BOARD MEETING STATE OF CALIFORNIA AIR RESOURCES BOARD CALIFORNIA ENVIRONMENTAL PROTECTION AGENCY CENTRAL VALLEY AUDITORIUM, SECOND FLOOR 1001 I STREET SACRAMENTO, CALIFORNIA THURSDAY, NOVEMBER 15, 2001 9: 00 A. M.

JAMES F. PETERS, CSR, RPR CERTIFIED SHORTHAND REPORTER LICENSE NUMBER 10063 PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 ii APPEARANCES BOARD MEMBERS Dr. Allan Lloyd, Chairperson Dr. William Burke Mr. Joseph Calhoun Mr. Hugh Friedman Dr. William Friedman Mrs. Barbara Riordan Ms. Dorene D'Adamo Supervisor Mark DeSaulnier Mr. Matthew McKinnon STAFF Mr. Mike Kenny, Executive Officer Mr. Tom Cackette, Deputy Executive Officer Mr. Mike Scheible, Deputy Executive Officer Ms. Lynn Terry, Deputy Executive Officer Mr. Steve Albu, Chief, Engineering Studies Branch Mr. Robert Barham, Assistant Chief Mr. Ranjit Bhullar, Manager, Investigation and Certification Section Ms. Sarah Carter, Air Resources Engineer Mr. Greg Chin, Air Resources Engineer Mr. Bob Cross, Chief, Mobile Source Control Division PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 iii APPEARANCE CONTINIUED STAFF CONTINUED Mr. Paul Hughes, Manager, Low Emmission Vehicle Implementation Section Mr. Tom Jennings, Senior Staff Counsel Mr. Leslie Krinsk, Senior Staff Counsel Mr. Bob Leonard, Chief, Surveillance Branch, Compliance Division Ms. Kitty Martin, Manager, Permit Assistance Center Mr. R. Neil Nipper, Air Resources Engineer Mr. George Poppic, Staff Counsel Ms. Marcelle Surovick, Air Pollution Specialist Mr. Mike Tollstrup, Chief, Project Assessment Branch Mr. Peter Venturini, Chief, Stationary Source Division PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 iv INDEX PAGE Pledge of Allegiance 1 Roll Call 1 Comments by Chairperson Lloyd 2 Item 01 9 1 2 Chairperson Lloyd 2 Executive Officer Kenny 5 Air Pollution Specialist Surovick 6 Questions and Answers 26 Air Resources Engineer Chin 38 Loren Kaye 49 Ralph Ordonez 51 Susannah Churchill 53 Stan Zwicker 61 Sheryl Carter 74 Todd Campbell 87 Bonnie Holmes Gen 92 Valerie Gates 97 Eric Wesselman 103 Matha Arguello 109 S. N. Prakash 111 Tim French 118 Chuck Solt 134 Karl Stoffers 139 Joan Lee 141 Mohsen Nazemi 143 Bud Beebe 151 Discussion 163 Motion 168 Vote 168 Afternoon Session 170 Item 01 9 2 170 Executive Officer Kenny 170 Air Resources Engineer Carter 171 Discussion and Questions and Answers 182 Greg Dana 185 Pete Hardigan 193 Motion 199 Vote 199 PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 v INDEX Item 01 9 3 199 Chairperson Lloyd 199 Executive Officer Kenny 200 Investigation and Certification Manager Bhullar 201 Rosa Salcedo 211 Donald Gilson 214 Maryann Gonzalez 216 Sandra Duval 219 Skip Orr 226 Motion 227 Vote 227 Item 01 9 4 228 Questions and Answers 228 Motion 232 Vote 233 Adjournment 233 Reporter's Certificate 234 PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 1 1 PROCEEDINGS 2 CHAIRPERSON LLOYD: Good morning. November 15th,

3 2001 public meeting of the Air Resources Board will now 4 come to order. Ms. D'Adamo, will you please lead us in 5 the Pledge of Allegiance.

6 ( Thereupon the Pledge of Allegiance was 7 recited in unison.)

8 CHAIRPERSON LLOYD: Will the Clerk of the Board 9 please call the roll.

10 BOARD CLERK KAVAN: Dr. Burke?

11 BOARD MEMBER BURKE: Here.

12 BOARD CLERK KAVAN: Mr. Calhoun?

13 BOARD MEMBER CALHOUN: Here.

14 BOARD CLERK KAVAN: Ms. D'adamo?

15 BOARD MEMBER D'ADAMO: Here.

16 BOARD CLERK KAVAN: Supervisor DeSaulnier?

17 BOARD MEMBER DeSAULNIER: Here.

18 BOARD CLERK KAVAN: Professor Friedman?

19 BOARD MEMBER HUGH FRIEDMAN: Here.

20 BOARD CLERK KAVAN: Dr. Friedman?

21 BOARD MEMBER WILLIAM FRIEDMAN: Here.

22 BOARD CLERK KAVAN: Mr. McKinnon?

23 Supervisor Patrick?

24 Mrs. Riordan?

25 BOARD MEMBER RIORDAN: Here.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 2 1 BOARD CLERK KAVAN: Supervisor Roberts?

2 Chairman Lloyd.

3 CHAIRPERSON LLOYD: Here.

4 Just a few comments before we go into today's 5 board meeting. Apparently, we may be subject to some 6 power interruptions in this building. And if we do,

7 apparently, what make a sound like gunfire might come 8 through, cracking through, so people should remain calm.

9 Don't drop to the floor, but just be warned and so there's 10 a caveat upfront there.

11 I'd also draw  most of the Board Members have 12 got a copy of the Health and Clean Air Newsletter. If you 13 haven't, this is now out.

14 The other one I would also like to acknowledge 15 and say I had the privilege last month of attending the 16 Clean Air Technologies Conference at the South Coast AQMD 17 under Dr. Burke's leadership and organization. And I will 18 say that I thought it was an excellent conference. And,

19 Dr. Burke, you are to be congratulated and your staff,

20 very good.

21 We'll go straight into the first item. I would 22 like to remind  this is agenda Item 01 9 1. Again, as a 23 caveat, I would like to remind anyone in the audience who 24 wishes to testify on today's items, please sign up with 25 the Clerk of the Board. If you have a written statement PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 3 1 also, please give 30 copies to the Board Clerk.

2 The first Item is 01 9 1, Proposed Regulations 3 for Distributed Generation Power Units and Proposed 4 Guidelines for the District Permitting of Electrical 5 Generation Sources.

6 So just a reminder for people testifying and just 7 to the Board members, we actually have two items covered 8 hundred, one a guideline and one a regulatory item. So I 9 would appreciate when people testify to make clear what 10 aspect you're discussing, so that, in fact, it will help 11 us keep them separate.

12 The first matter concerns small power sources 13 located at one's home or office that generate electricity 14 for the direct use of those persons or facilities.

15 On site distributed generation avoids the line loss 16 associated with transmission from central power stations,

17 and therefore has the potential to be highly efficient and 18 also reliable. When the waste heat captured and used to 19 make hot water the efficiency of DG goes up even more.

20 As my colleagues already know, there's huge 21 interest in DG as a power source in California nationally 22 and around the world. The California Energy Commission is 23 very enthusiastic about these technologies and will be 24 testifying later on this item.

25 Our job is to manage and control any air PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 4 1 pollution that may be emitted from emerging DG 2 technologies. Accordingly, we are here to consider new 3 emission standards for distributed generation, plus a 4 certification program to allow the sale of DG units in 5 California.

6 There's a wide range of technology that can be 7 used for DG including photovoltaics, fuel cells,

8 microturbines and small engines. Some of these are zero 9 emitting, others are combustion based and need to be 10 controlled.

11 And added benefit also of distributed generation,

12 if the central power station goes down, in fact, you don't 13 lose power regionally, so this is  in these times,

14 particularly, this is an added benefit.

15 The second matter before the Board is actually 16 something we started, and that's my first year on the job,

17 in June of 1999, this Board adopted guidelines for the 18 permitting of powerplants more man 50 megawatts in size.

19 Today, we are considering guidelines for small and 20 medium sized powerplants below that threshold, everything 21 from zero to 50 megawatts.

22 For the past several months these small and 23 intermediate projects have been handled on a case by case 24 basis by local districts with lots of input from our 25 staff.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 5 1 Expanding our guidance to include powerplants in 2 this size range will make the whole process more 3 consistent and more efficient.

4 Again, before turning things over to our staff, I 5 would like to express my appreciation to the 6 representatives from the affected industries,

7 environmental groups, utilities and air pollution control 8 districts for the assistance they have provided us in the 9 development of the DG regulation and the new powerplant 10 guidelines.

11 At this point, I'd like to turn it over to Mr.

12 Kenny to begin the staff presentation.

13 EXECUTIVE OFFICER KENNY: Thank you, Mr. Chairman 14 and Members of the Board. The California distributed 15 generation and certification program was created by Senate 16 Bill 1298, by Senator Bowen.

17 SB 1298 focuses on electrical generation near the 18 place of use and defines those sources as distributed 19 generation. The proposed certification program affects 20 electrical generation technologies that are exempt from 21 air pollution control or air quality management district 22 permitting requirements. The statute also directs the Air 23 Resources Board to issue guidance to districts on the 24 permitting of electrical generation technologies under 25 their regulatory jurisdiction.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 6 1 This category includes certain DG units, peakers 2 and small to medium sized central station powerplants.

3 As Chairman Lloyd indicated, the Board has already issued 4 guidelines for the permitting of major powerplants,

5 meaning those that produce 50 megawatts or more. That was 6 done in June of 1999.

7 At this point, I'd like to turn it over to Ms.

8 Surovick and Mr. Chin who will present our proposals. Ms.

9 Surovick will begin with an overview of distributed 10 generation and followed with the proposed emission 11 standards and certification requirements.

12 Mr. Chin will then discuss the proposed guidance 13 for the district permitting of electrical generation 14 sources that are not to be certified by the Board.

15 Ms. Surovick.

16 AIR POLLUTION SPECIALIST SUROVICK: Thank you,

17 Mr. Kenny. Good morning, Chairman Lloyd and Members of 18 the Board.

19 ( Thereupon an overhead presentation was 20 presented as follows.)

21 AIR POLLUTION SPECIALIST SUROVICK: Members of 22 the Board, Senate Bill 1298 authored by Senator Debra 23 Bowen and signed on September 25th, 2000 by Governor Gray 24 Davis requires the ARB to establish a certification 25 program for DG technologies that are not subject to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 7 1 district permitting.

2 BOARD MEMBER WILLIAM FRIEDMAN: Can we make it 3 louder, please.

4 AIR POLLUTION SPECIALIST SUROVICK: SB 1298 also 5 requires the ARB to develop a guidance document for the 6 districts to use in the permitting of electrical 7 generation technologies that are under their jurisdiction.

8 The remainder of my presentation will focus on SB 9 1298' s first requirement, the certification program. My 10 presentation will be about 20 minutes long and then I'll 11 turn it over to Mr. Chin so that he can spend about ten 12 minutes discussing SB 1298' s second requirement, the 13 proposed guidance document for districts.

14  o0o

15 AIR POLLUTION SPECIALIST SUROVICK: In my 16 presentation today, I will summarize the purpose and 17 requirements of SB 1298 and explain what distributed 18 generation or DG is. I'll then explain how the staff 19 developed the proposed DG certification program and 20 summarized the requirements of the program. Next, I'll 21 discuss the environmental and economic impacts and the 22 staff's proposed modifications.

23 And finally, I'll conclude with a summary and 24 staff's recommendations.

25  o0o

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 8 1 AIR POLLUTION SPECIALIST SUROVICK: I'll now 2 summarize the requirements of SB 1298.

3  o0o

4 AIR POLLUTION SPECIALIST SUROVICK: The purpose 5 of SB 1298 was to encourage the employment of DG 6 technology in a way that has a positive effect on air 7 quality. On the energy production basis, that is on a 8 pound of emissions per kilowatt hour of electricity 9 produced emissions from some DG units can be as much as an 10 order of magnitude higher than emissions from central 11 station powerplants.

12 SB 1298 was created to ensure the deployment of 13 only the cleanest DG technology in California.

14  o0o

15 AIR POLLUTION SPECIALIST SUROVICK: SB 1298 16 requires the ARB to adopt a certification program for DG 17 units that are not subject to district permitting 18 requirements. The program must include uniform emission 19 standards for these units. The ARB has the authority to 20 adopt these standards because the units do not fall under 21 district or U. S. EPA jurisdiction. The certification 22 program and emission standards must be adopted by January 23 1, 2003. I will address the details of the proposed 24 certification program a little bit later in my 25 presentation.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 9 1 SB 1298 requires two stages of emission standards 2 that must be expressed in pounds per megawatt hour. The 3 first stage of the standards must reflect the best 4 performance achieved and practiced by existing DG 5 technologies that are exempt from district permits. The 6 law also requires that by the earliest practicable date 7 the standards be made equivalent to the level determined 8 by the ARB to be the Best Available Control Technology or 9 BACT, for permitted central station powerplants in 10 California.

11 SB 1298 also requires the ARB to approve a 12 guidance document for the districts to use in the 13 permitting of electrical generation technologies that are 14 under their jurisdiction. As I mentioned in my 15 introduction, Grant Chin will discuss the district 16 guidance after I finish my presentation.

17  o0o

18 AIR POLLUTION SPECIALIST SUROVICK: Because 19 distributed generation is a relatively new concept to most 20 of us, I will now provide some detailed background 21 information on what DG is.

22  o0o

23 AIR POLLUTION SPECIALIST SUROVICK: DG is 24 electricity near the source of use. It's likely that most 25 DG is being considered as a supplement to grid supplied PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 10 1 electricity. However, the increasing availability and 2 reliability of grid supplied electricity and DG's relative 3 newness and cost make it difficult to predict the extent 4 to which DG will be installed in California.

