2075 Woodside Road | Redwood City, CA 94061
(650) 260-0005 | peninsulacleanenergy.com
Regular Meeting of the Executive Committee of the
Peninsula Clean Energy Authority (PCEA)
AGENDA
Monday, March 13, 2023
10:00 a.m.
PLEASE NOTE: This meeting will be held in a hybrid format with both in-person and Zoom participation options for members of the public; Board members shall appear in person.
In-Person Meeting Location:
PCEA Lobby, 2075 Woodside Road, Redwood City, CA 94061
Zoom, Virtual Meeting Link: https://pencleanenergy.zoom.us/j/85785703368 Meeting ID: 857-8570-3368 Passcode: 2075 Phone: +1(669) 444-9171 This meeting of the Peninsula Clean Energy Executive Committee will be held at the Peninsula Clean Energy Lobby: 2075 Woodside Road, Redwood City, CA 94061 and by teleconference pursuant to California Assembly Bill 2449 and the Ralph M. Brown Act, CA Gov’t Code. Section 54950, et seq. Members of the Committee are expected to attend the meeting in person and should reach out to Assistant General Counsel for Peninsula Clean Energy, Jennifer Stalzer, with questions or accommodation information ([email protected]). For information regarding how to participate in the meeting remotely, please refer to the instructions at the end of the agenda. In addition, a video broadcast of the meeting can be viewed at https://www.peninsulacleanenergy.com/executive-committee following the meeting.
Public Participation
The PCEA Executive Committee meeting may be accessed through Zoom online at https://pencleanenergy.zoom.us/j/85785703368. The meeting ID is: 857-8570-3368 and the passcode is: 2075. The meeting may also be accessed via telephone by dialing +1(669) 444- 9171. Enter the webinar ID: 857-8570-3368, then press #. (Find your local number:
https://pencleanenergy.zoom.us/u/kTlH1Ocod).
Members of the public can also attend this meeting physically at the Peninsula Clean Energy Lobby at 2075 Woodside Road, Redwood City, CA 94061.
Written public comments may be emailed to PCEA Board Clerk, Nelly Wogberg ([email protected]) and such written comments should indicate the specific agenda item on which the member of the public is commenting.
Spoken public comments will be accepted during the meeting in the Board Room(s) or remotely through Zoom at the option of the speaker. Please use the “Raise Your Hand” function in the Zoom platform, or press *6 if you phoned into the meeting, to indicate that you would like to provide comment. Public comments via Zoom will be taken first followed by speakers in person. 1 ADA Requests
Individuals who require special assistance or a disability related modification or accommodation to participate in this meeting, or who have a disability and wish to request an alternative format for the meeting, should contact Nelly Wogberg, Board Clerk, by 10:00 a.m. on the day before the meeting at ([email protected]). Notification in advance of the meeting will enable PCEA to make reasonable arrangements to ensure accessibility to this meeting, the materials related to it, and your ability to comment.
Closed Captioning is available for all PCEA Executive Committee meetings. While watching the video broadcast in Zoom, please enable captioning.
CALL TO ORDER / ROLL CALL
PUBLIC COMMENT
This item is reserved for persons wishing to address the Committee on any PCEA-related matters that are not otherwise on this meeting agenda. Public comments on matters listed on the agenda shall be heard at the time the matter is called. Members of the public who wish to address the Committee are customarily limited to two minutes per speaker. The Committee Chair may increase or decrease the time allotted to each speaker.
ACTION TO SET AGENDA
REGULAR AGENDA
1. Chair Report (Discussion)
2. CEO Report (Discussion)
3. Review of Financial Reports and Investment Summary for 2nd Quarter Fiscal Year (FY) 2022-2023 (Discussion)
4. Discussion on Building Electrification Strategy
5. Discussion on Bay Area Air Quality Management District (BAAQMD) Proposed Amendments to Rule 9-4: Nitrogen Oxides from Fan Type Residential Central Furnaces and Rule 9-6: Nitrogen Oxides Emissions from Natural Gas-Fired Boilers and Water Heaters
6. Strategic Plan Amendments and Proposed Amendments to Policies 9 and 10 (Continued from January 9, 2023 Executive Committee Meeting) (Action)
7. Committee Members’ Reports (Discussion)
ADJOURNMENT
Public records that relate to any item on the open session agenda are available for public inspection. The records are available at the Peninsula Clean Energy offices or on PCEA’s Website at:
https://www.peninsulacleanenergy.com.
2 Instructions for Joining a Zoom Meeting via Computer or Phone Best Practices:
• Please mute your microphone when you are not speaking to minimize audio feedback • If possible, utilize headphones or ear buds to minimize audio feedback • If participating via videoconference, audio quality is often better if you use the dial-in option (Option 2 below) rather than your computer audio Options for Joining
A. Videoconference with Computer Audio – see Option 1 below B. Videoconference with Phone Call Audio– see Option 2 below C. Calling in via Telephone/Landline – see Option 3 below Videoconference Options:
Prior to the meeting, we recommend that you install the Zoom Meetings application on your computer by clicking here https://zoom.us/download.
If you want full capabilities for videoconferencing (audio, video, screensharing) you must download the Zoom application.
Option 1 Videoconference with Computer Audio:
1. From your computer, click on the following link that is also included in the Meeting Calendar Invitation: https://pencleanenergy.zoom.us/j/85785703368.
2. The Zoom application will open on its own or you will be instructed to open Zoom.
3. After the application opens, the pop-up screen below will appear asking you to choose ONE of the audio conference options. Click on the Computer Audio option at the top of the pop-up screen.
4. Click the blue, “Join with Computer Audio” button.
5. In order to enable video, click on “Start Video” in the bottom left-hand corner of the screen. This menu bar is also where you can mute/unmute your audio.
Option 2 Videoconference with Phone Call Audio:
3 1. From your computer, click on the following link that is also included in the Meeting Calendar Invitation: https://pencleanenergy.zoom.us/j/85785703368.
2. The Zoom Application will open on its own or you will be instructed to Open Zoom.
3. After the application opens, the pop-up screen below will appear asking you to choose ONE of the audio conference options. Click on the Phone Call option at the top of the pop-up screen.
4. Please dial +1 (669) 444-9171.
5. You will be instructed to enter the meeting ID: 857-8570-3368 followed by #.
6. You will be instructed to enter in your participant ID. Your participant ID is unique to you and is what connects your phone number to your Zoom account.
7. After a few seconds, your phone audio should be connected to the Zoom application on your computer.
8. In order to enable video, click on “Start Video” in the bottom left-hand corner of the screen. This menu bar is also where you can mute/unmute your audio.
Audio Only Options:
Please note that if you call in/use the audio only option, you will not be able to see the speakers or any presentation materials in real time.
Option 3: Calling in via Telephone/Landline:
1. Dial +1 (669) 444-9171.
2. You will be instructed to enter the meeting ID: 857-8570-3368 followed by #.
3. You will be instructed to enter your Participant ID followed by #. If you do not have a participant ID or do not know it, you can press # to stay on the line.
4. You will be instructed to enter the meeting passcode 2075 followed by #. 4 Item No. 3
PENINSULA CLEAN ENERGY AUTHORITY
JPA Board Correspondence
DATE: March 7, 2023
BOARD MEETING DATE: March 13, 2023
SPECIAL NOTICE/HEARING: None
VOTE REQUIRED: None
TO: Peninsula Clean Energy Executive Committee
FROM: Kristina Cordero, Chief Financial Officer, Peninsula Clean Energy SUBJECT: Review of Financial Reports and Investment Summary for 2nd Quarter Fiscal Year (FY) 2022-2023
RECOMMENDATION:
No Action Recommended. Discussion only.
BACKGROUND:
The attached documents provide the Executive Committee materials to review and discuss Peninsula Clean Energy’s year to date financial performance as it compares to the adopted budget for the current Fiscal Year (FY) 2022-2023. These financial performance results are reported through the 2nd quarter, or through December 31, 2022 of the current Fiscal Year (FY) 2022-2023.
FISCAL IMPACT:
No fiscal impact
STRATEGIC PLAN:
ATTACHMENTS
1. Peninsula Clean Energy Financial Report December 2022
2. Peninsula Clean Energy FY 2022-2023 Q2 Financial Report
3. Peninsula Clean Energy FY 2022-2023 Q2 Financial Report Power Point Presentation (from Audit and Finance Committee Presentation on February 14, 2023) 5 1
ACCOUNTANTS’ COMPILATION REPORT
Board of Directors
Peninsula Clean Energy Authority
Management is responsible for the accompanying financial statements of Peninsula Clean Energy Authority (PCE), a California Joint Powers Authority, which comprise the statement of net position as of December 31, 2022, and the statement of revenues, expenses, and changes in net position, and the statement of cash flows for the period then ended, in accordance with accounting principles generally accepted in the United States of America. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the accompanying statements nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, conclusion, nor provide any assurance on these financial statements.
Management has elected to omit substantially all of the note disclosures required by accounting principles generally accepted in the United States of America in these interim financial statements.
PCE’s annual audited financial statements will include the note disclosures omitted from these interim statements. If the omitted disclosures were included in these financial statements, they might influence the user’s conclusions about the Authority’s financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters.
We are not independent with respect to PCE because we performed certain accounting services that impaired our independence.
Maher Accountancy
San Rafael, CA
January 26, 2023
1101 Fifth Avenue, Suite 200 San Rafael, CA 94901 415 459 1249 mahercpa.com 6 ASSETS
Current assets
Cash and cash equivalents 63,460,061 $
Accounts receivable, net of allowance 37,095,186
Accrued revenue 21,900,199
Investments 15,000,296
Other receivables 4,727,535
Prepaid expenses 778,763
Deposits 14,826,683
Total current assets 157,788,723
Noncurrent assets
Investments 107,213,940
Deposits and other assets 187,878
Lease asset, net of amortization 1,847,692
Capital assets, net of depreciation 247,268
Total noncurrent assets 109,496,778
Total assets 267,285,501
LIABILITIES
Current liabilities
Accrued cost of electricity 39,032,535
Accounts payable 975,180
Other accrued liabilities 731,754
Deferred revenue 4,678,563
User taxes and energy surcharges due to other governments 1,259,096 Deposits - energy suppliers 2,230,588
Lease liability 484,241
Total current liabilities 49,391,957
Noncurrent liabilities
Deposits - energy suppliers 1,653,433
Lease liability 1,512,609
Total noncurrent liabilities 3,166,042
Total liabilities 52,557,999
NET POSITION
Net investment in capital assets 98,110
Unrestricted 214,629,392
Total net position 214,727,502 $
As of December 31, 2022
STATEMENT OF NET POSITION
PENINSULA CLEAN ENERGY AUTHORITY
See accountants' compilation report. 2 7
OPERATING REVENUES
Electricity sales, net 213,073,074 $
Green electricity premium 1,536,690
Liquidated damages revenue 113,643
Grant revenue 571,955
Total operating revenues 215,295,362
OPERATING EXPENSES
Cost of electricity 156,507,649
Contract services 5,187,515
Staff compensation 3,704,778
General and administration 1,859,094
Depreciation and amortization 284,507
Total operating expenses 167,543,543
Operating income (loss) 47,751,819
NONOPERATING REVENUES (EXPENSES)
Interest and investment income (loss) (661,990)
Finance costs (33,061)
Nonoperating revenues (expenses), net (695,051)
CHANGE IN NET POSITION 47,056,768
Net position at beginning of period 167,670,734
Net position at end of period 214,727,502 $
PENINSULA CLEAN ENERGY AUTHORITY
STATEMENT OF REVENUES, EXPENSES
AND CHANGES IN NET POSITION
Six Months Ended December 31, 2022
See accountants' compilation report. 3 8
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 212,393,545 $
Receipts from grantors 5,250,518
Receipts from supplier security deposits 533,798
Payments to suppliers for electricity (143,227,651)
Payments for other goods and services (7,299,730)
Payments for staff compensation (3,675,242)
Payments of taxes and surcharges to other governments (2,896,898) Net cash provided (used) by operating activities 61,078,340
CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES
Deposits and collateral received 14,000,000
Deposits and collateral paid (23,367,660)
Net cash provided (used) by non-capital
financing activities (9,367,660)
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments of lease liability (303,520)
Payments to acquire capital assets (23,641)
Net cash provided (used) by capital financing activities (327,161)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investment sales 22,170,501
Investment income received 1,124,953
Purchase of investments (20,996,364)
Net cash provided (used) by investing activities 2,299,090 Net change in cash and cash equivalents 53,682,609
Cash and cash equivalents at beginning of period 9,777,452 Cash and cash equivalents at end of period 63,460,061 $ Six Months Ended December 31, 2022
STATEMENT OF CASH FLOWS
PENINSULA CLEAN ENERGY AUTHORITY
See accountants' compilation report. 4 9
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Operating income (loss) 47,751,819 $
