Title of Regulation: 9VAC5-80. Permits for Stationary Sources (Rev. K16) (amending 9VAC5-80-320, 9VAC5-80-340, 9VAC5-80-2270, 9VAC5-80-2280, 9VAC5-80-2310, 9VAC5-80-2330, 9VAC5-80-2340; adding 9VAC5-80-342, 9VAC5-80-2282, 9VAC5-80-2342).

Statutory Authority: § 10.1-1308 of the Code of Virginia; federal Clean Air Act (§§ 110, 112, 165, 173, 182, and Title V); 40 CFR Parts 51, 61, 63, 63, 70, and 72.

Public Hearing Information:

July 6, 2017 - 10 a.m. - Department of Environmental Quality, 629 East Main Street, 2nd Floor Training Room, Richmond, VA

Public Comment Deadline: July 28, 2017.

Agency Contact: Gary E. Graham, Department of Environmental Quality, 629 East Main Street, P.O. Box 1105, Richmond, VA 23218, telephone (804) 698-4103, or email gary.graham@deq.virginia.gov.

Basis: Section 10.1-1308 of the Virginia Air Pollution Control Law (§ 10.1-1300 et seq. of the Code of Virginia) authorizes the State Air Pollution Control Board to promulgate regulations abating, controlling, and prohibiting air pollution in order to protect public health and welfare.

Federal requirements: The federal statutory basis for the regulation is Title V, §§ 501-507 of the federal Clean Air Act (Act) (42 USC 7401 et seq., 91 Stat 685).

The 1990 Clean Air Act Amendments (CAAA) created a major change to the approach taken by the United States Congress in previous promulgations of the federal Clean Air Act. Title V of the CAAA requires states to develop operating permit programs to cover all stationary sources defined as major by the Act. Permits issued under the permit programs must set out standards and conditions that cover all applicable requirements of the Act for each emission unit at each individual stationary source. Section 502 of the Act requires that states develop permit fee programs to pay for the costs of the state's Title V Permit Program.

Section 502(b)(3) of the CAAA sets out the minimum elements that must be included in each state's permit fee program. The owner or operator of all sources subject to the requirements to obtain a permit must pay an annual fee, or the equivalent over some other period, sufficient to cover all reasonable (direct and indirect) costs required to develop and administer the permit program requirements of Title V, including the cost of the small business technical assistance program. Section 502(b)(3)(A) specifies what is meant by reasonable costs, as follows:

1. Reviewing and acting upon any application for a permit.

2. Implementing and enforcing the terms and conditions of the permit, but not including any court costs or other costs associated with any enforcement action.

3. Emissions and ambient monitoring.

4. Preparing generally applicable regulations or guidance.

5. Modeling, analyses, and demonstrations.

6. Preparing inventories and tracking systems.

Section 502(b)(3)(B) specifies the requirements for the total amount of fees to be collected by the state permitting authority, as follows:

1. The state must demonstrate that, except as otherwise provided, the program will collect in the aggregate from all sources subject to the program an amount not less than $25 per ton of each regulated pollutant, or such other amount as the U.S. Environmental Protection Agency (EPA) administrator may determine adequately reflects the reasonable costs of the permit program.

2. "Regulated pollutant" means (i) a volatile organic compound; (ii) each pollutant regulated under § 111 or 112 of the Act; and (iii) each pollutant for which a national primary ambient air quality standard has been promulgated (except carbon monoxide).

3. In determining the amount to be collected, the permitting authority is not required to include any amount of regulated pollutant emitted by any source in excess of 4,000 tons per year of that pollutant.

4. The requirements of paragraph 1 above will not apply if the permitting authority can demonstrate that collecting an amount less than $25 per ton of each regulated pollutant will meet the requirements of § 502(b)(3)(A).

5. The fee calculated under paragraph 1 above shall be increased (consistent with the need to cover the reasonable costs authorized by § 502(b)(3)(A) in each year beginning after the year of the enactment of the Act by the percentage, if any, by which the Consumer Price Index for the most recent calendar year ending before the beginning of such year exceeds the Consumer Price Index for the calendar year 1989.