5 To date, only a few DG units that are not subject 6 to district permitting requirements are currently 7 operating in California. These units are primarily 8 demonstration projects and being evaluated at research 9 facilities and other sites.

10 The South Coast Air Quality Management District 11 is distributing 150 microturbines throughout its 12 jurisdiction. Eight stationary fuel cells are currently 13 operating in California. These units are located at US 14 Department of Defense facilities and are undergoing 15 evaluation by utility companies.

16 Often DG units are integrated with waste heat 17 recovery systems, also referred to as combining heat and 18 power or CHP. A DG unit with CHP can produce electricity 19 and recover the waste heat from the electrical generation 20 process.

21 For example, the recovered waste heat can be used 22 by a hotel or hospital to heat water for showers and 23 physical therapy spas. I'll briefly show you some 24 pictures of DG units so that you can get a better idea of 25 their size and typical applications.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 11 1  o0o

2 AIR POLLUTION SPECIALIST SUROVICK: Here are 3 several pictures of 30 kilowatt microturbines as it is 4 undergoing independent testing by the staff of the ARB.

5 To put kilowatts into perspective, a Raley's Superstore 6 requires about 150 to 200 kilowatts.

7 This unit was placed at the Sacramento Municipal 8 Utility District SMUD office as part of a demonstration 9 program. To give you an idea of the physical size of this 10 unit, you can see a black laptop computer in the center 11 picture near the bottom of the microturbine. We wish to 12 thank Mr. Bud Beebe of SMUD and ARB's testing staff who 13 participated in the nighttime testing.

14  o0o

15 AIR POLLUTION SPECIALIST SUROVICK: This is a 16 picture of a 200 kilowatt fuel cell that is located at the 17 South Coast Air Quality Management District's office in 18 Diamond Bar. This unit was placed at the district office 19 by the Southern California Gas Company as part of a 20 demonstration program.

21  o0o

22 AIR POLLUTION SPECIALIST SUROVICK: As you can 23 see from the picture on the right, the roof of the 8th 24 floor of our CalEPA building has about 730 photovoltaic or 25 PV panels, a total generating capacity of 30 kilowatts.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 12 1 In addition to panels, PV can be incorporated 2 into roofing tiles. The picture on the left shows PV 3 tiles and might be installed on a roof.

4  o0o

5 AIR POLLUTION SPECIALIST SUROVICK: This is a 6 picture of several wind units that are part of a 500 7 kilowatt installation located at San Clemente Island off 8 the shore of southern California.

9  o0o

10 AIR POLLUTION SPECIALIST SUROVICK: The picture 11 on your left is a 25 kilowatt Sterling cycled external 12 combustion engine. Heat is provided outside this type of 13 engine to move a piston. The picture on the right shows 14 an external combustion engine integrated with PV.

15  o0o

16 AIR POLLUTION SPECIALIST SUROVICK: DG sources 17 have the potential of being placed closer to residential 18 areas than central station powerplants. Consequently, the 19 noise level of DG technologies can be a consideration for 20 potential users.

21 As shown in the upper left during site visits and 22 source testing, ARB staff had to wear ear protection while 23 some DG units were operating. In the picture on the 24 right, you can see noise dampening materials that some 25 manufacturers can apply to their DG units.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 13 1  o0o

2 AIR POLLUTION SPECIALIST SUROVICK: This table 3 provides a comparison of the noise emissions from DG 4 relative to the European noise standard for electrical 5 generation technologies and US noise ordinances. It is 6 important to point out that this noise emissions data was 7 not necessarily obtained according to a standardized 8 method.

9 However, to put some of these numbers into 10 perspective, a kitchen garbage disposal reading at three 11 feet is about 80 decibels.

12  o0o

13 AIR POLLUTION SPECIALIST SUROVICK: In addition 14 to the typical emissions that are the subject of district 15 permitting requirements, DG units can also be a source of 16 greenhouse gases.

17 Greenhouse gas emissions including CO2 and 18 methane are generally higher than DG units, are generally 19 higher from DG units than from central station 20 powerplants.

21 The yellow line on this chart represents CO2 22 emissions from a new combined cycle central station 23 powerplants. You will hear us mention combined cycle many 24 times this morning. Simply defined, a combined cycle 25 turbine captures waste heat from the primary combuster to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 14 1 produce additional electricity.

2 CO2 emissions from engines, fuel cells and 3 microturbines with and without CHP are shown in the bars.

4 As can be seen, efficient CHP can reduce this CO2 5 emissions from DG units.

6 However, even with CHP, a microturbine still has 7 higher emissions than a central station powerplant.

8  o0o

9 AIR POLLUTION SPECIALIST SUROVICK: A comparison 10 from methane emissions is presented here. The yellow line 11 in this bar chart represents methane emissions from a new 12 combined cycle central station powerplant. The bar on 13 your left is for fuel cells. The other is for 14 microturbines. An engine would have methane emissions 15 about 60 times higher than the microturbine use for this 16 illustration.

17  o0o

18 AIR POLLUTION SPECIALIST SUROVICK: Another piece 19 of background information that we are presenting today 20 relates to the installed cost of DG. These costs do not 21 include site specific fuel or electricity prices, tax 22 rebates and other incentives or incorporate consideration 23 of the useful life of the equipment. As you can see from 24 this slide, the installed costs per kilowatt for DG is 25 generally much higher than for central station PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 15 1 powerplants.

2 As was mentioned earlier, integrating CHP with DG 3 can increase its cost attractiveness by avoiding the need 4 to purchase water heaters that would otherwise provide the 5 hot water.

6  o0o

7 AIR POLLUTION SPECIALIST SUROVICK: I will now 8 provide and overview of the steps that the staff took to 9 develop the proposal that is before you today.

10  o0o

11 AIR POLLUTION SPECIALIST SUROVICK: In developing 12 the proposed DG program, staff talked to potentially 13 affected manufacturers and others to gain an understanding 14 of the various uses of these technologies. Staff also 15 obtained information from manufacturers on the number of 16 units they have placed in California or expect to place in 17 the near future. Staff also elected and evaluated 18 available emissions data from manufacturers.

19  o0o

20 AIR POLLUTION SPECIALIST SUROVICK: In addition 21 to collecting emissions information from the 22 manufacturers, the ARB staff conducted an independent 23 source test of a microturbine.

24 The ombudsman will present to you a little later 25 this morning a detailed report addressing the public PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 16 1 outreach activities that the ARB staff has conducted in 2 the 14 months since SB 1298 was signed by Governor Davis.

3  o0o

4 AIR POLLUTION SPECIALIST SUROVICK: SB 1298 5 requires that the emission standards for the certification 6 program ultimately be equivalent to BACT for central 7 station powerplants. As you may know, district BACT 8 determinations must adhere to U. S. EPA prescribed 9 procedures and criteria.

10 In order to develop this phase of the standards,

11 ARB staff used the 1999 board approved district guidance 12 document for central station powerplants sized 50 13 megawatts or larger.

14 Staff used the BACT determinations in this report 15 for new central station powerplants with combined cycle 16 gas turbines. In developing standards that reflect BACT 17 for powerplants, the ARB staff considered the actual 18 electricity provided to consumers. This included the 19 evaluation of the loss of electricity as it is transmitted 20 from a central station powerplant to the place of use.

21 The California Energy Commission or CEC advised 22 the ARB staff that the State's transmission and 23 distribution systems experience and average line loss of 24 ten percent. Line loss can be minimized when DG units are 25 located at or near the place of use.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 17 1 The staff also evaluated DG programs proposed by 2 other government agencies.

3  o0o

4 AIR POLLUTION SPECIALIST SUROVICK: The staff 5 evaluated methods for recognizing the benefits of combined 6 heat and power or CHP. As I mentioned earlier, a DG unit 7 integrated with CHP produces electricity and captures 8 waste heat to create hot water.

9 Without CHP, hot water would be supplied by a 10 water heater or a boiler which would create additional air 11 emissions. With CHP a DG unit uses fuel more efficiently 12 and reduces the total air emissions from a facility 13 including greenhouse gases such as carbon dioxide.

14  o0o

15 AIR POLLUTION SPECIALIST SUROVICK: I will now 16 provide and overview of the requirements of the DG 17 certification program that staff is proposing for the 18 Board's consideration.

19  o0o

20 AIR POLLUTION SPECIALIST SUROVICK: As was 21 mentioned earlier, the certification program applies to 22 manufacturers of DG units that are not subject to district 23 permitting requirements. ARB staff will assist 24 manufacturers in determining if their DG units would be 25 subject to district permitting requirements.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 18 1 Manufacturers must certify units that they plan to sell 2 after January 1, 2003.

3 Units that are operating before then will not be 4 required to be retrofitted. Units that would be eligible 5 for our certification program include engine size less 6 than 50 horsepower, microturbines less 300 kilowatts in 7 size, and fuel cells.

8  o0o

9 AIR POLLUTION SPECIALIST SUROVICK: As required 10 by SB 1298, the first stage of the standards must reflect 11 best performance achieved in practice by existing DG 12 technologies. Staff is proposing standards for 2003 for 13 DG units with and without CHP.

14 The standards for units with CHP reflect the 15 benefits of avoiding emissions from boilers that would 16 otherwise be used to produce hot water. These CHP units 17 must be able to achieve a minimum efficiency of 60 percent 18 for conversion of fuel to usable energy. Provisions have 19 also been included to recognize the benefits of 20 integrating DG units with zero emission technologies, such 21 as wind turbines, PV and nonreformer based fuel cells.

22  o0o

23 AIR POLLUTION SPECIALIST SUROVICK: DG units sold 24 after January 1, 2007 must be certified to the 2007 25 emission standards, which reflect BACT for central station PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 19 1 powerplants after an adjustment for line loss. DG units 2 operating before January 1, 2007 will not have to be 3 certified to the new limits nor will they have to be 4 retrofitted to meet the new standards.

5 Like the standards we are proposing for 2003, we 6 have also proposed provisions to recognize the benefits of 7 efficient CHP.

8  o0o

9 AIR POLLUTION SPECIALIST SUROVICK: The 10 provisions include a simple calculation that the 11 manufacturer can use to obtain credit for the heat 12 recovered from a CHP application.

13  o0o

14 AIR POLLUTION SPECIALIST SUROVICK: This slide 15 shows a comparison of the 2003 and 2007 standards for NOx 16 emissions. The red line on the top indicates the 2003 17 standard, and the yellow line indicates the 2007 standard.

18 The bar on the left represents new permitted 19 central station powerplant emissions. As was mentioned 20 earlier, the 2007 standard reflects central station 21 powerplant emissions with an adjustment for line loss.

22 The three bars on the right indicate that 23 microturbines reciprocating engines and fuel cells can 24 meet the 2003 standard. In order to meet the 2007 25 standards manufacturers will be required to add on air PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 20 1 pollution control equipment, perform combustion 2 modifications, increase overall efficiencies and/ or 3 integrate efficient CHP.

4 However, fuel cells have demonstrated that they 5 can currently meet the 2007 standard.

6  o0o

7 AIR POLLUTION SPECIALIST SUROVICK: This slide 8 shows the variation of NOx emissions for different power 9 production loads for two different microturbines. The 10 yellow line represents the proposed 2003 emission 11 standard. The red line shows the emission levels for one 12 microturbine at 100 percent load, 75 percent load and 50 13 percent load.

14 The black line shows the emission levels for 15 another microturbine for the same loads. As can be seen,

16 the power load can effect NOx emissions and can vary among 17 models. For this reason the testing parameters for the 18 certification program require multiple load testing.

19  o0o

20 AIR POLLUTION SPECIALIST SUROVICK: Manufacturers 21 seeking certification must submit an application package 22 that contains an emissions test report and information 23 demonstrating the ability of the DG unit to maintain 24 emission standards for 15,000 hours. Other requirements 25 include labeling and record keeping requirements for PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 21 1 manufacturers and enforcement and penalty provisions.

2 SB 1298 allows the ARB to recover the cost of 3 administering this program. Thus, staff is proposing a 4 $ 2,500 application fee. Staff is proposing certifications 5 be valid for four years.

6  o0o

7 AIR POLLUTION SPECIALIST SUROVICK: During the 8 development of the DG program, staff identified several 9 ways to recognize the benefits of using clean and 10 efficient DG in California. Staff is proposing provisions 11 to allow manufacturers of zero emission technologies to 12 seek voluntary certification. Some of these manufacturers 13 may want to seek ARB certification for marketing purposes.

14 To provide and economic incentive for the cleanest 15 technologies, zero emission technologies that are seeking 16 voluntary certification will not be assessed a fee.

17 For the same reason that DG can meet the 2007 18 standards by 2003 will have the 2003 certification fee 19 waived.

20  o0o

21 AIR POLLUTION SPECIALIST SUROVICK: Efficient DG 22 is encouraged indirectly by the fact that the proposed 23 emission standards are expressed on a pounds per megawatt 24 hour basis.

25 In addition, staff included provisions to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 22 1 recognize the benefits of efficient CHP for both the 2003 2 and 2007 standards. Provisions are also proposed to 3 recognize the benefits of integrating DG with zero 4 emission technologies. Encouraging the efficient 5 conversion of fuel to usable energy, recognizing the 6 benefits of CHP and facilitating the acceptance of zero 7 emission technologies assist in the efforts to reduce 8 emissions of greenhouse gases, particularly CO2.

