Sec. 39.264. EMISSIONS REDUCTIONS OF "GRANDFATHERED FACILITIES". (a) In this section:

(1) "Conservation commission" means the Texas Natural Resource Conservation Commission.

(2) "Electric generating facility" means a facility that generates electric energy for compensation and is owned or operated by a person in this state, including a municipal corporation, electric cooperative, or river authority.

(b) This section applies only to an electric generating facility existing on January 1, 1999, that is not subject to the requirement to obtain a permit under Section 382.0518(g), Health and Safety Code.

(c) It is the intent of the legislature that, for the 12-month period beginning on May 1, 2003, and for each 12-month period after the end of that period, total annual emissions of nitrogen oxides from facilities subject to this section may not exceed levels equal to 50 percent of the total emissions of that pollutant during 1997, as reported to the conservation commission, and total annual emissions of sulphur dioxides from coal-fired facilities subject to this section may not exceed levels equal to 75 percent of the total emissions of that pollutant during 1997, as reported to the conservation commission. The limitations prescribed by this subsection may be met through an emissions allocation and allowance transfer system described by this section.

(d) A municipal corporation, electric cooperative, or river authority may exclude any electric generating facilities of 25 megawatts or less from the requirements prescribed by this section. Not later than January 1, 2000, a municipal corporation, electric cooperative, or river authority must inform the conservation commission of its intent to exclude those facilities.

(e) The owner or operator of an electric generating facility shall apply to the conservation commission for a permit for the emission of air contaminants on or before September 1, 2000. A permit issued by the conservation commission under this section shall require the facility to achieve emissions reductions or trading emissions allowances as provided by this section. If the facility uses coal as a fuel, the permit must also be conditioned on the facility's emissions meeting opacity limitations provided by conservation commission rules. Notwithstanding Section 382.0518(g), Health and Safety Code, a facility that does not obtain a permit as required by this subsection may not operate after May 1, 2003, unless the conservation commission finds good cause for an extension.

(f) The conservation commission shall develop rules for the permitting of electric generating facilities. The rules adopted under this subsection shall provide, by region, for the allocation of emissions allowances of sulphur dioxides and nitrogen oxides among electric generating facilities and for facilities to trade emissions allowances for those contaminants.

(g) The conservation commission by rule shall establish an East Texas Region, a West Texas Region, and an El Paso Region for allocation of air contaminants under the permitting program under Subsection (f). The East Texas Region must contain all counties traversed by or east of Interstate Highway 35 or Interstate Highway 37, including Bosque, Coryell, Hood, Parker, Somervell, and Wise counties. The West Texas Region includes all of the state not contained in the East Texas Region or the El Paso Region. The El Paso Region includes El Paso County.

(h) Not later than January 1, 2000, the conservation commission shall allocate to each electric generating facility in each region a number of annual emissions allowances, with each allowance equal to one ton of sulphur dioxides or of nitrogen oxides emitted in a year, that permit emissions of the contaminants from the facility in that year. The conservation commission must allocate to each facility a number of emissions allowances equal to an emissions rate measured in pounds per million British thermal units divided by 2,000 and multiplied by the facility's total heat input in terms of million British thermal units during 1997. For the East Texas Region, the emissions rate shall be 0.14 pounds per million British thermal units for nitrogen oxides and 1.38 pounds per million British thermal units for sulphur dioxides. For the West Texas and El Paso regions, the emissions rate shall be 0.195 pounds per million British thermal units for nitrogen oxides. Allowances for sulphur dioxides may only be allocated among coal-fired facilities.

(i) A person, municipal corporation, electric cooperative, or river authority that owns and operates an electric generating facility not covered by this section may elect to designate that facility to become subject to the requirements of this section and to receive emissions allowances for the purpose of complying with the emissions limitations prescribed by Subsection (c). The conservation commission shall adopt rules governing this election that:

(1) require an owner or operator of an electric generating facility to designate to the conservation commission in its permit application under Subsection (e) any facilities that will become subject to this section;

(2) require the conservation commission, notwithstanding the allocation mechanism provided by Subsection (h), to allocate additional allowances to facilities governed by this subsection in an amount equal to each facility's actual emissions in tons in 1997;

(3) provide that any unit designated under this subsection may not transfer or bank allowances conserved as a result of reduced utilization or shutdown, except that the allowances may be transferred or carried forward for use in subsequent years to the extent that the reduced utilization or shutdown results from the replacement of thermal energy from the unit designated under this subsection with thermal energy generated by any other unit; and

(4) provide that emissions reductions from electing facilities designated in this subsection may only be used to satisfy the emissions reductions for grandfathered facilities defined in Subsection (c) to the extent that reductions used to satisfy the limitations in Subsection (c) are beyond the requirements of any other state or federal standard, or both.

(j) The conservation commission by rule shall permit a facility to trade emissions allocations with other electric generating facilities only in the same region.

(k) The conservation commission by rule shall provide methods for the conservation commission to determine whether a facility complies with the permit issued under this section. The rules must provide for:

(1) monitoring and reporting actual emissions of sulphur dioxides and nitrogen oxides from each facility;

(2) provisions for saving unused allowances for use in later years; and

(3) a system for tracking traded allowances.

(l) A facility may not trade an unused allowance for a contaminant for use as a credit for another contaminant.

(m) A person possessing market power shall not withhold emissions allowances from the market in a manner that is unreasonably discriminatory or tends to unreasonably restrict, impair, or reduce the level of competition.

(n) The conservation commission shall penalize a facility that emits an air contaminant that exceeds the facility's allowances for that contaminant by:

(1) enforcing an administrative penalty, in an amount determined by conservation commission rules, for each ton of air contaminant emissions by which the facility exceeds its allocated emissions allowances; and

(2) reducing the facility's emissions allowances for the next year by an amount of emissions equal to the excessive emissions in the year the facility emitted the excessive air contaminants.

(o) The conservation commission may penalize a facility that emits an air contaminant that exceeds the facility's allowances for that contaminant by:

(1) ordering the facility to cease operations; or

(2) taking other enforcement action provided by conservation commission rules.

(p) The conservation commission by rule shall provide for a facility in the El Paso Region to meet emissions allowances by using credits from emissions reductions achieved in Ciudad Juarez, United Mexican States.

(q) If the conservation commission or the United States Environmental Protection Agency determines that reductions in nitrogen oxides emissions in the El Paso Region otherwise required by this section would result in increased ambient ozone levels in El Paso County, facilities in the El Paso Region are exempt from the nitrogen oxides reduction requirements.

(r) An applicant for a permit under Subsection (e) shall publish notice of intent to obtain the permit in accordance with Section 382.056, Health and Safety Code. The conservation commission shall provide an opportunity for a public hearing and the submission of public comment and send notice of a decision on an application for a permit under Subsection (e) in the same manner as provided by Sections 382.0561 and 382.0562, Health and Safety Code. The conservation commission shall review and renew a permit issued under this section in accordance with Section 382.055, Health and Safety Code.

(s) This section does not limit the authority of the conservation commission to require further reductions of nitrogen oxides, sulphur dioxides, or any other pollutant from generating facilities subject to this section or Section 39.263.

Added by Acts 1999, 76th Leg., ch. 405, Sec. 39, eff. Sept. 1, 1999.