Adjustments to reconcile operating income to net
cash provided (used) by operating activities
Depreciation and amortization expense 284,507
Provision for uncollectible accounts 1,620,860
(Increase) decrease in:
Accounts receivable (5,846,667)
Accrued revenue (1,178,218)
Other receivables (1,602,971)
Prepaid expenses 4,197,808
Increase (decrease) in:
Accrued cost of electricity 11,893,615
Accounts payable (196,623)
Deferred revenue 4,405,063
Other accrued liabilities (34,616)
User taxes and energy
surcharges due to other governments 177,265
Supplier security deposits (393,502)
Net cash provided (used) by operating activities 61,078,340 $ Six Months Ended December 31, 2022
STATEMENT OF CASH FLOWS (continued)
PENINSULA CLEAN ENERGY AUTHORITY
See accountants' compilation report. 5 10
Peninsula Clean Energy
Performance at a Glance
Results for Fiscal Quarter Ended December 31, 2022
In $000’s
Revenues
Fiscal Year Actual/Budget Amount
FY2015-2016 Audited $0
FY2016-2017 Audited $93,129
FY2017-2018 Audited $244,738
FY2018-2019 Audited $259,782
FY2019-2020 Audited $278,093
FY2020-2021 Audited $228,101
FY2021-2022 Audited $237,899
December 31, 2022 Unaudited YTD $215,182
FY2022-2023 Budget $367,784
Total Operating Expenses
Fiscal Year Actual/Budget Amount
FY2015-2016 Audited $1,041
FY2016-2017 Audited $70,104
FY2017-2018 Audited $180,970
FY2018-2019 Audited $206,964
FY2019-2020 Audited $231,482
FY2020-2021 Audited $236,373
FY2021-2022 Audited $246,539
December 31, 2022 Unaudited YTD $167,577
FY2022-2023 Budget $294,429
Cost of Electricity
Fiscal Year Actual/Budget Amount
FY2015-2016 Audited $0
FY2016-2017 Audited $64,501
FY2017-2018 Audited $170,135
FY2018-2019 Audited $194,035
FY2019-2020 Audited $216,066
FY2020-2021 Audited $213,834
FY2021-2022 Audited $226,679
December 31, 2022 Unaudited YTD $156,508
FY2022-2023 Budget $264,208
Change in Net Position
Fiscal Year Actual/Budget Amount
FY2015-2016 Audited ($1,044)
FY2016-2017 Audited $22,755
FY2017-2018 Audited $63,655
FY2018-2019 Audited $54,774
FY2019-2020 Audited $48,788
FY2020-2021 Audited ($8,285)
FY2021-2022 Audited ($13,046)
December 31, 2022 Unaudited YTD $47,058
FY2022-2023 Budget $62,167
11 Peninsula Clean Energy
Performance at a Glance
Results for Fiscal Quarter Ended December 31, 2022
In $000’s
$220,566
$215,182
$0 $50,000 $100,000 $150,000 $200,000 $250,000
YTD Revenues - Actual vs. Budget
Actual Revenues - YTD Budget Revenues - YTD
$158,690
$167,577
$0 $50,000 $100,000 $150,000 $200,000 $250,000
YTD Expenses - Actual vs. Budget
Actual Expenses - YTD Budget Expenses - YTD
737,494,177 ,
42.2%
1,010,247,538 ,
57.8%
YTD Customer Energy Billed (MWh)
Residential Commercial/Industrial
280,611 ,
90.7%
28,831 ,
9.3%
Customer Accounts
Residential Commercial/Industrial
12 Peninsula Clean Energy
Performance at a Glance
Results for Fiscal Quarter Ended December 31, 2022
In $000’s
Note: Financial Statements are preliminary until the audit is completed Revenues :
• Year to date revenues are $5.4 million, or 2.4% below year to date budget • Total year to date load is 1.3% below year to date budget; Residential load is 4% below budget and Commercial/Industrial Load is 1% above budget Expenses :
• Year to date expenses are $8.9 million, or 5.6% higher than year to date budget, with the driver being cost of energy expenses in excess of budget, particularly in the months of September and December
Actual Budget
Variance Favorable /
(Unfavorable)
YTD Actual as % of
YTD Budget Budget
YTD Actual as % of
Full Year Budget
OPERATING REVENUES
Electricity Sales, net 213,645,027 219,142,719 (5,497,691) 97.49% 364,961,141 58.54% Green electricity premium 1,536,690 1,422,832 113,858 108.00% 2,822,550 54.44% Total Operating Revenues 215,181,717 220,565,551 (5,383,833) 97.56% 367,783,691 58.51%
OPERATING EXPENSES
Cost of energy 156,507,649 143,578,411 (12,929,238) 109.01% 264,208,440 59.24% Staff compensation 3,704,773 4,291,611 586,838 86.33% 8,583,221 43.16% Data Manager 1,763,451 1,800,000 36,549 97.97% 3,600,000 48.98% Service Fees - PG&E 660,550 675,000 14,450 97.86% 1,350,000 48.93% Consultants & Professional Services 524,138 829,094 304,956 63.22% 1,431,813 36.61% Legal 723,873 737,000 13,127 98.22% 1,474,000 49.11%
Communications and Noticing 589,182 1,228,854 639,672 47.95% 2,686,208 21.93% General and Administrative 1,132,987 1,191,000 58,013 95.13% 2,359,806 48.01% Community Energy Programs 1,931,850 4,320,000 2,388,150 44.72% 8,640,000 22.36% Depreciation 38,147 48,000 9,853 79.47% 96,000 39.74%
Total Operating Expenses 167,576,601 158,698,970 (8,877,632) 105.59% 294,429,488 56.92% Operating Income (Loss) 47,605,116 61,866,581 (14,261,465) 76.95% 73,354,203 64.90% NON-OPERATING REVENUES (EXP.)
Total Nonoperating Income/(Expense) (548,347) 300,000 (848,347) -182.78% 600,000 -91.39% CHANGE IN NET POSITION 47,056,769 62,166,581 (15,109,812) 75.69% 73,954,203 63.63% Year -to-date Full Year (FY 2022-2023)
13 Item No. 4
PENINSULA CLEAN ENERGY
JPA Board Correspondence
DATE: Mar. 8, 2023
BOARD MEETING DATE: Mar. 13, 2023
SPECIAL NOTICE/HEARING: None
VOTE REQUIRED: None
TO: Honorable Peninsula Clean Energy Authority Executive Committee FROM: Jan Pepper, Chief Executive Officer, Peninsula Clean Energy Rafael Reyes, Director of Energy Programs
SUBJECT: Building Electrification Strategy Update
RECOMMENDATION:
No Action Recommended. Discussion only.
BACKGROUND
In September 2022, Peninsula Clean Energy Staff presented to the Board a 2035 Decarbonization Feasibility and Plan. For existing buildings “small residential” (single-family and small multi-family residential units), office and small commercial have been identified as priority targets. The plan calls for reach codes and regulatory requirements to drive the market. However, for such regulations to be feasible and successful, there need to be robust programs in place to support residents and businesses in making this transition. The 2035 Plan established the following programs objectives for future building electrification programs:
1. Flexible incentives
o All measures, including prewiring and panels
o Broader building segments
o Integrated load shaping & solar+storage options
2. High touch support
o Advanced “right-sizing” design
o Technical assistance “hotline” and turnkey installation option o Procurement aggregation to lower costs
o Greater contractor support
3. Links to finance
o Specific linkages by customer segment
A presentation covering details of the proposed updated residential Building Electrification Strategy will be presented at the meeting.
14 Item No. 5
PENINSULA CLEAN ENERGY AUTHORITY
JPA Board Correspondence
DATE: March 9, 2023
BOARD MEETING DATE: March 13, 2023
SPECIAL NOTICE/HEARING: None
VOTE REQUIRED: Majority Present
TO: Peninsula Clean Energy Executive Committee
FROM: Jan Pepper, CEO
SUBJECT: Discussion on Bay Area Air Quality Management District (BAAQMD) Proposed Amendments to Rule 9-4: Nitrogen Oxides from Fan Type Residential Central Furnaces and Rule 9-6: Nitrogen Oxides Emissions from Natural Gas-Fired Boilers and Water Heaters
RECOMMENDATION
Discussion only.
BACKGROUND:
Peninsula Clean Energy has been approached to take a position on the Bay Area Air Quality Management District’s (BAAQMD) proposed amendments to two rules that regulate nitrogen oxide (NOx) emissions from residential and commercial water and space heating systems. The proposed rules introduce a zero NOx emission standard for natural gas-fired furnaces and water-heaters sold and installed in the Bay Area. The standards would apply to appliance retailers, wholesalers and installers and would apply to Bay Area consumers at the point in time when they install a new appliance or replace their existing furnaces and water heaters. The proposed amendments include a commitment from the BAAQMD district staff to re-evaluate the availability and accessibility of zero NOx appliances as the compliance date comes closer through an interim reporting process to update the BAAQMD Board on relevant market changes and to ensure equitable outcomes in the implementation of the proposed standards. The BAAQMD Board of Directors is scheduled to consider adopting these rules on Wednesday, March 15.
Rule 9-4, which introduces the zero NOx standard and applies to residential and commercial space heating appliances is proposed to take effect on January 1, 2029. Rule 9-6, which introduces the zero NOx standard, applies to natural gas-fired residential and commercial water heaters and boilers. Residential units would be required to comply by January 1, 2027 and larger commercial and multifamily units would be required to comply by January 1, 2031.
With regard to Rule 9-4, the Staff Report states that “[t]he proposed amendments include the addition of an interim report to be brought to the Board of Directors by the Air Pollution Control Officer (APCO) two years prior to the compliance date for the zero NOx standard. Staff intends for this report to provide information to the Board and the public about the accessibility of zero 15 Item No. 5
NOx appliances to Bay Area residents and to allow the Board of Directors an opportunity to take any necessary action in response to this information … includ[ing] information on technology development, market availability of zero NOx space heating appliances, potential costs of compliance, infrastructure readiness, and availability of incentive programs to decrease these costs.” See page 8 of Staff Report. Similarly, an Interim Report will be brought to the Board with regard to Rule 9-6 at least two years prior to the compliance dates. See page 9 of Staff Report.
The interim reports will also be informed by an Implementation Working Group of external stakeholders with different areas of expertise in reference to the implementation of the rule amendments. See page 47 of Staff report.
A fact sheet is included as Attachment 1. The BAAQMD staff report is included as Attachment 2.
The redline for Rule 9-4: Nitrogen Oxides from Fan Type Residential Central Furnaces is included as Attachment 3. The redline for Rule 9-6: Nitrogen Oxides Emissions from Natural Gas-Fired Boilers and Water Heaters is included as Attachment 4.
Peninsula Clean Energy’s Policy 1 delegates authority to the CEO to take positions on legislative and regulatory items that are consistent with the Board approved Legislative and Regulatory platform. One of the two key strategic priorities of Peninsula Clean Energy is to contribute to PCE member jurisdictions reaching the state’s goal to be 100% greenhouse-gas free for transportation and building electrification by 2035. We have found that mandatory ordinances are a much more effective way to move electrification efforts rather than relying on voluntary efforts by residents, as evidenced by the Reach Codes adopted by 19 of PCE’s member jurisdictions.
It is in keeping with Peninsula Clean Energy’s strategic goals and Board approved 2023 Legislative and Regulatory Policy platform to support these two proposed rules by the BAAQMD and submit a letter of support. Section II.a. of the 2023 Legislative and Regulatory Policy platform states:
“Advocate for and support policy efforts to accelerate decarbonization of the energy sector, transportation, and the built environment.”
SVCE and EBCE have submitted letters of support to BAAQMD with regard to these two rules.
However, because of the impact that these two rules have on our customers, PCE staff is bringing this for discussion at the Executive Committee to seek their input before submitting a formal letter of support.
ATTACHMENTS:
Attachment 1: Air District Appliance Rules – Furnaces and Water Heaters – Fact Sheet Attachment 2: BAAMQD Final Staff Report: Proposed Amendments to Building Appliance Rules – Regulation 9, Rule 4: Nitrogen Oxides from Fan Type Residential Central Furnaces and Rule 6: Nitrogen Oxides Emissions from Natural Gas-Fired Boilers and Water Heaters Attachment 3: Redlined Regulation 9, Rule 4
Attachment 4: Redlined Regulation 9, Rule 6
16 Air District Appliance Rules – Furnaces and Water Heaters Health impacts from short- and long-term exposure
Compliance Timeline
PM2.5
• Asthma and other respiratory conditions
• Neurological disease
• Heart attack
• Stroke
• Lung cancer
• Premature death
Proposed amendments to two Air District
rules will support improvements to regional
air quality and public health —
Regulation 9, Rule 4: Nitrogen Oxides from
Fan Type Residential Central Furnaces, and
Regulation 9, Rule 6: Nitrogen Oxides
Emissions from
Natural Gas-Fired
Boilers and Water
Heaters.
The proposed rule
changes will not apply
to gas appliances used
for cooking, such as gas stoves.
If adopted, the rule amendments will affect
Bay Area households that use natural gas
appliances – roughly about 2/3 of all
households currently — and will:
• Improve overall regional air quality from the
outdoor venting of these appliances
• Prevent up to 85 premature deaths per year
• Lower PM2.5 exposure, particularly in
communities of color
• Save up to $890M per year in reduced
health care costs and lost work due to
PM2.5 exposure:
• About 60% of benefits can be achieved
through elimination of NOx and
secondary PM2.5 emissions by
switching to zero-NOx appliances.
• About 40% of benefits can be achieved
through additional elimination of
primary PM2.5 emissions by switching
to fully zero-emission appliances.
• Currently, the only zero-NOx
appliances available are electric
appliances.
baaqmd.gov/building-appliances
The rule amendments would apply only to new appliances, and do not mandate retrofitting of existing appliances.
2027 – only zero NOx water heaters can be sold or installed in the Bay Area. 2029 – only zero NOx furnaces can be sold or installed in the Bay Area. 2031 – only zero NOx large commercial water heaters can be sold or installed in the Bay Area.