9  o0o

10 AIR POLLUTION SPECIALIST SUROVICK: Staff is 11 proposing to complete another technical review of DG 12 technologies and emissions data and report their findings 13 to the Board by July 2005. We are proposing this review 14 because DG is just beginning to enter the market and its 15 future operating conditions and uses are uncertain at this 16 time.

17 Staff will evaluate the testing procedures in the 18 regulation to determine if they should be refined,

19 evaluate the ability of DG technologies to maintain 20 emission standards over time and evaluate the methods used 21 to recognize CHP benefits for the 2007 standards.

22 Staff will also evaluate the 2007 standards in 23 light of any new BACT determinations for central station 24 powerplants, changes to DG technology designs and related 25 information that could have a bearing on the 2007 PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 23 1 standards.

2  o0o

3 AIR POLLUTION SPECIALIST SUROVICK: I will now 4 discuss the environmental and economic impacts of the 5 proposed DG certification program.

6  o0o

7 AIR POLLUTION SPECIALIST SUROVICK: The 8 certification program and uniform emission standards will 9 ensure the deployment of the cleanest DG technology into 10 all communities of California. Setting standards for DG 11 before it enters the market will help protect all 12 California communities for these new sources of air 13 emissions.

14 Staff conducted an analysis of the potential 15 environmental impacts of the proposed DG Regulation and 16 determined that its requirements would have no significant 17 adverse environmental impacts. Staff evaluated the 18 economic impacts that the proposed DG program may have on 19 potentially affected businesses. Costs to a manufacturer 20 for developing a complete application package for one DG 21 unit model ranges from about $ 10,000 to $ 20,000, this 22 includes the $ 2,500 application fee, the cost for 23 preparing the application and the cost for source testing.

24 These costs, of course, would be spread over the 25 multiple sales of a particular DG model. Manufacturers PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 24 1 are expected to be able to meet the 2003 emission 2 standards with current designs or redesigns that are 3 currently underway.

4 However, to meet the 2007 standards, some 5 manufacturers of DG will have to redesign their product or 6 add on air pollution control equipment. The additional 7 cost to manufacturers for these modifications is unknown 8 at this time, and will be evaluated during the 2005 9 technical review when more information on DG becomes 10 available.

11  o0o

12 AIR POLLUTION SPECIALIST SUROVICK: I will now 13 discuss the staff's proposed modifications to the DG 14 certification program.

15  o0o

16 AIR POLLUTION SPECIALIST SUROVICK: Staff is 17 proposing some modifications.

18 CHAIRPERSON LLOYD: Mr. Kenny, can we just  the 19 Board member have got some questions on this first

20 okay. No, sorry. Clarification after the discussion of 21 the DG, I think the Board members have some questions on 22 that aspect before we move into the guidelines. I realize 23 I jumped to soon, sorry.

24 AIR POLLUTION SPECIALIST SUROVICK: Staff is 25 proposing some modifications to the method for averaging PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 25 1 the emissions testing results. Staff is also recommending 2 that the proposed CHP provision for 2007 be modified to 3 reflect only a minimum 60 percent efficiency.

4  o0o

5 AIR POLLUTION SPECIALIST SUROVICK: Finally,

6 staff is proposing a number of minor clarifications.

7  o0o

8 AIR POLLUTION SPECIALIST SUROVICK: I will now 9 summarize the staff's proposed DG certification program 10 that we are recommending for your adoption.

11  o0o

12 AIR POLLUTION SPECIALIST SUROVICK: SB 1298 13 requires the ARB to develop a DG certification program.

14 It requires effective DG technologies to meet near term 15 emission standards that reflect emission levels achieved 16 by the cleanest DG technologies that are currently 17 available.

18 It requires these technologies to ultimately meet 19 longer term emission standards that reflect central 20 station powerplant BACT limits. Staff is proposing a DG 21 certification program that ensures only the cleanest 22 technologies are used in California. The requirements 23 provide flexibility to manufacturers from meeting the BACT 24 standards and provides economic incentives to 25 manufacturers interested in deploying their zero and near PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 26 1 zero emission technologies into the California market.

2 The program also provides for a technology review 3 in 2005 of electrical generation technologies that will 4 address the advances and uses of DG technologies in 5 California over the next four years.

6 AIR POLLUTION SPECIALIST SUROVICK: The staff 7 recommends that the Board adopt a proposed DG 8 certification program and emission standards for staff's 9 proposed modifications.

10 This concludes my presentation.

11 CHAIRPERSON LLOYD: Thank you very much. I think 12 Professor Friedman you had a question.

13 BOARD MEMBER HUGH FRIEDMAN: I had a couple of 14 questions. They relate to the letter of the California 15 Technology Trade and Commerce Agency with respect to these 16 proposed regulations. And I'm just wondering to what 17 extent the staff has taken these into account, and in its 18 proposed modifications made any specific response to these 19 rather specific comments.

20 The letter is marked number 18 in our file, and 21 it was a letter dated November 8th, and it's fairly short.

22 It basically comments on the contradictory cost impact 23 statements. And the incomplete  according to them, the 24 incomplete cost impact assessments, and then it also 25 comments on the record keeping requirement.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 27 1 DEPUTY EXECUTIVE OFFICER SCHEIBLE: The letter 2 calls for some clarifications that we will proceed and 3 make before we file the regulation with OAL when the final 4 statement of reasons

5 BOARD MEMBER HUGH FRIEDMAN: On the 15 day

6 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Yeah, it 7 would be on the 15 day comment period, right.

8 The one comment I think that is fairly 9 problematic is we haven't assessed the cost of the 2007 10 standards and we ought to do so before we adopt them. The 11 law is fairly clear in that it requires eventually a move 12 to lower levels as represented by central station 13 powerplants. I don't think the industry knows what 14 ultimately the costs will be and it's very difficult to 15 quantify at this time.

16 So what we indicated in our report is that it 17 will be significant development costs and we'll have to 18 review that later. It would be very hard to do a 19 significant improvement in that in the short term for the 20 information we have today. So I think we'd have to 21 respond in a similar manner that we can't fully perform 22 that task today.

23 BOARD MEMBER HUGH FRIEDMAN: So you feel that you 24 can satisfactorily comply with the apparent requirement of 25 the Board assessing the potential cost impact by saying we PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 28 1 will do it in the future.

2 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Yes.

3 BOARD MEMBER HUGH FRIEDMAN: Because as a 4 practical matter you can't do it now.

5 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Right, and 6 delaying the date for implementation will not change

7 BOARD MEMBER HUGH FRIEDMAN: That won't change 8 anything, it makes it worse.

9 DEPUTY EXECUTIVE OFFICER SCHEIBLE:  change the 10 cost. It just may spread out when they can occur.

11 BOARD MEMBER HUGH FRIEDMAN: But I am a little 12 troubled by the disparity in what they indicate will be 13 the realistic cost estimate for the 2003 impact. Their 14 letter says it will be a range from $ 11,000 to $ 21,500.

15 And the total cost to manufacturers to comply with these 16 2003 standards could run as high as $ 370,000.

17 DEPUTY EXECUTIVE OFFICER SCHEIBLE: I think 18 that's all dependent on the number of units that are 19 certified and have to go through the process and that's 20 unknown right now. So obviously if hundreds of units 21 get  different technologies get certified, the cost 22 would be much higher than what's there. Maybe staff can 23 comment on that.

24 CHAIRPERSON LLOYD: But presumably based on the 25 limited number of manufacturers hundreds would be PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 29 1 unlikely.

2 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Yeah, that 3 would be my estimate also. Can staff provide anymore 4 info?

5 BOARD MEMBER HUGH FRIEDMAN: You understand, I'm 6 just trying to clarify the record here.

7 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Kitty 8 Martin.

9 The information we just presented to you in the 10 slide, I think if you recall is $ 10,000 to $ 20,000, and 11 that would be the cost for a manufacturer to certify each 12 model. And we made the comment that that obviously would 13 be spread over multiple sales of an individual model. And 14 if a manufacturer had multiple models that had different 15 emission profiles, then, yes, the cost would be greater 16 than the information you saw on the slide.

17 BOARD MEMBER HUGH FRIEDMAN: Okay, they use 18 $ 11,000 to $ 21,500.

19 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Yes.

20 And that was our cost for the purposes of the presentation 21 today, we did a bit of rounding for you.

22 BOARD MEMBER HUGH FRIEDMAN: You rounded.

23 PERMIT ASSISTANCE CENTER MANAGER MARTIN: But in 24 our staff report it does agree with the costs in the Trade 25 and Commerce letter.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 30 1 BOARD MEMBER HUGH FRIEDMAN: And then, finally,

2 there's a comment on record keeping requirements. And I 3 notice in the proposed modification we still have the same 4 language that manufacturers must keep records like 5 diamonds and love forever.

6 ( Laughter.)

7 BOARD MEMBER HUGH FRIEDMAN: I mean there is no 8  it just says indefinitely or it doesn't even say it, it 9 just says shall keep them, retain them, and maybe some 10 thought should be given. If it's unduly burdensome, that 11 there ought to be a cutoff.

12 PERMIT ASSISTANCE CENTER MANAGER MARTIN: And,

13 again, based on our information today we felt that it was 14 appropriate for them to keep that information at least 15 through 2005 when we did the technology review and we 16 certainly can revisit

17 BOARD MEMBER HUGH FRIEDMAN: Somehow outside the 18 limit

19 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Yes.

20 BOARD MEMBER HUGH FRIEDMAN:  so that at some 21 point they can calendar not having to worry about keeping 22 them forever.

23 Thank you.

24 CHAIRPERSON LLOYD: Dr. Burke.

25 BOARD MEMBER BURKE: Well, I've missed a couple PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 31 1 of meetings, because I wasn't feeling up to par, so I 2 guess I have some time coming. So I'll be talking for the 3 next hour.

4 ( Laughter.)

5 BOARD MEMBER BURKE: I know you missed me in 6 Oakland and Santa Barbara, missed me at all the good ones.

7 You know, the South Coast is particularly 8 interested in microturbine technology. South Coast is the 9 largest purchaser of microturbine technology in the world,

10 and not by a little bit, but by a big margin.

11 In fact, yesterday we just acquired $ 5 million 12 more worth of microturbines. And so I was particularly 13 interested in how many different manufacturers of 14 microturbines did you analyze while doing this report?

15 PERMIT ASSISTANCE CENTER MANAGER MARTIN: During 16 the course of developing this measure, we talked to, in 17 the case of microturbine manufacturers, three 18 manufacturers that have a presence in California.

19 BOARD MEMBER BURKE: And those are?

20 PERMIT ASSISTANCE CENTER MANAGER MARTIN:

21 Capstone, Bowman and Honeywell. Honeywell has since 22 stepped out of the market.

23 BOARD MEMBER BURKE: Yes, so there's only two and 24 there's really only one that's viable. What really caught 25 my eye in these reports is where did you get your cost PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 32 1 figures on installation?

2 PERMIT ASSISTANCE CENTER MANAGER MARTIN: The 3 cost figures for both the microturbine as well as the 4 other equipment came from manufacturers. In the case of 5 DG that equipment is almost exclusively installed by the 6 manufacturers as opposed to a distributor.

7 BOARD MEMBER BURKE: Let me assure you that the 8 price for installation for microturbines is at least 700 9 percent more than you have in this report. At least on 10 the most simple installation, it is at least seven times 11 what you have here.

12 So that makes me wonder  you know, it's kind of 13 like going to the fox and asking him how many chickens in 14 the coupe?

15 You know, if you go  because I'm reading the 16 letter from Capstone. I'm a big Capstone supporter. In 17 fact, people were accusing me of having Capstone stock for 18 awhile. Then a big article came out and Capstone lost 30 19 percent of its stock value in one day. And that's the day 20 I said it sounds like a stock I would have, but I didn't 21 have.

22 But they had a number of questions in their 23 letter to you as it related not only to the definition,

24 but also to waste gas, and those issues, and I didn't hear 25 that addressed. But more important, when you tested for PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 33 1 the emissions test that you used, what type of fuel did 2 you use in the microturbine?

3 PERMIT ASSISTANCE CENTER MANAGER MARTIN: The 4 tests that we conducted at the SMUD unit here in 5 Sacramento was based on natural gas episode, natural gas 6 fired unit. It was their 30 KW unit.

7 BOARD MEMBER BURKE: And I assume that was also 8 the same units that you tested for the noise level?

9 PERMIT ASSISTANCE CENTER MANAGER MARTIN:

10 Actually, as we mentioned in the slide presentation, the 11 noise information came from the manufacturers, and it may 12 reflect a variety of testing methodologies, so we have not 13 spent a lot of time doing individual

14 BOARD MEMBER BURKE: So we really don't know what 15 the noise level is, we just know what they told us it was.

16 PERMIT ASSISTANCE CENTER MANAGER MARTIN: We have 17 a range of numbers that have been provided to us.

18 BOARD MEMBER BURKE: By the manufacturer.

19 PERMIT ASSISTANCE CENTER MANAGER MARTIN:

20 Exactly.

21 BOARD MEMBER BURKE: So we don't know what the 22 real test numbers are as it relates to size. I've got to 23 tell you they're not really that noisy, but I'm always 24 concerned when a governmental agency asks the manufacturer 25 of a product for the specs. We are going to write a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 34 1 regulation and we're writing it based on information that 2 are provided by the manufacturer.

3 I had one other question.

4 CHAIRPERSON LLOYD: I think in that case, Dr.

5 Burke, noise was just put in the information. I think 6 we're focusing on emissions.

7 BOARD MEMBER BURKE: I understand that, but if 8 you present a package and it's presented to the Air 9 Resources Board, you assume that all the information is 10 correct.

