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On January 6, 2010, the Texas Commission on Environmental Quality (TCEQ) held a public meeting in Houston to accept final public comments on the new Section 185 fee program for the Houston-Galveston-Brazoria (HGB) ozone nonattainment area that was proposed in the December 4, 2009 Texas Register. The new Section 185 fee program is a proposed annual fee to be levied in the HGB ozone nonattainment area because the area failed to meet its attainment date. The fees would apply to major sources of volatile organic compounds (VOC) and or nitrogen oxides (NOX). The Federal Clean Air Act requires these penalty fees for severe and extreme nonattainment areas.

The fee is required to be imposed for each calendar year after the attainment date until the area is re-designated as an attainment area for ozone. The fee is $5,000/ton, as adjusted by the consumer price index, of VOC, NOX, or both emitted in excess of 80 percent of the stationary source's baseline emissions. For the first year, billed in 2011 for 2008 emissions, the fee would be approximately $8,126/ton.

One of the ways that TCEQ justified the proposed state regulation is by explaining that if the state does not collect the fees that are due, then the United States Environmental Protection Agency (U.S. EPA) must collect the fees and can collect interest.  Fees and interest collected by the U.S. EPA would not be returned to Texas.

Some key terms associated with the proposed new Section 185 fee program are described below.

  • Retrospective Fee - The first year of billing will be in 2011 for 2008 emissions in excess of 80 percent of baseline emissions. The fee would be approximately $8,126/ton. TCEQ estimates that the fee will be paid by 300 to 400 major sources and amount to $73 to $124 million in annual fees. TCEQ is considering deferring the fees to the first full year after adoption.
  • Baseline - Baseline is defined as the lower of actual reported emissions (in an emissions inventory) in the attainment year (2008) or the total emissions allowed under all authorizations and maintenance, startup, shutdown (MSS) activities in the attainment year. If the source emissions are irregular, cyclical, or otherwise vary significantly on an annual basis (e.g., Hurricane Ike 2008), then a baseline using a consecutive 24-month period based on the last 10 years of historical data may be used. Electrical steam generating units have a five-year historical period.
  • Equivalent Alternative Obligation - TCEQ modified the original draft rules to allow some flexibility in the way sources can meet the fee requirements. The proposed rule specifically allows emission reduction credits to be retired instead of the usual fee payments. This would include the Highly-Reactive Volatile Organic Cap and Trade Program (HECT) and Mass Emissions Cap and Trade Program (MECT) allowances. Supplemental Environmental Projects can also be used to satisfy fee obligations. The U.S. EPA has recently updated guidance on their acceptance of these alternatives.
  • Fund Accounting - The fees are proposed to go to the Clean Air Fund controlled by TCEQ and have greater potential to be spent supporting emission reduction projects in the HGB area rather than going to the state general fund as originally proposed.
  • U.S. EPA Intent - A comment was made about a U.S. EPA Federal Register Notice on Section 185 fees in California. The notice implied that Houston has appeared to be achieving the 1-hour NAAQS and/or the 1997 8-hour NAAQS and U.S. EPA action is not anticipated for the HGB nonattainment area. This questions whether the Section 185 fee program is required at this time.