Section 502(b)(3)(C) specifies the requirements of a federal permit fee program if the EPA administrator finds that the fee provisions of a state program are inadequate or if the Title V operating permit program itself is inadequate and EPA has to administer the fee program itself. This section allows the EPA administrator to collect additional fees to cover the administrator's costs of administrating a federal fee program and specifies that the EPA administrator may collect additional penalties and interest for failure to pay fees.

Section 502(b)(4) specifies that the minimum elements for the permit program include requirements for adequate personnel and funding to administer the program.

Section 507(f) specifies that the state may reduce any fee required under Title V to take into account the financial resources of small business stationary sources.

The federal regulatory basis for the Title V Fee Program is 40 CFR 70.9.

40 CFR 70.9(a) specifies that the state program require that the owners or operators of part 70 sources pay annual fees that are sufficient to cover the permit program costs and that any fee required by this section will be used solely for Title V permit program costs.

40 CFR 70.9(b)(1) specifies that the state establish a fee schedule that results in the collection and retention of revenues sufficient to cover the permit program costs. These costs shall include, but are not limited to:

1. Preparing generally applicable regulations or guidance regarding the Title V permit program or its implementation or enforcement;

2. Reviewing and acting on any permit application including the development of an applicable requirement;

3. General administrative costs of running the permit program, including the supporting and tracking of permit applications, compliance certification, and related data entry;

4. Implementing and enforcing the terms of any Title V permit;

5. Emissions and ambient monitoring;

6. Modeling, analyses, or demonstrations;

7. Preparing inventories and tracking emissions; and

8. Providing direct and indirect support to sources under the Small Business Stationary Source Technical and Environmental Compliance Assistance Programs in determining and meeting their obligations under the Title V permit program.

Section 70.9(b)(2) provides a fee schedule that EPA will presume meets the requirements of 40 CFR 70.9(b)(1), which includes collecting not less than $25 per year per ton of actual emissions of each regulated pollutant adjusted annually for increases in the Consumer Price Index as of August 31 of the most recent calendar year. The presumptive fee includes a greenhouse gas (GHG) adjustment based upon the hourly burden for GHG permit activities. This section also provides certain exclusions from the actual emissions calculation that the state may use, including a 4,000 ton per year cap on actual emissions of regulated pollutants used in the calculation, the actual emissions used in the minimum fee calculation, and actual emissions from insignificant activities not required in the Title V permit application pursuant to 40 CFR 70.5 (c). "Actual Emissions" is defined for 40 CFR Part 70 sources as follows:

"Actual emissions" means the actual rate of emissions in tons per year of any regulated pollutant (for presumptive fee calculation) emitted from a part 70 source over the preceding calendar year or any other period determined by the permitting authority to be representative of normal source operation and consistent with the fee schedule approved pursuant to this section. Actual emissions shall be calculated using the unit's actual operating hours, production rates, and in-place control equipment, types of materials processed, stored, or combusted during the preceding calendar year or such other time period established by the permitting authority pursuant to the preceding sentence.

Section 70.9(b)(3) specifies that the state's fee schedule may include emissions fees, application fees, service-based fees, other types of fees, or any combination thereof to meet the fee schedule requirement to cover Title V permit program costs. It further specifies that nothing in 40 CFR 70.9 shall require the permitting authority to calculate fees on any particular basis or in the same manner for all sources, provided that the permitting authority collects a total amount of fees sufficient to meet the program support requirements of 40 CFR 70.9(b)(1).

Section 70.9(b)(5) specifies that the state shall provide an accounting that its fee schedule results in the collection and retention of revenues sufficient to cover the permit program costs if (i) the state sets a fee schedule that would result in collections less than the presumptive fee schedule, or (ii) EPA has serious questions as to whether the state's fee schedule is sufficient to cover the program costs.

Sections 70.9(c) and (d) further require the state to provide a demonstration that the collection of fees is sufficient to meet all of the Title V program requirements and that the fees are used solely to cover the costs of meeting those program requirements.

State requirements: Section 10.1-1308 of the Code of Virginia authorizes the State Air Pollution Control Board to promulgate regulations abating, controlling and prohibiting air pollution in order to protect public health and welfare.