11 CHAIRPERSON LLOYD: But I think in fairness to 12 staff in this case, we didn't do independent tests, that 13 was disclosed. Typically, manufacturers are not going to 14 underestimate their parameters, I would guess. If 15 anything, I don't think  I would say that they're going 16 to be quieter than they are.

17 BOARD MEMBER BURKE: Well

18 CHAIRPERSON LLOYD: Anyway, that's

19 BOARD MEMBER BURKE: Yeah. Did you, at anytime,

20 talk to South Coast about any of our tests with this 21 equipment?

22 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Mr.

23 Grant Chin has talked to the South Coast at length about 24 the microturbines, I'll have him address that.

25 AIR RESOURCES ENGINEER CHIN: Grant Chin. We PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 35 1 have been in contact with South Coast about their program 2 for installing microturbines. We're also aware of some of 3 the testing activity that's been conducted by UC Irvine.

4 BOARD MEMBER BURKE: Thank you.

5 CHAIRPERSON LLOYD: Anybody else?

6 BOARD MEMBER BURKE: Last question. As it 7 relates in the Capstone letter on waste gases, what is 8 your answer to their objection or definition of waste 9 gases?

10 PERMIT ASSISTANCE CENTER MANAGER MARTIN:

11 Capstone's comment, my interpretation of their comment in 12 the letter, is that we have made some comments regarding 13 available control equipment for available controls for 14 equipment that's fired by waste gas. And as Grant will 15 discuss a little bit later, one of the challenges with 16 putting control equipment on waste gas fired units is the 17 contaminants in waste gas will foul or poison, if you 18 will, the catalysts. So a catalyst based unit cannot be 19 applied.

20 Capstone was referring to an emerging technology,

21 the xonon technology, as being a possible opportunity for 22 consideration for reducing emissions from waste gas. And 23 it certainly is a possible opportunity. It has not been 24 applied to that type of fuel. And certainly we will track 25 applications of xonon to that type of waste gas fired PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 36 1 unit.

2 CHAIRPERSON LLOYD: Any other questions from the 3 Board?

4 I had a question in terms of setting the 2005 5 mid 2005 technology and review. If you look at the time 6 between now and then, it's clearly much  it's actually 7 very close to the 2007 new guidelines, new standard 8 setting. What's the basis for selection of July 2005?

9 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Mike 10 Tollstrup. I guess the basis that we used for the 2005 11 date is that we believe this is an emerging market and we 12 wanted to give the market time to develop and for the 13 manufacturers to get going on the developing technologies,

14 and we felt that that was an adequate time frame between 15 the 2003 and the 2005 standard where we might see 16 something happen in the marketplace or not and we'd be 17 able to report those results back to the Board at that 18 time.

19 CHAIRPERSON LLOYD: Do you, at that time, if the 20 standards  or if you like the technology for central 21 powerplants has advanced that, in fact, these numbers are 22 also significantly reduced, how does that affect the 23 guidelines for 2007?

24 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: On 25 the guidance side, the cert side, the limits are set by PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 37 1 the Board, but on the guidance side, the limits in that 2 reg are established to reflect advances in technology. We 3 have an initial standard in 2003, and staff has proposed 4 in the package before you today that we would come back 5 periodically as technology advances and update those 6 numbers when we felt it was necessary to do so. So we 7 would be following and there would be advances as they 8 occurred.

9 CHAIRPERSON LLOYD: But the cert for 2007 is .07.

10 DEPUTY EXECUTIVE OFFICER SCHEIBLE: The cert for 11 2007 wouldn't change, but if we find out that central 12 power is now far cleaner than we set it, then we'd have to 13 review that and say that we set an additional level and 14 what time frame would be appropriate for that additional 15 level. The legislation says the target is do what central 16 power can do from an emissions standpoint.

17 CHAIRPERSON LLOYD: And if that's changing also,

18 then we'd have to change the

19 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Right, but 20 it's not an automatic, and we'd have to review the facts 21 and then the Board would have to make a decision on what 22 the best way to proceed is.

23 CHAIRPERSON LLOYD: Okay. Thank you very much.

24 I appreciate staff's indulgence to take care of that item.

25 ( Thereupon an overhead presentation was PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 38 1 presented as follows.)

2 AIR RESOURCES ENGINEER CHIN: Okay. I'd like to 3 thank Marcelle. In addition to the DG certification 4 program that Marcelle just described, SB 1298 also 5 requires the ARB to develop a guidance document for 6 districts to use in the permitting of electrical 7 generation technologies that are under their jurisdiction.

8 The remainder of my presentation will focus on 9 the ARB's proposed guidance documentation.

10  o0o

11 AIR RESOURCES ENGINEER CHIN: In my presentation 12 today, I will briefly mention the requirements of SB 1298 13 and explain what the DG guidance addresses. I'll then 14 summarize the recommendations in the DG guidance and 15 discuss the staff's proposed provisions for updating the 16 guidance as new information becomes available.

17 I'll also address the staff's proposed 18 modifications. And finally, I'll conclude with staff's 19 recommendations.

20  o0o

21 AIR RESOURCES ENGINEER CHIN: I'll now briefly,

22 again, discuss what the SB 1298 requires.

23  o0o

24 AIR RESOURCES ENGINEER CHIN: Marcelle just 25 described the ARB's staff proposal to respond to SB 1298' s PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 39 1 first requirement to adopt a certification program and 2 uniform emission standards for DG units that are not 3 subject to district permitting requirements. I will now 4 address SB 1298' s requirement that by January 1, 2003 the 5 ARB developed a guidance document for the districts to use 6 in their permitting of electrical generation technologies 7 that are under their jurisdiction.

8  o0o

9 AIR RESOURCES ENGINEER CHIN: I'll now explain 10 what the DG guidance addresses.

11  o0o

12 AIR RESOURCES ENGINEER CHIN: The proposed 13 guidance for your consideration today is intended to 14 assist districts in making BACT determinations for 15 electrical generation technologies. The proposed guidance 16 is intended to be a companion document to the Board 17 approved 1999 powerplant guidance, which addressed central 18 station powerplants, that is turbines 50 megawatts and 19 larger that follow under the jurisdiction of the 20 California Energy Commission.

21 As SB 1298 requires, guidance addresses 22 information on Best Available Control Technology, or BACT,

23 determinations, attainment of central station powerplant 24 levels by all electrical generation technologies and 25 methods for streamlining the permitting of electrical PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 40 1 generation technologies.

2 While these guidelines are recommendations rather 3 than regulations, districts have usually accepted an 4 implement guidance issued by the ARB. The 1999 powerplant 5 guidance is a good example and that all central station 6 powerplants permitted after its issuance have been 7 required to meet emission levels at least as stringent as 8 the levels recommended by the guidance.

9  o0o

10 AIR RESOURCES ENGINEER CHIN: The following three 11 slides show examples of electrical generation technologies 12 that would be subject to the guidelines. This is a 13 schematic of a turbine with Combined Heat and Power or 14 CHP. The combuster is located in the circle on the left,

15 and the heat recovery unit is on the right side of the 16 picture.

17  o0o

18 AIR RESOURCES ENGINEER CHIN: This is a five 19 megawatt turbine with CHP at a hospital. All equipment 20 shown in the previous slide is inside the large container.

21  o0o

22 AIR RESOURCES ENGINEER CHIN: This is a picture 23 of a 230 kilowatt natural gas fired reciprocating engine 24 equipped with CHP. About 100 such units have been 25 permitted in California used at hospitals, hotels and PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 41 1 other institutions that require hot water.

2  o0o

3 AIR RESOURCES ENGINEER CHIN: Some landfills or 4 waste water treatment facilities use waste gas or on site 5 electrical generation. On the right is a picture of three 6 large engines that use landfill gas to generate about 8.5 7 megawatts. If the waste gas is not used for electricity 8 by a landfill, then it is burned in a flare as shown in 9 the picture on the left.

10  o0o

11 AIR RESOURCES ENGINEER CHIN: In a few instances 12 in California, landfill emissions are discharged and 13 control to the air.

14  o0o

15 AIR RESOURCES ENGINEER CHIN: I will summarize 16 the recommendations in the DG guidance. This table 17 summarizes staff's recommendations for achieved in 18 practice levels for natural gas fired turbines. The ARB 19 staff proposed that the recommended BACT levels for 20 turbines be divided into three size categories to take 21 into account the insufficiencies that are inherent with 22 smaller turbines.

23 Like the certification program, emission levels 24 are expressed in terms of pounds per megawatt hour. It is 25 important to note that these BACT recommendations PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 42 1 represent achieved in practical levels for this source 2 category. Districts are required to make BACT 3 determinations on a case by case basis and may establish 4 more stringent BACT levels depending on the specific 5 parameters and conditions of each application.

6  o0o

7 AIR RESOURCES ENGINEER CHIN: Although not shown 8 in this slide, recommended BACT levels for turbines fueled 9 by waste gas are somewhat higher, that reflect the lowest 10 levels that have been achieved in practice without 11 catalytic based controls. Contaminants and waste gas,

12 specifically styloxanes can poison catalytic control 13 equipment and thus prevent its noose.

14  o0o

15 AIR RESOURCES ENGINEER CHIN: This slide presents 16 the recommended BACT levels for electrical generation 17 technologies that use reciprocating engines. These 18 recommendations reflect the lowest levels achieved in 19 practice by natural gas fueled engines equipped with 20 after treatment controls.

21 As with turbines, engines using waste gas cannot 22 use catalytic based post combustion treatment. Therefore,

23 the recommended levels for this category are somewhat 24 higher and reflect the use of the cleanest engines without 25 add on controls.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 43 1  o0o

2 AIR RESOURCES ENGINEER CHIN: With regard to 3 particulate matter or PM, the recommended levels for both 4 turbines and engines are essentially equivalent to using 5 pipeline quality natural gas. The use of natural gas as a 6 fuel is considered BACT for PM.

7  o0o

8 AIR RESOURCES ENGINEER CHIN: As I mentioned 9 earlier, SB 1298 also directed the ARB to address methods 10 for streamlining the permitting and approval of the 11 electrical generation units. We've reviewed several 12 district permits streamlining programs and determined that 13 there are some opportunities to simplify the process.

14 These include specifying consistent BACT levels 15 for electrical generation technologies, minimizing the 16 reverification of emissions data for technologies that 17 have been certified by the ARB, and using standardized 18 permit conditions.

19 Staff recommends that districts evaluate their 20 permitting programs to identify opportunities to include 21 these recommendations.

22  o0o

23 AIR RESOURCES ENGINEER CHIN: I'll now discuss 24 the staff's proposed provisions for updating the guidance 25 as new information becomes available.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 44 1  o0o

2 AIR RESOURCES ENGINEER CHIN: The first bar on 3 this chart represents currently recommended BACT levels 4 for a combined cycle central station powerplant.

5 The second bar represents the level 4 turbine in 6 the 12 to 50 megawatt category, while the third bar 7 represents the level for an engine.

8 SB 1298 directs that at the earliest practicable 9 date, the BACT determinations that ARB addresses should be 10 made equivalent to that of central station powerplants.

11 As you can see, current BACT levels have been achieved in 12 practice for turbines and engines are not equivalent for 13 BACT level for central station powerplants.

14 Our guidance encourages in use of efficient CHP 15 as one way of making progress toward achieving central 16 station powerplant BACT levels.

17  o0o

18 AIR RESOURCES ENGINEER CHIN: As I mentioned,

19 just mentioned, SB 1298 directs that at the earliest 20 practicable date, BACT determinations for electrical 21 generation equipment should be made equivalent to that of 22 central station powerplants. The guidance for 23 consideration today reflects current BACT determinations 24 for electrical generation technology.

25 These determinations have been made by local PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 45 1 districts according to very specific procedures prescribed 2 under the federal Clean Air Act. Therefore, we believe 3 that the guidance will require periodic technical updates 4 to incorporate updated BACT determinations that reflect 5 progress toward the achievement of central station 6 powerplant levels by all electrical generation 7 technologies.

8 In recent months, a number of agencies including 9 the U. S. EPA have proposed various techniques and 10 assumptions to use for calculating CHP benefits. As CHP 11 applications penetrate the market, the ARB staff 12 anticipates that more detailed information will emerge 13 regarding the extent to which captured heat is actually 14 used by the facility.

15 Thus, the ARB staff anticipates that the 16 techniques and assumptions that we have recommended for 17 calculating for CHP benefits in the guidelines will 18 require updating.

19 Therefore, we are proposing today that the ARB 20 Executive Officer be allowed to direct staff to 21 periodically update the guidance to reflect newly 22 available information, specifically that relates to CHP 23 and BACT determinations that have been achieved in 24 practice.

25  o0o

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 46 1 AIR RESOURCES ENGINEER CHIN: Staff is proposing 2 several minor technical clarifications.

3  o0o

4 AIR RESOURCES ENGINEER CHIN: In conclusion, the 5 staff recommends that the Board approve the proposed 6 guidance for the permitting of electrical generation 7 technologies.

8 BOARD MEMBER RIORDAN: Mr. Chairman?

9 CHAIRPERSON LLOYD: Yes, Mrs. Riordan.

10 BOARD MEMBER RIORDAN: Can I just ask one 11 clarification and that was on your slide with the waste 12 gas flared engine, you gave some numbers. And quite 13 frankly, I don't have them down, and I would like to have 14 that.

15 AIR RESOURCES ENGINEER CHIN: There's three large 16 engines that generate about 8.5 megawatts of electricity,

17 and that's into the grid.

18 BOARD MEMBER RIORDAN: It was 8.5, thank you.

19 CHAIRPERSON LLOYD: Before we get into the 20 Board's questions, again, Madam Ombudsman, would you 21 please describe the public participation process that 22 occurred while this item was being developed and share 23 with us any concerns or comments you have with us at this 24 time.

