On November 6, 1998 (63 FR 59924, November 1998) US EPA identified several deficiencies in the District’s New Source Review (NSR) Rule. These deficiencies prevented EPA from approving the District’s Rule into the State Implementation Plan (SIP). On January 25, 1999, EPA formally issued its partial approval and partial disapproval of the NSR revisions, and triggered the 18-month sanctions clock contained in the Clean Air Act. The identified deficiencies must be addressed by the District and approved by EPA before August 25, 2000, or the EPA administrator must impose sanctions.

The proposed revisions to the District’s permitting regulation are intended primarily to address these deficiencies.

In addition, staff are proposing a number of changes designed to address permitting problems or issues that have arisen since the 1998 revisions to this rule.

• Address EPA’s identified deficiencies
  - Interpollutant trading between NOx and Precursor Organic Compounds (POC) has been revised to prohibit the use of NOx reductions to offset POC increases.
  - A "backstop provision" has been added, requiring permits from large sources (emitting more than 5 tons/yr) even if the source category is on the permit exemption list.
  - EPA’s concern that the District ensure that offsets are surplus at the time of use has been satisfied through an annual demonstration that the District’s entire offset program results in equivalent emission reductions.
  
• Correct a deficiency in the BACT requirement imposed by state law, as identified by ARB
  
• Exemptions for stationary internal combustion engines have been revised. The exemption level has been lowered from 250 hp to 50 hp, following the example of several other California Districts. The exemption for standby emergency generators has also been restricted.
  
• Provisions have been added to address the requirements of federal regulations relating to review of toxic emissions from new sources
  
• Clarifying language has been added to require permit review for activities that may affect emissions from existing sources. These include non-identical component replacement.
  
• A new requirement has been added that will result in every permitted source having explicit throughput limits. This will mostly affect old equipment that has been in existence since before the District had a permit program.

In addition, a number of relatively minor changes, corrections, and clarifications have been included in this proposal.

There have been significant changes made between March 3 public workshop and the April 13 public hearing notice. The regulatory language contained in the workshop draft concerning permit requirements for existing sources that are altered or modified was substantially reworked, based upon comments by workshop participants, ARB and EPA staff, and District staff. There are three major changes.

First, the revised language requires a District review whenever emitting equipment components are replaced with non-identical replacements. The purpose of the review is to ensure that these new components do not result in increased emissions. The operator does not need to wait for the District to complete the review unless emissions increase as a result of the replacement. A minimal fee to cover the administrative costs of handling the paperwork will be charged.

Second, language has been added that explicitly imposes throughput limits, at demonstrated maximum levels, on all existing equipment (2-1-234.3). Such limits have been included in permits issued to new and modified sources for several years. The proposed language is intended to end arguments about whether a given physical change or change in the method of operation is a modification resulting in increased emissions or throughput, which requires permits and/or new source review, or merely routine maintenance (which is still exempt from new source review). Authority to impose such limits is already implicit in existing law and District regulations. Practically, however, operators have enjoyed considerable latitude when "maintaining" equipment constructed prior to 1972. Without explicit limits, some facilities have been able to upgrade their old equipment without undergoing new source review, in some cases dramatically increasing equipment capacity. The proposed language will end this practice.

The publicly distributed April 12 draft proposal would have based annual and daily throughput limits on all sources at the highest levels reported to the District. Subsequent to the April 17 publication of the proposed revisions, commentors have pointed out that not all sources have had occasion to report maximum daily throughputs to the District. Staff therefore recommends that the April 12 draft language be revised to allow sources to provide documentation demonstrating that they have actually achieved higher levels of throughput than have been reported to the District. See the attached pages headed "Changes from the April 12 Draft" for specific language.

This change provides the facility with an opportunity to submit previously unsupplied documentation to support a higher allowable throughput.

The third change deletes the new language added to implement the Clean Air Act requirement for alternative siting analysis. Staff has determined that this is not a substantive change. Staff will work with the EPA, ARB, stakeholders and other districts to develop an acceptable and uniform way of incorporating this federal requirement with applicable state law.

The California Health and Safety Code requires analysis of various impacts when regulatory amendments will set more stringent requirements or impose costs on regulated entities. This regulatory proposal does not fall within the scope of an amendment that significantly affects air quality or emissions limitations. Permitting programs generate revenue and allow for analysis and the imposition of applicable controls, administrative and monitoring requirements through permit conditions.

Operators of sources which were previously exempt from District permits will incur additional costs if they are no longer exempt. Operators of such existing sources (stationary engines between 50 and 250 HP, for example) will be required to obtain permits. This rule revision, however, will not impose additional regulatory requirements on existing sources.

New engines will encounter new requirements. New engines will be subject to the District’s New Source Review program, including the District’s Risk Management Program. Some proposed engines will have a difficult time meeting District standards for new sources without limits on hours of operation.

Under Health and Safety Code §40920.6, the District is required to perform an incremental cost analysis for a proposed rule. To perform this analysis, the District must (1) identify one or more control options achieving the emission reduction objectives for the proposed rule, (2) determine the cost effectiveness for each option, and (3) calculate the incremental cost effectiveness for each option. To determine incremental costs, the District must "calculate the difference in the dollar costs divided by the difference in the emission reduction potentials between each progressively more stringent potential control option as compared to the next less expensive control option." This section of the Health and Safety Code is not applicable to this amendment. There are no identifiable costs associated with this project as there is no change in the regulatory standards or emission limitations.

Section 40727.2 of the Health and Safety Code imposes requirements on the adoption, amendment, or repeal of air district regulations. The law requires a district to identify existing federal and district air pollution control requirements for the equipment or source type affected by the proposed change in district rules. The district must then note any differences between these existing requirements and the requirements imposed by the proposed change. Where the district proposal does not impose a new standard, make an existing standard more stringent, or impose new or more stringent administrative requirements, the district may simply note this fact and avoid the analysis otherwise required by the bill.

These proposed amendments do not impose any different standards.

The District has determined that these amendments to Regulation 1; Regulation 2, Rule 1, Rule 2, Rule 4; and the Manual of Procedures, Volume II are exempt from provisions of the California Environmental Quality Act pursuant to State CEQA Guidelines, Section 15061, subd. (b)(3). The amendments are administrative in nature, and District staff, based on the whole administrative record on this issue, has determined with certainty that this rulemaking project will have no environmental impacts and is therefore exempt under Guidelines Section 15061, subd (b)(3). The District intends to file a Notice of Exemption pursuant to State CEQA Guidelines, Section 15062.