### SOUTH COAST AIR QUALITY MAAGEMET DISTRICT

Staff Report

Proposed Rule 1315 – Federal ew Source Review Tracking System

January 7, 2011

Deputy Executive Officer Engineering and Compliance Mohsen Nazemi, P.E.

Author: Mitch Haimov, M.S. – Air Quality Analysis and Compliance Supervisor

Reviewed By: Kurt Wiese – General Counsel Barbara Baird – District Counsel Elaine Chang, DrPH – Deputy Executive Officer of Planning, Rule

Development, & Area Sources

Contributors: William Thompson, P.E. – Senior Manager Gary Turner, P.E. – Air Quality Analysis and Compliance Supervisor George Illes – Senior Air Quality EngineerSOUTH COAST AIR QUALITY MAAGEMET DISTRICT

GOVERIG BOARD

Chairman: WILLIAM A. BURKE, Ed.D. Speaker of the Assembly Appointee

Vice Chairman: DENNIS YATES Mayor, City of Chino Cities of San Bernardino County

MEMBERS:

MICHAEL D. ANTONOVICH Supervisor, Fifth District County of Los Angeles

JOHN J. BENOIT Supervisor, Fourth District County of Riverside

MICHAEL A. CACCIOTTI Mayor, City of South Pasadena Cities of Los Angeles County, Eastern Region

BILL CAMPBELL Supervisor, Third District County of Orange

JANE W. CARNEY Senate Rules Committee Appointee

JOSIE GONZALES Supervisor, Fifth District County of San Bernardino

RONALD O. LOVERIDGE Mayor, City of Riverside Cities of Riverside County

JOSEPH K. LYOU, PH.D Governor’s Appointee

JUDITH MITCHELL Councilmember, City of Rolling Hills Estates Cities of Los Angeles County, Western Region

JAN PERRY Councilmember, Ninth District City of Los Angeles Representative

MIGUEL PULIDO Mayor, City of Santa Ana Cities of Orange County

EXECUTIVE OFFICER

BARRY R. WALLERSTEIN, D.Env.

### TABLE OF COTETS

Page

EXECUTIVE SUMMARY 1

BACKGROUD 3

PROJECT DESCRIPTIO 7

DISCUSSIO OF AQMD’S PROPOSED REVISED 8 SR TRACKIG SYSTEM

SOURCES OF OFFSETS 9

Pre-1990 Credits 9 1990 and Beyond Credits 14 Summary 19

USE OF OFFSETS 23 DEMOSTRATIOS OF EQUIVALECY 23

TRACKIG AD BACKSTOP 26

STATE IMPLEMETATIO PLA AD RULE SUSET DATE 29

DISCUSSIO OF PR 1315 RULE LAGUAGE 29

CALIFORIA HEALTH AD SAFETY SECTIO 34 40440.5(c)(3)—REQUIRED STAFF REPORT ELEMETS

CEQA AALYSIS 36

SOCIO-ECOOMIC IMPACTS 3 7 6

AQMP AD LEGAL MADATES 37

RESOURCE IMPACTS 37

DRAFT FIDIGS 37

COCLUSIOS AD RECOMMEDATIOS 38

APPEDIX I: AQMD’S SR OFFSET TRACKIG—FEDERAL I-1

RUIG BALACES

APPEDIX II: LIST OF SOURCES EXEMPT FROM OFFSET II-1

REQUIREMETS AD PROVISIOS COVERED BY EQUIVALECY SHOWIG**Page 1**



### EXECUTIVE SUMMARY

AQMD’s New Source Review (NSR) program is defined in and established by Regulation XIII – New Source Review. EPA approved AQMD’s Regulation XIII into the State Imp lementation Plan (SIP) in 1996 (Federal Register Volume 61, No. 234, pages 64291-94), establishing tha t AQMD’s NSR requirements and the federal NSR requirements are progra mmatically equivalent 1 . As part of the preamble to this SIP-approval, EPA stated that AQMD wa s expected to track both emission increases from major sources not required to provide emi ssions offsets and offsetting emission reductions. The purpose of the tracking was to make annual showings that the aggregate emissions offsets provided by AQMD for emission incre ases pursuant to AQMD’s NSR program for sources exempt from emissions offsets are equal to (or greater than) the aggregate emissions offsets that would be required for such sources purs uant to the federal NSR offset requirements. Emissions offsets are emission reductions create d at one location to compensate and balance emission increases at another location. AQMD’s NSR program (Rule 1303) requires that emission increases are offset by emission reducti on credits (ERCs) provided by the applicant or by allocations from the Priority Reserve pursuant t o Rule 1309.1 – Priority Reserve unless they are exempt from offset requirements pursuant to Rule 1304 - Exemptions. The federal new source review program does not provide any offset exempti ons for most of the Priority Reserve sources or for the sources that qualify for the exempti ons listed in Rule 1304. Therefore, major sources subject to Rule 1309.1 or exempt under Rule 1304 are not exempt f rom the offset requirements of federal NSR. As a result, AQMD maintains inte rnal offset accounts from which it provides offsets for federal major sources exempt from AQMD ’s NSR requirements pursuant to Rule 1304 and for federal major sources that receive offse ts from the Priority Reserve (Rule 1309.1; principally essential public servic es). AQMD tracks all disbursements from these offset accounts, as well as all deposits to them. The r esults of this tracking are aggregated and reported on an annual basis. These annual report s summarize the disbursements from and deposits to AQMD’s offset accounts, as well as the r unning account balances. They also demonstrate programmatic equivalency between A QMD’s NSR offset requirements and federal NSR offset requirements contained in the federal Clean Air Act for such sources.

Rule 1315 – Federal New Source Review Tracking System was initially develo ped and adopted in 2006 to:

• Formalize AQMD’s then-existing accounting methodology used to track debits from and credits to AQMD’s federal offset accounts and AQMD’s equivalency demonstrat ion and reporting procedures;

• Remove certain categories of offset credits, including pre-1990 credits wit hout sufficient currently-available documentation and almost all the BACT discounts of newly issued ERCs, from AQMD’s federal offset accounts; and

• Track creditable and eligible offset sources in AQMD’s federal offset accounts, which were previously not tracked in the federal tracking system, including surplus emissi on reductions

1 Subsequent to that, in June 2006, EPA SIP-approved AQMD’s May 2002 amendments to Rule 1309.1 (Federal Register Volume 71, No. 117, pages 35157-59).**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 2**

from minor sources and use of ERCs as emissions offsets beyond federal NSR of fset requirements.

The accounting methodology contained in Rule 1315 as adopted in 2006 was intended to be used to continue to annually demonstrate that emissions increases from sources that are not required to provide ERCs ( i.e. , sources whose offsets are provided by AQMD) are offset by AQMD’s accounts. The rule applied exclusively to AQMD’s internal federal offset accounts. Therefore, the accounting methodology and equivalency demonstration requirements did not impact hol ders of ERCs.

At the same time as it adopted Rule 1315 in 2006, AQMD also adopted amendments to Rule 1309.1. The amendments to Rule 1309.1 would have allowed power plants on a temporary basis to access to the Priority Reserve upon qualifying and paying mitigat ion fees.

A lawsuit was filed in Superior Court regarding Rules 1309.1 and 1315 after their joint September 2006 amendment (Rule 1309.1) and adoption (Rule 1315) on California Environmental Quality Act (CEQA) grounds. On August 3, 2007, AQMD approved a Program Environmental Assessment, re-amended Rule 1309.1 by adding more stringent air qua lity and health risk requirements for power plants to qualify for access to the Pri ority Reserve, and readopted Rule 1315, rendering the litigation moot. However, a new lawsuit was file d challenging the August 2007 amendment and adoption, again on CEQA grounds. The petitioners prevailed in this case, and the Superior Court of the State of Cali fornia, County of Los Angeles (Court) issued a writ of mandate ordering AQMD to, inter alia , set aside the August 2007 rule adoptions. AQMD repealed Rule 1315 and the August 3, 2007 amendments to Rule 1309.1 in January 2010.

AQMD now proposes to adopt a revised version of Rule 1315. The current Proposed Rule 1315 (PR 1315) is similar to the rule previously adopted in 2006 and 2007 but includes an updated a nd more detailed Purpose subdivision and several new definitions, introduces the concept of tracking cumulative net emissions increases resulting from implementa tion of the proposed rule, strengthens the backstop provisions designed to ensure programmatic e quivalency with the offset requirements of federal NSR, and adds a new set of backstop provisions that ar e designed to ensure the actual cumulative net increases in potential to emit nonattainme nt air contaminants resulting from implementation of the proposed rule do not need exceed the anticip ated increases that were analyzed in the CEQA review of the proposed rule. The CEQA document (Program Environmental Assessment or PEA) prepared for PR 1315 analyzes direct and i ndirect impacts that could result from implementation of PR 1315, and addresses concerns expressed b y the Court. This analysis of impacts includes the direct and indirect impacts of is suing permits relying on the Priority Reserve pursuant to Rule 1309.1 and/or offset exemptions pursuant to Rule 1304 to non-major sources even though the proposed Federal NSR tracking rule would not track such non-major source permit actions. This is because AQMD interp reted the Court decision as preventing the issuance of permits relying on the Priority Re serve and/or the offset exemptions of Rule 1304 to either minor or major sources until a federal tracking r ule is adopted in compliance with CEQA requirements. Thus, a direct result of adoption of Prop osed Rule 1315 would be the issuance of such permits to both minor and major sources. The AQMD does not propose to re-adopt the amendments to Rule 1309.1 for power plants. SB 827, Califor nia**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 3**

Health and Safety Code Section 40440.13, effective January 1, 2010, allows AQMD until May 1, 2012 to issue permits pursuant to Rules 1309.1 and 1304.



### BACKGROUD

In general, the Federal Clean Air Act (CAA) requires that emission increa ses of nonattainment air pollutants from new and major modifications of federal major sources be off set with equal or greater quantities of emissions decreases. The specific quantity of emis sion decreases required to offset a specific increase in federal nonattainment emissions is dependent upon the pollutant’s federal nonattainment classification for the air basin in which the increase occurs. In the case of AQMD, the applicable offset ratios are 1.2 pounds of decrease for every 1.0 pounds of increase for VOC and NOx 2 and at least 1.0 pounds of decrease for every 1.0 pounds of increase for all other nonattainment pollutants and their precursors. Some aspects of the offset requirements in AQMD’s NSR program (Regulation XIII – New Source Review 3 ) are more stringent than the federal offset requirements,. For example, Regulation XIII is more str ingent in that it requires offsets for increases from sources that are not federal major sources (fede ral minor sources) and an offset ratio of 1.2-to-1.0 for all nonattainment pollutants and their precursors (rather than the federally-required 1.0-to-1.0 for pollutants other than VOC and NOx). On the other hand, Regulation XIII includes certain exemptions from the offset requirement that do not exist in federal NSR. Several of these exemptions, however, are necessitated by t he increased stringency of the AQMD NSR program as compared to the federal program.

AQMD submitted its NSR program to California Air Resources Board ( CARB) for approval into the SIP. CARB approved AQMD’s NSR program as satisfying the applic able requirements without condition and forwarded the rules to the United States Environmental Protection A gency (EPA) for federal approval into the SIP. EPA subsequently approved AQMD’s NSR program into the SIP (refer to Table 1 for the specific revisions of each rule in Regula tion XIII that EPA has approved). However, EPA’s approval in the preamble anticipated that AQM D would implement a tracking system to account for emission decreases of federa l nonattainment air contaminants that occur under AQMD’s NSR program but that are surplus under federal NSR, as well as emission increases of federal nonattainment pollutants that occur unde r AQMD’s NSR program without individually complying with federal NSR’s offset requirem ents 4 . The purpose of this tracking system referred to in EPA’s Technical Support Document is to “continuously show that in the aggregate the District will be able to provide for the necessa ry offsets required to meet the appropriate statutory offset ratio” (TSD, p. 16). The TSD furt her states that “EPA

2 As precursors to ozone (for which the South Coast Air Basin is designated by EPA as extreme nonattain ment), the federally-required offset ratio for VOC and NOx app licable to AQMD would be 1.5-to-1.0, but AQMD requi res installation of Best Available Retrofit Control Tec hnology (BARCT, which is equivalent to federal Best Available Control Technology or BACT) on all permitted source s, making AQMD eligible to use a 1.2-to-1.0 offset ratio for VOC and NOx under the federal Clean Air Act (42 U.S .C. §7511a(e)(1) and §7511a(f)(1)).

3 AQMD’s Regional Clean Air Incentives Market (RECLA IM) program includes its own NSR requirements for new and modified sources of NOx and/or SOx subject to RECLAIM in its Rule 2005 – New Source Review for RECLAIM. PR 1315 is not applicable to RECLAIM emis sions, so Rule 2005 is outside the scope of this discussion.

4 United States Environmental Protection Agency, Reg ion IX Air & Toxics Division Technical Support Docu ment for EPA’s Notice of Final Rulemaking for the Califo rnia State Implementation Plan South Coast Air Qual ity Management District New Source Review by Gerardo C. Rios, October 24, 1996 (Technical Support Document or TSD).**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 4**

determined that the District’s proposal to offset all emissions increa ses with emissions reductions not otherwise required by the Act could be met in the aggregate was consiste nt with the language of the Act” (p. 16). Thus, AQMD’s development and maintenance of a tracking system to account for the differences in emissions reductions achieved by and offsets re quired by the AQMD and federal NSR programs is expected by EPA’s approval of Regula tion XIII into the SIP. EPA determined in 1996 that AQMD’s internal offsets “meet or exceed the le gal requirements in Section 173(c).” 5 Responses to Comments for Docket No. EPA-R09-OAR-2006- 0281, Revisions to the California State Implementation Plan, South Coast Air Quali ty Management District.

Table 1

SIP-Approved Revisions of AQMD’s NSR Rules

**Rule AQMD Adoption Date(s) 213 10/8/1976 (Rescinded by AQMD 6/28/1990)**  **1300 (Rescinded by AQMD 6/28/1990) 1301 12/7/1995**  **1302 12/7/1995, 6/13/1997 1303 5/10/1996**  **1304 6/14/1996 1305 4/6/1984 (Rescinded by AQMD 6/28/1990)**  **1306 6/14/1996 1307 (Rescinded by AQMD 6/28/1990)**  **1308 10/5/1979** or **3/7/1980** or

**4/4/1980** or

**7/11/1980 (Rescinded by AQMD 6/28/1990)**  **1309 12/7/1995 1309.1**  **12/7/1995, 5/3/2002 1309.2**  **(Rescinded by AQMD 2/5/2010) 1310 12/7/1995**  **1311 10/5/1979 (Rescinded by AQMD 6/28/1990) 1312 (Rescinded by AQMD 6/28/1990)**  **1313 12/7/1995 1315 (Rescinded by AQMD 1/8/2010)** 

Since EPA’s October 1996 approval of AQMD’s NSR program, AQMD has impl emented an NSR tracking system to demonstrate programmatic equivalence betwe en its NSR program and the offset requirements of the federal program. As a part of this effort , AQMD staff has prepared and presented to the AQMD Governing Board at public meetings a series of reports that track credits and debits from August 1990 through July 2002 and present the remaining balanc es of credits in AQMD’s federal accounts including the initial pre-1990 offsets. These NSR tracking reports go back to the year 1990 because that was the year when fundamenta l amendments were made to AQMD’s Regulation XIII. A key source of credits in these tracking repor ts was “orphan shutdowns” of federal major sources. “Orphan shutdowns” refers to shutdowns of

5 Responses to Comments for Docket No. EPA-R09-OAR-2 006-0281, Revisions to the California State Implementation Plan, South Coast Air Quality Manage ment District.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 5**

sources that did not receive ERCs either because they originally obtain ed their offsets from AQMD or because they failed to properly claim ERCs. Other credit sour ces included “negative NSR balances” resulting from permit actions prior to 1990, and the “BACT di scount” currently required by Regulation XIII when banking ERCs. Additionally, the staff re port for the original adoption of Rule 1315 in September 2006 included preliminary revised tracking of credi ts and debits pursuant to the revised tracking system embodied in then-Proposed Rule 1315 from 1990 through July 2004. After Rule 1315 was adopted additional tracking reports finalizing the revised tracking through 2005 as well as tracking the 2006 debits but not 2006 credits 6 were presented to the Governing Board.