25 OMBUDSMAN TSCHOGL: Can you hear me? Okay. I PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 47 1 would be pleased to do that. The process began with a 2 workshop in Sacramento on the morning of November 8th,

3 2000. This workshop was announced to more than 2,000 4 people and organizations. These 2,000 recipients 5 represented community environmental organizations, energy 6 providers, equipment manufacturers and governmental 7 agencies with energy related interests. Thirty nine 8 people attended the workshop.

9 Following the initial workshop, staff established 10 several working groups. These working groups discussed 11 technical and nontechnical issues related to the proposed 12 regulation before you now. The working group membership 13 consisted of 90 people and met six times between January 14 and June 2001.

15 Each meeting was attended by about 40 people 16 representing the environmental community, technology and 17 energy providers as well as government agencies.

18 Beginning in July of this year, staff continued 19 the workshop process by holding four additional 20 consultation meetings. This time staff took to the road 21 holding workshops at the South Coast, Bay Area and San 22 Joaquin Valley Air Districts.

23 The fourth workshop was held in Sacramento.

24 Attendance at these workshops ranged from less than ten in 25 the San Joaquin valley to approximately 30 in the South PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 48 1 Coast and 40 here in Sacramento.

2 Staff used these community meetings as well as 3 those held to discuss the SB 25 program and environmental 4 justice policy to distribute information on this proposal,

5 as well as on other stationary source division programs 6 and risk reduction activities.

7 To this end, staff developed several fact sheets 8 and brochures covering many of ARB's programs in both 9 Spanish and English. Throughout the process, staff met 10 and discussed the proposal with stakeholders as the need 11 arose. This included over 15 private meetings and five 12 conference calls with the local air districts.

13 In addition, staff conducted a half dozen site 14 visits to both manufacturing facilities, as well as 15 installation sites. On September 28th, staff released the 16 final proposed regulation and staff report. Also, on that 17 date, staff sent out the announcement for this hearing to 18 1,200 people via the U. S. Postal Service and an additional 19 760 people via Email.

20 Finally, on October 1st, staff sent a copy of the 21 report and the district guidance document to each of the 22 air districts. This concludes my comments on outreach 23 activities.

24 Thank you.

25 CHAIRPERSON LLOYD: Thank you very much. Any PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 49 1 additional questions from my colleagues on the Board?

2 Seeing none, I would like to call the first 3 witness signed to speak up here. Again, we have Loren 4 Kaye, Ralph Ordonez and Susannah Churchill.

5 Again, I would appreciate when you testify if you 6 could identify whether you're addressing both of these 7 items or whether it's the guidelines or the certification 8 program.

9 MR. KAYE: Thank you, Mr. Chairman. My name is 10 Loren Kaye. I'm with Kahl/ Pownall Advocates here in 11 Sacramento and we represent Plug Power Incorporated. It's 12 a fuel cell manufacturer located in New York.

13 And I just wanted to briefly commend the staff 14 for their excellent work in developing this regulation.

15 I'm speaking, Mr. Chairman, to the certification 16 regulation that they produced not only an excellent 17 certification regulation, but the process that they 18 undertook that you just heard described was very open and 19 I think incorporated a wide variety of stakeholders and 20 opinions. So we just wanted to let you know that you did 21 a great job and we urge your adopting the regulation 22 today.

23 CHAIRPERSON LLOYD: A question, when do you 24 anticipate submitting your unit for certification, and 25 when do you anticipate the first of your units arriving in PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 50 1 California?

2 MR. KAYE: Well, the first of our units arrived 3 about a month ago at UC Irvine at the national fuel cell 4 center for them to

5 CHAIRPERSON LLOYD: A caveat, for commercial 6 operation.

7 MR. KAYE: For commercial operation, as soon as 8 we can sell them.

9 ( Laughter.)

10 MR. KAYE: But I would put out for Dr. Burke's 11 information, in case it hasn't yet come to his attention,

12 that the South Coast Air District is in the middle of a 13 Request For Proposals to acquire and test a number of 14 small scale residential fuel cells. And that will be an 15 opportunity for when we help our company, but some fuel 16 cell purveyors in the country, to place them in 17 California, but we're open for business. And as soon as 18 this regulation is adopted, we'll begin to submit our 19 product for certification.

20 CHAIRPERSON LLOYD: You saw staff's estimate of 21 the price range for fuel cell power. Do you think those 22 are sound numbers?

23 MR. KAYE: I think that in a commercial  once 24 we get into a commercial environment, those are sound 25 numbers, and we hope that, like 2007, certainly that PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 51 1 they'll be far, far less expensive than what you saw.

2 We're obviously, I think, we're a little above 3 that right now because we're in a precommercial phase, but 4 I think those are appropriate for commercial deployment.

5 CHAIRPERSON LLOYD: Let the record state that 6 Loren is saying we'll have much cheaper fuel cells in 7 2007, and you can give us a good deal, I hope.

8 MR. KAYE: You bet.

9 CHAIRPERSON LLOYD: Thank you.

10 Ralph Ordonez, Susannah Churchill and Stan 11 Zwicker.

12 MR. ORDONEZ: Good morning. My name is Ralph 13 Ordonez. I work with Solar Turbines in San Diego 14 California. And I'd like to talk a little bit about our 15 operations.

16 We manufacturer power generation turbines 1 to 14 17 megawatts sited throughout the world, including 600 CHP 18 applications within the United States. The nice thing 19 about the solar turbine application is that there's a lot 20 of exhaust heat that we use for supplying heat or cooling 21 load to universities, hotels and industrial facilities.

22 But besides supplying turbine machinery, we also 23 have a construction services department in which we 24 actually develop and construct CHP projects. In addition,

25 we operate cogeneration facilities. So as you can tell,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 52 1 we have an interest in what's going on with the CHP 2 application.

3 We're encouraged by the fact that the regulatory 4 community is going to output based standard, pounds per 5 megawatt hours. There is some concern on our part as far 6 as the minimum efficiency requirements currently written 7 in the guidance document.

8 We think that the pounds per megawatt hour is a 9 good thing to have within the regulations, and there's no 10 need for actual minimum efficiency requirements. The 11 nature of the calculation allows efficiency be 12 incorporated into the standard.

13 Information has been submitted to staff showing 14 that the efficiencies of cogeneration operations are not 15 meeting the minimum requirements currently in the guidance 16 document.

17 One of the compelling cases is we have a unit 18 called the STAC unit, which stands for Steam Turbine 19 Assisted Cogeneration. This is a unit that, by design,

20 maximized use of exhaust heat, but the overall thermal 21 efficiency is way less than what is being proposed in the 22 guidance.

23 So we understand that the minimum requirements 24 for efficiency are being removed from the certification 25 documents. We also like that type of consideration within PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 53 1 the guidance document, whether it be through removal at 2 the beginning or through education on the efficiencies of 3 cogeneration projects.

4 That concludes my statement.

5 CHAIRPERSON LLOYD: Thank you very much.

6 Questions from the Board?

7 I know you make a statement here that you feel 8 it's unnecessary to put the minimum efficiency criteria in 9 the guidance document. I'd like to get a staff response 10 on that?

11 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Mike 12 Tollstrup. The way that the guidance document is 13 currently set up it establishes a pounds per megawatt 14 level for the units to meet. The efficiency standard is 15 not a requirement in there. It provides an option to 16 folks that want to take advantage of that. There is 17 another issue on the guidance side that how would the 18 districts credit that CHP number. They have issues that 19 they have to deal with because of their new source review 20 programs and BACT and all, but it is currently an option.

21 There is a pounds per megawatt number in there currently.

22 CHAIRPERSON LLOYD: Okay, thank you.

23 Thank you very much.

24 Susannah Churchill, Stan Zwicker, Sheryl Carter.

25 MS. CHURCHILL: Hello and thank you very much,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 54 1 Chairman and Members of the Board. My name is Susannah 2 Churchill. I'm the energy advocate for the California 3 Public Industry Research Group, CALPIRG, and I'll be 4 speaking about both pieces of the proceeding today.

5 CALPIRG is a nonprofit nonpartisan advocate for 6 the public interest. And we respectfully submit these 7 comments on behalf of the 60,000 citizen members of 8 CALPIRG around the state, and CALPIRG charitable trusts,

9 which is the organization's research and policy arm.

10 CALPIRG would like to applaud the Air Resources 11 Board for its commitment to developing strong emissions 12 guidelines and certification standards for distributed 13 generation technologies. And as we showed with the 14 delivery to two days ago of over 5,300 public comments 15 from our members in support of clean distributed 16 generation, the public is behind our conviction that in 17 order to protect public health and air quality it's 18 imperative that the ARB support clean DG.

19 I would also like to submit as official testimony 20 the CALPIRG charitable trust recent report on the variety 21 of available distributed generation technologies entitled,

22 The Good, The Bad and The Other, Public Health and the 23 Future of Distributed Generation.

24 And as this report shows, diesel and dirty fossil 25 fuel distributed generation pose serious health threats to PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 55 1 Californians when used for even a very limited number of 2 hours per year.

3 Fortunately, as our report also outlines,

4 alternatives to dirty fossil fuel technologies exist, such 5 as solar photovoltaic technologies, wind turbines, fuel 6 cells, and combined heat and power systems. And strong 7 standards and guidelines at this proceeding are going to 8 be critical to ensure that California consumers who are 9 buying DG technologies in the future are pointed in the 10 right direction towards these clean technologies and away 11 from the dirtier ones.

12 And while overall we believe that the ARB has 13 issued strong draft regulations and guidelines, we urge 14 the Board to adopt the modifications summarized below,

15 which I believe will also be echoed by other environmental 16 coalition members here today.

17 First, is that the guidance districts should 18 establish a single aggressive performance based emission 19 standards for 2003 and an output based equivalent of five 20 parts per million at 15 percent oxygen.

21 Second, the guidance to air districts should 22 clarify that the emission standards for distributed 23 generation will be equivalent to the new combined cycle of 24 a natural gas central station powerplant by 2007.

25 Third, the certification regulations should PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 56 1 include an interim standard to ensure progress towards the 2 2007 standards.

3 Fourth, both the certification regulation and the 4 guidance to districts should incorporate the combined heat 5 and power credit methodology proposed by NRDC in their 6 comments, and include greater recognition of the climate 7 change mitigation benefits of higher efficiencies.

8 Fifth, both the certification regulation and 9 guidance to districts should clarify the Board's intent to 10 exclude only true emergency generators and not all diesel 11 generators, and strengthen enforcement guidance to ensure 12 that outcome.

13 And then finally, if portable generators are to 14 be exempted from these proceedings, the Board should 15 direct staff to reevaluate the standards included in the 16 portable equipment registration program to make them 17 consistent with the standards adopted here today.

18 Those are all my comments and thank you very much 19 for your attention.

20 CHAIRPERSON LLOYD: Thank you.

21 Any questions?

22 Yes, Ms. D'Adamo.

23 BOARD MEMBER D'ADAMO: If staff could respond.

24 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Mike 25 Tollstrup. The first comment was on the single standard PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 57 1 for ' 03. What staff is proposing is a variety of 2 standards based on technologies that are out there today.

3 One of our concerns was setting a single standard 4 of five parts per million would effectively knockout IC 5 engines and some of the other technologies that are 6 currently available out there, wouldn't give them an 7 opportunity to, in a short time frame, develop the 8 technologies to meet those limits.

9 CHAIRPERSON LLOYD: Although, we do have a letter 10 here saying that even at the numbers we choose, we're 11 going to knock out IC engines anyway.

12 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: It 13 will certainly have some impact on diesel fired units.

14 They have quite a bit to go to get to the levels we have.

15 There are natural gas engines that are available out there 16 that can meet the ' 03 standards. Certainly, the ' 07 17 standards are going to be a major hurdle for those types 18 of technologies.

19 On the ' 07 date for the guidance, the way that 20 we've drafted the guidance to date staff would be 21 periodically following advances in technology and updating 22 the guidance on an ongoing basis as it became available.

23 The BACT process is in place for those pieces of 24 equipment. The districts are required to do a 25 case by case evaluation as these units come in and as the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 58 1 technology becomes available. We worked closely with the 2 districts as we've done in the past, and certainly work 3 with them to make sure that the lowest achievable levels 4 are met on any of these units as they become available.

5 And we do think that there are certain 6 applications that will meet the ' 07 standards now, and the 7 turbines and other technologies, and we think that we'll 8 get there with other technologies as we get closer to ' 07.

9 On the interim standard for the certification 10 program, staff has established a fairly aggressive 11 schedule for meeting the central station powerplant 12 levels. It basically gives the manufacturers a four year 13 window between ' 03, which is when the first set of 14 standards kick in in ' 07, to develop the technologies to 15 be able to compete by 2007.

16 So we don't think that it makes a lot of sense 17 from the development side to put the interim standard in 18 there. We've got a very short window in which they have 19 to comply and it will keep them on track without an 20 interim standard.

21 As far as the CHP issue goes, the proposal that 22 is recommended by NRDC  the approach that staff took on 23 the CHP issue was basically to come up with a very simple 24 approach that gave credit providing you meet a certain 25 cutoff, which is the 60 percent efficiency.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 59 1 It's a factor or a process that can be met at the 2 manufacturers' level, and it doesn't need to have 3 site specific evaluation. So the manufacturer could 4 design the equipment to meet the 60 percent efficiency,

5 and once they were certified, then they could sell the 6 units and there would be no further requirements after 7 that.

8 NRDC's methods is a more complicated method. We 9 feel it would require possibly some site specific 10 information in order to implement that procedure.