NOx
• Coughing, wheezing, difficulty breathing
• Asthma
• Increased susceptibility to
respiratory infections
For more information:
BAAQMD.gov 17
FINAL STAFF REPORT
PROPOSED AMENDMENTS TO BUILDING APPLIANCE RULES –
REGULATION 9, RULE 4: NITROGEN OXIDES FROM FAN TYPE
RESIDENTIAL CENTRAL FURNACES AND RULE 6: NITROGEN
OXIDES EMISSIONS FROM NATURAL GAS-FIRED BOILERS AND
WATER HEATERS
March 2023
Prepared By
Jennifer Elwell
Senior Air Quality Engineer
and
Eric Lara
Senior Air Quality Specialist
18 Proposed Amendments to Rules 9-4 and 9-6 Page i March 2023 Final Staff Report
Table of Contents
ACKNOWLEDGEMENTS .......................................................................................................... 1 I. EXECUTIVE SUMMARY .................................................................................................... 1 II. BACKGROUND .................................................................................................................. 4 A. Industry Description......................................................................................................... 5 B. Regulatory History........................................................................................................... 5 C. Active Rule Development ................................................................................................ 6 III. PROPOSED RULE AMENDMENTS................................................................................... 7 A. Proposed Amendments to Rule 9-4................................................................................. 7
1. Rule Title and Equipment Scope ....................................................................................................7
2. Applicability.....................................................................................................................................7
3. Definitions .......................................................................................................................................7
4. Standards .......................................................................................................................................8
5. Administrative Requirements..........................................................................................................8
6. Manual of Procedures.....................................................................................................................8 B. Proposed Amendments to Rule 9-6................................................................................. 9
1. Rule Applicability ............................................................................................................................9
2. Standards .......................................................................................................................................9
3. Administrative Requirements..........................................................................................................9
4. Manual of Procedures...................................................................................................................10 C. Interim Report and Implementation Working Group........................................................10 IV. TECHNOLOGY EVALUATION ..........................................................................................10 A. Zero NOx Natural Gas Systems .....................................................................................11 B. Zero NOx 240 Volt Electric Systems...............................................................................11 C. Zero NOx Low Voltage Electric Systems ........................................................................11 D. Compliance Dates ..........................................................................................................13 V. EMISSIONS AND EMISSION REDUCTIONS....................................................................14 A. Emissions Context..........................................................................................................14 B. Nitrogen Oxide Emissions ..............................................................................................18 C. Ozone Formation............................................................................................................19 D. Ultra-low NOx Emission Control Methods.......................................................................19 E. Zero NOx Technologies for Space and Water Heating ...................................................20 F. Nitrogen Oxides Emissions Reductions..........................................................................20 19 Proposed Amendments to Rules 9-4 and 9-6 Page ii March 2023 Final Staff Report
G. Greenhouse Gas Emissions Reductions ........................................................................23 H. Particulate Matter Emissions ..........................................................................................25 I. Exposure and Health Impacts.........................................................................................26 VI. ECONOMIC IMPACTS ......................................................................................................32 A. Cost Effectiveness..........................................................................................................32 B. Incremental Cost Effectiveness ......................................................................................33
1. Proposed Amendments to Rule 9-4 .............................................................................................33
2. Proposed Amendments to Rule 9-6 .............................................................................................34 C. Socioeconomic Impacts..................................................................................................34 D. Funding and Incentives ..................................................................................................36 E. Valuation of Health Impacts............................................................................................39 F. Air District Impacts .........................................................................................................41 VII. REGULATORY IMPACTS..................................................................................................42 VIII. ENVIRONMENTAL IMPACTS........................................................................................43 A. Notice of Preparation and Initial Study............................................................................43 B. Draft Environmental Impact Report.................................................................................43 C. Final Environmental Impact Report.................................................................................44 IX. RULE DEVELOPMENT / PUBLIC PARTICIPATION PROCESS........................................45 A. Public Participation during Rule Development Process ..................................................45 B. Considerations to Ensure Equitable Outcomes...............................................................46 C. Implementation Working Group ......................................................................................47 D. Overview of Comments Received...................................................................................48 X. CONCLUSION/RECOMMENDATIONS .............................................................................48 A. Necessity........................................................................................................................48 B. Authority.........................................................................................................................49 C. Clarity.............................................................................................................................49 D. Consistency....................................................................................................................49 E. Non-Duplication..............................................................................................................50 F. Reference.......................................................................................................................50 G. Recommendations .........................................................................................................50 20 Proposed Amendments to Rules 9-4 and 9-6 Page iii March 2023 Final Staff Report
List of Appendices:
Appendix A: Proposed Amendments to Rule 9-4
Appendix B: Proposed Amendments to Rule 9-6
Appendix C: Socioeconomic Impacts Analysis
Appendix D: Electric Infrastructure Impacts from Proposed Zero NOx Standards Appendix E: Assessing Ambient Air Quality and Health Impacts from Natural Gas Building Appliances in the Bay Area
Appendix F: Exposure and Equity Assessment of Natural Gas Appliances in the San Francisco Bay Area
Appendix G: Draft Environmental Impact Report
Appendix H: Response to Comments: Proposed Amendments to Regulation 9, Rule 4 and Rule 6
21 Proposed Amendments to Rules 9-4 and 9-6 Page 1 March 2023 Final Staff Report
ACKNOWLEDGEMENTS
District staff members who contributed to the development of this Staff Report and rule proposals:
Abby Young, Manager, Planning and Climate Protection
Amy Dao, Senior Environmental Planner, Planning and Climate Protection Bonyoung Koo, Senior Atmospheric Modeler, Assessment, Inventory, and Modeling David Holstius, Senior Advanced Projects Advisor, Assessment, Inventory, and Modeling David Joe, Assistant Manager, Rules and Strategic Planning Elizabeth Yura, Director, Rules and Strategic Planning
Henry Hilken, Director, Planning and Climate Protection Idania Zamora, Assistant Manager, Planning and Climate Protection Jacob Finkle, Senior Air Quality Specialist, Rules and Strategic Planning Laura Cackette, Senior Air Quality Specialist, Rules and Strategic Planning Madeline Stone, Assistant Counsel, Legal
Mark Tang, Principal Environmental Planner, Planning and Climate Protection Megan Mabry, Administrative Assistant II, Community Engagement Phil Martien, Director, Assessment, Inventory, and Modeling Randi Wallach, Assistant Counsel, Legal
Saffet Tanrikulu, Manager, Assessment, Inventory, and Modeling Song Bai, Manager, Assessment, Inventory, and Modeling
Steve Reid, Senior Advanced Projects Advisor, Assessment, Inventory, and Modeling Victor Douglas, Manager, Rules and Strategic Planning
Yiqin Jia, Atmospheric Modeler, Assessment, Inventory, and Modeling Yuanyuan Fang, Statistician, Assessment, Inventory, and Modeling I. EXECUTIVE SUMMARY
The Bay Area Air Quality Management District (“BAAQMD” or the “Air District”) staff is proposing amendments to two Air District rules: Regulation 9, Rule 4: Nitrogen Oxides from Fan Type Residential Central Furnaces (“Rule 9-4”) and Regulation 9, Rule 6: Nitrogen Oxides Emissions from Natural Gas-Fired Boilers and Water Heaters (“Rule 9-6”) to support improvements to regional ambient air quality and health outcomes. Rule 9-4 currently applies to the natural gas-fired space-heating furnaces commonly found in single-family homes and Rule 9-6 applies to natural gas-fired water heaters commonly found in residential and commercial applications. These sources generate a substantial portion of nitrogen oxides (NOx) emissions from sources in the Bay Area.
Exposure to NOx and their atmospheric reaction products can greatly impact health. Breathing air with a high concentration of NOx can irritate airways in the human respiratory system. Such exposures over short periods can aggravate respiratory diseases, particularly asthma, leading to respiratory symptoms (such as coughing, wheezing or difficulty breathing), hospital admissions and visits to emergency rooms. Longer exposures to elevated concentrations of NOx may contribute to the development of asthma and potentially increase susceptibility to respiratory infections. People with asthma, as well as children and the elderly are generally at greater risk for the health effects of NOx.
22 Proposed Amendments to Rules 9-4 and 9-6 Page 2 March 2023 Final Staff Report
Nitrogen oxides react with other chemicals in the air to form both fine particulate matter (PM2.5) and ozone (O3). Both of these pollutants are harmful when inhaled. The Bay Area does not currently attain all state and national ambient air quality standards for particulate matter, and further reductions of particulate matter emissions are needed for attainment and maintenance of the standards. The District-wide health benefits of attaining and maintaining compliance with the PM2.5 ambient air standards are significant. PM2.5 has been linked to a broad range of health effects, including premature mortality, adverse respiratory health effects, cardiovascular diseases, impacts to cognitive function, and cancer.1 The Air District’s Advisory Council has determined that PM is “the most important health risk driver in Bay Area air quality,” and that reductions in PM levels are needed to achieve further clean air and public health benefits.2 The PM2.5 from gas-fired building appliances that impacts human health is composed of both directly emitted PM2.5 (“primary PM2.5”) and PM2.5 that later forms in the atmosphere from chemical reactions with NOx (“secondary PM2.5”). Reducing emissions of NOx from these sources would specifically reduce total exposures to the secondary PM2.5 component.
Replacement of these sources with electric appliances (see below) would also reduce total exposures to the primary component. Modeling indicates that both components disproportionately impact residents of color throughout the nine Bay Area counties. Reducing emissions of NOx from these sources will reduce the formation of and exposure to secondary PM, thus improving health and saving lives, especially those most impacted by air pollution.
The proposed amendments to Rules 9-4 and 9-6 include the introduction of a zero NOx emissions standard for natural gas-fired furnaces and water heaters sold and installed in the Bay Area. Zero NOx space and water heating technologies currently exist, but they are limited in availability and can be expensive to install in existing buildings. Equipment availability is projected to increase, and costs are expected to decrease in the coming years. As such, staff is proposing a longer-term compliance date of 2027 to 2031, dependent on equipment type, use and size.
Other updates to the proposed rule amendments include the introduction of an ultra-low NOx standard to Rule 9-4 starting in 2024 as well as additional updates to definitions, testing and certification requirements and other clarifications. Both Rules 9-4 and 9-6 currently apply only to new devices and only to natural gas-fired devices, and Air District staff is not proposing to change these provisions of the rules. The proposed ultra-low and zero NOx standards would apply to appliance retailers, wholesalers and installers and would affect Bay Area consumers at the point in time when they install a new appliance or replace their existing furnaces and water heaters. The proposed amendments include a commitment from District staff to re-evaluate the availability and accessibility of zero NOx solutions in closer proximity to the compliance date through an interim reporting process. The interim reports are intended to update the Air District Board of Directors on relevant market changes and ensure equitable outcomes in the implementation of the proposed standards.
District staff intends for this proposed future-effective rule standard to provide manufacturers, suppliers, and consumers with a sufficient planning horizon for the proliferation of zero NOx appliances into the market while realizing emissions reductions and positive health outcomes as soon as practicable. While the proposed rule amendments do not specify emission control 1 US EPA, 2019. Integrated Science Assessment (ISA) for particulate matter (final report, Dec 2019). US Environmental Protection Agency, Washington, DC. Publication No: EPA/600/R-19/188. 2 BAAQMD, 2020. Advisory Council Particulate Matter Reduction Strategy Report. December. See also:
BAAQMD, 2017. Final 2017 Clean Air Plan: Spare the Air – Cool the Climate. April. 23 Proposed Amendments to Rules 9-4 and 9-6 Page 3 March 2023 Final Staff Report
methods to meet the zero NOx standards, the appliances currently available on the market that do not emit NOx largely use electric heat pump technology. Natural gas-fired appliances could also be designed to emit zero NOx in compliance with the proposed rules. However, because electric heat pump technology is the only currently available technology that emits zero NOx in alignment with the proposed rules, staff assumes for purposes of the analysis presented in this Report that if the proposed rules are adopted, consumers will replace natural gas-fired appliances with electric appliances upon rule implementation. The emissions benefits, costs and potential environmental impacts analyzed throughout this Staff Report assume appliance replacement with electric heat pump technology except where otherwise noted. Generally, this assumption provides a “worst case” conservative estimate of emissions reductions, costs, and environmental impacts of the proposed amendments for the Board and public’s consideration.
The proposed rule amendments are expected to have significant emissions benefits. This includes NOx reductions, which are a direct impact of the proposed amendments to emission standards, as well as a variety of co-benefits including reducing peak ozone levels, secondary particulate matter formation, greenhouse gas emission reduction and health benefits from reductions in secondary and primary particulate matter. Potential net NOx emissions reductions that could result from full implementation of the proposed rule amendments are estimated to be 3,236 tons NOx per year.
In terms of health benefits, the proposed amendments will result in reductions in NOx emissions and reductions in secondary PM2.5 across the Bay Area. These reductions in secondary PM2.5 avoid an estimated 23 to 52 deaths per year and about 71 new cases of asthma per year.
Reductions in total PM2.5 attributable to the targeted appliances, including reductions in primary PM2.5 from adoption of electric appliances, would avoid an estimated 37 to 85 premature deaths per year and about 110 new cases of asthma each year. The valuations of the health impacts from total PM2.5 were estimated to be between 400 to 890 million U.S. dollars annually.
The proposed rule amendments may result in potentially significant environmental impacts.