In 2002 AQMD adopted an Offset Budget rule (Rule 1309.2 – Offset Budget) as part of AQMD’s NSR program to address some of the shortage problems with ERC s. As adopted, Rule 1309.2 would have made the Offset Budget available as a “bank of last resort” to sourc es subject to AQMD’s NSR offset requirements but unable to obtain sufficient NOx, S Ox, CO, or PM10 ERCs to provide as emissions offsets on the open market 7 . Offset credits would have been available to such sources from the Offset Budget provided the sources paid a non -refundable mitigation fee based on the quantity and type of offsets to be obtained from the Offset Budget. As part of the discussions between EPA and AQMD regarding Rule 1309.2, EPA rai sed some questions related to the credits in AQMD’s offset accounts for use in the Offset B udget. Among the key issues raised by EPA were the following:

• availability of pre-1990 emission reductions, particularly availabili ty of existing records associated with such reductions;

• availability of reductions resulting from the BACT discount of newly-banked ER Cs, since the discount is presumably also used to satisfy the federal surplus at the time of use discount requirement;

• baseline calculation procedures to assure an “actual” baseline;

• surplus adjustment at time of use for credits in the tracking system; and

• consistency of credit use with assumptions in the SIP.

EPA staff requested that these issues be resolved prior to EPA consideri ng approval of Rule 1309.2 into the SIP. EPA staff also requested that AQMD adopt a rule specifying how the tracking of debits and credits would occur in the future. Therefore, EPA and AQMD sta ff engaged in a series of discussions to develop a proposed revised NSR tracking sy stem intended to demonstrate continued programmatic equivalency of AQMD’s NSR progr am with federal NSR requirements and to address EPA’s above-described concerns. AQMD spe nt several thousand person hours to evaluate the existing NSR tracking system as a pa rt of this effort. Rule

6 The Court decision enjoining AQMD from implementin g Rule 1315 was issued after the report describing 2006 credits was presented to the Governing Board’s Stat ionary Source Committee but before it was presented to the Governing Board itself. Therefore, that report was never finalized. This staff report brings the tra cking up to date.

7 Rule 1309.2 included a provision specifying that t he Offset Budget would be established by the Execut ive Officer upon approval of the rule by CARB and EPA. EPA nev er approved the rule and AQMD’s Governing Board repealed the rule in February 2010. Therefore, the Offset Budget was never implemented and no permits were ever issued relying upon the Offset Budget.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 6**

1315 – Federal New Source Review Tracking System, as adopted September 8, 2006, was the result of this process.

AQMD’s Governing Board adopted Rule 1315 along with amendments to Rule 1309.1 – Priority Reserve (creating a mechanism for proposed electrical generating facilities (EGFs) to temporarily obtain emissions offsets for specified nonattainment poll utants from the Priority Reserve) on September 8, 2006. Pursuant to the California Environmental Quality Act (CEQA), AQMD determined the adoption of Rule 1315 and the amendment of Rule 1309.1 were exempt from CEQA 8 . A group of environmental organizations that had opposed these rule actions during the Public Hearing filed suit against AQMD challenging these rul es on CEQA grounds, disputing that either rulemaking was exempt from CEQA. After AQMD’s dem urer was overruled, and rather than wait for the suit to be finally decided in court, possibl y resulting in the rule actions being vacated and the resulting need to readopt Rule 1315 and the amendme nts to Rule 1309.1 after many months of delay, AQMD initiated the process of prepari ng a full CEQA analysis for Rule 1315 and the amendments to Rule 1309.1 while the litigation was pending. The case was therefore dismissed as moot. The Governing Board approved a Program Environmental Assessment, readopted Rule 1315 and re-amended Rule 1309.1 on August 3, 2007. The September 2006 and August 2007 adoptions of Rule 1315 were identical; the August 2007 amendments to Rule 1309.1 differed from the September 2006 amendments in that they included additional environmental requirements based on the location of the project in environmental justice or more polluted areas. The same environmental organizat ions considered the CEQA documents for the August 3, 2007 re-adoption and re-amendment inadequate and again filed suit and prevailed in the Superior Court of the State of California, C ounty of Los Angeles (Court), resulting in a July 28, 2008 Court decision determining that the August 2007 Governing Board action adopting Rule 1315 and amending Rule 1309.1 would be vacated and that AQMD would be enjoined from “undertaking any action to further implement these rules pending CEQA compliance.” The Court subsequently issued a writ of mandate on November 3, 2008 ordering AQMD to, inter alia , set aside its actions to adopt Rule 1315 and amend Rule 1309.1, “including the certification of the Final Program Environmental Assessment .” AQMD does not intend to readopt the amendments to Rule 1309.1 for power plants, but is proceedi ng with a rulemaking effort to replace the set aside version of Rule 1315 with a dif ferent version (PR 1315) supported by a new environmental assessment that analyzes the potent ial direct and indirect impacts of PR 1315, and addresses concerns expressed by the Court.

During the interval between the September 8, 2006 adoption of Rule 1315 and the July 28, 2008 Court decision ordering it to be vacated, AQMD implemented Rule 1315 to demonstrate ongoing equivalency between AQMD’s NSR program and federal NSR requirement s. Therefore, a Status Report on Regulation XIII – New Source Review was presented to the Governing Board on February 2, 2007 and a second status report was presented on September 7, 2007. The fir st of these reports demonstrated continued equivalency for the August 2002 through July 2003 and

8 AQMD staff reviewed then-Proposed Rule 1315 and co ncluded that it did not meet CEQA’s definition of “project” and, even if it were determined to be a p roject, that it was exempt from CEQA pursuant to CE QA Guidelines §15061(b)(3), referred to as the general rule or commonsense exemption. Similarly, staff c oncluded that the amendments to Rule 1309.1 were exempt beca use each of the EGF projects which would make use o f the amendments would be subject to individual CEQA revi ew with the California Energy Commission as lead agency, making the amendments statutorily exempt fr om CEQA pursuant to CEQA Guidelines §15271 – Early Activities Related to Thermal Power Plants.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 7**

August 2003 through July 2004 time periods; the second report did so for the August 2004 through December 2005 time period. The accounting procedures for demonstrating equivalency between AQMD’s NSR program and federal NSR remain consistent betwe en the previouslyadopted versions of Rule 1315 and the current PR 1315. Therefore, the NSR tracking present ed in the staff reports for the September 2006 and August 2007 adoptions of Rule 1315 were consistent with the provisions of the current PR 1315, as were the February and Sept ember 2007 status reports on Regulation XIII. As a result, if of the current PR 1315 is adopted , the February and September 2007 reports will be consistent with the newly-adopted Rule 1315 and wi th the exception of minor adjustments (see Appendix I) no new federal tracking re ports for August 2002 through December 2005 will be needed. The balances in AQMD’s federal offse t accounts as of December 31, 2005 are shown in Table 2.

Table 2 AQMD’s Federal Offset Account Balances as of Decemb er 31, 2005 (Tons per Day)

**VOC NOx SOx CO PM10**

Balance **64.40 23.61 1.89 11.08 10.77**



### PROJECT DESCRIPTIO

In light of the circumstances described above, AQMD proposes to adopt Rul e 1315 – Federal New Source Review Tracking System with the following objectives:

• Maintain AQMD’s ability to continue to administer its new source review pr ogram for major and minor sources for facility modernization and to accommodate population growt h through implementation of Rule 1304 and Rule 1309.1. AQMD’s policy objectives include allowing the permitting system to operate in order to: 1) allow facility moderni zation which will increase efficiency and reduce air pollution, 2) allow facilities to inst all pollution control equipment, 3) allow emergency equipment to be installed, 4) allow permitting of equipment necessary for essential public services and small emitters, 5) all ow operation of portable equipment and other sources determined as a policy matter to be exempt fro m offsets or eligible for Priority Reserve credits, and 6) take into account environmental a nd socioeconomic benefits as well as environmental and socioeconomic impacts;

• Memorialize in rule form the accounting procedures AQMD uses to establis h equivalency of AQMD’s New Source Review program with federal offset requirements, a nd ensure that valid offsets are projected to be available in AQMD internal offset ac counts before a major source relying on such offsets is permitted thus assuring that increases i n emissions resulting from such sources are fully offset; and

• Recognize sufficient previously-unused emission reductions that are beyond those required by applicable regulatory requirements in order to demonstrate federal equivalency for major**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 8**

sources that are exempt under Rule 1304 or that obtain credits from the Priority Re serve under Rule 1309.1.

PR 1315 would be used to establish that exempt sources (under Rule 1304) and Priority Res erve sources (under Rule 1309.1) are fully offset to the extent required by federal law by valid emission reductions from AQMD’s internal offset accounts. PR 1315 would achieve this by establishing what types of reductions are eligible to be used to offset e missions. PR 1315 would also allow the use of certain previously unused credits that are eligible to of fset emission increases. For example, PR 1315 would recognize emission reductions generated f rom minor source “orphan shutdowns,” which were not previously accounted for in AQMD’s NSR t racking system and federal equivalency demonstrations, to offset emission increases from other sources. PR 1315 would also exclude from the applicable equivalency obligation any new or modifi ed permits that are not required to provide offsets under federal law. PR 1315 would exp ire January 1, 2031. AQMD has prepared a Program Environmental Assessment for this rule devel opment effort.



### DISCUSSIO OF AQMD’S PROPOSED REVISED SR TRACKIG SYST EM

AQMD staff has developed a proposed rule that formalizes AQMD’s N SR tracking system and includes certain revisions to the procedures used in the previous tracking syste m that existed prior to September 2006. The proposed revised procedures include elimination of all pre-1990 credits for which AQMD no longer retains documentation. AQMD has also included additional classes of creditable and eligible offsets in the proposed revised tr acking system, including orphan shutdowns and orphan reductions of minor sources, as well as other surplus reductions. As a result of these revisions, and even with the inclusion of the additional offset source s, AQMD’s previously-reported 2002 federal offset account balances 9 for all pollutants except for NOx 10 would be reduced, depending on the pollutant, by from 37% to 81%. Several elements of the proposed revisions to AQMD’s tracking system contribute to these reduct ions, as discussed below, but the single element of the proposal with the greatest contrib ution is the reevaluation of pre-1990 credits and proposed elimination of all offsets for which AQMD no longer r etains documentation. As a result of this proposed change, AQMD’s pre-1990 credits w ould be reduced, depending on the pollutant, by from 7% to 92%. The specific amounts of reducti ons for each pollutant for the pre-1990 and the 2002 offset account balances are shown in Tab le 3.

9 This was the latest NSR Annual Report utilizing th e pre-September 6, 2006 tracking procedures.

10 The 2002 federal NOx balance increased relative to the previously-reported 2002 balance. This increa se is the result of both the fact that reevaluation of the pr e-1990 balances had only a minor impact on NOx (7 % reduction compared with 56 % to 92 % reductions for the other four pollutants) and the inclusion of additional o ffset sources into the revised federal tracking system th at have always been surplus but previously were not tracked due to the ample supply of offsets in AQMD’s federal of fset accounts for all five pollutants.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 9**

Table 3 Pre-1990 Credits Deposited in AQMD’s Offset Account s/ Reduction in 2002 Federal Offset Account Balances

(Tons per Day)

**VOC NOx SOx**  **CO PM10 Overall**  **Previously-Reported Pre-1990 Credits**  **92.4 25.8 18.4 34.9 34.5 206.0**

**Revised Pre-1990 Credits Verified with Records or Validation**  **Procedures 38.46 23.92 8.04 8.45 2.67 81.54** 

**Percent** Reduction **in Pre-1990 Credits**  **58% 7% 56% 76% 92% 60%**
**Previously-Reported 2002 Federal Offset Account Balances**  **107.65 21.60 18.76**  **24.09 41.24 213.34** 

**Revised 2002 Federal Offset Account Balances**  **68.70 28.84 10.72 7.84 7.68 123.78** 

**Percent** Reduction **in 2002 Federal Offset Account Balances**  **36% -34% 43% 67% 81% 42%**

The detailed line-by-line adjusted credit balances that result from t he proposed modified procedures are shown in Appendix I: AQMD’s SR Offset Tracking—Updated Federal Running Balances . The following is a more detailed description of the proposed changes.

SOURCES OF OFFSETS

AQMD has described in its annual status reports on Regulation XIII a 1990 star ting balance for offset accounts based on data available in 1990. While portions of pre-1990 credits were used years ago, EPA staff requested an accounting of the validity of such offsets to e nsure that they were creditable. To that end, EPA staff raised questions about the availabil ity of records relating to the pre-1990 credits. To address these and other issues raised by EPA, AQMD staff spent several thousand staff hours reviewing and reevaluating all available data for the offsets in AQMD’s federal offset accounts, including the pre-1990 credits in the 1990 starting balances. The following is a description of sources of offsets in AQMD’s tracking syst em. The pre-1990 timeframe and the 1990 and beyond timeframe are addressed separately due to diff ering provisions of AQMD rules applicable to generation of offsets in these time periods.

Pre-1990 Credits

Pre-1990 Permitting Program

AQMD had, and continues to have, a robust stationary source permitting program for all sources regardless of potential to emit (including both major and minor sources) in pla ce well before 1990. Key elements of that program are summarized below:**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 10**

 Permit Rules Since prior to 1976, the year that AQMD adopted its initial NSR rules, virtua lly any construction or modification of a source has required the operator to obtain a perm it to construct from AQMD (Rule 201 – Permit to Construct). The only exceptions to these permit requirements are, and at all times were, specified in AQMD Rule 219 – Equipment not Requiring a Written Permit Pursuant to Regulation II, which exempts cert ain equipment from permit requirements due to minimal potential to affect air quality . With the exception of the specific exemptions in Rule 219, there has been no exemption from permit requirements for sources emitting even relatively small amounts of air cont aminants; that is, all sources with potential to emit or control air contaminants, including all federa l minor sources, have been required to obtain permits when constructed or modified unless specifically exempted by Rule 219.

 New Source Review Rules AQMD adopted its initial New Source Review rules in October 1976, prior to the adoption of the New Source Review requirements into the federal CAA. Originally inc luded in Rule 213 – Standards for Permits to Construct: Air Quality Impact, the NSR rules we re moved into a series of rules in Regulation XIII – New Source Review in 1979. The rules required offsetting of emissions increases that exceeded certain thresholds. The thr esholds were decreased over time pursuant to rule amendments. For example, for volatile org anic compounds and nitrogen oxides, the offset threshold initially was 250 pounds per day, and was reduced by rule amendments during the 1980’s to 150 pounds per day, 75 pounds per day, 30 pounds VOC per day and 40 pounds NOx per day, and finally down to zero, requiring no net increase in potential to emit (using an actual emissions baseline if the source had not previously undergone NSR analysis as described under the discussion of NS R Balance below), unless ERCs are provided or specifically exempt fr om offset requirements pursuant to Regulation XIII.

 NSR Balance Prior to 1990, in order to implement its offset requirements, AQMD kept a running “N SR balance” for each facility with permitted sources. The NSR balanc e included an entry for every increase and every decrease in emissions at the facility that res ulted from a permit action. The entries in the NSR balance were based on maximum allowable emissions, i.e. the maximum amount of emissions that a source could emit given its physical capa bilities and permit limitations and rule requirements. However, the NSR balance was initially determined for each piece of equipment which had not previously undergone NSR ana lysis ( i.e. , pre-NSR equipment) from an actual emissions baseline for that equipment. Any subsequent NSR activity for such equipment was conducted on a potential-to-pote ntial basis. Therefore, a pre-NSR source modified under NSR would be subject to NSR on a n actual-topotential basis ( i.e. , actual pre-modification emissions to potential post-modification emissions)—a very conservative approach.