11 Two other issues that were brought up, excluding 12 the backup generators, staff recognizes that there is a 13 need under certain circumstances to have emergency backup 14 equipment. And the only way to fill that void currently 15 are with technology such as diesel engines. It's staff's 16 goal to make sure that diesel engines are put back in to a 17 use or kept in a use where they're run only in emergency 18 situations. They're not used for load shedding or other 19 purposes. And providing they're kept in that arena,

20 they're used for those true situations where they're 21 needed, it didn't make sense to bring them under guidance,

22 which would essentially have prohibited the use of those 23 units.

24 So we think that with that, in addition, backup 25 generators are being looked at under the effort that's PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 60 1 being undertaken with the diesel risk management program.

2 We will be bringing recommendations back to the Board next 3 year some time for retrofiting and new standards for the 4 backup engines.

5 As far as the portable engines, this is the last 6 comment, I believe, the portable engines  under the 7 portable equipment program right now, a portable engine is 8 a unit that would not operate at a site more than 12 9 months. If someone were to bring a unit in and operate it 10 for 12 months and then bring in another, they would fall 11 outside of our program.

12 In addition to that, we have supported the 13 districts and basically worked with the districts to make 14 sure that certain uses of portable engines are not 15 occurring. And we intend to bring when we come back with 16 a diesel PM update, we do intend to bring back some 17 recommendations for dealing with issues where portable 18 equipment may be misused for power generation, you know,

19 basically to get in the reg and to make sure it's firm and 20 people understand. But right now we are supporting 21 districts and making sure that portable equipment is not 22 misused.

23 So with that, I conclude. I think I've got all 24 the issues that were raised.

25 CHAIRPERSON LLOYD: Yes, the answer was longer PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 61 1 than the testimony. It's impressive.

2 ( Laughter.)

3 CHAIRPERSON LLOYD: Any other questions from the 4 Board?

5 Thank you.

6 By the way, I understand you're going to be 7 getting a bill from staff because the 5,000 letters burned 8 up one of our fax machines.

9 ( Laughter.)

10 MS. CHURCHILL: I'm sorry, they were

11 ( Laughter.)

12 MS. CHURCHILL: I hope it wasn't a problem.

13 CHAIRPERSON LLOYD: Thank you.

14 Stan Zwicker, Sheryl Carter and Todd Campbell.

15 MR. ZWICKER: Good morning, Dr. Lloyd and Members 16 of the Board. I was just thinking on the way up here,

17 it's been about 28 years since I first appeared before the 18 Board on an issue, so I go back a long way as you know.

19 My name is Stan Zwicker. I'm an environmental 20 consultant and I have been retained by Bowman Power who 21 must be the only viable one, since Dr. Burke says there's 22 only one viable manufacturer. I hadn't realized Capstone 23 wasn't viable, Kevin.

24 Bowman Power systems is a manufacturer of 25 microturbines, small scale microturbine integrated PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 62 1 cogeneration systems. And Mr. Tony Hines, who was the 2 Vice President of Operations was supposed to be here with 3 me today to talk about some of the business issues.

4 However, he got detained on the east coast and had some 5 difficulties.

6 Bowman appreciates the opportunity to participate 7 in both the public consultation meetings and work group 8 process that the proceed the issuance of the proposal, and 9 we wish to commend the staff for the efforts in support of 10  and are supportive for the Phase 1 standards.

11 Particularly, we fought long and hard for the 12 inclusion of the cogeneration or CHP credit, which we 13 think is very good, and we think it's even a crucial part 14 of the puzzle for the deployment of DG, because, you know,

15 the efficiencies that you get when you take a microturbine 16 and only electric goes into 20 maybe 30 percent. When you 17 get cogeneration, you're getting 80 percent efficiency and 18 we think that's where the viable economics for these 19 issues are.

20 We believe that this is consistent with the 21 intent and vision by the Legislature in enacting 1298 to 22 promote clean efficient energy, and we intend to offer 23 microturbine CHP systems which meet your standards,

24 whatever they are, for the certification testing program.

25 I have a couple of points I wanted to make, and PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 63 1 the first one sort of is to look from a business aspect 2 I'm trying to do this on behalf of Tony, because obviously 3 dealing with the business aspect is not my cup of tea on 4 this.

5 But you're looking at a business climate where 6 end users are going to either purchase something for 7 either backup or DG systems. And so you're looking at 8 microturbines, such as ours or Capstone in contrast to 9 backup diesel fire generators. They're only going to 10 purchase one unit. And so what's happening by imposing 11 and not treating them the same in terms of the emission 12 limits they have to meet, you're sort of putting the 13 microturbines or the cleaner fuel at a disadvantage.

14 And we really think you need to look at all these 15 from the same perspective in terms of emission 16 requirements. So we think that, however, you regulate the 17 emergency generators, they should pretty much apply to the 18 same systems as these, so we're on an even keel.

19 As indicated Bowman supports the emission limits 20 for 2003 with the inclusion of the emission credits for 21 cogen. We do have several concerns with certain aspects 22 of the regulations as proposed on September 28th, and I 23 just want to highlight them.

24 First of all, the selection of January 2001 as 25 the effective date and 2005 is a choice for the date.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 64 1 And secondly, we have some concerns regarding the 2 final number that you have for 2007 of .07.

3 Regarding the selection of the 2000 date, 2000 4 sounds good. As the earliest practical date, we don't 5 think it's real. We think it's maybe the earliest 6 possible date. We believe that it's going to necessitate 7 on our part significant technological breakthroughs in 8 order to meet the standard  that standard in 2007. It's 9 about an order of magnitude lower than what you've got for 10 2003.

11 That's going to require considerable investment,

12 and most likely more time to accomplish it, if, in fact,

13 it is even achievable this technology, and I think it is,

14 but it's going to take awhile.

15 A major concern with your date, is there going to 16 be sufficient time for us to recover the costs from an 17 investment standpoint in meeting these units for 2003 and 18 at the same time not being able to sell that product 19 anymore, if they have to make substantial investments and 20 substantial changes.

21 Four year life cycle is minimal at best. So we 22 wanted to  and remember that these units are going to be 23 sold in the hundreds maybe a couple of thousand. It's not 24 like you're selling automobiles in the millions, so the 25 cost recovery is a lot tougher for a product like this.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 65 1 The concept of the technology review as proposed 2 is a vital step and we're very pleased that that's going 3 to be there, and we endorse the need for it. We think,

4 however, that maybe a more appropriate approach for the 5 Board would be to defer adopting Phase 2 emission limits 6 until this technology review is conducted.

7 Their approach would provide all of us with more 8 time and the ability to get more information. Obviously,

9 we have limited manufacturers, limited cost information.

10 We have a standard going in place in the year 2003. We 11 have a plan to review it in 2005. And I think that 12 perhaps we can delay it till that point till we have some 13 of the data and some of the questions answered. There's 14 really no urgency.

15 The only urgency would be is if you really stick 16 to the 2007 date, which I think is the earliest possible 17 date not the earliest practical date.

18 And so, in essence, I think if you go and have 19 that review and gather all that information, I think it 20 should be  what you should do is have that technology 21 report referred back to the Board, which it is, but have 22 it for reconsideration and consideration of what standard 23 you're going to adopt for the second level.

24 Moving on.

25 CHAIRPERSON LLOYD: Stan, I'm a little worried PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 66 1 that you're reading all your pages here.

2 MR. ZWICKER: I'm trying to skim through them.

3 CHAIRPERSON LLOYD: You haven't done very well so 4 far.

5 ( Laughter.)

6 CHAIRPERSON LLOYD: Maybe you could just 7 highlight a couple of things there, because we do have the 8 written statement, and I think it would be helpful for us,

9 because I know you have some good points here, I don't 10 want those to get lost.

11 MR. ZWICKER: I wanted to go onto the .07 number 12 and I wanted to raise the issue of, when you go to talk 13 about central station powerplants, I like to make the 14 differentiation between equal and equivalent. And I think 15 that's something you need to consider.

16 When you look at the central station powerplant,

17 and I'll talk in parts per million, like two and a half 18 parts per million, and you go out there and say now we'll 19 have to make the small microturbines meet that central 20 station powerplant, I don't think that's what the 21 legislation said.

22 I think in essence the legislation used the word 23 equivalent not equal and that may be  that's a 24 distinction, but what does equivalent mean? Microturbines 25 are not designed to have the  will not have any of the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 67 1 control technologies if they wouldn't be economic with 2 them.

3 So if we can meet numbers that are better than 4 nine, which we can without all that, we avoid issues such 5 as the ammonia issues and other things, and I think you 6 need to consider that in the equivalency. What isn't 7 appropriate for a small microturbine unit that, in our 8 case right now is an 80 kilowatt unit and how much total 9 emissions it puts  total emissions it puts out versus a 10 rate that you're specifying that you have for a central 11 powerplant.

12 I think you need to be a more, at least to 13 consider the differences between equal and equivalent and 14 I've made that argument before, and, you know, and I know 15 everybody is aware of it, but I think it's something I 16 wanted to point out here.

17 Finally, the old argument about BACT is it in a 18 permit or is it achieved in practice, and I think we're 19 submitting that even though you've got things in a permit 20 and you're using that number, as the bay basis for setting 21 the standards hasn't really been achieved in practice yet 22 and can you really go with that.

23 And I think those are the key issues, and I know 24 you've got all details here. And, again, just to sum up,

25 we thank you for the opportunity to be in this process and PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 68 1 we're going to be around. And I know Dr. Burke, you're 2 back, my comment was I didn't know Capstone wasn't viable 3 anymore?

4 BOARD MEMBER BURKE: What do you mean it's not 5 viable?

6 MR. ZWICKER: Well, you said there was only one 7 viable microturbine manufacturer, and since I'm 8 representing Bowman.

9 BOARD MEMBER BURKE: If I did say that, I didn't 10 mean to say that, I apologize.

11 MR. ZWICKER: That's okay, because I was sort of 12 making a joke out of it, because we feel we're viable, and 13 just we have some units for commercial application.

14 BOARD MEMBER BURKE: What were your gross sales 15 last year?

16 MR. ZWICKER: Don't talk about last year. I was 17 going to say we have units coming being shipped into 18 California right now. There will be by the end of the 19 year for some service. And we probably have several more 20 coming.

21 BOARD MEMBER BURKE: I didn't mean to insult your 22 company.

23 But over the historical period of the last four 24 or five there's only been one real viable microturbine.

25 Now, you may be the second.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 69 1 MR. ZWICKER: We think we are

2 BOARD MEMBER BURKE: I think they're the second 3 and they just dropped out.

4 MR. ZWICKER: We think we are the second and we 5 invite you down to see our unit any time.

6 BOARD MEMBER BURKE: I would move.

7 MR. ZWICKER: Thank you very much and that sort 8 of sums up the statement. I'll be happy to try and answer 9 any questions.

10 CHAIRPERSON LLOYD: Thank you, Stan. I 11 appreciate your cutting it short with the high points.

12 I'd like to ask, clearly Stan has made that 13 column and staff must have evaluated this and I don't know 14 if that's a legal or technical question there.

15 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Well, we're 16 trying to get emissions so that per kilowatt hour of 17 electricity produced the environment doesn't suffer. If 18 we use a small unit rather than produce it in the central 19 powerplant, that's our ultimate goal is equal, you know,

20 protection of the environment.

21 CHAIRPERSON LLOYD: So you feel

22 DEPUTY EXECUTIVE OFFICER SCHEIBLE: You know, the 23 consumer of the electricity has the option of getting it 24 many different ways.

25 CHAIRPERSON LLOYD: So you've pretty

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 70 1 DEPUTY EXECUTIVE OFFICER SCHEIBLE: And then 2 there are zero options that are involving such as solar 3 and others for on site for those that choose that, so that 4 we think the clear goal if you're going to use a 5 combustion source or a fuel cell is to get those emissions 6 so that the environment doesn't see any additional damage 7 over the alternative method.

8 CHAIRPERSON LLOYD: You'd be pretty confident if 9 you went to Senator Bowen and asked her what she intended,

10 that she would agree with staff.

11 DEPUTY DIRECTOR SCHEIBLE: I think we are. I 12 think we're interpreting the statute correctly.

13 CHAIRPERSON LLOYD: Questions from Professor 14 Friedman.

15 BOARD MEMBER HUGH FRIEDMAN: Well, just to 16 follow up, I hope this is germane that last question, but 17 I think EMA raised a similar question about biomass fuel,

18 gas engines and whether these certification regulations 19 would apply to them, and suggested that it would not be 20 really very good public policy if our standards precluded 21 as a practical matter the manufacture of those kinds of 22 sources of energy.

23 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Right. I 24 don't think we see distributed generation units that fall 25 under the certification reg going in and using biomass.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 71 1 That's going to be in a permitted application that is 2 covered by the guidance, where we do make an allowance for 3 recognizing that you can't control the emissions 4 associated with combusting the biogas as well as you can 5 pipeline natural gas.

6 BOARD MEMBER HUGH FRIEDMAN: Well, then more 7 broadly the whole issue of cost benefit and the problem of 8 the manufacturer of these small units complying with 9 standards. I understand the argument that it's got the 10 same impact on what we breathe, but maybe there needs to 11 be some flexibility under what's called the best available 12 technology and under what we treat as equal or equivalent.

13 I mean we want to be careful that we don't 14 unconsciously and unwittingly drive out of the marketplace 15 what otherwise might be useful and economic if the 16 difference is not significant.

17 DEPUTY EXECUTIVE OFFICER SCHEIBLE: I think 18 that's the type of issue that we'll readdress in 2005 when 19 we see, okay, much progress can be made, is the goal going 20 to be made, if not, is it close, and if it's close will 21 additional time or should we set an interim level. If 22 it's not even close, then I think we have to make the 23 decision is the technology ever going to make it or do we 24 say that that's not viable.