Section 10.1-1322 of the Code of Virginia authorizes the State Air Pollution Control Board to adopt requirements for permits and to collect fees from air pollution sources.

Section 10.1-1322 B authorizes the State Air Pollution Control Board to provide for the collection of annual permit program emissions fees from air pollution sources, based upon actual emissions of each regulated pollutant not to exceed 4000 tons per year of each pollutant for each source. The annual permit program emissions fees are not to exceed a base year amount of $25 per ton using 1990 as the base year and are to be adjusted annually by the Consumer Price Index. Permit program fees for air pollution sources that receive state operating permits in lieu of Title V operating permits shall be paid in the first year and thereafter shall be paid biennially. The statute directs that the fees approximate the direct and indirect costs of administering and enforcing the permit program as required by the Clean Air Act. This section also authorizes the board to collect permit application fee amounts not to exceed $30,000 from applicants for a permit for a new major stationary source.

Section 10.1-1322.1 of the Code of Virginia specifies that all moneys collected pursuant to §§ 10.1-1322 and 10.1-1322.2 be paid into the state treasury and credited to a special nonreverting fund known as the Air Pollution Permit Program Fund. Any moneys remaining in this fund are not to revert to the general fund but are to remain in the fund. Utilization of the fees collected pursuant to this section is to be limited to the agency's direct and indirect costs of processing permits.

Item 369 B 1 of Chapter 780 of the 2016 Acts of Assembly continued language initially included in Item 365 B 1 of Chapter 3 of the 2012 Acts of Assembly, Special Session 1, authorizing the board to adjust permit program emissions fees collected pursuant to § 10.1-1322 of the Code of Virginia and to establish permit application fees and permit maintenance fees sufficient to ensure that the revenues collected from all fees cover the direct and indirect costs of the program, consistent with the requirements of Title V of the Clean Air Act. It further specified that (i) permit application fees collected not be credited toward the amount of annual emissions fees owed pursuant to § 10.1-1322, (ii) that all fees be adjusted annually by the Consumer Price Index, (iii) that regulations initially implementing these provisions be exempt from Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2, Code of Virginia (the Administrative Process Act), and (iv) that any further amendments to the fee schedule beyond those initially implementing these provisions would not be exempt from provisions of the Administrative Process Act.

Purpose: The purpose of 9VAC5-80 is to minimize the emissions of regulated air pollutants from new and modified stationary sources through air permit programs. Minimizing those emissions protects the health, safety, and welfare of the general public. Title V of the federal Clean Air Act requires that Title V permit programs be fully funded through Title V program fees. As the permit programs achieve their goal of reducing emissions, Title V permit program fee revenue has decreased and is projected to decrease to the point that it will no longer cover the costs of the Title V permit programs. The purpose of this regulatory action is to (i) increase Title V fees so that they continue to fully fund the Title V permit program, and (ii) to restructure the Title V fee schedule to better reflect the actual costs of the Title V permit program, thereby improving program revenue stability. Fully funding the Title V permit program is essential to continuing to reduce air pollutant emissions in the Commonwealth and continuing to protect the health, safety, and welfare of the citizens of Virginia.

Substance: The substantive provisions were developed based on the consensus proposal of a stakeholder advisory group established by the Department of Environmental Quality that consisted of representatives from industry, environmental groups, and department staff; department analysis; and information gathered from the federal statutes, regulations, and policies. In addition, the new and increased fees more accurately reflect and evenly distribute the permitting and compliance assurance costs incurred by the department.

1. Definitions of "greenhouse gases" and "regulated pollutant (for fee calculation)," are added and the definition of "actual emissions" is revised so that emissions of greenhouse gases will be excluded from the calculation of permit program emissions fees.