Prior to 1990, emissions offsets were required when a permit was sought for const ruction of a new source, or for modification of an existing source, that would cause the sum of increas es and decreases at a facility ( i.e. the NSR balance) to exceed the pre-1990 offset threshold levels in effect at the time of permit issuance.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 11**

NSR balance entries had to be quantifiable and enforceable. Such entries o nly occurred pursuant to permit applications with sufficient substantiating data to ens ure quantifiability, after evaluation by AQMD engineers and review by supervisory staf f pursuant to Regulation XIII rules and implementing policies established by the agency, and u pon issuance of permits or permit modifications that were enforceable under state law.

AQMD applied substantial resources to implementing these rules. For ex ample, from 1985 through 1989 AQMD’s engineering staff that processed permits consisted of between 97 and 175 professional engineers and supervisory and management staff. In sum, at a ll times including, but not limited to, prior to 1990, AQMD has had a robust air quality permi tting system—a system that AQMD considers qualitatively superior in terms of quantification and reliability to any other NSR permitting system in the nation.

 Compliance with Federal NSR Requirements In addition to being reliable, the above-described pre-1990 AQMD NSR rules fully complied with all federal requirements. AQMD’s NSR rules were more stringent t han required by federal law in the following important respects: (1) offset thresholds wer e lower than required by federal law and; (2) unlike federal requirements that allowed “b ubbling” or netting out of LAER, until the 1990 amendments to the CAA, which prohibited netting out for ozone precursors, AQMD’s BACT requirement (equivalent to federal LA ER) applied to any emissions increase from an individual piece of equipment; i.e. , there was no netting out of LAER; (3) a 1.2-to-1.0 offset ratio was used for all sources and all emitte nts while federal law required a 1.2-to-1.0 offset ratio for precursors to ozone ( i.e. , VOC and NOx) provided federal BACT is required for all major sources and a 1.0-to-1.0 offset ratio for SO x, CO, and PM10; and (4) AQMD had a zero BACT threshold ( i.e. , BACT—federal LAER—was required for all emission increases, no matter how small at all sources, no mat ter how low the potential to emit). EPA SIP-approved AQMD’s Rule 201 as amended January 5, 1990, and AQMD’s NSR rules as adopted or amended on the dates identified in Table 1, above.

 Negative Balances By 1990, some facilities had negative NSR balances. These negative balanc es were the result of equipment shutdowns or process changes since October 1976 that resulted in reductions in emissions from one or more sources exceeding any increases at the facility. The majority of negative balances resulted from equipment shutdowns. Like a ll entries contributing to a facility’s NSR balance, negative entries only occurre d pursuant to permit actions— i.e. either modification of an AQMD permit or shutdown of equipment and inactivation of the associated permit. Negative entries were quantifie d by AQMD engineers based upon the permitted physical capabilities of the modified or shut dow n equipment and applicable permit and rule requirements; negative balances resulte d when the sum of a facility’s positive and negative NSR entries was negative.

Pre-1990 Accounting as it Existed Prior to September 8, 2006

AQMD’s offset accounts were established with starting balances ba sed on pre-1990 emissions reductions. The primary source of these pre-1990 reductions was a portion of fa cilities’ negative NSR balances that were discounted as specified in the 1990 amendments to Regulat ion XIII (described below). The 1990 Regulation XIII amendments also directed the Ex ecutive Officer to**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 12**

recall all existing pre-1990 ERCs that had resulted from shutdowns, discount them by eighty percent, and issue new ERCs at twenty percent of their original values. Th e eighty percent discount of the pre-1990 shutdown ERCs was deposited into AQMD’s offset accounts along with the amounts derived from the discount of pre-1990 negative balances (further explanation of the implementation of the 1990 amendments to Regulation XIII is provided with the discussion of AQMD’s proposed revisions to its pre-1990 accounting). All of AQMD ’s annual status reports prepared prior to September 2006 included the starting ba lances from these sources (discount of pre-1990 negative balances and pre-1990 shutdown ERCs); AQMD has not pr ior to the initial adoption of Rule 1315 taken credit for any other pre-1990 offset sources , such as the zero BACT threshold, use of ERCs by minor sources, and the additional ERCs provided b y major sources for SOx, CO, and PM10 at a ratio of 1.2-to-1.0 compared to 1.0-to-1.0.

Proposed Adjustments to Pre-1990 Accounting

AQMD is now proposing to significantly reduce (by more than 60% overall) it s pre-1990 emission offsets balances as they existed prior to September 8, 2006 by c ontinuing to eliminate any present or past use of any offsets for which AQMD presently has no records in its possession so cannot re-verify their validity and to only utilize the portion of the previousl y-reported pre1990 emission reductions that was originally validated in 1990 and 1991 and revalidated in 2003 through 2005 as offsets in its tracking system and for which AQMD has all or some rec ords. The emission reductions that underlie those offsets occurred between 20 and 34 year s ago, and not all records related to them are available today. In many cases, howev er, summary data based on previous analyses are available. In addition, AQMD at all relevant ti mes prior to and after 1990 had a sufficiently robust permitting program and record validation pr ocedure to provide a high level of confidence regarding the validated emission reductions for which A QMD proposes to retain pre-1990 credits. This conclusion is supported by the facts summari zed in the preceding discussion of AQMD’s pre-1990 permitting program and the following summa ry of the 1990 Regulation XIII amendments and their implementation:

 1990 Regulation XIII Amendments AQMD substantially modified Regulation XIII in 1990. The offset threshold was dropped to zero, although relatively small emitting facilities ( e.g. less than 30 pounds per day of VOC or 40 pounds per day of NOx) were eligible to obtain needed offsets from a new “C ommunity Bank.” Under the 1990 amendments, negative balances were to be “verified by the Executive Officer” and discounted by 80%. The rules specified that “upon vali dation” the remaining 20% was to be issued to the permit holder in the form of an ERC (Rule 1309(a )).

 Implementation of 1990 Amendments Shortly after adoption of the 1990 amendments to Regulation XIII, AQMD staff dra fted a detailed internal guidance document titled “Regulation XIII – New Source Re view Guidance Manual” (Guidance Manual) specifying how the amendments would be impleme nted by AQMD permit processing engineers. The required treatment of negative balances was described in this document. It specified that negative balances would have to be “verified” in accordance with standard procedures established by the Guidance Manual. It also specified that each facility’s NSR account would be searched by computer to deter mine if any “forgivenesses” ( i.e. negative entries due to prior rule amendments lowering offset thresholds) contributed to the facility’s negative balance. The Guidance Ma nual further**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 13**

provided that NSR balances “shall be recalculated” excluding any f orgivenesses since they were not “real” emission reductions and therefore did not qualify for ERC genera tion pursuant to Rule 1309(b)(1). The Guidance Manual also specified that any negative particulate matter emissions balances would be converted to PM10 by mul tiplying the particulate matter emissions by an average factor of 0.5. Finally, the Guidance Manual stated that any facility with a negative balance of 500 pounds per day or greater was to have each negative entry “confirmed by reviewing the application file which resulte d in the negative NSR entry.” The vast majority of negative balances at the time (in exce ss of 80%) were associated with facilities with negative balances exceeding 500 pounds.

In 1991, AQMD’s engineering staff commenced the verification and validation pr ocesses described in the Guidance Manual. The result of these processes was a subst antial reduction in the amount of the negative balances for some pollutants, even prior to the 80% dis count. These reductions were the result of (1) addressing the “forgivenesses,” ( 2) determinations that some reductions were required by AQMD rules and thus ineligible for ERC s, and (3) in some cases correction of simple data entry errors. Table 3 presents t he 80% portion of the 1990 negative balances that were deposited in AQMD’s offset accounts. The larg er amount shown for each pollutant is the amount originally deposited as the result of this process in the early 1990s and which has been previously reported as the 1990 starting balance in the annual NSR status reports prior to September 2006. The lower amount is revise d based upon recent (2003-2005) re-validation of these numbers by AQMD staff based on rec ords that are still available to address EPA’s comments and consistent with EPA polic y guidance that allows use of pre-1990 credits that are explicitly included and quantified as g rowth in the SIP.

Records for pre-1990 emission credits are from 20 to 34 years old. AQMD staff re cently conducted an extensive review of the pre-1990 credits and determined that the types of records available today include printouts of NSR data captured in AQMD’s p ermitting database at the time of permit issuance and complete engineering fi les, which include the materials and documentation submitted by the applicant and AQMD’s engine ering evaluation.

In the proposed revised NSR tracking system, AQMD is recommending to only use the revised and re-verified pre-1990 credits (as set forth in Table 3). These are pre-1990 credits that can reasonably be concluded to be creditable based on presently a vailable records. However, for the majority of the pre-1990 credits (more than 60% overall), the AQ MD at present time no longer has the ability to substantiate the validity of the orig inal reductions based on the available records. Therefore, AQMD is proposing to adjust the p re-1990 credits by eliminating any past or present use of any credits for which AQM D presently does not have the records and can no longer substantiate the validity of such records.

 Remaining Pre-1990 Credits AQMD’s NSR tracking system did not specify the age of credits held in AQMD’ s offset accounts before 2006. However, in response to EPA’s comments about the use of pre-1990 credits, staff has completed a “First In/First Out” analysis of it s federal offset accounts. The results of this analysis are summarized in Table 4, which show that, as of Decem ber 31,**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 14**

2005, significant portions of the adjusted pre-1990 VOC and SOx credits and about one fi fth of the pre-1990 NOx credits remained in AQMD’s federal offset accounts. A ll of the pre1990 CO and PM10 credits were depleted from AQMD’s federal offset accounts by 1997 11

. In order to address EPA’s comment regarding prolonged use of pre-1990 credits from AQMD’s accounts, AQMD proposes to retire all unused pre-1990 credits re maining in its federal offset accounts at the end of the 2004-2005 reporting period as a clean ai r benefit and not use any pre-1990 credits in its offset accounts post 2005. As explained below, the retired pre-1990 credits will be replaced by newly tracked sources of offsets . As a result of this replacement, any shortfalls in offsets supporting permits already i ssued occasioned by retiring the pre-1990 credits will be eliminated, although the 1990 balances a nd 2002 balances except for NOx will be smaller than they were before. T his will in turn eliminate the continued need for the offset tracking authorized by SB 827 or AB 1318 either prospectively or retrospectively.

Table 4 Pre-1990 Credits Unused and Retired in AQMD’s Feder al Offset Accounts December 31, 2005 (Tons per Day)

**VOC NOx**  **SOx CO PM10**  **Overall Revised pre-1990 credits verified**  **with records or validation procedures**  **38.46 23.92 8.04 8.45 2.67 81.5** 

**Unused and retired pre-1990 credits as of December 31, 2005**  **21.52 4.52 7.42 0 0 33.46** 

**Percent of pre-1990 credits unused and retired**  **56% 19% 92% 0% 0% 41%**

1990 and Beyond Credits

1990 and Beyond Accounting as it Existed Prior to September 8, 2006

Due to the relatively high level of available offsets in AQMD’s accounts pr ior to the September 8, 2006 adoption of Rule 1315, AQMD only took credit for some of the qualified sources of emission reductions during the period prior to September 2006. For example, AQMD ’s federal NSR tracking system took credit for orphan shutdowns from major sources, but not fr om minor sources during that period. The pre-September 2006 tracking system credi ted orphan shutdowns to AQMD’s federal offset accounts based upon the allowable permitte d level of emissions of the shutdown source. It also did not take credit in the federal offset accounts for surp lus reductions

**11** All data for 1991 to 1997 is aggregated, so it is uncertain when in this time period the adjusted pre -1990 CO, and PM10 credits were depleted from AQMD’s federal offs et accounts. However, by assuming that these credi ts were consumed at an approximately constant rate, it is e stimated that PM10 was depleted from AQMD’s federal offset accounts in 1994, while CO was depleted from AQMD’s federal offset accounts in 1995.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 15**

of SOx, CO, or PM10 provided as ERCs by major sources as a result of the differen ces between the federal and local offset requirements for these pollutants (local require ment is 1.2-to-1.0 while federal law does not specify an offset ratio in excess of 1.0-to-1.0 for SO x, CO, or PM10) or for surplus reductions resulting from minor sources providing ERCs as emissi on offsets as required by local but not federal NSR. The tracking system also did not take cre dit for AQMD’s zero BACT threshold. BACT discounts applied to newly-banked ERCs were credite d to AQMD’s federal offset accounts prior to 2006. Offsets were debited from AQ MD’s federal offset accounts at 1.2-to-1.0 for all five pollutants when major sources that were not exempt pursuant to the CAA were permitted using Rule 1304 exemptions or the Priority Re serve. AQMD’s portion of the California SIP did not include commitments to make up any s hortfall in AQMD’s federal offset accounts; it also did not commit to discontinue issuing per mits relying on offsets from AQMD’s offset accounts if the balances in those accounts are depleted. Additionally, the tracking system did not take credit into the federal offset acc ounts for surplus reductions resulting from offsets provided in connection with modifications at ma jor sources that do not constitute “major modifications” pursuant to the new NSR Reform Regulati ons even though federal NSR does not require offsets in such cases.

Proposed Adjustments to 1990 and Beyond Accounting

The proposed changes to the sources of credits to and debits from AQMD’s f ederal offset accounts for the 1990 and beyond time period are summarized below:

 Pre-1990 Credits In addition to elimination of almost 60% of overall pre-1990 credits (those for which AQ MD no longer retains records), AQMD proposes to retire any unused pre-1990 credit s remaining in its offset accounts at the end of the 2004-2005 reporting period as an air quality benefit and to not use any pre-1990 credits in its offset accounts post 2005.

 Orphan Shutdowns of Minor Sources Prior to 2006, the NSR tracking system used orphan shutdowns of only major sources to fund AQMD’s federal offset accounts. However, shutdowns of permitted minor source s also meet the requirements that credits be real, permanent, enforceable, quantifiab le, and surplus in the same way as do shutdowns of major sources. ERCs applied for and issued for emission reductions from minor sources are commonly used to fulfill the offset requirement s for emission increases at major sources that are not exempt from offset requir ements under AQMD’s NSR rules. Therefore, although AQMD has not previously used these re ductions, it is appropriate to include emission reductions from minor source orphan shutdowns as offsets in AQMD’s federal offset accounts.

AQMD’s Rule 201 requires written authorization from the Executive Officer ( i.e. , a permit to construct) before a person may build, erect, install, alter or replac e any equipment, the use of which may cause the issuance of air contaminants or the use of which may eliminat e, reduce or control the issuance of air contaminants. Rule 203 – Permit to Operate similar ly prohibits the operation or use of such equipment without a permit issued by the Executive Officer. The only exceptions to these requirements are specifically identified in R ule 219. Therefore, all of the minor sources that AQMD proposes to use as sources of orphan shutdown offs ets as described above have been through the permitting process. In fact, such minor s ources are**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 16**

subject to the same Regulation IV - Prohibitions, Regulation XI - Source Sp ecific Standards, and Regulation XIII rule requirements as are major sources. In some cases the operators of these sources go through the necessary steps to quantify and generate ER Cs when they experience real, permanent, enforceable, quantifiable, surplus emissi on reductions ( e.g. , equipment or facility shutdown or modification). Such ERCs generated by minor s ources are fully valid and eligible for use as offsets for major sources. Therefore, i n cases where the operators do not go through the steps to generate ERCs from their emission r eductions, or are not eligible for ERCs because they originally obtained their offsets fr om AQMD internal accounts, it is appropriate for AQMD to treat these orphan shutdowns in the same m anner as it does orphan shutdowns at major sources, i.e. , to allow such reductions to offset increases from major sources.

 Major Source Use of SOx, CO, and PM10 ERCs AQMD proposes to include credit for the 20% additional SOx, CO, and PM10 ERCs provided by major sources as emission offsets at a ratio of 1.2-to-1.0 pursuant to R ule 1303 rather than the federally-required 1.0-to-1.0 as a source of offsets to its fed eral accounts. The 20% above a 1.0-to-1.0 offset ratio is creditable because the federal CAA onl y requires a 1.2- to-1.0 offset ratio for extreme non-attainment pollutants and their precursors ( i.e. , VOC and NOx); the required offset ratio for SOx, CO, and PM10 pursuant to the CAA and the TSD is “at least 1-to-1” according to EPA.

