developed by the proponent, or the Division in cooperation with the proponent and made available to the public at the time any request for hearing on a proposed rule is heard by the commission.

A final economic impact analysis shall be in writing and delivered to the technical secretary and to all parties of record five working days prior to the prehearing conference. If no prehearing conference is scheduled, the economic impact analysis shall be submitted at least ten working days before the date of the rule-making hearing. The proponent of an alternative proposal will provide, in conjunction with the Division, a final economic impact analysis five working days prior to the prehearing conference. The economic impact analyses shall be based upon reasonably available data. Except where data is not reasonably available, or as otherwise provided in this section, the failure to provide an economic impact analysis of any noticed proposed rule or any alternative proposed rule will preclude such proposed rule or alternative proposed rule from being considered by the Commission. Nothing in this section shall be construed to restrict the Commission’s authority to consider alternative proposals and alternative economic impact analyses that have not been submitted prior to the prehearing conference for good cause and so long as parties have adequate time to review them.”

The Air Pollution Control Division (Division) has selected C.R.S. § 25-7-1 l0.5(4)(c)(1II), which calls for an EIA that:

(A) Identifies the industrial and business sectors that will be impacted by the proposal; and

(B) Quantifies the direct cost to the primary affected business or industrial sector; and (C) Incorporates an estimate of the economic impact of the proposal on the supporting business and industrial sectors associated with the primary affected business or industry sectors.

An EIA need only be based upon reasonably available data (25-7-l 10.5(4)(a), C.R.S.).
reducing emissions of ozone precursors, volatile orga

p

(NO), mainly from the following sources:

• Oil and gas industry condensate tanks in the ozone non-attainment area, and

• Oil and gas industry Reciprocating Internal Combustion Engines (RICE) state-wide.

These proposed revisions are necessary to ensure attainment with the current 8-Hour OzoneNational Ambient Air Quality Standard (NAAQS) set at 0.08 parts per million (ppm), and to

otherwise achieve ozone reductions in light of both the new 8-Hour Ozone NAAQS set at 0.075

ppm and the Governor’s July 27, 2007 directive to proactively and pragmatically reduce ozone

levels.

Proposed Rules

Condensate Tank Proposed Rules in the Ozone Non-attainment Area

Proposed rule will lower the applicability thresholds for existing tanks from 10 down to five tons

per year of actual uncontrolled VOC emissions, beginning May 1, 2011, and then down to 2 tons

per year, beginning in May 1, 2012. The control technology must reduce uncontrolled emissions

by at least 95%. Affected tanks are required to control emissions by 95% and to monitor

associated air pollution control equipment to ensure compliance.

RICE Proposed Rules State-wide

Proposed rules will require any existing natural gas-fired RICE equal to or exceeding 500

horsepower (HP) to install emission controls. For natural gas-fired, rich burn (exhaust oxygen

(02) is greater than 0.5%) RICE (either 2-cycle and 4-cycle ), NOx, VOC and carbon monoxide

(CO) emissions will be controlled using 3-way Non-Selective Catalyst Reduction (NSCR)

technology along with air fuel ratio (AFR) controller. Source operators that demonstrate to the

satisfaction of the Division a retrofit control cost exceeding a total of $5,000 per the sum total

tons of VOC and NOx of combined emissions reductions will be allowed an off-ramp from the

retrofit control requirement.

For natural gas-fired, lean burn (exhaust 02 is greater than 4.0%) RICE (either 2-cycle and 4-

cycle), VOC and CO emissions will be controlled using oxidation catalyst technology. Source

operators that demonstrate to the satisfaction of the Division a retrofit control cost exceeding

$5,000 per ton of VOC emissions will be allowed an off-ramp from the retrofit controlrequirement.

Data Used in EIA

2
g 

p

p

om large

units were based on the Division’s emissions inventory (data reported to the Division by industry

via APENs) for the 2007 inventory year.

The number of small tanks or tank batteries (those having actual uncontrolled emissions of equal

to or more than 5 tpy uncontrolled VOC emissions) that will need to install control devices under

the proposed rule was based on the Division’s emissions inventory for the 2007 inventory year.

Because the current reporting threshold is higher than five tons per year, and therefore the

Division’s emissions inventory is limited, the controlled and uncontrolled emissions from small

units were based on data gathered within the ozone non-attainment area by Independent

Petroleum Association of Mountain States (IPAMS).

The cost of controlling emissions was based on data collected from the oil and gas industry.

RICE EtA Data

The number of affected RICE was based on the Division’s emissions inventory (data reported to

the Division by industry via APENs) for the 2007 inventory year. Only recently were the types

of RICE identified in the inventory as being rich-burn and lean-bum engines. Thus, for those

RICE not identified as rich or lean burn in the APEN inventory, the Division assumed the same

ratio of rich-burn to lean-bum engines in the ozone non-attainment area (67:33, respectively)

applies to RICE state-wide.

