(Adopted September 8, 2006)

1315 - 1 PROPOSED RULE 1315 – FEDERAL NEW SOURCE REVIEW TRACKING SYSTEM

(a) Purpose The purpose of this rule is to specify procedures t o be followed by the Executive Officer to make annual demonstrations of equivalenc y to verify that specific provisions in the District’s New Source Review (NSR ) program related to sources that are either exempt from offsets or which obtain their offsets from the District’s offset accounts meet in aggregate the federal nonat tainment NSR offset requirements. The procedures specified in this rul e are used by the Executive
Officer to demonstrate that the sources which are s ubject to the federal NSR emission offset requirements and which obtain emiss ion credits through allocations from District Rule 1309.1 – Priority Re serve or Rule 1309.2 – Offset Budget or which utilize the emission offset exempti ons contained in Rule 1304 – Exemptions are fully offset by valid emission credi ts.

(b) Definitions (1) OFFSET RATIO means the ratio of the quantity of off set credits provided (in pounds per day) to offset a specific quantity o f increase in potential emissions (in pounds per day). (2) ORPHAN REDUCTION means any reduction in actual emis sions from a permitted source within AQMD resulting from a physi cal change to the source and/or a change to the method of operation o f the source provided the change is reflected in a revised permit for the source and provided such reduction is not otherwise required by rule, r egulation, law, approved Air Quality Management Plan Control Measure, or the State Implementation Plan and does not result in issuance of an ERC. (3) ORPHAN SHUTDOWN means any reduction in actual emiss ions from a permitted source within AQMD resulting from removal of the source from service and inactivation of the permit without subs equent reinstatement of such permit provided such reduction is not otherwis e required by rule, regulation, law, approved Air Quality Management Pl an Control Measure, or the State Implementation Plan and does not resul t in issuance of an
ERC.Proposed Rule 1315 (Cont.) Adopted September 8, 200 6

1315 - 2 (b) (c) Offset Accounts for Federal NSR Equivalency (1) District Offset Accounts The Executive Officer shall maintain a separate Dis trict offset account for
each federal nonattainment air contaminant. The Di strict offset accounts
are established with valid credits effective Octobe r 1, 1990 for the air
contaminants and with the initial account balances as listed in Table A. Any portions of the initial account balances identi fied in Table A remaining in the District offset accounts at the en d of calendar year 2005
shall be removed from the District offset accounts by the Executive Officer and shall not be used for purposes of demon strating equivalency between federal NSR offset requirements and the Dis trict’s NSR program.
Additional District offset accounts are to be estab lished by the Executive
Officer in the event that additional federal nonatt ainment air contaminants or their precursors become subject to federal nonat tainment NSR offset requirements. If the United States Environmental P rotection Agency (EPA) changes the District’s attainment designation from nonattainment to attainment for a specific air contaminant the Execu tive Officer may discontinue tracking and reporting the associated D istrict offset account for that air contaminant. The District’s NSR progr am shall be considered equivalent to federal nonattainment NSR offset requ irements for an air contaminant so long as the procedures specified in this rule are followed
and the balance in the District offset account for that contaminant remains positive.

TABLE A

Initial District Offset Account Balances

Air Contaminant Initial Account Balance (tons per day) Volatile Organic Compounds (VOC) 38.46 Nitrogen Oxides (NOx) 23.92 Sulfur Oxides (SOx) 8.04 Carbon Monoxide (CO) 8.45 Fine Particulate Matter (PM10) 2.67 (2) Tracking of Offset Account Debits for Federal NSR Equivalency
The Executive Officer shall track and debit from th e District offset accounts the following types of offset allocations or exemptions providedProposed Rule 1315 (Cont.) Adopted September 8, 200 6