 Offset Ratio for Major Sources of SOx, CO, and PM10 The proposed tracking system would provide emissions offsets for major sour ces of SOx, CO, and PM10 from AQMD’s federal offset accounts at an offset ratio of 1.0-to-1.0. This change is consistent with the CAA, which only requires a 1.2-to-1.0 offset ratio for extreme nonattainment pollutants and their precursors ( i.e. , VOC and NOx, not SOx, CO, or PM10).

 ERCs Provided by Minor Sources to Offset Emission Increases The CAA does not require offsets for emission increases from minor sources. Ther efore, the third-party ( i.e. , private market) ERCs that these sources provide to offset their inc reases pursuant to Rule 1303 would be creditable to AQMD’s federal offset accounts.

 Surplus Discount at Time of Use AQMD also proposes that offsets in its federal offset accounts that res ulted from post-1990 orphan shutdowns or orphan reductions and that, based on a first-in/first-out analysis, a re not used in the same timeframe they are banked be subject to a best availab le retrofit control technology (BARCT) at the time of use adjustment. This would be accomplishe d based on rule control requirements that become effective each year. Specifical ly, each year all offsets in AQMD’s federal accounts carried over from the previous year would be discounted by the amount of the percentage reduction in overall permitted emissions 12 projected to be achieved as a result of implementation of control requirements that become effective during the year for the pollutant in question. This analysis would be performed on an aggregate b asis each year for offsets carried over from the previous year on a pollutant-by-p ollutant basis.

12 Permitted emissions data is derived primarily from permitted facilities emitting more than four tons of VOC, NOx, SOx, or PM per year or more than 100 tons of C O per year.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 17**

 Actual Emissions Baseline AQMD proposes to use an average discount factor to account for the difference b etween potential and actual emissions. Since 1997, AQMD has used a twenty percent discount to convert potential emissions to estimated actual emissions for purposes of c ompliance with California requirements for no net increase in emissions of California nonattainm ent air pollutants. This procedure has been used with concurrence of the California A ir Resources Board. The current proposal is to use the same factor for federal NSR trac king purposes. In light of the methodology used to quantify potential emissions (explained in more detail below), staff’s engineering judgment indicates that, on average, a twenty percent reduction from potential emissions is a reasonable calculation of actual emissions. A ctual emissions for individual sources range from the sources’ full potential emissions down to le ss than eighty percent of potential emissions, but eighty percent of potent ial emissions represents a calculation of aggregate actual emissions. The use of eighty percent of pote ntial emissions as a calculation of actual emissions is well documented in AQMD’s annual status r eports regarding Regulation XIII and is further supported by “Industrial Producti on and Capacity Utilization 13 ” and “Industrial Production and Capacity Utilization: The 2009 Annual Revision 14 .”

Facilities with potential to emit in excess of the Rule 1304 exemption threshol ds (4 tons per year for VOC, NOx, SOx, and PM10 and 29 tons per year for CO), provide ERCs to offset their increases in potential emissions so they have a strong incentive to keep their potential emissions in line with actual emissions at times of high production. Smaller f acilities with potential to emit below the exemption thresholds theoretically may be in clined to request permits based on potential emissions at the exemption threshold levels be cause the offsets are provided by AQMD at no cost to the facility; however, as shown below, this gener ally does not occur. AQMD engineers perform a thorough evaluation of each permit ap plication prior to recommending issuance of a permit to construct or a permit to operate. The se evaluations include a determination of the actual controlled emission rate (based on source te st results, VOC content of coatings, sulfur content of fuel, or potential toxics emissions , for example) or expected actual controlled emission rate (based on established emiss ion factors or manufacturers’ guarantees, for example). This data is then combined with the maximum anticipated production rate to determine the equipment’s potential to emit. Note that the maximum production rate used in these calculations is based on what is reasonab ly expected for the facility and source in question during periods of high production and is not base d on either “24-7” operations (except for those facilities that actually do op erate in such a manner) or an artificially highest permissible emission level for each source. In addition, although these sources are not required to provide emission offsets, they are still s ubject to AQMD’s toxics NSR rules, and as such are discouraged from artificially raisi ng their potential to emit or permitted emissions since to do so would increase potential toxic emissions . Therefore, actual emissions are not expected to be considerably different than potent ial emissions, and 80% of potential emissions provides a reasonable calculation of actual emis sions. This conclusion is further supported by potential to emit data for facilities a t or below the

13 Federal Reserve Statistical Release G.17, June 25, 2010, http://www.federalreserve.gov/releases/g17/cap_note s.htm

. 14 Anne Hall, Federal Reserve Board, Division of Rese arch and Statistics, August 2009, http://www.federalreserve.gov/pubs/bulletin/2009/pd f/Industrial09.pdf

.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 18**

exemption thresholds. Table 5 shows that there are far more facilities wit h potentials to emit below the exemption thresholds than at the exemption thresholds.

Table 5 Ratio of Numbers of Facilities with Potential to Em it (PTE) Below Exemptions Thresholds to Numbers of Facilities with PTE at Exe mption Thresholds

**Facility Count Ratio**  **(Below Threshold: Pollutant**  **PTE Range A 1**  **PTE Range B 2**  **PTE C 3**  **At Threshold) VOC 4,583 2,228 2,237 3:1**  **NOx 4,218 560 25 191:1 SOx 480 99 3 193:1**  **CO 2,719 219 0 Undefined:1 PM10 2,163 454 18 144:1** 

**1 PTE Range A is greater than zero but less than 2 tons**  **per year for VOC, NOx, SOx, and PM10 and is greater than zero but less than 15 tons per**  **year for CO.**

**2 PTE Range B is greater than or equal to two but less**  **than four tons per year for VOC, NOx, SOx, and PM10 and is greater than or equal to 1**  **5 but less than 29 tons per year for CO.** 

**3 PTE C is four tons per year for VOC, NOx, SOx, and**  **PM10 and is 29 tons per year for CO.**

The above table indicates that it is likely that few facilities obtain a potential to emit (permit limit) substantially higher than their actual emissions.

 Discounting Newly-Banked ERCs to BACT Rule 1309 – Emission Reduction Credits and Short Term Credits specifies that the amount of emission reductions banked as a new ERC not be “greater than the equipment would have achieved if operating with current Best Available Control Technology (B ACT).” Similarly, Rule 1306 – Emission Calculations specifies that “emission decreases from sour ces which are modified or removed from service shall be the actual emissions reduced to the amount which would be actual if current BACT were applied” in its description of t he procedure to be used for quantifying emission reductions used to generate ERCs. No simila r requirement exists in the federal CAA. Therefore, the amount of any otherwise qualifying emission reductions not issued as an ERC due to implementation of these provisions is surplus. However, EPA has indicated that AQMD uses the BACT discount at time of generati on in lieu of the federally-required BARCT discount at time of use and, therefore, AQ MD cannot take credit into its federal offset accounts for the BACT discount of ERCs. In orde r to address EPA’s concerns, AQMD proposes to retroactively remove all off sets generated from BACT discount of ERCs from its offset accounts, except such offsets that AQMD has demonstrated (or demonstrates in the future) are not otherwise required by rule, regulation, law, approved Air Quality Management Plan Control Measure, or the State I mplementation Plan exceed the discount that would be required by approved SIP rules and rules scheduled to be approved by AQMD in the following year’s rule cycle . AQMD would notify EPA and obtain EPA’s concurrence when making this alternative discount. Specificall y, AQMD has**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 19**

identified 6.67 tons of CO per day of BACT discount of ERC credits from 1991 15 in AQMD’s federal CO offset account that are satisfied this criterion at the time of their use (1998 and earlier) beyond approved SIP rules and rules scheduled to be approved by AQMD in the following year’s rule cycle . AQMD, therefore, proposes to retain these offsets (which were used in the early 1990s).

 SIP Inventory and Growth Assumptions To date, AQMD has incorporated a sufficient portion of available trackin g system offsets into the Air Quality Management Plan (AQMP or Plan) at the time of Plan revis ion to assure that the growth assumptions in the Plan are consistent with NSR offsets used. I n order to assure that the actual impacts of the proposed rule do not exceed the impacts analyzed in the PEA, PR 1315 includes provisions directing the Executive Officer to track cumulat ive net emissions increases by pollutant and to discontinue issuing permits to const ruct and permits to operate issued to major and minor sources that rely on new use of offsets from t he internal accounts resulting from the use of Rule 1304 exemptions or Priority Reserve offsets for any pollutant with a cumulative net emissions increase that exceeds cap set fort h in the rule, which is based on the stationary source growth assumption for that pollutant in the SIP.

 Other Potential Credits AQMD does not propose to take any credits for surplus reductions such as applic ation of LAER in excess of federal requirements to any increase in emissions at a major stationary source for non-ozone precursors such as SOx, CO and PM10 or the zero BACT threshold. AQMD understands that when and if it wants to use such credits it will be necess ary to hold further discussions with EPA and CARB. AQMD is also not presently proposing to take any credits for not having to deduct emission increases resulting from modifications at major sources that do not constitute major modifications pursuant to the NSR Reform Regul ations at this time. Such an approach to credit generation would be subject to future disc ussion with and approval by EPA.

Summary The proposed revised NSR tracking system establishes a very conserv ative accounting methodology for demonstrating equivalency with federal NSR offset requirem ents. It also establishes new sources of emissions offsets for inclusion in AQMD’s offset accounts. As

15 The 6.67 tons of CO per day that AQMD has claimed as BACT discount credits which were not otherwise required by rule, regulation, law, approved Air Qua lity Management Plan Control Measure, or the State Implementation Plan

beyond approved SIP rules and rules scheduled for th e following year’s rule cycle at the time of use resulted from the shutdown of internal combu stion engines (ICEs). In particular, Southern Cali fornia Edison (SCE) arranged for various operators to remo ve their ICEs from service in 1991 as a means of mi tigating the then-proposed merger between SCE and San Diego Gas and Electric. However, the PUC denied the merg er request, so SCE applied for ERCs for the shutdown e ngines. According to the first in/first out analys is on the resulting BACT discount CO credits, the credits wer e completely used by the 1997-98 reporting period. The rule limit for CO emissions from ICEs was 2,000 ppm duri ng the 1991 through 1998 timeframe and all of the s ubject ICEs were in compliance with this limit prior to be ing removed from service. BACT for CO emissions fr om ICEs was 250 ppm during the same timeframe. Furthermore, there were not only no approved SIP ru les and no rules scheduled for adoption in the following year’s rule cycle, but there also were no control measures in AQMD ’s Air Quality Management Plan seeking CO emission reductions from ICEs during that timeframe. Therefore, the 1991 BACT discount of the resulting ERCs was available f or credit to AQMD’s offset accounts at the time of use (1998 and earlier).**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 20**

indicated earlier and shown in Tables 3 and 6, it includes reducing AQMD’s previous ly-reported pre-1990 credits from a 7% reduction in NOx to a 92% reduction in PM10 and would change the previously-reported federal 2002 NSR offset accounts from a 34% increase in NOx credits to an 81% reduction in PM10 credits. The overall impact on the federal offset accounts of the proposed revised NSR tracking system is summarized in Table 6 for both the 1990 starting balances and the July 2002 running balances. Table 6 also presents the federal of fset account balances at the end of the 2002-2003, 2003-2004, 2004-2005, 2006, 2007, and 2008 reporting periods as calculated consistent with the proposed revised NSR tracking system procedures. A detailed accounting of federal tracking, including debits, the various categor ies of credits, BARCT adjustments, and balances of pre-1990 and post 1990 offsets during each rep orting period is presented in Appendix A.

Table 6 Summary of Federal Offsets Accounts

(Tons per Day)

VOC Ox SOx CO PM10
Previously-Reported Pre-1990 Beginning Balance 92.4 0 25.80 18.40 34.90 34.50
Revised Pre-1990 Beginning Balance 38.45 23.92 8.04 8.45 2.67
Reductions in Pre-1990 Beginning Balance 58% 7% 56% 76% 92%

Previously-Reported 2001-02 Ending Balance 107.65 2 1.60 18.76 24.09 41.24
Revised 2001-02 Ending Balance 68.75 28.84 10.72 8. 30 7.67
Reductions in 2001-02 Ending Balance 36.1% -33.5% 4 2.9% 65.5% 81.4%
2002-03 Ending Balance 74.23 30.29 10.95 9.60 9.34
2003-04 Ending Balance 82.86 29.79 10.79 10.73 10.36
2004-05 Ending Balance 64.40 23.61 1.89 11.08 10.77
2006 Ending Balance 68.72 27.10 2.19 13.87 11.07
2007 Ending Balance 72.57 28.25 2.40 15.00 11.29
2008 Ending Balance 73.30 28.85 2.43 15.91 11.68

Tables 7 and 8 summarize the changes between AQMD’s pre-September 2006 f ederal NSR tracking system and the proposed federal NSR tracking system that woul d be established by PR 1315. Specifically, these tables compare the existing and proposed revised NSR tracking systems for pre-1990 emission reductions and 1990 and beyond emission reductions.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 21**

Table 7Summary of Changes between AQMD’S PreSeptember 2006 and Proposed Revised NSR Tracking Systems for Equivalency with Federal Requirements:

Pre-1990 Federal Emission Reductions AQMD’s Pre

- September 2006 NSR

Tracking System AQMD’s Proposed Revised NSR Tracking System **Starting Balance based on data generated in 1990 from facilities’ (both major and minor**  **sources) emission reductions recorded as negative NSR balances. This data has been** **used and previously reported in all pre September 2006 annual NSR status reports.**  **Initial Starting Balance would be based on data from facilities’ (both major and minor sources)**  **emission reductions recorded as negative NSR balances that were originally verified in 1990-**  **1991 and re-verified in 2003-2005 and all or some records currently exist. This would**  **exclude all other data for emission reductions with no present records.**  **No credit taken for surplus reductions from SOx, CO, and PM10 offsets provided (at 120%**  **of PTE) as ERCs for minor sources. No Change.** 

**No credit taken for the 20% additional SOx, CO, and PM10 offsets (ERCs) for major**  **sources provided at a ratio of 1.2-to-1.0 compared to 1.0-to-1.0.**  **No Change.**

**No credit taken for emission reductions created from the application of zero BACT threshold**  **(1)**

**. No Change.** 

**(1) “Zero BACT threshold” refers to AQMD’s requirement**  **that BACT applies to all emission increases (no matter how small) at all sources (no matter how low**  **their potential to emit).**

Table 8Summary of Changes between AQMD’S PreSeptember 2006 and Proposed Revised NSR Tracking Systems for Equivalency with Federal Requirements:

1990 and Beyond Federal Emission Reductions AQMD’s Pre

- September 2006 NSR

Tracking System AQMD’s Proposed Revised NSR Tracking System **Remaining pre-1990 credits eligible for use until depleted.**  **Remaining pre-1990 credits would be eligible for use until the end of 2005; no pre-1990**  **credits would be used post-2005. No credit taken for orphan shutdowns from**  **minor sources. Creditable orphan shutdowns would include**  **shutdowns of both major and minor sources. No further discount/adjustment applied to**  **estimate actual emissions. All orphan shutdowns would be discounted/**  **adjusted to reflect estimated actual emissions. No further discount/adjustment for orphan**  **shutdowns due to BARCT at time of use. All orphan shutdowns would be discounted/**  **adjusted to BARCT at time of use by discounting balances “carried over” from one**  **year to the next. Proposed Rule 1315 – Federal New Source Review Trac**  **king System Page 22** 

Table 8 (continued)

1990 and Beyond Federal Emission Reductions AQMD’s Pre

- September 2006 NSR

Tracking System AQMD’s Proposed Revised NSR Tracking System **BACT discount of newly-issued ERCs eligible for crediting to AQMD’s offset accounts (as**  **previously approved by EPA). No BACT-discount credits from any past or**  **future-issued ERCs would be eligible for crediting to AQMD’s offset accounts except**  **those for specific projects for which staff has demonstrated or demonstrates and EPA has**  **agreed or agrees that the BACT discount is not**  **otherwise required by rule, regulation, law, approved Air Quality Management Plan**  **Control Measure, or the State Implementation Plan**  **beyond approved SIP rules and rules scheduled to be approved by AQMD in the**  **following year’s rule cycle**