There may be a significant impact on utility resources due to potential increases in electricity demand from uptake of electric appliances in response to the proposed zero NOx emissions standard, based on currently available zero NOx technology. The significance of these potential impacts to electric generation and delivery demands were evaluated based on two reference scenarios; the impacts vary depending on what actions the State takes to meet its climate goals.
Operation of electric appliances may also cause a significant noise impact in certain areas of the Bay Area, as electric heat pump technology may require outdoor installation of condensing units that make noise similar to air conditioning units. These potential impacts are discussed in the Draft Environmental Impact Report associated with this Staff Report.
The proposed amendments may also result in socioeconomic impacts due to increased consumer appliance replacement costs and resultant shifted spending patterns. The cost effectiveness associated with the proposed rule amendments ranges from $54,100 per ton of NOx reduced to $594,000 per ton of NOx reduced as multiple emissions standards are included in the proposed rule amendments.
As discussed above and throughout this Report, the proposed amendments to Rule 9-4 and Rule 9-6 are needed to ensure attainment and maintenance of ambient air quality standards for ozone and particulate matter in the Bay Area. These emissions also result in PM exposures in communities throughout the Bay Area, which can contribute to a number of adverse health outcomes, including premature deaths. In addition, the health impact modeling described in this report indicates that exposures associated with emissions from building appliances are not 24 Proposed Amendments to Rules 9-4 and 9-6 Page 4 March 2023 Final Staff Report
distributed equally amongst different communities and race/ethnicity groups. The proposed amendments to Rule 9-4 and Rule 9-6 would achieve these needed reductions in emissions and pollutant exposures throughout the Bay Area and would yield substantial health benefits in these communities and throughout the jurisdiction of the Air District.
Based on evidence presented in this Staff Report, Air District staff believes that the proposed amendments are necessary for achieving its goal to create a healthy breathing environment for every Bay Area resident while protecting and improving public health, air quality and the global climate. This Report presents potential impacts, including potentially significant environmental impacts, for the Board of Director’s consideration in adoption of the amendments. Staff believes that the air quality and public health benefits presented demonstrate the value and necessity of the proposed rule amendments despite these potential impacts.
Air District staff recommends adoption of the proposed amendments to Rule 9-4 and Rule 9-6 and certification of the Final Environmental Impacts Report, and adoption of the accompanying CEQA Findings and a Statement of Overriding Considerations. Air District staff released this Staff Report and proposed amendments to Rules 9-4 and 9-6 for public review and comment on December 20, 2022. This release opened a public comment period that ended on February 6. 2023, during which staff received over 500 comment letters representing a wide range of perspectives. Over 400 of the correspondence expressed strong support for the adoption of the proposed amendments. Other comments raised concerns including, but not limited to, the cost of compliance, environmental impacts of the proposal, electric grid capacity and reliability, and the possibility for emergency replacements.
Staff will present a final proposal to the Air District Board of Directors for their consideration at a Public Hearing. At the Public Hearing, the Air District Board of Directors will consider the final proposal and receive public input before taking action.
II. BACKGROUND
The proposed rule amendments would be the first of their kind, introducing zero NOx requirements for furnaces and water heaters installed in buildings. The appliances covered by the proposed standards currently emit more NOx emissions than passenger vehicles in the Bay Area. Through NOx reductions, the Bay Area will also see ozone and secondary particulate matter formation reductions, which will assist in achieving ambient air quality standards and vital health benefits. If electric appliances are installed upon implementation of the proposed rule amendments, the proposal would indirectly achieve greenhouse gas and primary particulate matter reductions as co-benefits.
Nitrogen oxides are compounds that are considered “criteria air pollutants” 3 and which
contribute to the formation of other air pollutants such as fine particulate matter (PM2.5) and ozone (O3). Nitrogen oxides are formed during combustion processes. Nitrogen and oxygen present in the ambient air react at the high temperatures of combustion to form nitric oxide (NO) and nitrogen dioxide (NO2), collectively referred to as NOx. These compounds can further react 3 Criteria pollutants are particulate matter, photochemical oxidants (including ozone), carbon monoxide, sulfur oxides, nitrogen oxides and lead. US EPA calls these pollutants “criteria” air pollutants because it sets national ambient air quality standard (NAAQS) for them based on the criteria, which are characterizations of the latest scientific information regarding their effects on health or welfare. 25 Proposed Amendments to Rules 9-4 and 9-6 Page 5 March 2023 Final Staff Report
in the ambient air with other compounds in the presence of sunlight to form other air pollutants.
Nitrogen oxides can form fine particulate matter (PM2.5) when reacting with either ammonia to form ammonium nitrate (NH4NO3) or with sulfur dioxide to form ammonium sulfate ((NH4)2SO4).
Nitrogen oxides can also react with reactive organic gases (ROG) in the atmosphere to form ozone.
Rule 9-4 currently imposes a NOx emission limit on centralized natural gas-fired furnaces that are typically used in single-family homes and some multi-unit dwellings. Rule 9-6 currently sets NOx emission standards for small boilers and water heaters, with existing standards varying based on size and equipment application. Note that larger boilers used in industrial, institutional, and large commercial scenarios are generally subject to Regulation 9, Rule 7: Nitrogen Oxides and Carbon Monoxide from Industrial, Institutional and Commercial Boilers, Steam Generators and Process Heaters (“Rule 9-7”). Equipment subject to Rule 9-7 is not impacted by this proposed rule amendment package.
A. Industry Description
Proposed amendments to Rules 9-4 and 9-6 would impact natural gas-fired space and water heating appliances. These include furnaces and water heaters used in single family homes, multifamily residences such as apartment buildings, and commercial spaces such as retail and office buildings. The Air District regulates these sources on an appliance point-of-sale basis, requiring that equipment manufactured after the compliance date and sold or installed within the geographical jurisdiction of the Air District meets the standards contained in the Rules. The proposed amendments would apply to applicable appliances regardless of the type or age of the building in which it will be used.
Appliances covered under the proposed rule amendments are manufactured by a large number of corporations. Some of these companies focus on either space or water heating, while some manufacture appliances for a variety of uses. Similarly, some manufacturers focus on one fuel type, such as natural gas, while many manufacture both natural gas and electric-powered devices. No manufacturing operations for space and water heating appliances take place in the Bay Area. Manufacturers who wish to sell their appliances in the Bay Area must submit compliance certifications for their appliances to the Air District under the current rules and the proposed rule amendments.
Space and water heating appliances are obtained by property owners through either retail locations or distributors that contract directly with construction firms or other installers.
Compliance with existing Rule 9-4 and 9-6 is, and will continue to be, enforced through compliance visits at retail and other distribution locations to ensure that all appliances being offered for sale within the Air District meet the standards of the Rules.
B. Regulatory History
The Air District has regulated NOx emissions from space and water heating appliances for several decades. Rule 9-4 for furnaces was first adopted in 1983, with this version of the rule still in place. Rule 9-6 was first adopted in 1992 and was most recently updated with more stringent NOx emissions standards for certain equipment in 2007. All versions of these rules have included a NOx emissions standard expressed as nanograms (ng) of NOx per joule of useful heat delivered by the appliance. The Air District’s 2017 Clean Air Plan identifies the importance of nitrogen oxide emission reductions from residential space heating appliances in measure SS30.
26 Proposed Amendments to Rules 9-4 and 9-6 Page 6 March 2023 Final Staff Report
Additionally, the South Coast Air Quality Management District (SCAQMD) and the San Joaquin Valley Unified Air Pollution Control District (SJVUAPCD) have adopted their own regulations that are similar in structure to Rules 9-4 and 9-6. SCAQMD Rule 1111 and SJVUAPCD Rule 4905, which are similar in applicability to Rule 9-4 for furnaces, have been updated within the last 10 years and currently require a NOx emissions standard of 14 ng/J, the same near-term standard that is included in the proposed amendments. Rule 9-6 for water heaters and small boilers currently contain NOx emissions standards equivalent to those in SCAQMD Rules 1146.2 and 1121 and SJVUAPCD Rules 4308 and 4902 for similar equipment.
Outside of California Air Districts, local jurisdictions across the country have implemented similar regulation of NOx emissions from building appliances. For example, the Texas Commission on Environmental Quality implemented water heater NOx limits in 2000, 4 and the
Utah Department of Environmental Quality introduced them in 2015. 5 C. Active Rule Development
In addition to historical rule development efforts, Air District staff has been tracking active rule development efforts related to building appliances. In 2022, both the California Air Resources Board (CARB) and SCAQMD have signaled their intent to initiate rule development efforts to impose regulatory standards for building appliances.
In the SCAQMD Draft 2022 Air Quality Management Plan, the SCAQMD describes its intent to initiate rule amendments (or possibly new rules) to introduce zero NOx emissions standards for space and water heating appliances and potentially other classes of appliances. 6 CARB is focused on regulating greenhouse gas emissions under its authority granted by Assembly Bill 32. CARB is planning to phase out natural gas-fired appliances entirely, as a way to reduce greenhouse gas emissions from these appliances. In the Draft 2022 Scoping Plan Update, CARB lays out a plan for phasing out the installation of natural gas-fired appliances in new buildings by 2029, existing residential buildings by 2035 and existing commercial buildings by 2045.
7 Although these regulations do not address NOx emissions directly, they will have a NOx-reduction co-benefit by eliminating natural gas combustion as they move the state to all-electric appliances.
Numerous municipalities in the Bay Area are instituting “reach codes” under which new construction must be all electric or electric-ready. State building codes, effective in 2023, that encourage the proliferation of zero emissions solutions, were passed by the California Energy Commission in the summer of 2021. These standards have greatly increased the proliferation of zero NOx electric solutions over the past five years, a trend that is only expected to accelerate.
Despite the differences in timelines and in regulatory focus of these efforts being explored by SCAQMD, CARB and elsewhere, Air District staff sees these efforts as complementary to the proposed rule amendments, particularly with District goals around affordability and accessibility 4 30 Tex. Admin. Code § 117.3200 to .3215
5 Utah Admin. Code R307-230-5
6 Draft 2022 Air Quality Management Plan. South Coast Air Quality Management District. http://www.aqmd.gov/docs/default-source/clean-air-plans/air-quality-management-plans/2022-air-quality-management-plan/combined-residential-and-commercial-buildings-appliance.pdf?sfvrsn=8 7 Draft 2022 Scoping Plan Update. May 10, 2022. https://ww2.arb.ca.gov/sites/default/files/2022-05/2022- draft-sp.pdf
27 Proposed Amendments to Rules 9-4 and 9-6 Page 7 March 2023 Final Staff Report
of zero NOx appliances to all consumers. Air District staff will continue to communicate with other agencies on issues related to the proposed rule amendments. The interim reporting process proposed as part of the rule amendments also allows Air District staff to continue to track the progress of these projects and suggest any alignment strategies, as appropriate, for consideration by the Air District’s the Board of Directors. See Section III.C for more information on the proposed interim reporting requirements and Section IX.C for more information on the implementation working group.
III. PROPOSED RULE AMENDMENTS
Air District staff is presenting proposed amendments to Rules 9-4 and 9-6 in this Staff Report that staff believes best represents significant achievable NOx emissions reductions from the largest sources within the building sector. These proposed amendments include, for Rule 9-4, introducing an “ultra-low” NOx standard with a compliance date in 2024, and for both Rules 9-4 and 9-6, setting a zero NOx standard with compliance dates ranging from 2027 to 2031 based on equipment type, use and size. The details of these amendments are discussed below.
A. Proposed Amendments to Rule 9-4
Proposed amendments to Rule 9-4 are included in this report as Appendix A. The key changes are summarized below.
1. Rule Title and Equipment Scope
Rule 9-4 is currently titled “Nitrogen Oxides from Fan-Type Residential Central Furnaces.” To expand the applicability of this rule to a larger breadth of space heating appliances, the proposed amendments would change the name to “Nitrogen Oxides from Natural Gas-Fired Furnaces.” Existing requirements for residential fan-type furnaces will remain and additional units not historically covered by the rule are only intended to be subject to the zero NOX emission standard in proposed new Section 9-4-301.3. Staff differentiates this through the addition of a definition for “Natural Gas-Fired Fan Type Central Furnace” and specifying where the standards are more broadly applicable to space heating equipment that does not meet the fan type central specifications. The proposed rule amendments also include a new applicability section to clarify that the rule applies only to natural gas-fired furnaces.
2. Applicability
The proposed amendments include a section that addresses to whom this rule would apply.
Section 9-4-102 clarifies that the emissions standards of the rule would apply to any person who sells, offers for sale, or installs natural gas-fired furnace in the Air District. The rule also has requirements for manufacturers who intend to sell or distribute for sale or installation a natural gas-fired furnace for use within the Air District. These manufacturers would be subject to certification requirements that would demonstrate the furnaces for use within the Air District meet the emissions standards in Section 9-4-301.
3. Definitions
For clarity and enforceability, proposed amendments include the addition of definitions for British Thermal Unit (BTU), Heat Input, Natural Gas, Natural Gas-Fired Fan Type Central Furnace, Natural Gas-Fired Furnace, and Nitrogen Oxides. 28 Proposed Amendments to Rules 9-4 and 9-6 Page 8 March 2023 Final Staff Report
4. Standards
The proposed amendments to Section 9-4-301 would clarify emissions standards, including existing requirements for residential fan-type central furnaces in the current version of the Rule (§ 9-4-301.1). Section 9-4-301.2 is added to introduce the “ultra-low NOx” requirement (14 ng/J) on January 1, 2024, to align with SCAQMD and SJVUAPCD emissions standards and would begin to achieve NOx reductions and health benefits shortly after rule adoption. As proposed, this requirement would only be applicable to fan-type central furnaces historically covered by Rule 9-4, as defined in the proposed amendments.