Natural Gas-fired RICE (both lean and rich burn) control cost information (both capital and

operating) was based on the Denver Ozone Early Action Compact (EAC) Analysis (dated

November 3, 2003) that was part of the 2004 EAC Technical Support Document. Annualized

costs were based on a 15 year amortization and 5% rate of return on capital. However, the

Division can not anticipate the number of additional control devices that will be required to

comply with proposed regulation or associated emission reductions that can be achieved, due tothe availability of the off-ramp.Impact to Public

The public will be indirectly affected by the proposed rule. Reductions in VOC and NOemissions will reduce the incidence of fine particulate, air toxics, and ozone induced human

health impacts caused by pulmonary, cardiovascular, respiratory, and nervous system disease.Ozone damages crops, forests, and other natural plant life, so these will benefit if VOC and NO

emissions are reduced. Additionally, visibility in Colorado’s Class I areas will likely be

improved due to the VOC and NOx reductions. It is not within the scope of this analysis to

determine if the public will face increased costs associated with the proposed regulation.

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Economic Impact Analysis

The Oil and Gas industry will be impacted by this proposal. Supporting business and industrial

sectors associated with the Oil and Gas industry will benefit by selling equipment to them. For

example, as a result of the proposed regulation, more flares will be sold. Calculating supporting

economic impacts is beyond the scope of this document.

As directed by CRS 25-7-110.5, this ETA does not include an analysis of any nonmarket costs or

external costs asserted to occur notwithstanding compliance by a source with applicable

environmental regulations.

Direct costs to the Oil and Gas industry are shown in the following table:

Condensate Tank ETA for NAA

Table 1: Statewide Retrofit of Condensate Tanks with Flare Device Controls

See Table 2 below

Tanks Cost Analysis: >2 and <5 tpy >5 and <10 tpy >2 and <10 tpy

Flares @ 95% CE uncontrolled uncontrolled uncontrolled

Controlled VOC Emissions

(tpd) 14.9 29.4 44.3

(tpy) 5,441 10,736 16,177

Annualized Cost Per Unit* $8,419 $8,419 $8,419

Number of Units Controlled 1,128 1,595 2,723

CostPerTon $1,745 $1,251 $1,417

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Freight & Design - $1,500 -

Flare Installation - $6,354 -

Auto Igniter $1,500 - -

Surveillance System $3,600 - -

Pilot Fuel - - $1,897

Maintenance - - $2,000

Data Management - - $1,000

Subtotal Costs $21,640 $7,854 $4,897

Annualized Costs $2,999 $524 $4,897 $8,419

Table 3: Statewide Retrofit of Condensate Tanks with Vapor Recovery Unit (VRU) Controls

Tanks Cost Analysis: >2 and <5 tpy >5 and <10 tpy >2 and <10 tpy

VRU 95% Control uncontrolled uncontrolled uncontrolled

Controlled VOC Emissions

(tpd) 14.9 29.4 44.3

(tpy) 5,441 10,736 16,177

Annualized Cost Per Unit* $19,078 $19,078 $19,078

Number of Units Controlled 1,128 1,595 2,723

Cost Per Ton $3,957 $2,834 $3,21 1

* See Table 4 below

Table 4: Condensate Tank Annualized Costs for Vapor Recovery Unit Controls

Condensate Tank: Vapor Recovery Unit (VRU) Cost Analysis

Capital - Non - Annualized

Costs Recurring O&M Fuel Sales Total Cost

Item (one time) (one time) (recurring) (recurring) (15 yrs)

VRU $78,000 - - -

Freight & Design - $1,500 - -

VRU Installation - $10,154 - -

Maintenance - - $8,553 -

Recovered Natural

Gas - - - ($1,063)

Subtotal Costs $78,000 $1 1,654 $8,553 ($1,063)

Annualized Costs $10,810 $777 $8,553 ($1,063) $19,078

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Rich Burn 500 HP 305 3,773 / 10.3 1,175 / 3.2 5,800/ 15.9

Total Natural Gas 593 6,961 / 19.1 2,436 / 6.7 5,800/ 15.9 Fired_RICE__500_HP

Notes:

1 Statewide excludes Denver Metro Area/North Front Range 9-County Ozone Non-Attainment

Area

2 Data obtained from 2008 APENsTable 6: Costs Associated with Statewide Retrofit of Natural Gas-fired RICE ? 500 HP

Control Combined Number Annualized Total Pollutant Category Efficiency of Cost per Device Cost Reduction $/ton for Devices Device CO/VOC/NO 1 fipy]

Lean Burn -Oxidizing 952 288 $8,772 $2,529,153 1,198 $2,111

Catalyst

Rich Burn -

NSCR& 95 305 $10,851 $3,305,673 6,626 $499 AFR

Controller

Rich & Lean 593 $5,834,826 7,824 $746 Combined

I Control Efficiency does not include 83% RE that adjusts for the uncertainty associated with

the off-ramp for sources that can demonstrate control costs in excess of $5000/ton.

2 Control Efficiency does not apply for NO on Lean Burn RICE since NO controls are

inherent in the engine design.

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