**. VOC and NOx offsets provided by AQMD for**  **federal major sources exempted by AQMD at a ratio of 1.2-to-1.0.**  **No Change.**

**SOx, CO, and PM10 offsets provided by AQMD for major sources exempted from**  **providing offsets by Rule 1304 or using the Priority Reserve at a ratio of 1.2-to-1.0**  **compared to 1.0-to-1.0. SOx, CO, and PM10 offsets would be provided**  **by AQMD for major sources exempted from providing offsets by Rule 1304 or using the**  **Priority Reserve at a ratio of 1.0-to-1.0.**

**No credit taken for surplus reductions created from offsets (ERCs) provided (at 120% of PTE)**  **by minor sources that are not exempt from offset requirements under AQMD NSR rules**  **(** e.g. **, > 4 but < 10 TPY of VOC and NOx, etc.). Credit would be taken for surplus reductions**  **created from offsets (ERCs) provided (at 120% of PTE) by minor sources (**  i.e. **, not subject to federal offset requirements) that are not**  **exempt from offset requirements under AQMD rules (**  e.g. **, > 4 but < 10 TPY of VOC and NOx, etc.).**  **No credit taken for surplus reductions created from the 20% additional SOx, CO, and PM10**  **offsets (ERCs) provided by major sources at 1.2-to-1.0 ratio compared to 1.0-to-1.0 ratio.**  **Credit would be taken for surplus reductions created from the 20% additional SOx, CO, and**  **PM10 offsets (ERCs) provided by major sources at a ratio of 1.2-to-1.0 compared to**  **1.0-to-1.0 ratio. No credit taken for emission reductions created**  **from the application of zero BACT threshold. No Change.** 

**No credit taken for application of LAER in excess of federal requirements to non-major**  **modifications resulting in any increase in emissions at a major stationary source for non**  **ozone precursors (SOx, CO, and PM10). No credit would be taken for application of**  **LAER in excess of federal requirements to non-major modifications resulting in any**  **increase in emissions at a major stationary source for non-ozone precursors (SOx, CO,**  **and PM10). Proposed Rule 1315 – Federal New Source Review Trac**  **king System Page 23** 

Table 8 (continued)

1990 and Beyond Federal Emission Reductions AQMD’s Pre

- Septem ber 2006 NSR

Tracking System AQMD’s Proposed Revised NSR Tracking System **No SIP adjustment for NSR tracking system and no backstop to ensure net emissions**  **increases do not exceed AQMP growth assumptions.**  **Appropriate assumptions would be included in the SIP to reflect NSR tracking system with**  **commitment to make up any shortfall in next AQMP revision pursuant to state law and**  **backstop provisions stopping issuance of permits to major and minor sources relying on**  **new use of credits from internal offset accounts if cumulative net emissions increase of any air**  **contaminant exceeds the rule cap based on AQMP growth assumption for that air**  **contaminant.**

USE OF OFFSETS

The above-described offsets would be used by AQMD for the following purposes :

• To provide offsets for federal major sources that are exempt from offset r equirements under AQMD Regulation XIII (Rule 1304) 16 ; and

• To provide Priority Reserve offsets (Rule 1309.1) to major sources.

These uses of the offsets in AQMD’s accounts ensure ongoing equivalence wit h federal NSR requirements. As indicated earlier, a list of sources that Rule 1304 exempts from offset requirements or that are eligible to obtain offsets from the Priority R eserve pursuant to Rule 1309.1 and for which AQMD uses its offset accounts to demonstrate equivalency is pres ented in Appendix II.

DEMOSTRATIOS OF EQUIVALECY

AQMD’s proposed revised NSR tracking system would call for the Execut ive Officer to make annual equivalency demonstrations in two steps. In the first step, AQMD would make a preliminary determination of equivalency (PDE) within twelve months of the cl ose of each reporting period. Each PDE would be a very conservative determination base d on the reporting

16 Rule 1304 includes exemptions from the offset requ irements of Rule 1303(b)(2) for a variety of catego ries of sources. Three of those categories—replacements wit h no increase in maximum rating, relocations withou t any increase in potential to emit, and concurrent facil ity modifications resulting in net emissions decrea ses—are essentially self offsetting in that for each emissi ons increase they include and provide a correspondi ng emissions decrease. Furthermore, BACT is required to be empl oyed on all the new sources permitted pursuant to t hese exemption provisions. Therefore, the decreases are expected to offset the increases, so neither the e missions reductions associated with the old permits nor the increases associated with the new permits need to b e tracked pursuant to Rule 1315.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 24**

period’s combined debits but would not include the credits from that reporting per iod. Therefore, the PDE would represent a “worst case” analysis. As the secon d step, the Executive Officer would then make a final determination of equivalency (FDE), which would include crediting the reporting period’s surplus reductions to the offset accounts, w ithin another six months ( i.e. , within eighteen months of the close of the reporting period). For example, the PD E for reporting year B (including all debits for years A and B and credits for year A only) would be completed by the end of reporting year C. Then an FDE incorporating year B’s credits would be prepared within six months of the end of year C. Each PDE would be presented to AQ MD’s Governing Board in a report from the Executive Officer (“Board Letter” ) at a public meeting of the AQMD Governing Board, no later than the second regularly-scheduled Governing Bo ard meeting after the conclusion of the applicable twelve-month period. Simila rly, reports presenting the results of each FDE for a reporting period with a PDE tha t does not demonstrate equivalency with federal NSR offset requirements would be due to the Governing B oard by the second regularly scheduled Governing Board meeting after the FDE completion de adline. However, reports presenting the results of each FDE for a reporting pe riod with a PDE that does demonstrate equivalency with federal NSR offset requirements would be due w ith the report for the subsequent reporting period’s PDE. Figure 1 illustrates the timeline for preparing PDEs and FDEs, and for reporting their results to the Governing Board. The PDE and FDE rep orts would include the balances in AQMD’s offset accounts, as well as summaries of c redit and debit data by category such as Priority Reserve, Community Bank, and Rule 1304 exemptions. T able 9 summarizes the differences between AQMD’s pre-September 2006 and proposed revised determinations of equivalency. In lieu of preparing a PDE and an FDE for a particular reporting period, the Executive Officer would have the option to merge the PDE into the FDE pr ovided the FDE includes all of the elements of the PDE that it subsumes and it complies w ith the completion and reporting requirements of the subsumed PDE. The offset accounting for year B would be conducted in the following order:

1. Discount any post-1990 credits remaining from year A as described in the discussion of Surplus Discount at Time of Use; then 2. Subtract as much of year B’s debits from any remaining pre-1990 credi ts as possible without resulting in a negative balance of pre-1990 credits (1990-2005 timeframe only ); then 3. Subtract any debits remaining after step 2 from any post-1990 credits r emaining from year A after application of step 1; then 4. Add year B’s credits to the remaining discounted post-1990 credits.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 25**

Figure 1 Equivalency Demonstration Timeline

In addition, AQMD would evaluate the future availability of offsets in AQMD’s accounts by conducting a two-year projection of debits, credits, and account balances in con junction with (but not as a part of) each determination of equivalency. This analysis would include projected debits, credits, and offset account balances for each of the two years followi ng the subject reporting period. The projections for each pollutant would be based on the average of the previous five years’ credits and debits for that pollutant. The purpose of th e projections would be to provide the Executive Officer a prospective indicator that a shortfal l may be coming so that the Executive Officer can further investigate, inform the Governing Board of the findings of the investigation, and recommend appropriate actions to prevent or resolve the shortf all or demonstrate that no action is needed because AQMD remains in aggregate equival ency with federal offset requirements.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 26**

Table 9 Summary of Changes between AQMD’S Pre-September 2006 and Proposed Revised Determinations of Equival ency

AQMD’s Pre

- September 2006 NSR Tracking

System AQMD’s Proposed Revised NSR Tracking System **Annual reports to the Governing Board “regarding the effectiveness of Regulation XIII**  **in meeting the state and federal NSR requirements” specified by Rule 1310 –**  **Analysis and Reporting. Preliminary (worst case) determination of**  **equivalency (PDE) would be completed within one year of the close of the reporting period. If**  **PDE does not verify equivalency, final determination of equivalency (FDE) would be**  **completed within six months of the PDE timeframe.**  **No projections of future equivalency done with annual equivalency demonstrations.**  **All annual demonstrations of equivalency (FDE or PDE) would be accompanied by projected**  **NSR offset account balances for the two years following the subject reporting period. These**  **projections would be for the purpose of prospectively determining if implementation of**  **backstop measures is necessary to prevent an offset account shortfall and would not**  **constitute a part of the determinations of equivalency.** 

TRACKIG AD BACKSTOP

AQMD’s proposed revised NSR tracking system includes equivalency b ackstop provisions that would be triggered in the event that an FDE does not demonstrate equivalency. In such an e vent, the backstop provisions would require the Executive Officer to both discontinue funding the Priority Reserve for each air contaminant with a shortfall 17 and discontinue issuing permits to construct and permits to operate that rely on Rule 1304 exemptions or on offsets from the Priority Reserve for each air contaminant that has a shortfall to sources that are major sources of that air contaminant. Funding of the Priority Reserve and issuance of permits r elying on Rule 1304 exemptions or on offsets from the Priority Reserve may resume upon complet ion of an FDE demonstrating that the shortfall no longer exists. Additionally, if there is a n actual or projected shortfall in any of the offset accounts, the backstop provisions would require the Executive Officer to prepare a report to the Governing Board recommendi ng appropriate action to remedy the shortfall. The report would either recommend implementing one or more of the

17 Offsets provided from the Priority Reserve would b e debited from AQMD’s offset accounts for the perio d during which the permit was issued ( i.e. , for the timeframe they are used) whereas the quar terly allocations made to the Priority Reserve pursuant to Rule 1309.1(a) would n ot constitute debits from AQMD’s offset accounts. The newly-proposed future years’ projections of balance s in AQMD’s offset accounts would include projected use of Priority Reserve offsets as well as sources exempte d pursuant to Rule 1304. A significant portion of the quarterly allocations to the Priority Reserve are used by sou rces that are not subject to federal offset require ments ( i.e.

, federal minor sources) and, therefore, do not need to be debited from AQMD’s offset accounts for purpo ses of demonstrating equivalency with federal NSR requirem ents.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 27**

following actions as needed to correct the shortfall or include an explanation of wh y it is not necessary to implement any of the following actions by making a demonst ration that AQMD remains in compliance with federal NSR offset requirements on an aggregate basis, as applicable:

• Provide additional offsets within six months of the FDE demonstrating the shortfa ll or of the projection that predicted it; such offsets could be derived through AQMD p urchase of credits, through AQMD funding of emission reduction projects using quantification protocol s or rules approved by EPA/CARB on a case-by case or programmatic bas is, application of LAER/BACT in excess of federal requirements 18 , or other approved sources of credits.

• Propose amendments to Rules 1309.1 and/or 1304 to restrict access by specific source s to the Priority Reserve and/or to eliminate certain categories of offset exem ptions, respectively, to be identified during the rulemaking process.

In addition to the equivalency backstop provisions discussed above, the proposed re vised NSR tracking system also includes backstop provisions designed to ensure the im pacts of implementing the proposed project do not exceed those analyzed in the Progr am Environmental Assessment (PEA) pursuant to the California Environmental Quality Act ( CEQA; refer to the CEQA Analysis section of this staff report for further information regar ding the PEA). In particular, the proposed rule includes provisions directing the Executive O fficer to track the cumulative net emissions increase of each nonattainment air contaminant tracked pursuant to the proposed revised federal NSR tracking system. (Net emission increas e is defined as the “aggregate increase in potential to emit from permitted major and minor st ationary sources of a nonattainment air contaminant subject to tracking pursuant to paragraph (c)( 2) offset from the Priority Reserve or exempt from offsets pursuant to Rule 1304 minus the aggrega te emissions reductions of the same nonattainment air contaminant tracked pursuant to parag raph (c)(3) over the same time period.”) The proposed rule also includes a table summariz ing cumulative net emission increase thresholds for each nonattainment air contaminant to be ini tially tracked for each year from 2010 through 2030. The CEQA backstop provisions specify that, if the cumulative net emission increase of a nonattainment air contaminant tracked p ursuant to the proposed rule and reported in an FDE exceeds the corresponding threshold for that a ir contaminant, the Executive Officer shall discontinue issuing permits to const ruct and permits to operate that rely on new use of Rule 1304 exemptions or Priority Reserve offs ets for that air contaminant. If triggered, this backstop provision would prevent the issuanc e of permits drawing on the Priority Reserve or on Rule 1304 exemptions for the air contaminant with cum ulative net emission increases in excess of the applicable threshold in the proposed rule to major or minor sources until the cumulative net emissions increase is reduced to a level at lea st ten percent below its threshold.

18 Precise quantification of all surplus credits gene rated through application of LAER/BACT in excess of federal requirements may be extremely resource intensive. Therefore, AQMD could, with EPA approval, demonstra te that such application of LAER/BACT has generated at least enough surplus reductions to make up for the shortfall using very conservative assumptions to estimate the surplus reductions.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 28**

Table 10 summarizes the differences between AQMD’s pre-Septem ber 2006 and proposed revised NSR tracking backstop measures.

Table 10

Summary of Changes between AQMD’S Pre-September 2006 and Proposed Revised Backstop Measures

AQMD’s Existing NSR Tracking System AQMD’s Pro posed Revised NSR Tracking System **No backstop measures identified for addressing potential shortfalls in AQMD’s**  **offset accounts. Several backstop provisions identified in the**  **proposed revised NSR tracking system:**

• **If there is an actual shortfall:**

 **Discontinue funding the Priority Reserve for the contaminant(s) with a shortfall; and** 

 **Discontinue issuing permits relying on AQMD’s offset accounts for pollutant(s)**  **with a shortfall.**

• **If there is an actual or projected shortfall, recommend one or more of the following or**  **demonstrate continued compliance with federal NSR offset requirements, as**  **appropriate:**

 **Provide additional credits within six months of the demonstration or projection of the**  **shortfall; to be derived from AQMD purchase of credits, AQMD funding of**  **emission reduction projects using quantification protocols or rules approved**  **by EPA, application of LAER/BACT in excess of federal/California requirements,**  **or other EPA-approved credit sources.**

 **Suspend issuance of Priority Reserve credits within 90 days of the report to the**  **Governing Board, not to be resumed until equivalency has been reestablished.** 

 **Propose amendments to Rules 1309.1 and/or 1304 to eliminate access to the**  **Priority Reserve by certain sources and/or eliminate certain offset exemptions,**  **respectively. No backstop measures identified for**  **addressing cumulative net emission increases. Discontinue issuing permits relying on new use**  **of the Priority Reserve or of Rule 1304 exemptions if cumulative net emission increase**  **for any pollutant exceeds the specified threshold until the cumulative net emission**  **increase has returned to a level at least 10% below current threshold.** **Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 29**

STATE IMPLEMETATIO PLA AD RULE SUSET DATE

The provisions of PR 1315 pertaining to tracking of cumulative net emissions incre ase and CEQA backstop measures would not be included in the SIP. The rule would expire J anuary 1, 2031.



### DISCUSSIO OF PR 1315 RULE LAGUAGE

Several changes have been made to the language of PR 1315 since the Draft PE A was circulated. The following changes were made to ensure that the language of the propos ed rule is clear and unambiguous and is consistent with the intent of the proposed rule.

• Paragraph (c)(1) was clarified to explain that AQMD may discontinue tra cking of an attainment air contaminant only if the use of emission offsets is not necessary to maintain attainment for that air contaminant.

• The provisions pertaining to CEQA backstop formerly contained in subdivi sions (d), (f), and (h) were consolidated into a single subdivision of the proposed rule, subdivision ( g). Some wording changes were also made to ensure that these backstop provisions are unambiguous and consistent with their intent.

• The provisions in paragraph (c)(4) requiring that credits deposited into the District’s offset accounts be discounted to ensure they remain surplus at the time of use was extende d to include clause (c)(3)(A)(vi) for offset credits derived from the Rule 1306(c)(2) BACT adjustment that applies to newly banked ERCs. In addition, the criteria in cla use (c)(3)(A)(vi) for determining if the reductions are surplus were streng thened.