The proposed rule amendments include the addition of new Section 9-4-301.3 to introduce the zero NOx standard and expand the types of equipment subject to the standard. As proposed, the zero NOx standard is proposed to take effect on January 1, 2029, and would apply to all residential and commercial space heating appliances that meet the definition of a “Natural Gas-Fired Furnace” under proposed Section 9-4-206. This includes wall heating and other direct-vent units. This requirement would not be applicable to furnaces used in mobile homes. The proposed standard is intended to result in significant regional NOx (and therefore ozone and secondary PM) emission reductions in the long term. The standard is proposed to take effect in 2029 based on staff’s current understanding of available technology, accessibility, and affordability of zero NOx units and planned industry technology development to reduce these current barriers to an immediate effective date, as discussed in more detail in Section IV.D. The standard would apply when appliances are replaced upon burnout; only appliances that meet the new standard could be sold and installed in the Bay Area upon implementation.
5. Administrative Requirements
The proposed amendments include updates and clarifications to certification and calculation methods. Staff intends for dual-fuel units that can demonstrate compliance with the applicable NOx standard, on average, to be able to meet the standards and certification requirements of these rule amendments. Rule 9-4 additionally requires the completion of a compliance statement for recordkeeping purposes and the proposed amendments would add a provision to this section to allow for the submission of compliance statements issued by SCAQMD for equivalent emission standards.
The proposed amendments include the addition of an interim report to be brought to the Board of Directors by the Air Pollution Control Officer (APCO) two years prior to the compliance date for the zero NOx standard. Staff intends for this report to provide information to the Board and the public about the accessibility of zero NOx appliances to Bay Area residents and to allow the Board of Directors an opportunity to take any necessary action in response to this information.
Contents of this report would include information on technology development, market availability of zero NOx space heating appliances, potential costs of compliance, infrastructure readiness, and availability of incentive programs to decrease these costs.
6. Manual of Procedures
The proposed amendments include the addition of a Manual of Procedures (MOP) section to add further clarity around equipment certification and determination of emissions through source tests conducted in accordance with Environmental Protection Agency (EPA) reference methods. 29 Proposed Amendments to Rules 9-4 and 9-6 Page 9 March 2023 Final Staff Report
B. Proposed Amendments to Rule 9-6
Proposed amendments to Rule 9-6 are included in this report as Appendix B. The key changes are summarized below.
1. Rule Applicability
The proposed amendments include a section that addresses to whom this rule would apply.
Section 9-6-102 clarifies that the rule would apply to any person who sells, offers for sale, or installs natural gas-fired water heaters in the Air District. The rule also has requirements for manufacturers who intend to sell or distribute for sale or installation a natural gas-fired water heater for use within the Air District. These manufacturers would be subject to certification requirements that would demonstrate the water heaters for use within the Air District meet the emissions standards found in Section 9-6-301.
2. Standards
The proposed amendments to Rule 9-6 include the introduction of a zero NOx standard for natural gas-fired residential and commercial water heaters and boilers. The proposed compliance dates for these appliances are dependent on equipment size. Units under 75,000 BTU/hour (typically single-family residential) would be required to comply by 2027 and larger units up to 2 million BTU/hour (typically used in multifamily and commercial buildings) would have a 2031 compliance date as proposed. Based on staff’s current understanding of available zero NOx technologies and market development, staff anticipates that zero NOx solutions for single-family residential applications will be available and affordable on a shorter timeframe than larger boilers used in multifamily and commercial applications, as discussed in more detail in Section IV.D. This includes the development of lower voltage heat-pump water heaters that will lower cost barriers associated with potentially necessary electric upgrades. The standard would apply when appliances are replaced upon burnout; only appliances that meet the new standard could be sold and installed in the Bay Area upon implementation.
The proposed rule amendments also include updates throughout the standards section intended to clarify and streamline the requirements as well as align with similar requirements in rules issued by other air districts and those currently incorporated into to the State Implementation Plan. This includes clarifications to how the equipment size standards are framed as well as a focus on weight-based emissions of NOx over parts per million.
3. Administrative Requirements
Section 9-4-402 of the proposed amendments has been updated to simplify the certification requirements and decrease the amount of APCO discretion allowed in the issuance of a certification under the rule. The new language is intended to align more closely with that in Rule 9-4 and to allow for a more streamlined process of a manufacturer certified compliance statement over an application.
As in Rule 9-4, proposed amendments to Rule 9-6 include an Interim Report to be brought to the Board by the APCO at least two years prior to each of the compliance dates for the zero NOX standards. Staff intends for these reports to provide information to the Board and the public about the accessibility of zero NOx appliances to Bay Area residents and to allow the Board of Directors an opportunity to take any necessary action in response to this information. Contents of this report would include information on technology development, market availability of zero 30 Proposed Amendments to Rules 9-4 and 9-6 Page 10 March 2023 Final Staff Report
NOx water heating appliances, potential costs of compliance, infrastructure readiness, and availability of incentive programs to decrease these costs.
4. Manual of Procedures
For clarity and consistency with the Air District’s Manual of Procedures, references to Test Method ST-13B have been removed from Section 9-6-601.2. As in Rule 9-4, EPA Reference Method 7 should be used to measure emissions of nitrogen oxides from applicable equipment.
In order to align with rules present in the State Implementation Plan, reference to South Coast’s 1995 protocol has been removed in favor of approved EPA testing methodologies.
C. Interim Report and Implementation Working Group
As described above, the proposed amendments to Rules 9-4 and 9-6 include a requirement for staff to report back to the Air District Board of Directors on key factors associated with accessibility of technologies that are compliant with or do not conflict with the zero NOx standards. These reports are required to take place no later than two years before compliance dates. Therefore, the proposed schedule of zero NOx compliance and associated interim reporting is shown in Table 3-1 below.
Table 3-1
Zero NOx Compliance and Interim Reporting Schedule
Rule Applicable Equipment Ultra-low NOx
compliance Date
Zero NOx
Compliance Date
Interim Report
Deadline
9-4 Natural gas-fired fan type
central furnaces
Jan. 1, 2024 N/A N/A
9-6 Water heaters and boilers
below 75,000 BTU/hr
N/A Jan. 1, 2027 Jan. 1, 2025
9-4 All natural gas-fired
furnaces (heat input rate less
than 175,000 BTU/hr)
N/A Jan. 1, 2029 Jan. 1, 2027
9-6 Water heaters and boilers
between 75,000 and 2 million
BTU/hr
N/A Jan. 1, 2031 Jan. 1, 2029
The content of the interim reports will additionally be informed by an Implementation Working Group of external stakeholders that will be convened and led by Air District staff and facilitated by a third-party consultant. The membership, intent and scope of the Implementation Working Group and their contributions to the interim reporting process is discussed further in Section IX.C.
IV. TECHNOLOGY EVALUATION
As described above, the interim reporting process and Implementation Working Group provides a mechanism for Air District Staff to report back to the Board on technology available to consumers that aligns with the proposed rule amendments. This section serves to provide information on the current state of technology availability, at the time of this report, as a baseline. Other accessibility factors to be addressed in the Interim Reports are also addressed 31 Proposed Amendments to Rules 9-4 and 9-6 Page 11 March 2023 Final Staff Report
here including economic impacts (Section VI and Appendix C) and potential infrastructure impacts (Appendix D).
A. Zero NOx Natural Gas Systems
No zero NOx natural gas furnace or water heater systems are currently available, and no residential/commercial systems are being developed, to the knowledge of Air District staff. This assumption and any technology development will be updated through the interim reporting process to the Board of Directors and the Implementation Working Group. While not currently utilized in residential and commercial building appliances, zero NOx burners have been achieved in industrial settings using catalytic heat8 and flameless, high air flow burners, 9 both of
which realize zero NOx results by keeping the temperature of the combustion chamber below that at which NOx is formed. Additionally, oxy-combustion in industrial natural gas turbines can achieve zero NOx results by performing combustion without excess air. 10 B. Zero NOx 240 Volt Electric Systems
There are currently a wide variety of zero NOx electric heat pump water heaters11 and heat pump space conditioning (heating and cooling) systems12 available on the market that operate on a 240-volt circuit. These units begin at low capacities for small apartments and low water usage but are widely commercially available at sizes equivalent to existing natural gas systems on the market for installation in residential and commercial spaces. These appliances can also be supplemented by additional equipment such as circuit sharing devices, smart panels, residential solar,
13 and thermal heat sharing devices14 to optimize operation with limited amperage impact or during power outages. The potential costs associated with installing these units, including potential costs associated with electric service upgrades are addressed in the socioeconomic report for the proposed rule amendments, Appendix C.
C. Zero NOx Low Voltage Electric Systems
A key accessibility factor for installation of zero NOx furnaces and water heaters is the ability to install a new appliance without the need for significant additional work. For example, the installation of a 240V heat pump appliance may require electric service upgrades in older homes. Market availability of 120V heat pump systems provides consumers the ability to install heat pump appliances without this additional extra work and expense. 8Bruest Natural Gas Line Heaters. June 2020. https://bruestcatalyticheaters.com/wp-content/uploads/2020/07/Bruest_Brochure_HOTCAT-Natural-Gas-Line-Heaters_6-16-20.pdf 9 Patent Number 9562683. Accessed October 2022. https://patents.justia.com/patent/9562683 10 Oxy-Fuel Turbines. Accessed November 2022. https://www.cleanenergysystems.com/oxy-fuel-turbines 11 Energy Star Certified Water Heaters. Accessed November 2022. https://www.energystar.gov/productfinder/product/certified-water-heaters/results 12 Energy Star Certified Central Heat Pumps. Accessed November 2022. https://www.energystar.gov/productfinder/product/certified-central-heat-pumps/results 13 Peninsula Clean Energy. Design Guidelines for Home Electrification. Accessed March 2023. https://www.peninsulacleanenergy.com/wp-content/uploads/2023/02/Design-guidelines-for-home-electrification-v021023.pdf 14 Harvest Thermal. Product. Accessed March 2023. https://www.harvest-thermal.com/product 32 Proposed Amendments to Rules 9-4 and 9-6 Page 12 March 2023 Final Staff Report
Table 4-1, below, contains a subset of commercially available heat pump mini-split systems that operate on a 120-volt or 15-amp circuit, which is common in older homes. Mini split systems that are commonly operable on 120V circuits are sized between 9,000 and 12,000 BTU/hour, which are designed to heat and cool up to 600 square feet. In larger spaces with limited electric circuit capacity, it is typical to install multiple units and run them as needed when different spaces are occupied. These smaller solutions also allow for temporary use while a larger system is being permitted or installed, or, if desired by the building owner, while electric service is being upgraded to the building to accommodate other new electric uses such as onsite solar panels or electric vehicle charging.
Table 4-1
120V Heat Pump Mini Split Systems
Manufacturers Model Status
Pioneer WYT012ALFI19RL,
WYT009ALFI19RL (and
others)
Commercially available
Hessaire H12E1 Commercially available
LG LS120HXV2, LS090HXV2 Commercially available
Mitsubishi MZ-JP12WA, MZ-JP09WA Commercially available
Fujitsu 9RL2, 12RL2 Commercially available
General Electric AS09CRA, AS12CRA Commercially available Senville LETO series Commercially available
MRCOOL DIY-12-HP-115B Commercially available
LBG Products LBH12ATO, LBH09ATO Commercially available
AUX Inverter series Commercially available
Daizuki DXTH12C416-20 Commercially available
Low voltage heat pump water heaters are also currently under development, with 4 companies participating in a field study through the Advanced Water Heating Initiative 120-Volt Heat Pump Water Heater Technology Validation and Commercialization program. 15 The 120V heat pump
water heater represents a solution for appliance installation in existing buildings without need for other upgrades, which is especially important in emergency water heater replacement scenarios. The Advanced Water Heating Initiative’s field study aims to provide data to manufacturers and electricity providers to understand the operation of these units in practice and build confidence in consumer satisfaction with their operation.
The first of these units recently became available on the consumer market, the Rheem ProTerra Plug-In. This unit is a standard footprint tank water heater and requires minimal clearance or additional venting. Nyle Water Heating Systems is also beginning to roll out consumer literature on their E8 unit. The E8 is a split heat pump water heater meaning that it is a separate heating unit that can be hooked up to an existing water heater tank, including tanks that were previously heated by gas. Both units operate on a 120V or 15-amp circuit and include connectivity features to assist in energy savings associated with time-of-use energy rates and other demand 15 Advanced Water Heating Initiative 120V Field Study, Accessed November 2022. https://www.advancedwaterheatinginitiative.org/120v-field-study 33 Proposed Amendments to Rules 9-4 and 9-6 Page 13 March 2023 Final Staff Report
response services. Table 4-2 below summarizes the 120V heat pump water heater systems included in the field study.
Table 4-2
Units in Advanced Water Heating Initiative 120V Field Study Manufacturers Model Status
A.O. Smith TBD Active development/Field study
(Announced May 2021)
General Electric TBD Active development/Field study
(Announced May 2021)
Nyle Water Heating Systems E8 Soon to be released/Field study complete
Rheem ProTerra (Plug-In) Commercially available beginning September 2022
With the field study ongoing as well as additional regulatory activity, incentive funding and market development in this space, Air District staff anticipates further development of compliant options prior to the first zero NOx compliance date on January 1, 2027. This development will be reported on in the first interim report to the Board of Directors by January 1, 2025.