25 BOARD MEMBER HUGH FRIEDMAN: Well, my PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 72 1 understanding is that in 2005 there will be a review and 2 it will be before this Board, however it's constituted at 3 that time and there's ample opportunity at that time in 4 light of what's learned and in light of then existing best 5 available practices.

6 MR. ZWICKER: I just wanted to make certain

7 BOARD MEMBER HUGH FRIEDMAN: For these 8 proposed  this is another example, it seems to me, of 9 engineering by rule. And we're glad that you're worried 10 about it, but we don't want you to lose a lot of sleep.

11 MR. ZWICKER: Don't worry, I wouldn't lose any 12 sleep. I just wanted to make sure that, you know, when we 13 have the technology review that all items are open. I 14 mean, I went into the state and said if you choose to 15 adopt the rule today, as it is with the numbers today,

16 then let's make sure we seriously consider what's really 17 there instead of having just a staff report validating 18 what we've done.

19 BOARD MEMBER HUGH FRIEDMAN: This is a clear 20 signal that is the staff. And if adopted, it's our goal,

21 this is what we want to achieve, and hopefully we could 22 achieve it by this time line, but with recognition that 23 we'll have to take another look beforehand.

24 MR. ZWICKER: Fine.

25 CHAIRPERSON LLOYD: Mr. Kenny I think has PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 73 1 something to say.

2 EXECUTIVE OFFICER KENNY: If I could just add a 3 couple of things. I went back and was looking at the 4 statute as the dialogue was going on, and the statute is 5 actually fairly clear and it really provides both a 6 challenge and an opportunity to the industry.

7 And the opportunity is essentially, you know, to 8 provide these small microturbines into the marketplace.

9 But the challenge is and it's provided by the Legislature,

10 is that the Legislature did direct that they be as clean 11 as central station powerplants.

12 And what the Legislature was directing us to do 13 was to really provide for standards that were equivalent 14 to central station powerplant standards and that's what we 15 tried to do. And that is the challenge for the industry 16 in this particular situation, and it will probably be a 17 very difficult challenge.

18 CHAIRPERSON LLOYD: Yeah.

19 Again, and reading from that, it does say that it 20 is in the public interest to encourage the deployment of 21 distributed generation in a way that has a positive effect 22 on air quality, so that's supporting what you're saying.

23 BOARD MEMBER BURKE: Mr. Chairman.

24 CHAIRPERSON LLOYD: Dr. Burke.

25 BOARD MEMBER BURKE: After September 11th, I PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 74 1 think there's been a reassessment of that. And adding 2 distributed generation throughout the United States may be 3 a national defense issue or a national security issue.

4 So, you know, as important as it is from the air quality 5 perspective, it is also a very crucial defense issue.

6 MR. ZWICKER: Just to sum up, this is a good 7 technology. It's an emerging technology, and it's going 8 to grow, and it's going to have a good impact on not only 9 air quality over what's out there today, but also in the 10 energy security area, and so we need not do anything 11 that's going to, you know, block it from emerging. And I 12 think we're on the right track.

13 CHAIRPERSON LLOYD: Yeah. And, again, I think 14 staff wants to have it both ways, we want to have units 15 out there, and we want to protect air quality.

16 Thank you very much.

17 And I guess we need the competition so we want to 18 keep you in business as well.

19 Next, we ever Sheryl Carter, Todd Campbell and 20 Bonnie Holmes Gen.

21 MS. CARTER: Good morning. I'm Sheryl Carter. I 22 represent the Natural Resources Defense Council and our 23 nearly 100,000 members in California. We've been working 24 on energy and air quality related issues in California for 25 over two decades.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 75 1 I want to join those who came before me and I'm 2 positive those who will come after me in commending the 3 staff for the excellent work that they did on these 4 documents.

5 As we just covered, the legislation that directs 6 the ARB to develop both the certification program 7 regulations and the guidance to districts, which is SB 8 1298, recognizes, as do we, that distributed generation 9 can contribute to helping California meet the energy 10 requirements of its citizens and businesses.

11 It also declares, as Chairman Lloyd just 12 mentioned, that it is in the public interest to encourage 13 the deployment of distributed generation technology in a 14 way that has a positive impact on air quality.

15 It's the attempt to balance these two 16 considerations that led to the adoption of a phased 17 emissions standard approach that we're discussing here 18 today to reach the best available control technology 19 emission level for permitted central station powerplants 20 in California.

21 My comments are going to address both the 22 certification regulation and the guidance to districts,

23 and I'll try to be very clear on which applies to which 24 one as some of them apply to both.

25 I would love to, if we had more time, up here,

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 76 1 I'd love to spend time discussing a lot of the things that 2 are right with the regulations and with the guidance 3 document. They certainly outweigh the issues from 4 modification that I'm going to suggest today, but we don't 5 have time for that. But I just wanted to note that there 6 are more things that are right with these documents than 7 not.

8 We strongly support the proposed regulation and 9 draft guidance and urge the Board to adopt them with some 10 very important modifications, which we believe will better 11 encourage appropriate distributed generation technologies 12 for California without adverse environmental impacts.

13 With these modifications, this regulation and 14 guidance could become national models for distributed 15 generation regulations. I have six modifications which 16 are detailed in our written comments that I'll just 17 briefly cover, and then I'd be happy to answer any 18 questions after that.

19 The first modification, the guidance to districts 20 we believe should establish a single aggressive 21 performance based emission standard or BACT level at an 22 output based equivalent of five parts per million NOx.

23 The draft proposes seven initial standards. We 24 urge the Board to adopt one performance based standard 25 here. There's no reason to allow different environmental PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 77 1 standards based on technology or size since the units 2 covered performed the same or substitutable functions.

3 Absent this modification by the Board, we urge 4 the Board to strongly state the intent that one 5 performance standard should be reached as soon as 6 possible.

7 The second modification, the guidance to 8 districts should clarify that the emission standard for 9 generation will be equivalent to best available control 10 technology emission levels for a central station 11 powerplant in California by at most 2007, which would be 12 consistent with the certification program for the smaller 13 DG units, if not sooner.

14 Only a clear, strong recommendation in the ARB 15 guidance to districts will incentivize manufacturers to 16 make the necessary technological advances.

17 The third modification, both the certification 18 regulation and the guidance to districts provide for a 19 combined heat and power credit. And NRDC strongly 20 supports such a credit.

21 However, we have proposed an alternative approach 22 to the two different credit calculation methodologies 23 proposed by staff, which provide a more effective 24 incentive to encourage improvement in efficiency without 25 compromising environmental protection. Our methodology PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 78 1 directly addresses the avoided emissions in a combined 2 heat and power system and will consistently estimate a 3 realistic emissions credit.

4 We urge the Board to modify both the 5 certification regulation and the guidance to districts to 6 include the credit methodology that we proposed in our 7 comments, and also include a greater recognition of the 8 climate change mitigation benefits of greater 9 efficiencies.

10 Absent adoption of our methodology for both the 11 certification and the guidance, we urge you to at least 12 adopt our methodology for the guidance document. Based on 13 the comments made by staff, our methodology is much more 14 easily used if you're looking on a site by site basis,

15 which would still apply to the guidance documents.

16 Our fourth modification that we proposed to the 17 Board is that both the certification regulation and 18 guidance to districts should clarify the Board's intent to 19 exclude only true emergency generators, not all diesel 20 generators, to strengthen enforcement guidance to ensure 21 this outcome.

22 The Board should recommend in the guidance that 23 districts adopt the strict ARB definition of the emergency 24 generation, which is generation that's used when power is 25 interrupted.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 79 1 The fifth modification, if portable generators 2 are to be exempted from the certification regulation and 3 the guidance to districts, the Board should direct staff 4 to reevaluate the standards included in the portable 5 equipment registration program to make them consistent 6 with the standards adopted by the certification regulation 7 and guidance as soon as practicable.

8 Portable generators perform the same or 9 substitutable functions as other distributed generation 10 and should be held to the same environmental standards.

11 And finally, we're concerned that with only 12 initial and final standard levels and dates established,

13 this is for the certification regulation, the technology 14 review at 2005, just two years after the program begins,

15 becomes not a check in on advancing technology and 16 markets, but rather an almost automatic delay in the final 17 standards at 2007.

18 We believe that an interim standard would help 19 ensure progress toward the 2007 standard. Absent this 20 modification, we urge the Board to strengthen its intent 21 to hold to the 2007 standard.

22 Distributed generation, we believe, can play an 23 important role in meeting our energy needs and reducing 24 the environmental impacts of the current energy system.

25 But this can only happen if clear regulations are PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 80 1 established now to aim the market in the right direction.

2 And we urge the Board to adopt both these 3 documents with the modifications that we've suggested in 4 order to do this.

5 That's it.

6 Thanks.

7 CHAIRPERSON LLOYD: Thank you very much. And I 8 appreciate again your constructive suggestions, if we 9 don't adopt, exactly what you want. That was very be 10 helpful.

11 The comment, maybe staff could answer, in terms 12 of the guidance to districts to incorporate CHP, Sheryl 13 mentioned that the NRDC methodology, at least in that 14 case, would be easier for the districts to use. Does 15 staff concur?

16 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Mike 17 Tollstrup. Again, one of the issues that we have with the 18 CHP on the district side is that under the proposal that 19 NRDC is offering, you're basically giving credit for 20 avoided emissions. There are some issues there with BACT 21 and how you credit those emissions. The proposal that we 22 have is a suggestion to the districts. We don't give any 23 specifics on how they're going to implement it or how 24 they're going to get through some of the federal hurdles 25 that exist.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 81 1 I think as far as CHP goes on that end, we'd like 2 to continue to work with folks, the districts and others 3 to see if there is someway that can be incorporated. But 4 to give them credit as suggested in that CHP calculation 5 method is problematic at this time.

6 CHAIRPERSON LLOYD: So was that a no?

7 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Yes.

8 Basically, I think that the suggestion that we have right 9 now is basically that

10 CHAIRPERSON LLOYD: Do you see merit, though, in 11 maybe working with the districts and CAPCOA, and maybe 12 NRDC and the Board to see if we can craft something which 13 would

14 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP:

15 Absolutely. You know, EPA is under way right now to work 16 out a CHP policy. There are some issues with it, and I 17 think that it's just emerging and there's a lot of work 18 that needs to be done to see how this fits in.

19 CHAIRPERSON LLOYD: I think the comment you had 20 in terms of just true emergency generators, I don't think 21 that staff would object to that.

22 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP:

23 Absolutely.

24 CHAIRPERSON LLOYD: Ms. D'Adamo.

25 BOARD MEMBER D'ADAMO: If what you just described PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 82 1 would take place, would there be enough flexibility within 2 the resolution to allow for that process?

3 PERMIT ASSISTANCE CENTER MANAGER MARTIN: Kitty 4 Martin. One of the earlier slides in the guidance 5 document we asked that the Executive Officer be given the 6 authority to direct staff to update the guidance document 7 in two areas.

8 One was for BACT determination, the other was the 9 process for handling CHP. So as we are currently crafting 10 the resolution, yes, there is flexibility.

11 BOARD MEMBER D'ADAMO: Thank you.

12 CHAIRPERSON LLOYD: I had a question here. This 13 has come up several times and I guess to, if you like,

14 this is a case where, on the face of it, you would think 15 setting an interim standard in 2005 would make a lot of 16 sense and basically trying to make sure that we reach our 17 target in 2007 to show there's progress.

18 But I also have heard, which I think heard from 19 staff, is that that could actually be counter productive.

20 Maybe, you could just, for all of us, just educate up on 21 that point.

22 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Well,

23 I believe that, you know, the standard that we've set in 24 2007 to be equivalent to central station powerplant,

25 although there are some technologies now that will meet PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 83 1 those standards currently, there are significant hurdles 2 to be overcome for some of the fossil fuel fired units.

3 And to go through the design and the retooling 4 and marketing of this type of equipment, obviously, takes 5 time. With the first standard kicking in in 2003 and the 6 second standard following just a short four years later,

7 you know, we felt that that was adequate incentive, you 8 know, with that firm standard in 2007 to move towards 9 getting that standard in place.

10 In addition to that, you know, whoever can get 11 there first is basically going to, you know, have an 12 advantage marketwise. So we think there's some incentive 13 there in the marketplace to get this out there as soon as 14 possible.

15 CHAIRPERSON LLOYD: We understand that, if I hear 16 this correctly, and it certainly hurts us that in maybe 17 2006 Texas will have a tougher standard than we do.

18 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Texas 19 has  they have adopted a distributed generation program.

20 Their standards, they do have an interim standard that 21 kicks in in 2005, and then they have the final standard.

22 CHAIRPERSON LLOYD: And what is that standard in 23 2005?

24 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: .14.

25 CHAIRPERSON LLOYD: And ours will be?

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 84 1 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: .07.

2 CHAIRPERSON LLOYD: No, when is ours?

3 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: In 4 2007 ours will be .07.

5 CHAIRPERSON LLOYD: But in 2005 there's will be 6 .14 and ours will be .5.

7 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: .5 8 right now.

9 DEPUTY EXECUTIVE OFFICER SCHEIBLE: We went back 10 and forth with this at the staff level. And so we know 11 what the ultimate goal is, which is to reach central 12 power. It looked like there's, it's at least possible, we 13 can't say for certain that will happen, but it's possible 14 it will happen.

15 We decided to go for the gold and do it in, what 16 we thought was the minimum time possible, which was four 17 years or five years from today, as opposed to the 18 alternative of setting an interim standard which would be 19 something of a goal setting without clear direction, and 20 then delaying time for a two step process.