• Provisions explicitly stating the sequence and order in which each tracking ele ment is implemented for each reporting period were added in paragraph (c)(5) to rem ove a potential source of confusion.

• A paragraph explicitly identifying the provisions of the proposed rule that ensure offsets tracked pursuant to PR 1315 meet the federal offset criteria was added in p aragraph (c)(6).

• A clarifying provision was added in subparagraph (f)(1)(B) to require tha t, as part of the equivalency backstops, any permit application that has not provided suffici ent ERCs and is put on hold due to a shortfall will not be approved until the Governing Board has approved an FDE report demonstrating that the shortfall that triggered the backsto p provisions has been rectified.

• It was clarified in paragraph (d)(3) that if a PDE shows compliance wit h federal NSR, an FDE will be prepared either separately or with the next reporting period’s PDE.

• The sunset date specified in subdivision (i), formerly subdivision (j), was r emoved from the list of provisions to be excluded from submittals for approval into the SIP so that the rule would not remain active in the SIP after expiring locally.

• The language excluding PM2.5 from tracking was clarified.

• The Public Hearing to consider adoption of PR 1315, previously scheduled for Decem ber 2010, is now scheduled for January 2011. Therefore, several dates in subdivisions (d) and (g) of the proposed rule were updated accordingly.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 30**

The following discussion provides a subdivision-by-subdivision analysis of PR 1315:

• PR 1315(a) Purpose Subdivision (a) would summarize the purpose of this proposed rule. In partic ular, PR 1315 would specify and memorialize in rule form the procedures to: maintain AQMD’ s ability to issue permits to major sources that rely on the Priority Reserve for emi ssions offsets or that are exempt from AQMD’s NSR offset requirements, and demonstrate programmatic equivalency between its NSR program and federal NSR offset requirem ents
, and demonstrat e equivalence between AQMD and federal NSR offset requirements

.

• PR 1315(b) Definitions Subdivision (b) would provide definitions for “Community Bank,” “net emission inc rease,” “offset ratio,” “orphan reduction,” “orphan shutdown,” “Priority Reserve,” and “s hortfall.”

• PR 1315(c) Offset Accounts for Federal NSR Equivalency

 Paragraph(c)(1) District Offset Accounts for Federal Nonattai nment Air Contaminants Paragraph (c)(1) would establish AQMD’s offset accounts, including star ting balances for VOC, NOx, SOx, CO, and PM10 as of 1990, and specify that any portion of the starting balances not used by December 31, 2005 would be retired for clean air

. Paragraph (c)(1) would further direct the Executive Officer to establis h additional offset accounts for any nonattainment air contaminants (excluding PM2.5 19 ) or their precursors that become subject to federal nonattainment NSR offset requirements (unle ss by rule, the District establishes that Rule 1304 and Rule 1309.1 do not apply to such contaminants or their precursors) and would provide for the Executive Officer to discontinue t racking and reporting the offset account for any air contaminant that is changed from a nonattainment designation to attainment by EPA. Finally, paragraph (c)(1 ) would specify the criterion for considering AQMD’s NSR program equivalent with federa l nonattainment NSR offset requirements to be that following the procedures in PR 1315 results in the balances in AQMD’s offset accounts remaining positive.

 Paragraph (c)(2) Tracking of Offset Account Debits for Federal NS R Equivalency Paragraph (c)(2) would identify the sources of debits from AQMD’s offset accounts as emissions offsets from the Priority Reserve or Community Bank pursuant to R ule 1309.1 for major sources and exemptions from the offset requirements of Rule 1303 for maj or sources pursuant to Rule 1304 and would specify that the offset ratios applicable t o these debits are 1.2-to-1.0 for extreme nonattainment air contaminants and their precur sors and 1.0-to-1.0 for all other nonattainment air contaminants.

 Paragraph (c)(3) Tracking of Offset Account Credits for Federal N SR Equivalency Paragraph (c)(3) would identify the sources of credits to AQMD’s offset a ccounts as orphan shutdowns (at eighty percent of permitted emission levels 20 ), orphan reductions

19 The provision directing the Executive Officer to e stablish additional offset accounts for any nonatta inment air contaminants or their precursors that become subjec t to federal nonattainment NSR offset requirements is not applicable to PM2.5 because AQMD is developing a se parate regulation specifically addressing federal nonattainment NSR for PM2.5 and existing Regulation XIII will not be applicable to PM2.5. Therefore, facilities will not be able obtain PM2.5 offsets via the Prior ity Reserve or the offset exemptions in Rule 1304.

20 The permitted emission level is the potential to e mit of the source in pounds per day on a thirty-day average basis calculated by an AQMD engineer as part of the evalu ation of the permit application. This emission lev el often, but not always, appears on the permit either direct ly as an emission limit or indirectly as a throughp ut limit ( e.g. , a**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 31**

(at eighty percent of the reduction in permitted emission levels), ERCs provided as offsets by minor sources, excess ERCs provided at a 1.2-to-1.0 offset ratio rathe r than 1.0-to-1.0 by major sources of non-attainment air contaminants that are not extreme nonattainment air contaminants, payback of NSR offset debt through the ERC ba nking process, and the BACT discount of newly-banked ERCs in cases where “the Exe cutive Officer demonstrates and EPA concurs that the subtracted amount is not otherwi se required by rule, regulation, law, approved Air Quality Management Plan Control Measure, or the State Implementation Plan.” Paragraph (c)(3) would also provide the Executive Officer the option to not track some of the potential sources of credi ts provided sufficient credits remain in the federal offset accounts to demonstrate e quivalence with federal NSR offset requirements each reporting period.

 Paragraph (c)(4) Surplus at the Time of Use Paragraph (c)(4) would direct the Executive Officer to discount all orphan s hutdown and orphan reduction credits, as well as all credits resulting from the BACT discount of newly-banked ERCs, deposited in AQMD’s federal offset accounts pursuant t o paragraph (c)(3) to ensure that they are surplus at the time of use. This discounting would be performed annually “based on the percentage reduction in overall permitted e missions projected to be achieved as a result of implementation of control requirem ents that become effective during the year for each specific pollutant within t he District.”

 Paragraph (c)(5) Tracking Sequence Paragraph (c)(5) would specify the order in which the tracking elements de scribed in paragraphs (c)(2), (c)(3), and (c)(4) would be carried out. That order would b e apply surplus at the time of use discount to any remaining post-1990 balance, subtrac t the aggregate debits from the remaining Pre-1990 unused initial balance to the ext ent available, subtract remaining debits from the post-1990 balance, and add the cr edits to the corresponding District Offset Account Balance.

 Paragraph (c)(6) Federal Offset Criteria Paragraph (c)(6) would specify that offset account credits used pursuant t o Rule 1304 or Rule 1309.1 are real as specified in subparagraphs (c)(3)(A) and (c)(3)(B ), surplus as specified in paragraphs (b)(4), (b)(5), and (c)(4), permanent as speci fied in paragraphs (b)(4) and (b)(5) and subparagraph (c)(3)(A), quantifiable as specifi ed in subdivisions paragraphs (c)(1), (c)(3), (c)(4), and (c)(5), and enforceable as spec ified in paragraphs (b)(4), (b)(5), and (c)(3).

• PR 1315(d) Federal NSR Equivalency Determination Reports

 Paragraph (d)(1) Reporting Periods Paragraph (d)(1) would establish the following reporting periods for purp oses of NSR tracking: October 1, 1990 through July 31, 1995; each year starting with August 1995 through July 1996 and ending with August 2003 through July 2004; August 2004 through December 2005; each calendar year from 2006 through 2009, and each calendar year from 2010 through 2030.

limit on fuel or raw material consumption). In the case of a permit that did not have a 30-day averag e emission level calculated by the engineer as a part of the a pplication evaluation ( e.g. , a “pre-NSR” permit), the permitted emission level would be estimated based on the cont rolled emission rate (the source’s emission rate co nsidering the effect of any installed control equipment in po unds per hour) and the operating schedule (if no op erating schedule is on file for the source then a schedule of eight hours per day, five days per week, and fif ty weeks per year would be used).**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 32**

 Paragraph (d)(2) Preliminary Determinations of Equivalency Paragraph (d)(2) would specify that, commencing with the 2010 reporting pe riod, the Executive Officer would complete a PDE within twelve months of the end of each reporting period and report each to the Governing Board and to EPA by the se cond regularly-scheduled Governing Board meeting after its completion deadli ne. Each PDE would be a conservative assessment of the remaining balances in AQMD’s offset accounts at the end of the reporting period obtained by subtracting the re porting period’s aggregate debits from the remaining balance that existed at the start of t he reporting period without accounting for any credits that accrued during the reporting p eriod.

 Paragraph (d)(3) Final Determinations of Equivalency Paragraph (d)(3) would specify that, commencing with the 2010 reporting pe riod, the Executive Officer would complete an FDE within eighteen months of the end of each reporting period. The Executive Officer would report the FDE to the Governi ng Board and to EPA by the second regularly-scheduled Governing Board meeting after the PDE completion deadline for cases in which the PDE did not demonstrate equivalence wi th federal NSR offset requirements ( i.e. , did not show a positive balance in each of AQMD’s federal offset accounts) and by the reporting deadline for the subs equent reporting period’s PDE for cases in which the PDE did demonstrate equivalence with federal NSR offset requirements. Each FDE would be an assessment of the r emaining balances in AQMD’s offset accounts at the end of the reporting period obtai ned by subtracting the reporting period’s aggregate debits from and adding t he reporting period’s aggregate credits to the remaining balance that existed at the start of t he reporting period.

 Paragraph (d)(4) Early FDE Subsuming PDE Paragraph (d)(4) would provide the Executive Officer the option to combine al l of the elements of a reporting period’s PDE and FDE into the FDE provided the consoli dated FDE complies with the completion and reporting deadlines of the subsumed PDE.

• PR 1315(e) Projections of District Offset Account Balances Subdivision (e) would specify that each PDE [PR 1315(d)(2)] report and each FDE [P R 1315(d)(3)] report would also include projections of the federal offset account balances at the end of each of the two subsequent reporting periods based upon the average of the t otal annual debits and credits for the five reporting periods most recently incl uded in a PDE or an FDE. These projections would be reported with the results of the PDE or FDE but would not be a part of them. Because PDEs would not include tracking of aggregate cre dits or aggregate emissions reductions for the subject reporting period, project ions presented in PDE reports would need to include projections of the subject reporting period’s a ggregate credits and aggregate emissions reductions in addition to the projections for the subsequent two reporting periods.

• PR 1315(f) Equivalency Backstop Provisions

 Paragraph (f)(1) Funding of the Priority Reserve and Issuance of Permit s Paragraph (f)(1) would establish that, if the most-recent FDE [PR 1315(d)(3) ] demonstrates a shortfall in the federal offset account for any air contamina nt, the Executive Officer would discontinue funding the Priority Reserve for the air contaminant(s) with a shortfall and discontinue issuing permits to construct and permits to operate that rely on Rule 1304 exemptions or the Priority Reserve for any a ir contaminant with a shortfall to any source that is a major source of that air cont aminant.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 33**

The Executive Officer would be able to resume funding the Priority Reserv e and issuing such permits upon completion of an FDE demonstrating that the shortfall no longer exists.

 Paragraph (f)(2) Report to the Governing Board: Rectification of a Shortf all Paragraph (f)(2) would, in the event of an FDE [PR 1315(d)(3)] demonstrating a shortfa ll or of a projection [PR 1315(e)] predicting a shortfall, direct the Executi ve Officer to prepare a report to the Governing Board either recommending action to remedy the shortfall or demonstrating that AQMD “remains in compliance with federal nonattainment NSR offset requirements on an aggregate basis.” If such a re port were to recommend action to remedy the shortfall, the recommended action would include one or more of the following:

Provide additional credits to the federal offset account(s) with a shortfall wi thin six months of the demonstration or projection of the shortfall. The Executive Officer could purchase them, fund emission reduction projects using quantification prot ocols approved by EPA, track application of BACT (federal LAER) in excess of fe deral requirements 21 , or implement other credit sources approved by EPA; and/or

Propose amendments to Rule 1304 and/or Rule 1309.1 to eliminate certain offset exemptions or certain sources’ ability to obtain offsets from the Priori ty Reserve.

• PR 1315(g) California Environmental Quality Act Backstop Provisions Subdivision (g) would direct the Executive Officer to track the cumulative net e mission increase from both major and minor sources of each nonattainment air contaminant tr ackedpursuant to the proposed rule from the date of adoption through the end of each postadoption reporting period and to report those cumulative net emission increas es to the Governing Board, and would establish annual cumulative net emission increase thr esholds for nonattainment air contaminants resulting from major and minor Rule 1309.1 and Rule 1304 sources based upon AQMP growth projections. It would further specify that, if the cumulative net emission increase of a nonattainment air contaminant from such sourc es exceeds the threshold for that air contaminant, issuance of permits to construct a nd permits to operate relying on new use of Rule 1304 exemptions or Priority Reserve offse ts for that air contaminant would cease, not to resume unless and until the corresponding net emission increase returns to a level at least ten percent below the corresponding threshold. Additionally, commencing with the reports for the 2011 reporting period, each PDE report and each FDE report would also include projections of the cumulative net emis sion increases at the end of each of the two subsequent reporting periods based upon the averag e of the aggregate increase in potential to emit of each nonattainment air contaminant and the average of the aggregate emissions reductions of the same nonattainment air contaminant for the five reporting periods most recently included in a PDE or an FDE or each of the repor ting periods commencing with the 2011 reporting period, whichever is fewer reporting p eriods.

21 Quantification of all surplus emissions reductions resulting from application of LAER beyond federal requirements could be extremely resource intensive. Therefore, with the concurrence of EPA, AQMD coul d make a demonstration based on conservative assumptions t hat application of LAER has generated at least enou gh surplus reductions to rectify the shortfall.**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 34**

• PR 1315(h) State Implementation Plan Submittals Subdivision (h) would specify that paragraphs (b)(2) and (e)(2) and subdivisi ons (g) and (h) shall not be submitted to the California Air Resources Board or to the Unite d States Environmental Protection Agency for inclusion in the California State Impleme ntation Plan.

• PR 1315(i) Sunset Date for Permit Issuance Subdivision (i) would specify that Rule 1315 expires on January 1, 2031.



### CALIFORIA HEALTH AD SAFETY SECTIO 40440.5(c)(3)—REQUIRED STAFF REPORT ELEMETS

Section 40440.5(c)(3) of the California Health and Safety Code specifies that the staff report for a proposed rule that would significantly affect air quality or emissions l imitations must include “the full text of the proposed rule or regulation, an analysis of alternati ve control measures, a list of reference materials used in developing the proposed rule or regulation, a n environmental assessment, exhibits, and draft findings for consideration by the south coast di strict board pursuant to Section 40727. Further, if an environmental assessment is prepared, the st aff report shall also include social, economic, and public health analyses.” Table 11 ide ntifies where each of the elements required by H&SC §40440.5(c)(3) is located in this staff report and a ssociated documents.