D. Compliance Dates
Table 4-3 below outlines the zero NOx compliance dates included in the proposed rule amendments.
Table 4-3
Proposed Zero NOx Compliance Dates
Date Rule Applicable Equipment
Jan. 1, 2027 Rule 9-6 Water heaters and boilers below 75,000 BTU/hr Jan. 1, 2029 Rule 9-4 All commercial and residential furnaces Jan. 1, 2031 Rule 9-6 Water heaters and boilers between 75,000 and 2 million BTU/hr Generally, while technology currently exists on the market that aligns with the proposed zero NOx standards today, Air District staff has provided additional time before the proposed compliance dates in order to increase accessibility and decrease costs of newly installed appliances for consumers. Additional time allows for further technology development, market saturation of zero NOx appliances and development of funding mechanisms such as those provided through the Inflation Reduction Act. A larger discussion of these factors can be found in Section VI.D (Economic Impacts: Funding and Incentives).
Water heaters and boilers sized 75,000 BTU/hr and below are typically installed in single family residential and small commercial environments. As outlined above, there are a variety of zero NOx appliances currently available on the market for this type of equipment, including the Rheem 120V ProTerra model and other low voltage options that are concluding field testing.
For this reason, Air District staff reasonably expects that additional low voltage solutions will reach the consumer market with sufficient supply for those customers that require them by January 1, 2027.
34 Proposed Amendments to Rules 9-4 and 9-6 Page 14 March 2023 Final Staff Report
While low voltage systems exist for space heating on the market currently, they serve mostly very small units or individual rooms. Additionally, unlike water heaters which can frequently be replaced in the footprint of an existing natural gas appliance, heat pump space conditioning equipment may require installation of a condenser or other equipment outdoors. In order to provide the opportunity for development of additional or improved low voltage solutions as well as to allow for local jurisdictions such as cities to consider adjusting their setback and permitting requirements for outdoor installations, Air District staff has proposed a compliance date of January 1, 2029, for zero NOx furnaces. Air District staff also plans to convene an ongoing Implementation Working Group to further investigate a number of implementation topics, including the status of technology development and availability, as well as actions/activities of local jurisdictions that may pertain to the implementation of the proposed amendments (further details on the Implementation Working Group can be found in Section IX.C. of this report).
Larger water heaters and boilers (75,000 to 2 million BTU/hr) have a proposed zero NOx compliance date of January 1, 2031. This is due to the complexities of installations in multifamily and larger commercial buildings typically served by these units. To the knowledge of Air District staff, there is still technology development and field testing needed to bring compliant appliances of this size to market. With initial rule drafts published in 2021 and anticipated rule adoption in 2023, Air District staff believes that there is sufficient time for this technology development to occur before 2031 while continuing to prioritize the emission reductions that will be achieved from enacting the proposed rule amendments.
Through the interim reporting process included in Sections 9-4-405 and 9-6-404 of the proposed amendments, Air District staff will report to the Board on technology developments and availability. Staff expects that availability of zero NOx units will increase and that costs will decrease over time. Should there be a gap in the market for any of the technology categories above such that sufficient zero NOx technologies are no longer projected to be available to meet the needs of the Bay Area, the Air District’s Board of Directors may choose to consider amending any of the compliance dates through a public rulemaking process.
V. EMISSIONS AND EMISSION REDUCTIONS
The following section describes the emissions and expected emission reductions associated with the proposed rule amendments. First, the existing emissions context, based on the 2018 Air District emissions inventory, is presented. Next, the impacts of NOx emissions, including ozone and secondary PM formation are discussed, followed by the emission control methods expected to be used in response to the proposed rule amendments. Beginning in Section V.F, emission reductions are discussed, beginning with NOx emission reductions, then potential greenhouse gas co-benefits. This is followed by a discussion of particulate matter emission reductions and the health benefits associated with these reductions.
A. Emissions Context
Table 5-1 below shows the total emissions from all-natural gas combustion in residential and commercial buildings in the Bay Area, as 2018 annual emissions of carbon monoxide, nitrogen oxides, sulfur oxides, reactive organic gases, and fine particulate matter. The rows in bold indicate the equipment covered by the proposed amendments. 35 Proposed Amendments to Rules 9-4 and 9-6 Page 15 March 2023 Final Staff Report
Table 5-1
Bay Area Emissions from Commercial and Residential Natural Gas Combustion 2018 Annual Emissions (tons per year)
Description CO NOx SOx ROG PM2.5
Commercial – space heating 237.8 552.8 3.6 28.8 45.2
Commercial – water heating 291.5 475.7 4.4 35.3 55.4
Commercial – other 237.8 552.8 3.6 28.8 45.2
Commercial subtotal 767.0 1,581.3 11.5 92.8 145.7
Residential – space heating 1,036.6 2,410.0 15.5 125.4 196.9 Residential – water heating 847.3 828.3 12.7 102.5 161.0 Residential – cooking 92.0 213.9 1.4 11.1 17.5
Residential – other 83.2 193.5 1.2 10.1 15.8
Residential subtotal 2,059.1 3,645.7 30.9 249.2 391.2
Grand Totala 2,826.1 5,266.9 42.4 342.0 536.9
a The grand total in each case may not match the column summation due to rounding.
Emissions from building appliances in the Bay Area are estimated based on aggregated natural gas usage data from the California Energy Commission and appliance usage data from Pacific Gas and Electric. These data, combined with data and assumptions regarding the age of buildings and their equipment, are used to calculate emissions associated with the building sector.
Note that for 2018, NOx emissions from these targeted appliances totaled 4,267 tons; however, it is estimated that full implementation of existing Rule 9-6 will reduce NOx emissions from commercial and residential water heating by 576 tons relative to 2018. That leaves 3,690 tons of NOx emissions to be addressed by the proposed rule amendments, which is used as the baseline for emission reduction calculations in Section V.F. Additional details on emissions reduction estimates and how emissions were treated in the modeling analyses are provided in Appendix E.
For comparison, Figure 5-1 below shows the total 2018 emissions of nitrogen oxides from natural gas combustion in residential and commercial buildings (5,267 tons) in context with other sources of emissions of nitrogen oxides in the Bay Area. 36 Proposed Amendments to Rules 9-4 and 9-6 Page 16 March 2023 Final Staff Report
Figure 5-1
Source Contributions to Total 2018 NOx emissions in the Bay Area As seen above and in Figure 5-2 below, emissions of nitrogen oxides from commercial and residential natural gas combustion account for roughly one third of nitrogen oxides emissions from stationary sources in the Bay Area. As one of the largest single contributors to District-wide NOx emissions from stationary sources, Air District staff sees the further regulation of emissions from this sector as a key opportunity to minimize criteria pollutant emissions and achieve related air quality and health benefits across the Bay Area. As stated in the California Air Resources Board 2022 State Strategy for the State Implementation Plan (State SIP), “controlling ozone precursors, in particular oxides of nitrogen (NOx), is key to attaining the federal ozone standards”.
16 NOx reductions are also critical for reducing PM, which is discussed in more detail in Section V.H.
Figure 5-2 below shows the breakdown of the total 2018 emissions of NOx solely from stationary sources. While commercial and residential natural gas combustion accounted for 7.5 percent of overall NOx emissions in the Bay Area in 2018, this source category accounted for 31 percent of total NOx emissions from stationary sources which are within the Air District’s regulatory authority.
16 California Air Resources Board. Proposed 2022 State Strategy for the State Implementation Plan Strategy. https://ww2.arb.ca.gov/sites/default/files/2022-08/2022_State_SIP_Strategy.pdf Off-Road Mobile
Sources
36%
On-Road Mobile
Sources
39%
Other Stationary
Sources
17%
Commercial and
Residential NG
Combustion
7.5%
37 Proposed Amendments to Rules 9-4 and 9-6 Page 17 March 2023 Final Staff Report
Figure 5-2
Total 2018 NOx Contributions from Stationary Sources in the Bay Area The buildings sector was identified as a significant Bay Area source of emissions in the Air District’s 2017 Clean Air Plan, with space and water heating appliances representing roughly 90 percent of the emissions from this sector. The Clean Air Plan identifies all feasible measures that the Air District can take to achieve the ambient air quality standards, in furtherance of the goal set forth in Health and Safety Code section 40914, and all feasible measures that the Air District can take to mitigate the impact of pollution sources within the Bay Area on downwind jurisdictions, as required by Health and Safety Code section 40912. Emissions from building appliances were highlighted in measures SS30 (reduce NOx and carbon monoxide from residential and commercial furnaces) and BL2 (explore potential Air District rulemaking options to reduce all emissions from fossil fuel-based space and water heating systems for both residential and commercial use). This rulemaking proposal is the first to address the 2017 Clean Air Plan’s measures SS30 and BL2.
The proposed rule amendments focus on emissions from natural gas-fired space and water heating appliances in buildings. While space and water heating are not the only natural gas consuming appliances in buildings, they do represent the vast majority of natural gas consumption and therefore NOx emissions from the buildings sector. Space and water heaters vent outdoors into the ambient air, impacting the local and regional air quality of the Bay Area, which is the focus of the Air District. For comparative purposes, staff also considered greenhouse gas (GHG) emissions associated with the relevant appliances and potential co-benefit of GHG emission reductions. Figure 5-3, below, shows the emissions share by appliance type for residential natural gas combustion.
17 Represented by the blue and orange sections of
the charts, space and water heating represent roughly 90 percent of emissions from residential natural gas combustion for both NOx and greenhouse gases as carbon dioxide equivalent. 17 Bay Area Air Quality Management District. 2019 Criteria Pollutant inventories.
Other
Stationary
Sources
69%
Commerical
and
Residential NG
Combustion
31%
38 Proposed Amendments to Rules 9-4 and 9-6 Page 18 March 2023 Final Staff Report
Figure 5-3
Residential Natural Gas Combustion Emissions by Equipment Type in 2019 B. Nitrogen Oxide Emissions
The proposed rule amendments seek to significantly reduce NOx emissions from space and water heating appliances. As shown above in Table 5-1, these appliances emitted 2,410 and 828 tons of NOx per year, respectively, at residential buildings in the Bay Area in 2018.
Nitrogen oxides are a key criteria pollutant as a precursor to ozone and secondary particulate matter (PM) formation.
18 Secondary PM is formed from the conversion of NOx to ammonium nitrate through atmospheric chemical reactions with ammonia. Particulate matter, a diverse mixture of suspended particles and liquid droplets, is the air pollutant most harmful to the health of Bay Area residents. The Bay Area is currently classified as non-attainment for PM2.5 under California Ambient Air Quality Standards (CAAQS) and non-attainment (24-hour standard) and unclassifiable (annual standard) under National Ambient Air Quality Standards (NAAQS) and must strive to meet these standards as soon as possible. Exposure to fine PM, on either a short-term or long-term basis, can cause a wide range of respiratory and cardiovascular health effects, including strokes, heart attacks, and premature deaths. Because NOx compounds in the atmosphere contribute to the formation of secondary PM, any NOx emissions reduction would also result in PM2.5 reductions. Particulate matter emissions are discussed further in Sections V.H and V.I of this report. Although most NOx emissions are quickly broken down in the atmosphere, emissions of nitrogen oxides can be impactful in their own right, with the Agency 18 See 40 C.F.R. Part 50 (ambient air quality standards for ozone, carbon monoxide, and PM2.5). EPA treats NOx as both an ozone and PM2.5 precursor
66%
23%
6%
5%
District Residential Natural Gas
Combustion NOx Emissions
Space Heating Water Heating Cooking Other
57%
39%
4%
District Residential Natural Gas
Combustion GHG Emissions
Space Heating Water Heating Cooking
39 Proposed Amendments to Rules 9-4 and 9-6 Page 19 March 2023 Final Staff Report
for Toxic Substances and Disease Registry finding that “[e]xposure to high levels of nitrogen oxides can damage the respiratory airways.”
19 C. Ozone Formation
Ozone is a regional pollutant for which the Bay Area is also currently in non-attainment under NAAQS and CAAQS. The Air District must strive to meet these standards as soon as possible.
Emissions of reactive organic gases (ROG) and NOX throughout the Bay Area contribute to ozone formation in downwind areas. Therefore, reductions in emissions of ROG and NOX are needed throughout the region in order to decrease ozone levels. As the air temperature rises, ground-level ozone forms at an accelerated rate. Ozone levels are usually highest on hot, windless summer afternoons, especially in inland valleys. Exceedances of state or national ozone standards in the Bay Area only occur on hot, relatively stagnant days. Because weather conditions have a strong impact on ozone formation, ozone levels can vary significantly from day-to-day or from one summer to the next. Longer and more severe heat waves expected as a result of climate change may cause more ozone formation, resulting in more frequent exceedances of ozone standards. Ozone, also a key ingredient in smog, is additionally linked to direct health effects such as irritation and damage to lung tissue, worsening asthma, reduced lung function, and worsening of chronic illnesses such as obstructive pulmonary disease. 20 The atmospheric chemistry of ozone formation depends on a large number of factors including the concentration of multiple precursor pollutants (including nitrogen oxides) as well as weather patterns. Thus, ozone concentrations and can vary widely on a local scale as well as a daily scale. However, overall reductions of nitrogen oxides contribute to long term ozone reductions, both in the Bay Area as well as in neighboring air basins. The California Air Resources Board states in its 2022 State Implementation Plan (SIP) Strategy, adopted in September 2022, that they are “exploring and proposing an unprecedented variety of new measures to reduce emissions [to support attainment of the 70 ppb ozone standard] …using all mechanisms available. This level of action is needed to ensure federal air quality standards are attained and to deliver on our commitments to protect public health…Controlling ozone precursors, in particular oxides of nitrogen (NOx), is key to attaining the federal ozone standards.” 21 The
implementation of the proposed rule amendments is necessary to achieve and maintain the ozone NAAQS and CAAQS standards in the region as well as necessary to support similar state-wide emissions reduction efforts and to support attainment in areas downwind of the Bay Area air basin. Staff has estimated that the proposed amendments would result in a mean modeled decrease in 8-hour ozone of -0.021 ppb on peak ozone days in the Bay Area, as detailed in Appendix E. The amendments may have further benefits on downwind air basins.
