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             Texas Natural Resource Conservation Commission 
                         INTEROFFICE MEMORANDUM


To:  New Source Review (NSR) Permit Engineers
Date:  December 31, 1998
From:  Victoria Hsu, P.E., Division Director, NSR Permits
Subject:  Flexible Permits and the Plantwide Applicability Limit (PAL)

Effective January 1, 1999,  a new process, the PAL, will be available to assess federal NSR
applicability  for sources that have received or are applying for a flexible permit under 30 TAC
Chapter 116 Subchapter G.   A policy has been developed whereby applicants can obtain a PAL in
addition to the emission cap limit associated with their flexible permit.  The PAL is an
independent emission limit in the permit and is based on previous actual emissions plus an
insignificance buffer.  In certain cases, an environmental contribution of  10 % will be imposed in
setting up the PAL.  If the source stays under the PAL,  federal review and contemporaneous
netting will not be triggered.  The PAL is a voluntary option that may be established when the
flexible permit is obtained, or after the fact, at the request of the applicant.  If it is obtained after
the fact, an amendment will be required and a minimum $450.00 fee applied.  Otherwise
establishing the PAL can be done in conjunction with the flexible permit.  Public notice is required
to obtain the PAL in either case, but the notice can be combined with any permit notice that is
otherwise being conducted.  The PAL is a federal applicability limit only and does not impact
other state NSR requirements.  A special PAL permit condition has been developed and should be
included in any flexible permit that contains a PAL.  Details on how the PAL is established and
when it must be reevaluated  are included in the attached guidance paper. If you have any
questions on this policy please contact Susana Hildebrand, your team leader or section manager.

Federal Enforceability Policy for Flexible Permits 

Background:

Flexible Permits

The flexible permit program, was designed in 1994 by the TNRCC along with major stakeholders
and environmental groups.  The flexible permit creates an emission cap by pollutant for all
facilities included in the permit.  The primary incentives offered under the flexible permit program
are: 1) time is given for the implementation of controls at the same time that operational flexibility
is afforded such that the company can generate capital to offset the cost of controls, 2) the health
effects' review can usually be streamlined if emissions are being reduced by demonstrating
improvement in air quality, 3) sources are given the ability to manage their own operations and
emissions to maintain their emission cap, 4) some modifications are pre-reviewed by the state
allowing businesses to better schedule activities and minimize delays due to the permitting
process.  The primary benefit to the state is the permitting of a well-controlled source, which
might otherwise have remained grandfathered, along with the subsequent reduction of air
emissions. 

The flexible emission cap is established by applying Best Available Control Technology (BACT)
to all facilities included in the cap and assuming maximum design capacity, plus an additional 
insignificance factor of up to 9%.  Because a control strategy is committed to up-front as part of
the process, the permit may contain a staged cap which reflects the application of controls over
time.  In other words, it is not uncommon to see the emission cap go down significantly each time
additional controls are put in place.  There is only one flexible permit allowed per account
number, however, there is no requirement to include all facilities into the flexible permit.  The
flexible permit cap must be diminished as a result of units which are permanently shut down.

The flexible permit cap represents an enforceable state limit. Federal applicability is also
considered when the flexible permit is sought to ensure federal new source review permitting is
not triggered.
 
Plantwide Applicability Limit (PAL) 

The EPA proposed a rule July 23, 1995 and again on July 23, 1998 under NSR Reform
concerning a Plantwide Applicability Limit (PAL).  According to the proposal a  PAL can be set
be based on historical, actual emissions plus an insignificant margin.  Under the PAL proposal the
source has total operational and design flexibility and as long as the PAL is not exceeded, federal
new source review is avoided.  The PAL concept encourages pollution control and innovative
technologies to be contemplated to accommodate future growth. The PAL provides for similar
flexibility incentives as are derived from the Texas flexible permit. Should the PAL be exceeded,
federal new source review would be applied to the project which caused the limit to be exceeded. 
The PAL has been sanctioned by the EPA for immediate implementation by states.

Merging the PAL and the Flexible Permit
The TNRCC believes that overlaying the PAL concept onto the flexible permit may provide a
viable avenue to sources that have committed to a control strategy and that wish to preserve
emissions for future growth.  This process may be especially beneficial for those flexible permits
that result in large  reductions in emissions as a result of adding controls.  Even for sources that
have set their flexible permit limit to one that is just under the federal significance levels, obtaining
a PAL may benefit the applicant by alleviating the need for netting when modifications are made. 
In addition, by establishing a PAL, sources may be able to pursue innovative technologies or
develop pollution prevention plans to further offset their growth.  By adding the PAL to the
flexible permit, the source will be able to avoid Nonattainment and Prevention of Significant
Deterioration (PSD) new source review and netting when sources are added or modified under
exemptions or when amendments are sought, provided the PAL is not exceeded.  It should be
noted that authorization is still required under 30 TAC, Chapter 116, Subchapter B prior to
construction or modification for activities not contemplated under the original flexible permit
review (unless they qualify for an Exemption from Permitting), even though federal review and
netting is not required. 

