UNITED STATES ENVIRONMEN TAL PROTECTION AGENCY

REGION IX

75 Hawthorne Street San Francisco, CA 94105

April 11, 2006

Dr. Barry Wallerstein

Executive Officer South Coast Air Quality Management District 21865 E. Copley Drive Diamond Bar, CA 91765

RE: Proposed NSR Offset Tracking System

Dear Dr. Wallerstein:

I am writing in response to your letter date d February 24, 2006 requesting EPA review of the District’s recently Revised NSR Offset Track ing System, a copy of which was provided with the letter. We appreciate the many hours your st aff has spent to develop an approvable NSR Offset Tracking System.

We have reviewed the District’s propos ed Revised NSR Offset Tracking System and believe the system now addresses underlying hist orical issues, such as the use of pre-1990 credits, credit for the District’s BACT discount, the need to adjust “aging” credits retained in the system, and proper crediting and debiting of cred its into and out of the NSR Offset Tracking System. In addition, the District and EPA have ag reed to a list of permitting actions that will either add credits to the Tracking System (i.e . unclaimed orphan shutdown credits that have undergone a QA/QC process) or debit credits to provide the necessary offsets required by the federal Clean Air Act, but not required by the District’s NSR regula tions (i.e. specified exemptions from NSR offset requirements).

In addition the District has agreed to perform an annual two-part equivalency determination to demonstrate the system contains a positive balance, indi cating the District has provided an equivalent nu mber of credits as would have been required under Fede ral regulations. The first part of the equivalency determination will assume a worst case scenario by subtracting all of the previous years’ deb its (offset credits provided by th e District) from the NSR Offset Tracking System balance, without adding any offs et credits that became creditable during the same time period. If the Tracking System shows a negative balance, a second final determination will be made using all eligible credits and debits from the previous year. If the

District is unable to make this second demonstra tion, then the District w ill take specific actionsto bring the NSR Offset Tracking System back in to balance. Each of these provisions will be

reflected in the District’s new tracking rule, planned for adoption later this year.

We believe that adoption of a rule codify ing the Revised NSR Of fset Tracking System will provide a mechanism to ensure an equiva lent amount of federal offsets are provided annually, in lieu of offsets that would otherwise be required under the federal Clean Air Act. EPA understands that the District will proceed by taking this proposal through the rulemaking process, including a public workshop and adop tion by your Governing Board. We look forward to continuing working with your staff as you pro ceed with the adoption of a Revised NSR Offset Tracking System rule.

Please contact Laura Yannayon at (415) 972-353 4 if you have any other questions related

to this matter.

Sincerely,

Original signed by Matt Haber for

Deborah Jordan Director, Air Division

cc: Peter Greenwald, Senior Policy Advisor, SCAQMD Moshen Nazemi, Assistant Deputy Executive Officer, SCAQMD Mike Tollstrup, Chief of Pr oject Assessment Branch, ARB