1315 - 3 from the District offset accounts for sources locat ed at major polluting facilities and which are not exempt from the offset requirements of federal
nonattainment NSR: (A) Emission offsets from the Priority Reserve pursuant to Rule 1309.1 – Priority Reserve; (B) Emission offsets from the Offset Budget pursuant to Rule 1309.2 – Offset Budget; and (C) Exemptions from the offset requirements of Rule 130 3 – Requirements pursuant to Rule 1304 – Exemptions. The applicable offset ratios for offsets tracked by the Executive Officer pursuant to this paragraph is 1.2-to-1.0 for extrem e nonattainment air contaminants and their precursors and is 1.0-to-1.0 for all other
nonattainment air contaminants. (3) Tracking of Offset Account Credits for Federal NSR Equivalency (A) The Executive Officer shall track and credit the fo llowing types of
emission reductions to the District offset accounts : (i) Orphan shutdowns; (ii) Orphan reductions; (iii) ERCs provided as emission offsets for sources locat ed at minor facilities; (iv) The difference between the quantity of ERCs provide d for a source located at a major polluting facility at a 1.2-to-1.0 offset ratio pursuant to Rule 1303(b)(2)(A) and the quantity of ERCs required to offset the emission increases a t a ratio
of 1.0-to-1.0 for all non-attainment air contaminan ts except extreme nonattainment air contaminants and their

precursors. (v) The amount of emission reductions associated with a facility’s NSR balance, Community Bank and Priority Reserve allocations, and offset exemptions which is subtracted from the emission reductions quantified pursuant to Rule 1306(c) as part of the Executive Officer’s evaluation of an ERC banking application; and (vi) The portion of all emission reductions quantified p ursuant to Rule 1306(c) as part of the Executive Officer’s evaluation of an ERC banking application which isProposed Rule 1315 (Cont.) Adopted September 8, 200 6

1315 - 4 subtracted from the emission credit prior to issuan ce of the banked ERC pursuant to Rule 1309(b)(4)(E). This cl ause applies only in cases where the Executive Officer
demonstrates and EPA concurs that the subtracted amount exceeds the discount that would be required by appr oved SIP rules and rules scheduled to be approved by the District in the following year’s rule cycle. (B) The Executive Officer shall deposit emission reduct ions into the District offset accounts according to the following procedures: (i) From orphan sources tracked pursuant to
clauses subparagraphs ( c b )(3)(A)(i) or and ( c b )(3)(A)(ii) at eighty percent of the total or change in the source’s permitted emission levels , respectively ; and (ii) From ERCs tracked pursuant to clauses subparagraphs ( c b )(3)(A)(iii), ( c b )(3)(A)(iv), ( c b )(3)(A)(v), and ( c b )(3)(A)(vi). (C) The Executive Officer may choose not to track all p otential sources of credits in each reporting period if the Executiv e Officer
determines that sufficient credits remain in the Di strict offset accounts to demonstrate equivalency in each reporti ng period. (4) Surplus at the Time of Use All credits deposited into the District offset acco unts pursuant to clauses subparagraph ( c b )(3)(A) (i) and (c)(3)(A)(ii) excludin g clause ( b )(3)(A)(vi) shall be discounted by the Executive Officer to en sure that they remain surplus at the time of use. Such disco unting shall be performed annually and shall be based on the percen tage reduction in overall permitted emissions projected to be achieve d as a result of implementation of control requirements that become effective during the year for each specific pollutant within the Distric t.

(c) (d) Federal NSR Equivalency Determinations (1) Reporting Periods The Executive Officer shall aggregate tracked offse ts provided from the District offset accounts into the following reporti ng periods for purposes of making periodic determinations of equivalency: (A) October 1, 1990 through July 31, 1995;Proposed Rule 1315 (Cont.) Adopted September 8, 200 6

1315 - 5 (B) Each of the consecutive twelve-month periods commen cing with August 1995 through July 1996 and concluding with A ugust 2003 through July 2004; (C) August 2004 through December 2005; and (D) Each calendar year commencing with 2006. (2) Preliminary Determinations of Equivalency Commencing with the August 2004 through December 20 05 reporting period, the Executive Officer shall, no later than twelve months after the completion of the reporting period, complete a Prel iminary Determination of Equivalency (PDE) with federal nonattainment NSR offset requirements. The Executive Officer shall report t he PDE to the District’s Governing Board and EPA no later than the second re gularly-scheduled monthly Governing Board meeting after the completio n deadline for the
PDE. The PDE is a conservative assessment of avail able balances of credits without accounting for orphan and other cre dits which become available during the reporting period. As a result , each PDE shall include the debit accounting elements identified in paragra ph ( c b )(2) and the running balances in the District offset accounts at the beginning and at the end of the subject reporting period. (3) Final Determinations of Equivalency Commencing with the August 2004 through December 20 05 reporting period, the Executive Officer shall complete a Fina l Determination of Equivalency (FDE) with federal nonattainment NSR of fset requirements for any account(s) for which the PDE did not demons trate equivalence. The FDE for any such account(s) shall be completed no later than eighteen months after the completion of the subject reportin g period. The Executive Officer shall report the FDE to the Distr ict’s Governing Board and EPA no later than the second regularly-schedule d monthly Governing Board meeting after the completion deadline for the FDE for any account(s) for which the PDE did not demonstrate eq uivalence. Each FDE
shall include both the debit and the credit account ing elements identified in paragraphs ( c b )(2) and ( c b )(3), respectively, and the running balances in the District offset accounts at the beginning and a t the end of the subject reporting period. The Executive Officer shall repo rt the credit accounting elements identified in paragraph ( c b )(3) for any account(s) for which theProposed Rule 1315 (Cont.) Adopted September 8, 200 6