Implementation
Beginning with the PAL permit concept, a voluntary participant would establish a baseline of 
historic emission levels.  This baseline would be created by assessing the two-year average, actual
emissions for each emission point based on what was combusted, processed or stored.  The
emission level must also be consistent with any enforceable limits including limitations imposed by
Reasonably Acceptable Control Technology (RACT) or Maximum Achievable Control
Technology (MACT) that have been relied upon for attainment strategies under the SIP.  The
flexible permit cap is set independently, as described above, but is established in a manner that
would be consistent with federal permitting significance levels. 

For those sources that have already obtained a flexible permit, an amendment may be requested to
establish the PAL in the flexible permit.  The PAL would be established for each criteria pollutant
based on the two-year average actual emissions prior to the establishment of the flexible permit. 
The PAL would serve as the limit under which federal new source review would not be triggered. 
PALs that are set up retroactively, after the issuance of the flexible permit, will have to reassess
the PAL five years after issuance of the flexible permit limit so that it remains contemporaneous. 
For example, a flexible permit was issued in 1996. In assessing federal significance the emissions
were compared to the two-year average, actual emissions prior to application submittal in 1996. 
Therefore the PAL would need to be reevaluated five years after the flexible permit was issued or
2001 in this case.  However, because the NSR reform rule on the PAL is expected to be
promulgated by June 1999 this reevaluation period may change.  If the final rule allows for a
longer renewal time, such as ten years, the five year renewal can be renegotiated assuming the
state rules allow for the change.  For sources that are seeking a new flexible permit, the PAL can
be added to the permit, upon request of the applicant, prior to issuance.  The reassessment of
these PALs will fall into what is allowed under the new promulgated rules. 


Establishing a PAL in a flexible permit is considered a voluntary option that is available only to
those who are seeking or have obtained an NSR flexible permit.  The TNRCC, in establishing the
PAL, may withhold up to 10% of the cap as an environmental contribution.  An environmental
contribution will not be withheld from permits that have a flexible permit limit that is equal to the
PAL.  Emissions credits to be banked and/or sold as creditable reductions must be excluded from
the PAL.  In addition, the PAL must be adjusted for any applicable SIP dependent RACT/MACT 
requirements. A condition will be included in the permit which requires that an alteration be
submitted to the TNRCC within one year of the applicable RACT/MACT compliance dates so
that the PAL can be reevaluated accordingly.  Should an applicant choose to maintain a traditional
approach to federal enforceability, this too is a workable option. The flexible permit limit itself  is
considered an enforceable limit just as a traditional permit limit is regarded as federally
enforceable. However, any modifications or new sources that are sought would be subject to
federal netting triggers. 

Permit Language
The following condition should be included in the flexible permit establishing a PAL.  This
condition may be insert by using the macro: Alt-S, PAL.

     Netting requirements for this site shall be satisfied by using the Plantwide
     Applicability Limits (PALs) established in this permit.  If future calculated emission
     rates exceed the PALs set forth in this permit then the permit holder shall be
     subject to federal new source review.  Only the changes that cause the new
     emission rates to exceed the PAL are subject to federal new source review.  The
     permit holder shall submit to the TNRCC a nonattainment permit and/or PSD
     permit application for all pollutants that exceed the PAL.  

     The holder of this permit must still submit an amendment application in accordance
     with 30 TAC Chapter 116 Subchapter B to raise the MAERT limit above current
     MAERT levels even if the new levels do not exceed current PALs (for cases where
     the PAL is set higher than the MAERT).   The current PALs listed in this permit
     must be adjusted downward for any future State Implementation Plan (SIP)
     reductions and/or Maximum Achievable Control Technology  requirements.  The
     lower PAL is effective on the effective date of the more stringent regulation.  
     Within 12 months of the effective date of the regulation the permit holder shall
     submit a request to alter or amend the permit conditions to reflect the more
     stringent emission rates. The PALs shall be established for a period of five years. 
     After five years, the permit holder shall submit a request to alter or amend the
     permit conditions to reevaluate the PALs based on the most recent five years of
     actual emissions.  In addition, for those PALs established after the issuance of the
     flexible permit, the holder of this permit will submit an amendment to the TNRCC
     to reassess the PALs listed in this permit no later than _____(five years after
     issuance of the original flexible permit).

Public Notice
Establishing the PAL requires that an opportunity be given for public participation. This
requirement may be satisfied in conjunction with any notice that is done for the flexible permit. 
Otherwise, a separate public notification in accordance with the requirements of Chapter 116,
must be provided when the PAL is sought.              PAL/Flexible Permit Concept Example

The attached example illustrates the PAL/ Flexible Permit hybrid process.  For this example, a
refinery is selected as the existing major source (although for simplicity only eight emission points
are used) in an attainment area.  The first part of the Table illustrates each emission unit along
with their current authorization.  For each criteria pollutant, three values are indicated.  The first
is the historical actual emissions in tons per year.  According to our proposal, this value would be
created by assessing the previous two-year average actual emissions prior to the issuance of the
flexible permit.  The emission limit must be consistent with any enforceable limits including
limitations imposed by Reasonably Acceptable Control Technology (RACT) or any Maximum
Achievable Control Technology (MACT) that has been relied upon for attainment strategies under
the SIP.  The second value represents the proposed allowable for that emission point.  This value
is based on the potential to emit of the unit with Best Available Control Technology (BACT)
applied (plus an insignificance factor of up to 9%).  The third value is the net increase (or
decrease) which is based on the difference between the first two columns.  As you may notice,
there are two emission points being proposed with this permitting action.  Authorization for the
proposed emission points would be sought under Subchapter B and concurrently rolled into the
flexible permit.  Because these are new emission points, they have no actual emissions to be added
into the PAL.