Staff recommends that the Air District submit the proposed amendments to the SIP if they are adopted by the Board.
D. Ultra-low NOx Emission Control Methods
Emission control methods to meet the proposed 14 ng/J standard for Rule 9-4 are well established and currently required by SCAQMD Rule 1111 and SJVUAPCD Rule 4905. These ultra-low NOx burners reduce excess air in combustion by pre-mixing the fuel and air and burning the mixture at a lower temperature than older equipment, thus reducing NOx emissions. 19 ASTDR, Nitrogen Oxides. https://www.atsdr.cdc.gov/toxfaqs/tfacts175.pdf 20 U.S. EPA (2019b). Policy Assessment for the Review of the National Ambient Air Quality Standards for Particulate Matter, External Review Draft
21 California Air Resources Board. Proposed 2022 State Strategy for the State Implementation Plan. https://ww2.arb.ca.gov/sites/default/files/2022-08/2022_State_SIP_Strategy.pdf 40 Proposed Amendments to Rules 9-4 and 9-6 Page 20 March 2023 Final Staff Report
Potential complications identified in other jurisdictions, such as high altitude and cold weather scenarios, are not applicable in the Bay Area. Staff intends for dual-fuel systems that are able to demonstrate compliance with this new proposed standard to be eligible for certification.
E. Zero NOx Technologies for Space and Water Heating
Current emission control methods that align with the zero NOx emissions standard available on the market consist mainly of electric resistance and electric heat pump systems. Air District staff does not intend to mandate specific zero NOx technology solutions, but for the purpose of this report, including emissions and cost estimates, currently available electric solutions are used to form estimates and projections. While not currently available on the market, other natural gas technologies, such as those with combustion occurring in the absence of nitrogen, may also be able to meet the proposed standards and proposed certification requirements. The use of electric appliances serves as a conservative estimate for NOx reductions due to the additional NOx from natural gas-fired power plants for electricity generation taken into account for estimates as described below.
F. Nitrogen Oxides Emissions Reductions
As the applicable rules function as appliance point-of-sale requirements, emission reductions associated with the proposed rule amendments would occur over time in relation to the lifespan of currently installed equipment. Staff estimated emissions reductions from the proposed amendments as newer equipment is phased in over time due to equipment replacements. To model these predicted emission reductions, staff made the following assumptions:
• While the proposed regulatory amendments would allow for natural gas-fired zero NOx appliances, based on currently available technology, staff assumed that, upon burnout, natural gas-fired appliances would be replaced with electric solutions when the proposed zero NOx standards are in effect. As noted above, this results in a conservative analysis of NOx reductions because other technologies that may be developed could avoid the additional NOx from electricity generation.
• For electric replacements, it is assumed that the electricity provided is from the community choice aggregator local to the customer, or direct from Pacific Gas and Electric. The emissions associated with each of these electricity sources as well as their contribution to projected Bay Area electric load is shown below in Table 5-2. The resulting weighted average is 85 percent carbon and NOx-free electricity generation. 41 Proposed Amendments to Rules 9-4 and 9-6 Page 21 March 2023 Final Staff Report
Table 5-2
Bay Area Electricity Generation Resources
Solar, Wind
&
Geothermal
Hydro Nuclear Biomass System
Power
Bay Area
Usage22
Marin Clean Energy23 53% 38% 1% 6% 2% 14%
Sonoma Clean Power24 38% 41% 1% 11% 9% 6%
East Bay Community
Energy25
42% 16% 0% 1% 40% 17%
Peninsula Clean Energy26 40% 51% 0% 9% 0% 9%
Silicon Valley Clean
Energy27
36% 64% 0% 0% 0% 9%
SF Clean Power28 54% 39% 0% 0% 7% 8%
San Jose Clean Energy29 50% 23% 23% 3% 1% 10%
PG&E
30 43% 6% 39% 4% 8% 27%
• Electricity generated from natural gas-fired power plants is assumed to result in NOx emissions of 5 ppm by dry volume at 15% oxygen. This emission limit represents best available control technology (BACT) for simple-cycle gas turbine power plants over 50 megawatts.
31 This is a conservative estimate, as most Bay Area power plants are required by Air District permit to meet a 2.5 ppm NOx limit. • While some Bay Area residents are choosing to install zero NOx solutions at this time, and this is expected to continue and increase over time, modeled emissions reductions do not assume any voluntary uptake of zero NOx technology prior to the proposed compliance dates because voluntary uptake is not expected to be significant. 22 Values calculated via data from California Public Utilities Commission, Integrated Resource Plan. https://www.cpuc.ca.gov/irp/
23 Marin Clean Energy, Light Green Plan. https://www.mcecleanenergy.org/60-renewable/. Accessed November 2022.
24 Sonoma Clean Power, CleanStart Plan. https://sonomacleanpower.org/uploads/documents/Power-Content-Label-2021-Web.pdf 25 East Bay Community Energy, Bright Choice Plan. https://ebce.org/our-power-mix/ .Accessed November 2022.
26 Peninsula Clean Energy, ECOplus Plan. https://www.peninsulacleanenergy.com/power-mix/. Accessed November 2022.
27 Silicon Valley Clean Energy, SVP Residential Plan. https://www.siliconvalleypower.com/svp-and-community/about-svp/power-content-label. Accessed November 2022. 28 SF Clean Power, Green Plan.
https://static1.squarespace.com/static/5a79fded4c326db242490272/t/632e3e4c508cf816fc26e5d8/16639 74989563/CleanPowerSF_Product+Content+Label+2022_Green_All+Languages.pdfhttps://static1.squar espace.com/static/5a79fded4c326db242490272/t/632e3e4c508cf816fc26e5d8/1663974989563/CleanPo werSF_Product+Content+Label+2022_Green_All+Languages.pdf 29 San Jose Clean Energy, GreenSource Plan. https://sanjosecleanenergy.org/wp-content/uploads/2022/09/SJCE_2021-Power-Content-Label.pdf 30 Pacific Gas and Electric Power Mix via East Bay Community Energy. https://ebce.org/our-power-mix/.
Accessed November 2022.
31 California Air Resources Board, Stationary Source Division. Report to the Legislature: Gas-Fired Power Plant NOx Emission Controls and Related Environmental Impacts. May 2004. https://ww2.arb.ca.gov/sites/default/files/classic/research/apr/reports/l2069.pdf. 42 Proposed Amendments to Rules 9-4 and 9-6 Page 22 March 2023 Final Staff Report
• Commercial space and water heating is frequently achieved through the use of larger boilers that are covered under the Air District’s Regulation 9, Rule 7. Based on available inventories, staff assumed that 50 percent of commercial space and water heating baseline emissions would not be impacted by the proposed amendments to Rule 9-4 and Rule 9-6.
• As the proposed rule amendments would impact only direct emissions from two types of building appliances and do not impact natural gas distribution, staff did not assume any upstream emission reductions along the natural gas infrastructure. Although reduced use of natural gas may result in less methane leakage, this reduced leakage is not guaranteed because the technologies used to meet the proposed standards may rely on the natural gas grid for energy and the proposed amendments do not impact the existing natural gas distribution system.
• Water heaters were assumed to have an average lifespan of 13 years and space heating equipment are assumed to have an average lifespan of 18 years. 32 Figure 5-3, below, shows the projected NOx emissions over time based on the assumptions described above and the proposed amendments to Rules 9-4 and 9-6. The 2018 Air District emissions inventory provides the baseline for this projection. Further detail on the development of the emissions inventory can be found in the Draft EIR (Appendix G).
Figure 5-4
Projected NOx Emissions from Proposed Rule Amendments
Initial reductions would be achieved by the introduction of the ultra-low NOX requirements (14 ng/J) for residential furnaces. For replacements under this standard between 2024 and 2029, 32 Environmental Energy and Economics. April 2019. “Residential Building Electrification In California:
Consumer economics, greenhouse gases and grid impacts”. Page 41. -
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
2020 2025 2030 2035 2040 2045 2050
Tons Nitrogen Oxide Emissions
Year
Commercial and Residential Space and Water Heating
Projected NOx Emissions (tons/year)
43 Proposed Amendments to Rules 9-4 and 9-6 Page 23 March 2023 Final Staff Report
staff estimates a 65 percent reduction in NOX emissions on a per unit basis compared to existing standards. Additional significant emission reductions would be achieved starting in 2027 with the zero NOX compliance date for small water heaters, and additionally in 2029 with the zero NOx compliance date for all new space heating units.
Yearly emissions reductions would continue, including as zero NOx technology is introduced for large water heaters in 2031 and units, including ultra-low NOx space heating units, are changed out over the course of the average assumed appliance lifetimes.
Table 5-3, below, provides values for projected yearly emissions and projected reductions versus the baseline emissions inventory for selected years as represented by the graph in Figure 5-4.
Table 5-3
Projected NOx Emissions upon Implementation of Proposed Rule Amendments Year
Projected Yearly
NOx Emissions
(tons/year)
Projected NOx
Reduction vs.
Baseline
(tons/year)
Baseline 3,690 -
2025 3,516 174
2030 2,816 874
2035 1,855 1,835
2040 930 2,761
2045 515 3,176
2046 454 3,236
These NOx emission reductions over time are significant, with an 88 percent reduction of emissions from the baseline by the projected date of complete equipment changeout in 2046.
This date could be realized sooner with voluntary uptake and replacements before burnout both prior to and throughout the compliance period. NOx emissions are a criteria pollutant of concern for the Bay Area and impact overall regional air quality and ozone formation, as well as secondary particulate matter (PM) formation. The significant NOx reduction expected from the proposed amendments to the rules would result in meaningful local health benefits through reduced PM formation. These reductions are discussed in Section V.G of this report as well as Appendix E.
G. Greenhouse Gas Emissions Reductions
Staff additionally estimated potential greenhouse gas emission co-benefits that may result from the proposed rule amendments. Figure 5-5, below, shows the potential GHG emissions reductions over time based on the same set of assumptions listed at the beginning of this section. These assumptions include the proliferation of electric technologies in the absence of other new technology development but do not include potential greenhouse gas savings along the natural gas infrastructure that could result from widespread electric appliance usage.
Should zero NOx natural gas-fired technologies be developed and adopted, consumers would have the opportunity to choose between newly designed natural-gas fired and electric appliances, and the projected greenhouse gas savings depicted below would overestimate 44 Proposed Amendments to Rules 9-4 and 9-6 Page 24 March 2023 Final Staff Report
potential GHG reduction co-benefits from the amendments. These estimates should thus be seen as maximum potential co-benefit emissions reductions. For greenhouse gases, 2019 District emissions data serves as the baseline.
Figure 5-5
Potential GHG Emissions under Proposed Rule Amendments
GHG co-benefits are achieved in a fashion similar to the emission reductions described for NOx.
Projected greenhouse gas co-benefits are based largely on the assumption of in-kind electric replacements and low-carbon content power provided by Pacific Gas and Electric and the community choice aggregators in the Bay Area as shown in Table 5-2 above. For natural gas generated electricity, a correction factor is applied to account for GHG emission differences between natural gas appliance and turbine combustion. Further details on and examples of this calculation are provided in Appendix G.
Table 5-4, below, provides values for projected yearly emissions and potential reductions versus the baseline emissions inventory for selected years as represented by the graph in Figure 5-5.
0.00 1.00
2.00 3.00
4.00 5.00
6.00 7.00
2025 2030 2035 2040 2045 2050
Mllion Metric Tons CO2 equivalent
Year
Commercial and Residential Space and Water Heating
Potential GHG Emission Reductions (MMTCO2e/year)
45 Proposed Amendments to Rules 9-4 and 9-6 Page 25 March 2023 Final Staff Report
Table 5-4
Potential GHG emissions under Proposed Rule Amendments
Year
Projected Yearly
GHG Emissions
(MMTCO2e/yr)
Potential
Reduction vs.
Baseline
(MMTCO2e/yr)
Baseline 6.56 -
2030 5.67 0.89
2035 4.10 2.46
2040 2.68 3.88
2046 1.75 4.81
H. Particulate Matter Emissions
Emissions of total fine particulate matter from residential and commercial natural gas combustion is represented above in Table 5-1, with a total of 536.9 tons per year emitted in 2018. Fine particulate matter, or PM2.5, can be categorized as “primary” or “secondary” particulates. Primary PM2.5 is directly emitted to the atmosphere, while secondary PM2.5 is a byproduct of chemical reactions of gaseous pollutants such as NOx and ammonia (NH3) in the atmosphere. Secondary particulate matter formation is of significant relevance to these proposed rule amendments due to the significant emissions of nitrogen oxides from this sector, as discussed above. Secondary particulate matter emissions from this source are expected to be reduced in line with NOx reductions achieved by the proposed rule amendments. Primary particulate matter reductions are a potential co-benefit that would be achieved with consumer installation of electric appliances, which aligns with but is not required by the proposed rule amendments. Further analysis of particulate matter exposure and health impacts associated with these sources is discussed in Section V.I below.