21 So we think that the time frame we've recommended 22 and with the one step, offers better prospect for getting 23 where we want to go as soon as possible. And quite 24 frankly, we'll have to watch this closely and come back 25 and see whether or not that was right, but it's clearly a PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 85 1 judgment call over which way to go.

2 And it's not like there's some technology out 3 there we say we know in three years we can get this in 4 half. We don't know about the second half. We've got to 5 work solving the whole problem.

6 CHAIRPERSON LLOYD: I appreciate that.

7 Dr. Burke.

8 BOARD MEMBER BURKE: I'm going to support this 9 regulation. And, Ms. Carter, I don't want you to take 10 this personally, I support NRDC in a great number of their 11 efforts.

12 But something that has been troubling me for a 13 number of years, you get up and you say I represent 14 100,000 people. Do you know that for a fact?

15 MS. CARTER: I think yes.

16 BOARD MEMBER BURKE: Do you know that there are 17 100,000 people in NRDC?

18 MS. CARTER: We actually have 550,000 members in 19 the U. S. In California I said we have nearly 100,000 20 members.

21 BOARD MEMBER BURKE: That's great. Is it a 22 secret organization?

23 MS. CARTER: No, it is not.

24 BOARD MEMBER BURKE: Well, then why isn't your 25 membership list made available to the public?

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 86 1 You see because every time NRDC testifies before 2 either South Coast or this Board, I'm not sure who you 3 really represent, because if you say we represent 500,000 4 people across the United States, but I can't tell you who 5 they are, then, you know, it's  I mean, I'm just  this 6 is not you personally. I'm going to be on this the rest 7 of my term here and at the South Coast, because I think 8 that when people  we demand to know who industry is when 9 they come here, and the environmentalists we need to know 10 who they are, because there have been a lot of things in 11 this country we've been taking for granted, when people 12 come up to testify to make sure we say that they are who 13 they are on the face value.

14 But I'm going to be looking behind everybody.

15 NRDC is going to be one of them, too. I've asked your 16 lawyers enumerable times who are your members, who are 17 your contributors, and how do you formulate policy?

18 Nobody seems to be able to tell me that.

19 Some mythical thing out of New York City, which 20 puts out a brochure and lists about 12 board members and 21 then after that nothing. So I appreciate your testimony.

22 I agree with you on this issue today, but I really would 23 like to know who you and some of these other people really 24 represent.

25 So if you go back to your people, you can tell PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 87 1 them if they really want credibility as far as I'm 2 concerned, the rest of my board members may be totally 3 satisfied, but I'm not going to be totally satisfied 4 anymore till I know who really are your members.

5 CHAIRPERSON LLOYD: Thank you.

6 Thank you very much.

7 Todd Campbell.

8 And now you know the next question from Dr.

9 Burke, the Coalition for Clean Air.

10 MR. CAMPBELL: We represent 26 people that I know 11 of.

12 ( Laughter.)

13 BOARD MEMBER BURKE: It really makes it tough.

14 MR. CAMPBELL: Twenty six people, that would be 15 staff and Board.

16 ( Laughter.)

17 MR. CAMPBELL: But we claim higher. My name is 18 Todd Campbell. I'm the policy director for the Coalition 19 for Clean Air. I'd like to wish a good morning to 20 everyone on the Board and good morning, Chairman Lloyd and 21 Members of the Board.

22 We strongly support this rule before you today.

23 The governing board has an opportunity, in our opinion, to 24 take a big bite out of the emissions apple by passing this 25 rule. There's been a lot of discussion on cost PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 88 1 effectiveness today. And one thing I'd like to remind the 2 Board is we're in 2001, and these regulations fall into 3 the 2003 and 2007.

4 However, you know, most of all these 5 technologies, if not all, are actually in place today.

6 Certainly, fuel cells are out there and with the release 7 of our joint report with the California Public Interest 8 Research Group, the Good the Bad and the Other, we give 9 you several examples of what we consider to be very viable 10 technologies to meet, very aggressive standards.

11 I also have strong faith in the Air Resources 12 Board staff, and I think they do excellent work. They 13 also have the opportunity to utilize resources. One of 14 the biggest gems I believe is the South Coast Air Quality 15 Management District through the good work of Dr.

16 Wallerstein and Dr. Lu and the technology advancement 17 office. There are many districts out there, but the South 18 Coast in particular, that are advancing technology through 19 the technology advancement office.

20 And so I just want to remind the Board that we 21 are facing issues of increased density, increased growth,

22 and the State is failing to meet its air quality goals.

23 We're struggling to meet our air quality goals. So we 24 need to take the biggest bite of the apple and be 25 aggressive and evaluate our positions as we go along, but PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 89 1 certainly we've got to keep our eyes on zero, and this is 2 what this agency has stood for for quite some time, I 3 believe, at least the beginning of this millennium.

4 We also strongly support the comments submitted 5 by the Natural Resources Defense Council. And that has 6 been made known in the comments as well as the letter that 7 the Air Resources Board should have received.

8 We also believe it's  and I don't want to go 9 through all the comments that the previous speakers have 10 gone through, because I have confidence that you've heard 11 them and I don't want to belabor the points.

12 But I want you to know that in our report, we 13 found in our own personal assessment that we released, you 14 know, in the beginning of October, that this category 15 alone releases 11,500 tons of NOx per year. It also 16 releases approximately 600 tons of PM per year, so those 17 are significant numbers.

18 We believe, therefore, it's very important to 19 adopt stringent rules, and we also believe we should adopt 20 one progressive standard not seven different standards.

21 We should have a performance based standard and we also 22 agree with the 5 PPM DD level for NOx across the Board,

23 even for lower than three megawatt hour  I mean three 24 megawatt engines because of several things.

25 One, the Bay Area Air Quality Management District PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 90 1 believes it's cost effective and feasible using certain 2 technologies, such as SCR and oxidation catalysts.

3 There are also the XO, NOx strategies that showed 4 that that level is achievable in practice as well as other 5 documentation in the staff report.

6 We also believe that there is importance for an 7 interim standard. And if there isn't an interim standard 8 adopted today, we strongly encourage the Air Resources 9 Board or the governing board to adopt a very strict 10 adherence to the 2007 standards, so that those standards 11 don't slip.

12 We really need these ton reductions and we also 13 need a technology transfer. As you know, in a lot of our 14 programs, we're advancing technology, we're not just 15 advancing technology and distributed generation, but we're 16 also advancing technology for other applications. And SCR 17 and oxidation catalysts are also being used in our mobile 18 source side.

19 Although they're not directly related, they're 20 both trying to tackle the same problem, and that's the 21 reduction of smog forming chemicals in particulate matter,

22 some of which are known to be toxic. So I'd like you to 23 keep that in mind.

24 I also believe that the credit methodology 25 proposed by the Natural Resources Defense Council is one PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 91 1 that should be strongly considered. And because there's 2 not going to be actual implementation till 2003, there 3 seems to be some time that EPA, the Air Resources Board,

4 and the Natural Resources Defense Council can work out 5 some of the problems that staff may have with the 6 methodology, but I believe that the methodology that 7 they're proposing not only protects the environment while 8 encourages complying heat and power technologies, which we 9 so desperately need, because even in graduate school, I 10 know the importance of industrial ecology, using and 11 harnessing energy that we're losing to our benefit.

12 And that truly reduces emissions, and we need to 13 do more of that. And so I believe their strategy does 14 this as well, advances or encourages the market to develop 15 CHP.

16 Finally, I also want to jump on the band wagon of 17 saying that we really, truly need equivalent emissions 18 performance for generation that meets the combined natural 19 gas central station powerplant standard by 2007. We need 20 these standards. We're struggling to get into attainment,

21 and we absolutely need them.

22 So with that, I just want to thank you for your 23 time. If you have any questions, I'll be more than glad 24 to answer them.

25 Thank you.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 92 1 CHAIRPERSON LLOYD: Thank you, Todd.

2 Questions from the Board?

3 Thank you very much.

4 Bonnie Holmes Gen, Valerie Gates, Eric Wesselman.

5 MS. HOLMES GEN: Good morning. Bonnie Holmes Gen 6 with the American Lung Association of California.

7 And I'm speaking at least on behalf of the over 8 100 individuals who wrote letters to you, and I believe 9 you have those letters in your packet from our 10 organization.

11 I speak on behalf of the American Lung 12 Association of California and the California Thoracic 13 Society. We are here, in addition to NRDC and Coalition 14 for Clean Air and some of the other groups here today, to 15 support the good staff work on this regulation. We are 16 involved in this issue because of our concern about the 17 public health impacts of the emissions from all types of 18 small and on site generators, distributed generation,

19 emergency generators and portable generators.

20 I understand today you're just dealing with 21 distributed generation, but we are concerned that all of 22 these small and on site generators are responsible for 23 significant air pollution emissions. And we have a deep 24 commitment to reducing those emissions and promoting clean 25 and renewable generation technologies.

PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 93 1 I wanted to just focus on two issues, in addition 2 to joining with the comments by NRDC and the Coalition for 3 Clean Air, and those issues are enforcement, number one,

4 and, number two, the need for rapid ARB action to address 5 diesel bugs and portable generators.

6 On enforcement, I want to urge the Air Board to 7 pay particular attention to the need for strong 8 enforcement programs to ensure that we don't have 9 opportunities for circumventing these DG regulations. For 10 example, you have excluded, of course, portable generators 11 and backup generators from the regulations, and we want to 12 make sure that those types of generators are not able to 13 circumvent the system and become used essentially as 14 distributed generation.

15 And we also want to make sure that the Board 16 determines that the those units that are certified DG 17 units only operate on the fuel they were certified to use.

18 There are some situations of fuel switching. For example,

19 combustion turbines could be switched to diesel or other 20 distillate fuels. And we want to make sure that kind of 21 situation does not occur, because obviously there would be 22 a huge increase in the emissions beyond what was 23 certified.

24 In addition to enforcement, again, we are 25 concerned about  we remain extremely concerned about the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 94 1 impact of toxic emissions from diesel backup generators 2 and portable generators. I know that you plan to move 3 ahead quickly, and we want to urge you to please do move 4 ahead quickly and control emissions from those sources as 5 rapidly as possible.

6 We're very concerned about the comments that were 7 submit by Capstone and the potential scenario that acting 8 now on DG and delaying action on these other types of 9 technologies that are mainly diesel could tilt the 10 competitive playing field in favor of those higher 11 polluting technologies. We absolutely do not want that to 12 occur. And I know that you don't want that to occur 13 either.

14 But I think moving ahead quickly on regulations 15 to control diesel bugs and portable generators is 16 extremely important to ensure that we do have a level 17 playing field and emit strong emission controls to achieve 18 the central station standards for all types of on site 19 technologies.

20 In closing, we urge you to move ahead, adopt the 21 stringent emission standards that you have before you 22 today and move forward quickly on diesel backup generators 23 and portable generators as your next step.

24 We believe that pursuing clean and renewable 25 sources for small power generators will be an incredible PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 95 1 improvement for air quality and public health. At the 2 same time, we'll be helping to promote low emitting and 3 renewable power technologies and improve our chances for 4 energy security.

5 CHAIRPERSON LLOYD: Thank you very much, Bonnie.

6 Any questions?

7 Yes, Mr. Calhoun.

8 BOARD MEMBER CALHOUN: I guess I'd like to hear 9 the staff's comment about her interest in an enforcement 10 program to be certain that portable and backup generators 11 don't circumvent the system.

12 PROJECT ASSESSMENT BRANCH CHIEF TOLLSTRUP: Mike 13 Tollstrup. One of the staff's goals is to work closely 14 with the districts to make sure, and we have been all 15 along during the whole energy crisis, working with the 16 districts to make sure that equipment, such as the backup 17 generators, which have been minimal controls, portable 18 equipment, which we argue with some over its intended use,

19 they're all used in a fashion that they were intended to 20 be used.

21 We have worked on a number of cases with 22 districts to make sure that, you know, equipment under the 23 portable equipment program if it's misused it's taken out 24 of our program and sent back to the district for permits,

25 and then also working with them on what the restrictions PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 96 1 should be for emergency generators and we will continue to 2 do so.

3 BOARD MEMBER CALHOUN: I guess I'd like to ask do 4 you have something specific in mind that you think that 5 should be done that isn't being done?

6 MS. HOLMES GEN: Well, because there are so many 7 of these generators throughout the state, and obviously it 8 presents an enforcement challenge, and we're concerned 9 that in the cases where natural gas shortages or prices 10 spikes occur, there could be some operators that switch 11 fuels in order to avoid the cost of natural gas or avoid 12 using a fuel that's in short supply.

13 And we want to make sure that the Air Board is 14 working very closely with the districts to ensure that 15 their enforcement teams are looking for this sort of 16 misuse of certified equipment.

17 BOARD MEMBER CALHOUN: Well, I think we've heard 18 the staff's comment and it appears as though they 19 obviously have this in mind, and are working with the 20 local districts in an effort to try and accomplish this.

21 PERMIT ASSISTANCE CENTER MANAGER MARTIN: I'll 22 add one other comment. This is Kitty Martin.

23 We will have on our web site a list of all the 24 equipment that has been certified as meeting our 25 standards. It will allow districts to quickly in the PETERS SHORTHAND REPORTING CORPORATION ( 916) 362 2345 97 1 field double check to make sure that a device is, one,

2 certified and, two, is using the appropriate fuel.

3 CHAIRPERSON LLOYD: Thank you.

4 We'll take one more witness, Valerie Gates, and 5 then we're going to take a ten minute break for the 6 benefit of the court reporter. So we'll take Valerie,

7 then after the break we'll get Eric Wesselman.