Table 11

Staff Report Elements Required by H&SC §40440.5(c)( 3)

Element Location **Full text of PR 1315 Appended to this staff report an d incorporated herein by**  **reference. Analysis of alternative**  **Control Measures Program Environmental Assessment for Re-Adoption of**  **Proposed Rule 1315 - Federal New Source Review Tracki ng**  **System Chapter 6 – Alternatives and Chapter 7 – Alter natives –**  **Indirect Impacts circulated for public comment from Septe mber 9**  **through November 9, 2010 and available at http://www.aqmd.gov/ceqa/aqmd.html** 

**. Reference materials used in**  **developing PR 1315 South Coast Air Quality Management District 2007 Air**  **Quality Management Plan; applicable laws and regulations**  **; February 2006 AQMD letter to U.S. EPA describing the proposed**  **tracking system and U.S. EPA’s response letter expressing agreement** 

**. Environmental Assessment Program Environmental Assessment**  **for Re-Adoption of Proposed Rule 1315 - Federal New Source Review Tracki**  **ng System circulated for public comment from September 9 th**  **rough November 9, 2010 and available at**  **http://www.aqmd.gov/ceqa/aqmd.html**

**. Proposed Rule 1315 – Federal New Source Review Trac**  **king System Page 35** 

Table 11 (continued) Staff Report Elements Required by H&SC §40440.5(c)( 3)

Element Location **Exhibits** • **Table 1: SIP-Approved Revisions of AQMD’s NSR Rules (p.**  **4)**

• **Table 2: AQMD’s Federal Offset Account Balances as of December 31, 2005 (p. 7)** 

• **Table 3: Pre-1990 Credits Deposited in AQMD’s Offset Accounts (p. 9)** 

• **Table 4: Pre-1990 Credits Unused and Retired in AQM D’s**  **Federal Offset Accounts December 31, 2005 (p. 14)**

• **Table 5: Ratio of Numbers of Facilities with Potenti al to Emit**  **(PTE) Below Exemptions Thresholds to Numbers of Facilit ies**  **with PTE at Exemption Thresholds (p. 18)**

• **Table 6: Summary of Federal Offsets Accounts (p. 20 )** 

• **Table 7: Summary of Changes between AQMD’S Pre September 2006 and Proposed Revised NSR Tracking**  **Systems for Equivalency with Federal Requirements (p. 21)** 

• **Table 8: Summary of Changes between AQMD’S Pre September 2006 and Proposed Revised NSR Tracking**  **Systems for Equivalency with Federal Requirements (pp. 21-**  **23)**

• **Figure 1: Equivalency Demonstration Timeline (p. 2 5)** 

• **Table 9: Summary of Changes between AQMD’S Pre September 2006 and Proposed Revised Determinations of**  **Equivalency (p. 26)**

• **Table 10: Summary of Changes between AQMD’S Pre September 2006 and Proposed Revised Backstop Measures**  **(pp. 28-29)**

• **Table 11: Staff Report Elements Required by H&SC §40440.5(c)(3) (pp. 33-34)** 

• **Appendix I: AQMD’S NSR Offset Tracking—Updated Fede ral**  **Running Balances (pp. I-1 through I-8)**

• **Appendix II: List of Sources Exempt From Offset Requirements and Provisions Covered by Equivalency**  **Showing (p. II-1 through II-3)**

• **Program Environmental Assessment for Re-Adoption of Proposed Rule 1315 - Federal New Source Review Tracki**  **ng System circulated for public comment from September 9**  **through November 9, 2010 and available at http://www.aqmd.gov/ceqa/aqmd.html** 

• **Socio-Economic Analysis circulated with this staff report. Proposed Rule 1315 – Federal New Source Review Trac**  **king System Page 36** 

Table 11 (continued) Staff Report Elements Required by H&SC §40440.5(c)( 3)

Element Location **Draft Findings for Governing Board consideration**  **pursuant to H&SC §40727 DRAFT FINDINGS section of this staff report (pp. 36-37**  **)**

**Social analysis Socio-Economic Analysis circulated with this staff report.**  **Economic analysis Socio-Economic Analysis circulated with this staff report.**  **Public health analysis Program Environmental Assessment f or Re-Adoption of**  **Proposed Rule 1315 - Federal New Source Review Tracki ng**  **System Chapter 4 –** Direct Environmental Impacts and Mitigation
Measures **and Chapter 5 – Indirect Environmental Impacts and Mitigation Measures circulated for public comment from**  **September 9 through November 9, 2010 and available at**  **http://www.aqmd.gov/ceqa/aqmd.html**

**.**



### CEQA AALYSIS

The AQMD is the lead agency for the proposed project and has prepared a PEA pursuant to its certified regulatory program (CEQA Guidelines §15251(l)) as codified as A QMD Rule 110. A Draft Program Environmental Assessment (PEA) for the Proposed Rule (PR ) 1315 has been prepared because the proposed rule would establish criteria to govern the conduct of a continuing

program.

PR 1315 would codify existing procedures and establish new requirements for est ablishing equivalency under federal New Source Review requirements through the use of AQM D’s internal emission offsets by operators of various projects that eithe r obtain emissions offsets pursuant to Rule 1309.1 – Priority Reserve or are exempt from the emissions offset s requirements of Rule 1303 – Requirements pursuant to Rule 1304 – Exemptions. The PEA analyzes direct and indirect impacts from both major and non-major sources rely ing on offsets from the AQMD’s internal offset accounts pursuant to Rule 1309.1 – Priority Reserv e or Rule 1304 – Offset exemptions. The analysis in the PEA includes the conservative assumpti on that all net emission increases will occur at a rate consistent with growth rate p rojections in the 2007 Air Quality Management Plan (AQMP).

Air quality would be directly impacted by the proposed project. In a ddition, the proposed project has the potential for significant adverse impacts resulting from construct ion and operation of sources obtaining permits on all environmental topic areas on the environment al checklist.

The air quality impacts from the emissions resulting from permits iss ued and emission reductions foregone and environmental impacts from the siting, construction, and operation of thos e facilities provided offsets from the AQMD’s internal accounts would exceed t he AQMD’s significance thresholds, so the environmental impacts from the proposed pro ject have been determined to be significant. The PEA has been circulated for a 62-day pub lic review and**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 37**

comment period. After the close of the public review period, responses t o all comments will be prepared and included in the PEA, at which time the document will become a Final PEA.



### SOCIO-ECOOMIC IMPACTS

The analysis of socio-economic impacts is contained in a socio-economic analysi s circulated with this staff report.



### AQMP AD LEGAL MADATES

The California Health and Safety Code requires AQMD to adopt an AQMP to meet state and federal ambient air quality standards in the South Coast Air Basin. In additi on, the California Health and Safety Code requires that AQMD adopt rules and regulations that c arry out the objectives of the AQMP. While Proposed Rule 1315 is not a control measure included in the AQMP, its requirements are consistent with the AQMP objectives.



### RESOURCE IMPACTS

Due to the volume and complexity of analysis required, it is estimated that imp lementation of PR 1315 would require one full time employee and $150,000 in programming costs for enhancements to AQMD’s New Source Review computer program.



### DRAFT FIDIGS

Before adopting, amending or repealing a rule, the AQMD Governing Boar d shall make findings of necessity, authority, clarity, consistency, non-duplication, and reference , as defined in Health and Safety Code Section 40727. The draft findings are as follows:

ecessity – The AQMD Governing Board has determined that a need exists to adopt Proposed Rule 1315 – Federal New Source Review Tracking System to:



### • Maintain AQMD’s ability to continue to administer its new source review program for major and minor sources for facility modernization and to accommodate popul ation growth through implementation of Rule 1304 and Rule 1309.1. AQMD’s policy objectives i nclude allowing the permitting system to operate in order to: 1) allow faci lity modernization which will increase efficiency and reduce air pollution, 2) allow facilitie s to install pollution control equipment, 3) allow emergency equipment to be installed, 4) allow pe rmitting of equipment necessary for essential public services and small emitter s, 5) allow operation of portable equipment and other sources determined as a policy matter to be e xempt from offsets or eligible for Priority Reserve credits, and 6) take into account e nvironmental and socioeconomic benefits as well as environmental and socioeconomic impacts;



### • Memorialize in rule form the accounting procedures AQMD uses to establish equivalency of AQMD’s New Source Review program with federal offset requir ements, and ensure that valid offsets are projected to be available in AQMD internal offset accounts before a major source relying on such offsets is permitted thus assuring that increases in emissions resulting from such sources are fully offset; and**Proposed Rule 1315 – Federal New Source Review Trac king System**  **Page 38**



### • Recognize sufficient previously-unused emission reductions that are b eyond those required by applicable regulatory requirements in order to demonstrate fe deral equivalency for major sources that are exempt under Rule 1304 or that obtain credits from the Priority Reserve under Rule 1309.1.

Authority – The AQMD Governing Board obtains its authority to adopt, ame nd, or repeal rules and regulations from Sections 39002, 40000, 40001, 40440, 40441, 40463, 40702, 40725 through 40728, 41508, and 42300 et seq. of the California Health and Safety Code.

Clarity – The AQMD Governing Board has determined that Proposed Rule 1315 – Fe deral New Source Review Tracking System, as proposed to be adopted, is wr itten or displayed so that its meaning can be easily understood by the persons directly affected by it.

Consistency – The AQMD Governing Board has determined that Proposed Rule 1315 – F ederal New Source Review Tracking System, as proposed to be adopted i s in harmony with, and not in conflict with or contradictory to, existing statutes, court decisions, or state o r federal regulations.

on-Duplication – The AQMD Governing Board has determined that Proposed Rule 1315 – Federal New Source Review Tracking System, as proposed to be adopted, does not impose the same requirements as any existing state or federal regulat ion and is necessary and proper to execute the power and duties granted to, and imposed upon, the AQMD.

Reference – The AQMD Governing Board, in adopting Proposed Rule 1315 – Federal New Source Review Tracking System, references the following st atutes that the AQMD hereby implements, interprets, or makes specific: Health and Safety Code Sections 40001, 40702, 40910
et seq. , 40920.5, and 42300 et seq. and Clean Air Act Sections 110, 172, 173, 182, and 189 (42 U.S.C. §§ 7410, 7502, 7503, 7511a, and 7513a).



### COCLUSIOS AD RECOMMEDATIOS

The comparative analysis referred to in Health and Safety Code Section 40727.2 is not required because PR 1315 would not establish a new emissions limit, make an exis ting limit more stringent, or impose new or more stringent monitoring, reporti ng, or recordkeeping requirements on a source. Similarly, the proposed rule would not i mpose any requirements on regulated sources so the incremental cost effectivenes s analysis identified in Health and Safety Code Section 40920.6 (which only applies to adoption of rules or regulations that require use of best available retrofit control t echnology or that are feasible measures pursuant to Health and Safety Code Section 40914) i s not required.

Staff recommends adoption of Proposed Rule 1315 for the reasons stated in this staf f report.**Page I-1**

APPEDIX I AQMD’S SR OFFSET TRACKIG—UPDATED FEDERAL RUIG BALACE S

VOC Ox SOx CO PM10

t/d t/d t/d t/d t/d
Previously-Reported Pre-1990 Beginning Balance (1) 92.40 25.80 18.40 34.90 34.50
Pre-1990 Beginning Balance Values verified with rec ords by category:
Discounted (80%) Pre-1990 Negative Balance 29.57 22 .09 5.95 7.54 2.18
Discounted (80%) Pre-1990 Shutdown ERCs 2.36 1.51 0 .22 0.91 0.20
Discounted (80%)Pre-1990 ERCs 6.19 0.32 1.49 0.00 0 .26

Donated ERCs (2) 0.00 0.00 0.37 0.00 0.04

Unclaimed ERCs (2) 0.33 0.00 0.00 0.00 0.00
Revised Beginning Balance verified with records (3) 38.45 23.92 8.04 8.45 2.67 Percentage Reduced from the Original Previously Rep orted Pre-1990 Beginning Balance 58% 7% 56% 76% 92%

Total 1990-97 Minor Source Credits [(c)(3)(A)(i), ( c)(3)(A)(ii)] (4) 24.17 7.67 1.16 6.10 6.13
Total 1990-97 Major Source Credits [(c)(3)(A)(i), ( c)(3)(A)(ii)] (4) 11.43 5.61 0.49 2.56 0.41
1990-97 Creditable Minor Source ERC use [(c)(3)(A)( iii)] 0.84 0.29 0.08 0.55 0.52
1990-97 Creditable Major Source ERC use [(c)(3)(A)( iv)] 0.00 0.00 0.00 0.15 0.02
1990-97 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0.49 0.08 0.00 0.00 0.01

1990-97 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 6.67 0.00

Sum of 1990-97 Credits 36.93 13.65 1.73 16.03 7.08

Sum of 1990-97 Debits [(c)(2)] (6) -9.83 -12.03 -0.47 -13.71 -5.81

Pre-1990 Remaining Balance (7) 28.62 11.89 7.57 0.00 0.00

Post-1990 Balance (7) 36.93 13.65 1.73 10.77 3.94
1997 Ending Balance 65.54 25.54 9.30 10.77 3.94
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -8.49 -0.82 -0.97 0.00 0.00
1997-98 Starting Balance 57.05 24.72 8.33 10.77 3.94**Appendix I Page I-2** 

VOC Ox SOx CO PM10

t/d t/d t/d t/d t/d
1997-98 Starting Balance 57.05 24.72 8.33 10.77 3.94
1997-98 Minor Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 4.01 2.68 0.18 1.73 1.87
1997-98 Major Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 2.80 0.81 1.07 0.04 0.17
1997-98 Creditable Minor Source ERC use [(c)(3)(A)( iii)] 0.11 0.04 0.01 0.07 0.07
1997-98 Creditable Major Source ERC use [(c)(3)(A)( iv)] 0.00 0.00 0.00 0.02 0.00
1997-98 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0.00 0.00 0.00 0.00 0.00

1997-98 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 1997-98 Credits 6.92 3.52 1.25 1.86 2.11

Sum of 1997-98 Debits [(c)(2)] (6) -1.64 -1.79 -0.04 -1.98 -2.67

1997-98 Refinements 0.00 0.00 0.00 0.00 0.89

Pre-1990 Remaining Balance (7) 26.99 10.10 7.53 0.00 0.00

Post-1990 Balance (7) 35.36 16.35 2.01 10.65 4.27
1997-98 Ending Balance 62.35 26.45 9.54 10.65 4.27
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -1.77 -0.49 -0.02 0.00 0.00
1998-99 Starting Balance 60.58 25.96 9.52 10.65 4.27
1998-99 Minor Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 3.45 1.37 0.06 0.91 1.03
1998-99 Major Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 0.42 0.24 0.00 0.07 0.02
1998-99 Creditable Minor Source ERC use [(c)(3)(A)( iii)] 0.11 0.04 0.01 0.07 0.07
1998-99 Creditable Major Source ERC use [(c)(3)(A)( iv)] 0.00 0.00 0.00 0.02 0.00
1998-99 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0.00 0.00 0.00 0.00 0.00

1998-99 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 1998-99 Credits 3.98 1.65 0.07 1.07 1.12

Sum of 1998-99 Debits [(c)(2)] (6) -1.39 -1.24 -0.04 -2.89 -0.05

1998-99 Refinements 0.00 0.00 0.00 0.00 0.00

Pre-1990 Remaining Balance (7) 25.60 8.86 7.49 0.00 0.00

Post-1990 Balance (7) 37.57 17.51 2.06 8.82 5.34
1998-99 Ending Balance 63.17 26.37 9.55 8.82 5.34
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -1.13 0.00 0.00 0.00 0.00
1999-00 Starting Balance 62.04 26.37 9.55 8.82 5.34**Appendix I Page I-3** 

VOC Ox SOx CO PM10

t/d t/d t/d t/d t/d
1999-00 Starting Balance 62.04 26.37 9.55 8.82 5.34
1999-2000 Minor Source Credits [(c)(3)(A)(i), (c)(3 )(A)(ii)] (4) 2.03 1.07 0.12 1.00 1.41
1999-2000 Major Source Credits [(c)(3)(A)(i), (c)(3 )(A)(ii)] (4) 0.24 0.03 0.00 0.06 0.01
1999-2000 Creditable Minor Source ERC use [(c)(3)(A )(iii)] 0.11 0.04 0.01 0.07 0.07
1999-2000 Creditable Major Source ERC use [(c)(3)(A )(iv)] 0.00 0.00 0.00 0.20 0.02
1999-2000 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0.00 0.00 0.00 0.00 0.00

1999-2000 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 1999-2000 Credits 2.39 1.14 0.13 1.32 1.51

Sum of 1999-2000 Debits [(c)(2)] (6) -0.40 -0.66 0.00 -1.43 -0.14

Pre-1990 Remaining Balance (7) 25.20 8.20 7.49 0.00 0.00

Post-1990 Balance (7) 38.83 18.65 2.19 8.72 6.71
1999-00 Ending Balance 64.03 26.85 9.68 8.72 6.71
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -0.78 0.00 0.00 0.00 0.00
2000-01 Starting Balance 63.25 26.85 9.68 8.72 6.71
2000-01 Minor Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 2.67 0.87 0.75 0.30 0.96
2000-01 Major Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 0.99 0.84 0.00 0.70 0.00
2000-01 Creditable Minor Source ERC use [(c)(3)(A)( iii)] 0.11 0.04 0.01 0.07 0.07
2000-01 Creditable Major Source ERC use [(c)(3)(A)( iv)] 0.00 0.00 0.00 0.02 0.00
2000-01 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0.00 0.00 0.00 0.00 0.00