1315 - 6 PDE did demonstrate equivalence either with the FDE for the same reporting period or with the PDE for the subsequent reporting period. (4) Early FDE Subsuming PDE In lieu of preparing both a PDE and an FDE for a si ngle reporting period, the Executive Officer may opt to include the PDE in the FDE for the same reporting period. Such FDEs are subject to the sam e completion and reporting deadlines as are the PDEs which they subs ume.

(d) (e) Projections of the District Offset Account Balances Each PDE and each FDE report the Executive Officer prepares and presents to the Governing Board and EPA shall also include projecti ons of the District offset
account balances at the end of each of the two subs equent reporting periods. The Executive Officer shall make the projections of the District offset account balances based upon the average of the total annual debits and the average of the total annual credits for the five reporting periods most recently included in a PDE or an FDE. Although these projections are to be re ported with the results of the PDEs and FDEs, they are separate from the determina tions of equivalency and do
not constitute an element of the determinations of equivalency.

(e) (f) Backstop Provisions (1) Funding of the Priority Reserve The Executive Officer shall discontinue funding the Priority Reserve for any air contaminant which the most recent FDE has d emonstrated does not have a positive balance in its District offset acco unt no later than the completion deadline for the FDE specified in paragr aph ( d c )(3). If the most recent projections of the District offset acco unt balances prepared pursuant to subdivision ( e d ) in conjunction with a PDE or an FDE predict a shortfall for any air contaminant, the Executive Officer shall discontinue funding the Priority Reserve for that contaminant d uring the year which the shortfall is projected to exist. The Executive Officer may resume funding the Priority Reserve according to the follo wing schedule: (A) In cases where the Executive Officer has discontinu ed funding the Priority Reserve due to an actual account shortfall demonstrated pursuant to paragraph ( d c )(3), the Executive Officer may resume funding the Priority Reserve upon completion of a P DE or an FDE demonstrating that the shortfall no longer exists.Proposed Rule 1315 (Cont.) Adopted September 8, 200 6

1315 - 7 (B) In cases where the Executive Officer has discontinu ed funding the Priority Reserve due to an offset account shortfall projected pursuant to subdivision ( e d ), the Executive Officer may resume funding the Priority Reserve upon either completing a PDE or an FDE pursuant to paragraphs ( d c )(2) or ( d c )(3), respectively, demonstrating that no actual shortfall exists for t he reporting period in which the shortfall was projected to occu r; or completing a new projection pursuant to subdivision ( e d ) for the same reporting period demonstrating that the shortfall i s no longer projected to occur. (2) If an FDE demonstrates that a shortfall exists in a ny of the District offset accounts, the Executive Officer shall implement one or more of the following backstop provisions as needed to correct the shortfall: (A) Provide additional credits to the District offset a ccount(s) which
have a shortfall within six months of the FDE that demonstrated the shortfall. The Executive Officer may obtain su ch credits by purchasing them, by funding emission reduction proj ects using quantification protocols approved by EPA, applicati on of BACT (federal LAER) in excess of federal requirements, o r other credit sources approved by EPA; and/or (B) Suspend funding of the Offset Budget within 90 day s of the FDE that demonstrated the shortfall, not to be resumed until equivalency has been reestablished; and/or (C) Propose amendments to Rule 1304, Rule 1309.1, and/o r Rule 1309.2 to eliminate certain offset exemptions or to eliminate certain sources’ eligibility to receive offsets fro m the Priority Reserve or from the Offset Budget, respectively.