For each pollutant the PAL is calculated in two ways.  The first method deducts an environmental
contribution of up to 10% from the PAL.  The second method does not.  The environmental
contribution is deducted when the actual emissions are greater than the proposed allowable for the
flexible permit by more than a significant amount.  A "significant amount" refers to applicable
Prevention of Significant Deterioration (PSD) and nonattainment significance levels.  From our
example, NOx shows actual emissions of 362.98 tpy and a proposed allowable for the flexible
permit of 150.2 tpy.  The difference is 212.78 tpy, which is greater than the PSD significance level
for NOx of 40 tpy.  In this case 10% was removed from the actual emission level to establish the
PAL at 326.6 tpy.  When the proposed allowable for the flexible permit limit is greater than the
actual emissions and when the difference is less than significant, as is the case with the other
pollutants in our example, the proposed allowable becomes the PAL.  Note that if the difference
between the proposed flexible permit limit and the PAL was to be greater than the significance
level, federal review would be required and authorization would be needed under the Subchapter
B, PSD and/or Nonattainment Review rules.

The bottom portion of our example indicates the permit emission limitations that would go into
the actual permit.  The Maximum Allowable Emission Rate (MAERT) is the emission level the
source can operate up to under the flexible permit without further authorization under state rules. 
The PAL limit represents the maximum emission level the source can emit without triggering a
major modification under federal rules.  Once the PAL is established in the permit, it would be
reevaluated for any applicable state or federal rules that could diminish its value.  The permit
holder will have a special condition put in the permit which requires that the PAL be readjusted
within one year of MACT or RACT compliance, although they will have to abide by the lower
limit once the compliance date occurs.  In addition, the PAL should be reevaluated at the time of
amendment or renewal.  So in our example, if the applicant came back at a later date with a
project to increase NOx above the MAERT limit, we would reevaluate the PAL but as long as the
new proposed allowable was under the PAL, no federal review or netting would be needed.
Source                        Current                       Nox                                     CO        
                         Authorization        Current Proposed Net           Current Proposed Net
                                                   Actuals Allowable Increase  Actuals Allowable Increase
Crude II Charge Htr. A      Permit No. X 331.08  55.9         -275.18     24.08   37.3        13.22
Crude II Vacuum Htr. A    Permit No. X 31.9      15.4           -16.5         7.98   15.4          7.42
Crude II Charge Htr. B      Proposed       0            55.9           55.9         0        29.8         29.8
Crude II Vacuum Htr. B    Proposed       0            23              23            0        12.3         12.3
Sulfolane Fugitives           Grandfathered
Butadiene Sat. Fugitives   Standard Ex.
Cyclohexane Fugitives      Standard Ex.
Storage Tanks                 Various
                                             362.98   150.2        -212.78         32.06  94.8          62.74

     SO2                                          PM                                        VOC
Current Proposed Net            Current Proposed Net               Current Proposed Net
Actuals  Allowable Increase   Actuals Allowable Increase      Actuals Allowable Increase
3.2       12.8           9.6      3.01      3.9        0.89      0.85      1.1            0.25 
4.3       13.5           9.2       3.12      4.4            1.28      0.64       0.9           0.26
0         12.8           12.8      0         3.9            3.9        0           1.1         1.1
0         5.3            5.3       0         4.4            4.4        0            0.9        0.9
                                                                 10.1         7.49   -2.61
                                                                 2.02         1.03   -0.99
                                                                 1.4          1.4     0
                                                                 254.96    275       20.04
7.5       44.4           36.9      6.13 16.6 1         0.47     269.97  288.92  18.95

362.9 - 10% (environmental contribution) = 326.6

                              Permit MAERT/PAL Limitation
Pollutant           MAERT (TPY)         PAL (TPY)      Comment
Nox            150.2                    326.6          Future expansion possible without triggering
                                   federal review if emission kept below PAL. 
                                   Actual emissions less 10 % retirement of                                   36.3 TPY.
CO             94.8                     94.8           No modification triggered under proposed
                                                       allowable
SO2            44.4                     44.4           No modification triggered under proposed
                                                       allowable
PM             16.6                     16.6           No modification triggered under proposed
                                                       allowable
VOC            288.9                    288.9               No modification triggered under proposed
                                                       allowable

MAERT = Maximum level the source can emit without needing further authorization under state
rules
PAL - Maximum emissions without triggering a major modification under federal rules