2000-01 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00
Positive Balance Adjustment via ERC [(c)(3)(A)(v)] 0.01 0.00 0.00 0.00 0.00

Sum of 2000-01 Credits 3.78 1.75 0.76 1.09 1.03

Sum of 2000-01 Debits [(c)(2)] (6) -1.33 -0.59 0.00 -0.34 -1.09

Pre-1990 Remaining Balance (7) 23.87 7.61 7.49 0.00 0.00

Post-1990 Balance (7) 41.83 20.40 2.95 9.47 6.65
2000-01 Ending Balance 65.70 28.01 10.44 9.47 6.65
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -0.42 -0.41 0.00 0.00 0.00
2001-02 Starting Balance 65.28 27.60 10.44 9.47 6.65**Appendix I Page I-4** 

VOC Ox SOx CO PM10

t/d t/d t/d t/d t/d
2001-02 Starting Balance 65.28 27.60 10.44 9.47 6.65
2001-02 Minor Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 2.63 0.91 0.19 0.87 0.60
2001-02 Major Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 1.69 1.09 0.08 0.40 0.42
2001-02 Creditable Minor Source ERC use [(c)(3)(A)( iii)] 0.11 0.04 0.01 0.07 0.07
2001-02 Creditable Major Source ERC use [(c)(3)(A)( iv)] 0.00 0.00 0.00 0.02 0.00
2001-02 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0.00 0.00 0.00 0.00 0.00

2001-02 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 2001-02 Credits 4.43 2.05 0.28 1.36 1.09

Sum of 2001-02 Debits [(c)(2)] (6) -0.97 -0.81 0.00 -2.53 -0.07

Pre-1990 Remaining Balance (7) 22.90 6.80 7.49 0.00 0.00

Post-1990 Balance (7) 45.85 22.04 3.23 8.30 7.67
2001-02 Ending Balance 68.75 28.84 10.72 8.30 7.67
Previously-Reported 2002 Running Balance 107.65 21. 60 18.76 24.09 41.24

Percentage Reduction to 2002 Running Balance Due to Proposed Changes 36.1% -33.5% 42.9% 65.5% 81.4%

Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -0.46 -0.44 0.00 0.00 0.00
2002-03 Starting Balance 68.29 28.40 10.72 8.30 7.67

2002-03 Minor Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 4.78 1.17 0.26 1.88 0.62

2002-03 Major Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 1.74 1.71 0.02 1.60 1.08
2002-03 Creditable Minor Source ERC use [(c)(3)(A)( iii)] 0.11 0.04 0.01 0.07 0.07
2002-03 Creditable Major Source ERC use [(c)(3)(A)( iv)] 0.00 0.00 0.00 0.02 0.00
2002-03 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0.02 0.00 0.00 0.00 0.00

2002-03 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 2002-03 Credits 6.65 2.92 0.30 3.57 1.78

Sum of 2002-03 Debits [(c)(2)] (6) -0.71 -1.03 -0.07 -2.27 -0.11

Pre-1990 Remaining Balance (7) 22.19 5.77 7.42 0.00 0.00

Post-1990 Balance (7) 52.04 24.52 3.53 9.60 9.34
2002-03 Ending Balance 74.23 30.29 10.95 9.60 9.34
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -0.52 -2.21 -0.60 0.00 0.00
2003-04 Starting Balance 73.71 28.08 10.35 9.60 9.34**Appendix I Page I-5** 

VOC Ox SOx CO PM10

t/d t/d t/d t/d t/d
2003-04 Starting Balance 73.71 28.08 10.35 9.60 9.34

2003-04 Minor Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 6.76 2.10 0.43 1.30 1.05

2003-04 Major Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 2.54 0.37 0.00 1.50 0.03
2003-04 Creditable Minor Source ERC use [(c)(3)(A)( iii)] 0.11 0.04 0.01 0.07 0.07
2003-04 Creditable Major Source ERC use [(c)(3)(A)( iv)] 0.00 0.00 0.00 0.02 0.00
2003-04 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0.00 0.00 0.00 0.00 0.00

2003-04 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 2003-04 Credits 9.42 2.52 0.44 2.89 1.14

Sum of 2003-04 Debits [(c)(2)] (6) -0.27 -0.81 0.00 -1.76 -0.12

Pre-1990 Remaining Balance (7) 21.92 4.96 7.42 0.00 0.00

Post-1990 Balance (7) 60.94 24.83 3.37 10.73 10.36
2003-04 Ending Balance 82.86 29.79 10.79 10.73 10.36
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -5.48 -2.48 -1.65 0.00 -0.10
2004-05 Starting Balance 77.38 27.31 9.14 10.73 10.26

2004-05 Minor Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 7.59 1.10 0.14 1.37 0.78

2004-05 Major Source Credits [(c)(3)(A)(i), (c)(3)( A)(ii)] (4) 1.16 0.11 0.01 0.33 0.00
2004-05 Creditable Minor Source ERC use [(c)(3)(A)( iii)] 0.17 0.06 0.02 0.11 0.10
2004-05 Creditable Major Source ERC use [(c)(3)(A)( iv)] 0.00 0.00 0.00 0.03 0.00
2004-05 ERC Payback of Offset Debt [(c)(3)(A)(v)] 0 .02 0.00 0.00 0.00 0.00

2004-05 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 2004-05 Credits 8.94 1.27 0.17 1.84 0.89

Sum of 2004-05 Debits [(c)(2)] (6) -0.41 -0.44 0.00 -1.49 -0.38

Pre-1990 Remaining Balance (7) 21.51 4.52 7.42 0.00 0.00

Post-1990 Balance (7) 64.40 23.61 1.89 11.08 10.77
2004-05 Ending Balance w/ pre-1990 credits 85.91 28 .13 9.31 11.08 10.77
Remove Remaining Pre-1990 Balance -21.51 -4.52 -7.4 2 0.00 0.00
2004-05 Ending Balance 64.40 23.61 1.89 11.08 10.77
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -1.61 -0.21 0.00 0.00 -0.42
2006 Starting Balance 62.79 23.40 1.89 11.08 10.35**Appendix I Page I-6** 

VOC Ox SOx CO PM10

t/d t/d t/d t/d t/d
2006 Starting Balance 62.79 23.40 1.89 11.08 10.35

2006 Minor Source Credits [(c)(3)(A)(i), (c)(3)(A)( ii)] (4) 4.79 1.06 0.31 1.36 0.72

2006 Major Source Credits [(c)(3)(A)(i), (c)(3)(A)( ii)] (4) 1.32 3.16 0.00 1.56 0.00
2006 Creditable Minor Source ERC use [(c)(3)(A)(iii )] 0.03 0.01 0.00 0.02 0.02
2006 Creditable Major Source ERC use [(c)(3)(A)(iv) ] 0.00 0.00 0.00 0.01 0.00
2006 ERC Payback of Offset Debt 0.00 0.00 0.00 0.00 0.00

2006 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 2006 Credits 6.13 4.24 0.31 2.94 0.74

Sum of 2006 Debits [(c)(2)] (6) -0.21 -0.54 -0.01 -0.15 -0.02

Pre-1990 Remaining Balance (7) 0.00 0.00 0.00 0.00 0.00

Post-1990 Balance (7) 68.72 27.10 2.19 13.87 11.07
2006 Ending Balance 68.72 27.10 2.19 13.87 11.07
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -1.48 -0.22 0.00 0.00 -0.31
2007 Starting Balance 67.24 26.88 2.19 13.87 10.76

2007 Minor Source Credits [(c)(3)(A)(i), (c)(3)(A)( ii)] (4) 4.92 0.85 0.20 0.74 0.39

2007 Major Source Credits [(c)(3)(A)(i), (c)(3)(A)( ii)] (4) 0.23 0.73 0.00 0.64 0.00
2007 Creditable Minor Source ERC use [(c)(3)(A)(iii )] 0.30 0.00 0.01 0.01 0.14
2007 Creditable Major Source ERC use [(c)(3)(A)(iv) ] 0.00 0.00 0.00 0.00 0.00
2007 ERC Payback of Offset Debt 0.01 0.00 0.00 0.00 0.00

2007 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 2007 Credits 5.46 1.58 0.21 1.38 0.53

Sum of 2007 Debits [(c)(2)] (6) -0.13 -0.21 0.00 -0.25 0.00

Pre-1990 Remaining Balance (7) 0.00 0.00 0.00 0.00 0.00

Post-1990 Balance (7) 72.57 28.25 2.40 15.00 11.29
2007 Ending Balance 72.57 28.25 2.40 15.00 11.29
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -3.96 -0.26 0.00 0.00 0.00
2008 Starting Balance 68.61 27.99 2.40 15.00 11.29**Appendix I Page I-7** 

VOC Ox SOx CO PM10

t/d t/d t/d t/d t/d
2008 Starting Balance 68.61 27.99 2.40 15.00 11.29

2008 Minor Source Credits [(c)(3)(A)(i), (c)(3)(A)( ii)] (4) 4.00 0.66 0.02 0.62 0.36

2008 Major Source Credits [(c)(3)(A)(i), (c)(3)(A)( ii)] (4) 0.56 0.20 0.00 0.36 0.01
2008 Creditable Minor Source ERC use [(c)(3)(A)(iii )] 0.16 0.00 0.00 0.00 0.01
2008 Creditable Major Source ERC use [(c)(3)(A)(iv) ] 0.00 0.00 0.00 0.00 0.00
2008 ERC Payback of Offset Debt 0.01 0.02 0.01 0.07 0.00

2008 BACT Discount ERCs [(c)(3)(A)(vi)] (5) 0.00 0.00 0.00 0.00 0.00

Sum of 2008 Credits 4.73 0.88 0.03 1.05 0.39

Sum of 2008 Debits [(c)(2)] (6) -0.04 -0.02 0.00 -0.13 0.00

Pre-1990 Remaining Balance (7) 0.00 0.00 0.00 0.00 0.00

Post-1990 Balance (7) 73.30 28.85 2.43 15.91 11.68
2008 Ending Balance 73.30 28.85 2.43 15.91 11.68
Surplus Adjustment of Post-1990 Balance Carryover [ (c)(4)] -2.95 -1.25 -0.32 0.00 -0.18
2009 Starting Balance 70.35 27.60 2.11 15.91 11.50

2009 Projected Credits (8) 6.41 2.02 0.22 1.91 0.69

2009 Projected Debits (8) -0.19 -0.38 0.00 -0.67 -0.08
Projected Pre 1990 Balance 0.00 0.00 0.00 0.00 0.00
Projected Post 1990 Balance 76.57 29.24 2.33 17.15 12.11
2009 Projected Ending Balance 76.57 29.24 2.33 17.1 5 12.11 Projected Surplus Adjustment of Post-1990 Balance C arryover [(c)(4)] -3.08 -1.26 -0.31 0.00 -0.19
2010 Projected Starting Balance 73.49 27.98 2.02 17 .15 11.92

2010 Projected Credits (8) 6.41 2.02 0.22 1.91 0.69

2010 Projected Debits (8) -0.19 -0.38 0.00 -0.67 -0.08
Projected Post 1990 Balance 79.71 29.62 2.24 18.39 12.53
2010 Projected Balance 79.71 29.62 2.24 18.39 12.53
Notes: (1) The total amount of the Previously Reported Pre -1990 Beginning Balance. (2) Donated and Unclaimed ERCs reflect 20% of the n egative NSR balances for facilities that donated or did not claim their pre-1990 ERCs; the other 80% of these p re-1990 negative NSR balance amounts are included i n the Discounted Pre-1990 ERCs. (3) Revised Beginning Balances based on documented values with records. (4) Minor Source and Major Source Credits are orpha n shutdowns and orphan reductions from Minor and Ma jor Sources, respectively, and reflect 80 % of permitte d allowable emission values. (5) No credit claimed for BACT discount of ERCs exc ept CO 1991 BACT discount of ERCs issued for remova l of ICEs. This discount was surplus to BARCT at the ti me of use. The resulting credits were completely u sed by the 1997-98 reporting period to offset portions of the 13.71 tons per day debits for 1990-97 and the 1 .98 tons per day debits for 1997-98. (6) Debits are sources that were exempt from offset requirements under Reg. XIII yet were not exempt f rom offset requirements under Federal NSR. Debits are denoted as negative amounts and are deducted from the acco unt**Appendix I Page I-8** 

balances at a ratio of 1.2:1.0 for ozone precursors (1.2 pounds are deducted for each pound of increas e in potential emissions) and at a ratio of 1.0:1.0 for non-ozone precursors. (7) The Debits are first deducted from Pre-1990 acc ount balances, if any, and any remaining debits are then deducted from the earliest available Post-1990 acco unt balances. (8) Projections based on average of the previous fi ve years' credits and debits.**Page II-1**

APPEDIX II: LIST OF SOURCES EXEMPT FROM OFFSET REQUIREMETS AD PROV ISIOS

COVERED BY EQUIVALECY SHOWIG

The following sources are exempt from AQMD’s NSR offset requirements or eligible to obtain their offsets from AQMD’s Priority Reserve but are not exempt from fe deral NSR offset requirements. Therefore, use of these exemptions or use of Priority Reserve offsets by major sources requires debits from AQMD’s offset accounts and would be reflected i n AQMD’s demonstrations of equivalency.

Rule 1304 - Exemptions:

(1) Replacements of electric utility steam boilers with combined cy cle gas turbines, intercooled, chemically-recuperated gas turbines, other advanced ga s turbines, solar, geothermal, or wind energy, or other equipment to allow compliance with Rule 1135
– Emissions of Oxides of Nitrogen from Electric Power Generating System s or Regulation XX – Regional Clean Air Incentives Market. If the replacement results in a per-utility increase in basinwide electricity generating capacity, the emiss ions associated with the increase in capacity is not exempt.
(2) Abrasive Blasting Equipment
(3) Air Pollution Control Strategies
(4) Emergency Equipment
(5) Portable Internal Combustion Engines
(6) Methyl Bromide Fumigation
(7) Replacement of Ozone Depleting Compounds
(8) Portable Equipment
(9) Regulatory Compliance
(10) Regulatory Compliance for Essential Public Services
(11) Facility Exemption (VOC, NOx, SOx, or PM10 PTE less than 4 tons per year or CO PTE less than 29 tons per year)
(12) Resource Recovery and Energy Conservation
(13) Electric Utility Boilers

Rule 1309.1 - Priority Reserve

The Priority Reserve, which is funded from AQMD’s offset accounts, provides a source of emission offsets for certain priority categories of sources. Except as noted below, these offsets**Appendix II Page II-2** 

are provided by AQMD at no cost to the operator. The various categories of s ources eligible to access the Priority Reserve pursuant to Rule 1309.1 as amended May 3, 2002, which is the currently operative version of the rule, are summarized below:

(1) Innovative Technology Use of a technology that results in significantly lower emissions than would t he use of BACT. (2) Research Operations Projects with the purpose of “investigation, [experimentation], or researc h to advance the state of knowledge or the state-of-the-art.” Limited to at most two yea rs. (3) Essential Public Service Sources in the following categories located at facilities where all s ources operate at or below BARCT levels

 Publicly-owned sewage facilities;

 Prisons;

 Police facilities;

 Fire fighting facilities;

 Schools;

 Hospitals;

 Construction/operation of landfill gas control or processing facility;

 Water delivery operations;

 Public transit; and (4) Electrical Generating Facilities (2000 through 2003) Specified categories of facilities that generate electricity ; meet BARCT for all sources; applicant has conducted a due diligence effort to acquire ERCs on the open market; applicant has applied for California Energy Commission certification or A QMD permit to construct during calendar years 2000, 2001, 2002, or 2003; and applicant pays the following fee for each pound of Priority Reserve offsets obtained (VOC an d NOx not available for these sources):

 $25,000 per pound PM10 and day;

 $8,900 per pound SOx per day; and

 $12,000 per pound CO per day.