2. A new section is added to Chapter 80, Part II, Article 2 providing an equivalent method of calculating permit program emissions fees applicable to future billing years. In this new section, permit program emission fee rates for billing years 2018 and 2019 are specified, reflecting incremental 18.6% and 15% increases in the permit program emission fee rates over those two years, respectively. Also, a new and equivalent method of calculating CPI adjustments is provided for billing years after 2019. That new method of calculating CPI adjustments for permit program emissions fees is the same method that is currently used for annual CPI adjustments for permit application fees and annual permit maintenance fees. Provisions for excess emissions fees are unchanged. Various changes are made to the existing permit program emissions fee calculation section as necessary to conform to and implement this new section.

3. A new section is added to Chapter 80, Part II, Article 10 specifying new, increased base permit application fee amounts that will be applicable in future years. Annual CPI adjustments are applied as before except the annual adjustment for 2019 is specified to be 10% more than the permit application fee rates applicable in the previous calendar year. Provision is made for applications filed before the effective date of this amendment and modified on or after that date such that the new permit application fee structure is applicable to that application but any permit application fee amount previously paid for that application is credited toward the new permit application fee amount. Various changes are made to the existing permit application fee calculation section as necessary to conform to and implement this new section.

4. A new section is added to Chapter 80, Part II, Article 11 specifying new, increased base permit maintenance fee amounts that will be applicable in future years. Annual CPI adjustments are applied as before except that the fee adjustments for certain permit types are individually specified for billing years 2019 and 2020. A new minimum permit maintenance fee is specified for synthetic minor sources and that fee is also adjusted annually. Various changes are made to the existing permit maintenance fee calculation section as necessary to conform to and implement this new section.

Issues: The primary advantage to the public of this proposed action is that it ensures that the Title V permit program will continue to protect the health and welfare of the Commonwealth's citizens and ensures that the Commonwealth will continue to maintain control over the implementation of the Title V permit program within the Commonwealth. The primary disadvantage of this proposed action is that some increases in the direct and indirect costs of the Title V permit program will be borne by businesses in the Commonwealth and will be passed along to the citizens of the Commonwealth. Changing the fee structure will affect different businesses differently; some will pay proportionally more in fees, some proportionally less.

The primary advantage to the department of this proposed action is that the permit Title V permit program will continue to be fully funded and fully staffed. There are no disadvantages to the department.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Air Pollution Control Board (Board) proposes to raise all of its emissions and maintenance fees, and most of its application fees, for stationary source air pollution permits. The Board also proposes to institute a new maintenance fee for synthetic minor sources of air pollution.

Result of Analysis. Because the program funded by these fees is required by both state and federal law, and the costs of non-compliance would likely be greater than these proposed fee increases, the benefits of the Board's proposed changes likely outweigh their costs.

Estimated Economic Impact. The Department of Environmental Quality (DEQ) and the Board currently manage the stationary source air pollution permitting program required by Title V of the federal Clean Air Act. This program is required by federal law to be self-funding. DEQ staff reports that emissions that are subject to fees per ton have been dropping. While this is beneficial for the environment as it means that air quality is improving, it also means that fee revenue that supports this program has been decreasing. In order to maintain this program as required by law, the Board now proposes to increase the fee per ton of emissions for all but one of the permit application fees and increase all of the annual permit maintenance fees. The Board also proposes to institute a new maintenance fee for synthetic minor source pollution emitters that only emit, or have the potential to emit, a regulated pollutant at less than 80 percent of the threshold that would qualify them as a major source emitter. Board staff reports that this program has been understaffed so fee increases will allow staffing increases in addition to maintaining current oversight on permit holders. Board staff additionally reports that the number of permits has been basically the same over the past several years. Proposed fee increases will increase costs for permit holders going forward. DEQ reports that large businesses will easily be able to absorb those costs. Small businesses may have a harder time paying increased fees without business disruption; the Board has attempted to minimize any adverse impact of fee increases for small businesses by phasing in some of the larger increases. The costs of these proposed changes are likely outweighed by the benefits to stakeholders of maintaining this state program as the alternative would have the federal government setting up a program in the state to manage Title V permitting. Such a program would likely be more expensive for permit holders and would likely also be less flexible and responsive to their concerns. All current fees and proposed fees are set, as required by federal law, using the Consumer Price Index (CPI) for all urban consumers. Current fees for 2017 and proposed fees for 2018 and going forward are laid out below.