The Bay Area is currently designated as a non-attainment area for the annual PM2.5 and 24-hour PM10 CAAQS and as unclassifiable under the annual PM2.5 NAAQS and non-attainment for the 24-hour PM2.5 NAAQS. The EPA is currently considering a new, more stringent PM2.5 ambient air quality standard. Air District staff anticipates the need to submit a PM attainment plan in response to this new standard once it is finalized. These proposed amendments will reduce PM2.5 in the Bay Area and help move the Air District towards attainment of both the CAAQS and NAAQS. Staff has estimated through modeling that the amendments may result in a mean modeled decrease in 24-hour PM2.5 of -0.68 µg/m3 when observations indicated 24-hour PM2.5 was at least 30 µg/m3, as detailed in Appendix E. The importance of zero NOx appliance standards has been recognized by EPA. On October 5, 2022, citing this Bay Area rule development proposal, EPA found that zero NOx appliance rules must be evaluated by the San Joaquin Valley Air Pollution Control District in order to show full consideration of all methods of emissions reductions for fine particulate matter. Air District staff thus recommends that the Air District submit the proposed rule amendments to EPA for inclusion in the State Implementation Plan. Staff plans to recommend submittal of all new rules or rule amendments passed by the Board of Directors that reduce PM to be a part of the SIP moving forward, beginning with the proposed rule amendments discussed in this report.
46 Proposed Amendments to Rules 9-4 and 9-6 Page 26 March 2023 Final Staff Report
I. Exposure and Health Impacts
The Air District evaluated ambient air quality and health impacts from natural gas fired furnaces and water heaters in commercial and residential buildings in support of the proposed amendments to Rules 9-4 and 9-6. Staff estimated contributions to ambient NOx levels from the above sources, as well as the contributions to levels of particulate matter and ozone. Staff also estimated the health impacts of simulated fine particulate matter. The results of this analysis are summarized in this section but can be found in more detail in Appendix E.
The modeling analysis included two annual simulations for 2018:
• A base case simulation that included the Air District’s latest natural gas combustion emissions estimates, and
• A control case simulation that removed emissions from commercial and residential natural gas combustion emissions associated with space heating and water heating that are covered by the proposed rule amendments. The emissions removed are represented by those in bold in Table 5-1.
Differences between these two simulations provided an estimate of the air quality impacts of this source sector. It is important to note, however, that the current version of Rule 9-6 is expected to reduce 2018 NOx emissions from commercial and residential water heaters by 576 tons, with proposed rule amendments targeting the remaining emissions from these appliances, as well as all emissions from commercial and residential space heating. Impacts from the expected emissions reductions from the current version of Rule 9-6 (576 tons) were excluded from the health benefits analysis to ensure that the modeling-estimated health benefits account only for NOx emission reductions associated with the proposed rule amendments (3,690 tons). (See Appendix E for details.)
It is important to clarify the bounds of this analysis and assumptions made as compared to other emission estimates and impact findings throughout this report. The health modeling shows the health impact associated with currently designed natural gas-fired space and water heating appliances located in commercial and residential buildings that are covered by the proposed rule amendments. Due to the nature of the rule amendments, with enforcement of the standards at the point of sale of the equipment, the emission reductions and related health benefits will be realized over the course of time as old equipment is replaced by new equipment that meets the emissions standards in the amendments.
The study population of this analysis includes residents of the portions of the nine-county Bay Area that are under the jurisdiction of the Air District (Figure 5-5). This population was estimated to be approximately 7.7 million residents. A breakdown by county and race/ethnicity, using categories supplied by BenMAP/PopGrid, is given in Table 5-5. 47 Proposed Amendments to Rules 9-4 and 9-6 Page 27 March 2023 Final Staff Report
Table 5-5
Modeled residential population
Asian Hispanic Black White (all)
Alameda 32.6% 24.3% 11.0% 32.1% 1,668,306
Contra Costa 18.5% 28.7% 9.2% 43.6% 1,180,605
Marin 7.4% 18.3% 3.2% 71.1% 266,439
Napa 8.5% 36.8% 2.3% 52.5% 147,553
San Francisco 34.6% 15.1% 5.2% 45.1% 866,833
San Mateo 31.5% 26.6% 2.7% 39.1% 797,428
Santa Clara 38.3% 27.7% 2.8% 31.2% 1,991,116
Solano 21.7% 27.8% 17.3% 33.2% 311,782
Sonoma 5.6% 30.5% 2.2% 61.7% 461,976
(all) 28.6% 25.6% 6.4% 39.4% 7,692,039
Note: Percentages are row-wise; they indicate shares of that county’s population.
Basis: BenMAP/PopGrid projection from 2010 to 2020.
The key findings of this analysis are that NOx emissions from the sources in question caused production of secondary PM2.5 across most residential areas of the Bay Area with an annual average contribution between about 0.04 microgram per cubic meter (µg/m3) to 0.18 µg/m3.
Emissions from this source sector also include primary, or directly emitted, PM2.5. The total annual average contribution to PM2.5, including both primary and secondary PM2.5, across most residential areas of the Bay Area varied between 0.10 µg/m3 and 0.42 µg/m3. Maps of emissions reductions in NOx and primary PM2.5 can be seen in Figures 5-6 and 5-7 below.
Figure 5-6
Map of the NOx emissions difference between the modeled control and base cases 48 Proposed Amendments to Rules 9-4 and 9-6 Page 28 March 2023 Final Staff Report
Figure 5-7
Map of the PM2.5 emissions difference between the modeled control and base cases The health benefits from reduced PM2.5 achieved by eliminating emissions from the natural gas-fired appliances covered under the proposed rule amendments were estimated using the U.S.
EPA’s May 2021 version of the Environmental Benefits Mapping and Analysis Program – Community Edition (BenMAP-CE), paired with three additional sets of health impact functions deemed appropriate for use in the Bay Area. Further information about the methodology used and constraints of this modeling can be found in Appendix E. Due to the nature of commercial and residential buildings, these health benefits would be realized across the region, with increased benefits in densely populated areas.
Table 5-6 provides a breakdown of these exposure assessments by the four racial/ethnic groups listed in Table 5-5.
49 Proposed Amendments to Rules 9-4 and 9-6 Page 29 March 2023 Final Staff Report
Table 5-6
Modeled exposures (outdoor concentrations, weighted by 2020 Bay Area residential population) under baseline and control scenarios
Baseline Control Reduction
Total PM2.5 (µg/m3)
Asian/Pacific Islander 8.817 8.667 0.150 (1.7%)
Hispanic/Latino 8.826 8.687 0.139 (1.6%)
African-American/Black 8.670 8.536 0.134 (1.5%)
White 8.116 7.988 0.128 (1.6%)
(average) 8.534 8.397 0.138 (1.6%)
Primary PM2.5 (µg/m3)
Asian/Pacific Islander 4.496 4.437 0.059 (1.3%)
Hispanic/Latino 4.558 4.505 0.054 (1.2%)
African-American/Black 4.491 4.436 0.055 (1.2%)
White 4.140 4.091 0.050 (1.2%)
(average) 4.371 4.318 0.054 (1.2%)
Secondary PM2.5 (µg/m3)
Asian/Pacific Islander 4.321 4.230 0.091 (2.1%)
Hispanic/Latino 4.268 4.182 0.086 (2.0%)
African-American/Black 4.179 4.099 0.079 (1.9%)
White 3.976 3.898 0.079 (2.0%)
(average) 4.163 4.079 0.084 (2.0%)
NOx (ppb)
Asian/Pacific Islander 10.079 9.324 0.755 (7.5%)
Hispanic/Latino 9.958 9.268 0.690 (6.9%)
African-American/Black 10.930 10.212 0.718 (6.6%)
White 8.113 7.470 0.643 (7.9%)
(average) 9.328 8.636 0.692 (7.4%)
Note: Reductions are expressed relative to baseline exposures.
As depicted in Figure 5-8, if both NOx and primary PM2.5 emissions from the combustion of natural gas by residential and commercial space and water heating appliances were eliminated, modeling indicates that the largest reductions in PM2.5 exposure would accrue to the Bay Area’s Asian/Pacific Islander population. This would be true in both absolute and relative terms (see Table 5-6, column “Reduction”). Within individual counties (not shown; see Appendix F) the greatest modeled reductions in PM2.5 exposure from the proposed rule amendments would accrue either to Hispanic/Latino, African-American/Black, or Asian/Pacific Islander residents, depending on the county.
50 Proposed Amendments to Rules 9-4 and 9-6 Page 30 March 2023 Final Staff Report
Figure 5-8
Modeled Total PM2.5 Impacts (annual average outdoor concentrations, weighted by residential population) attributed to targeted emissions from space and water heating appliances.
Note: Consistent with Table 5-6, this PM2.5 (Total) is the sum of PM2.5 (Primary) and PM2.5 (Secondary).
The total PM2.5 emissions from this sector result in an estimated 37 to 85 premature deaths per year, with 23-52 attributable to secondary PM2.5 emissions (which are directly tied to NOx emissions). These results can be seen in Table 5-7 below.
Table 5-7
Estimated benefits resulting from decreased PM2.5 levels due to an assumed case that eliminates space and water heating natural gas combustion emissions in the Bay Area Health Impacta Avoided Incidence, Per Year
Secondary PM2.5 Total PM2.5
Premature mortality
All causesb 23–52 37–85
Chronic/severe illness
Non-fatal acute myocardial infarction
(heart attack)
Hospital admission, neurologicalc
Incidence, out of hospital cardiac
arrest
Incidence, stroke
Incidence, lung cancer
2.6–24
7.7 0.45
1.5 1.9
4.2–39
13 0.73
2.4 3.1
Hospital admissionsd
51 Proposed Amendments to Rules 9-4 and 9-6 Page 31 March 2023 Final Staff Report
Health Impacta Avoided Incidence, Per Year
Secondary PM2.5 Total PM2.5
Respiratorye
Cardiovascularf
2.4 3.0
3.9 4.9
ER visits
Respiratoryg
Cardiovascularh
13 6.2
20 10
Other effects
Restricted activity days
Work loss days
Hay fever/allergic rhinitis
24,000
4,100
440
39,000
6,700
710
Asthma-related effects
Asthma symptoms/albuterol use
Onset of asthma
9,200
71 15,000
110
a Each health impact is associated with one or more unique International Classification of Diseases-9-Clinical Modification (ICD-9-CM) code(s) (Medicode, 1996).
b
Includes all ICD-9 codes.
c First hospital admission (cause-specific, to indicate onset of the chronic disease) for dementia, Alzheimer’s disease, or Parkinson’s disease (ICD-9 codes 290, 331.0, or 332, respectively), and other neurological morbidities. d Hospital admissions due to acute exposure to air pollution are assumed to pass through the emergency room; however, the calculated value of hospital admissions does not account for the cost incurred in the emergency room visit. This strategy avoids double-counting.
e
Includes all respiratory diseases (ICD-9 codes 460–519). f
Includes cardio-, cerebro-, and peripheral vascular diseases (ICD-9 codes 410, omitting 410.x2; 410–414; 426–427; 428; 429; 430–438; 440–448).
g
Includes respiratory diseases (ICD-9 codes 480–486, 491, 492, 496, 460–465, 466, 477, 493, 786.07). h
Includes all cardiac outcomes (ICD-9 codes 390–549).
It is important to note that the secondary PM2.5 benefits represented above in the center column would be achieved as a result of NOx emissions reductions. Therefore, the secondary PM2.5 benefits captured in this modeling represent the potential direct benefits of the emissions standards set forth in the proposed rule amendments. The righthand column of Table 5-7 represents benefits from total PM2.5 emission reductions and therefore includes primary PM2.5 emissions from space and water heating appliances. While it is expected that, based on current appliance availability, the amendments will lead to the proliferation of electric space and water heating appliances, the development of natural gas-fired appliances that meet the proposed standards is possible. If zero NOx natural gas-fired appliances are developed, these appliances may, or may not, be designed to eliminate primary PM emissions. Thus, there still may be primary PM2.5 emissions from these appliances and the additional benefits represented in the Total PM2.5 column of Table 5-7 would not be fully realized, depending on how many consumers choose electric versus natural gas-fired zero NOx appliances.
As discussed in Section VIII: Environmental Impacts and Appendix D, it is expected that all incremental power generation needs will be met with renewable generation resources. 52 Proposed Amendments to Rules 9-4 and 9-6 Page 32 March 2023 Final Staff Report
VI. ECONOMIC IMPACTS
A. Cost Effectiveness
In this section staff presents cost effectiveness information for the Board and public’s consideration. Cost effectiveness is calculated by dividing the annualized costs (amortized capital costs and operating costs) by the total number of tons of emission reductions expected each year:
𝐶𝑜𝑠𝑡 𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒𝑛𝑒𝑠𝑠 =
𝐴𝑛𝑛𝑢𝑎𝑙𝑖𝑧𝑒𝑑 𝐶𝑜𝑠𝑡
𝐴𝑛𝑛𝑢𝑎𝑙 𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 𝑅𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛
Air District staff reviewed available data on costs and cost estimation tools and methodologies and developed cost estimates associated with compliance under the proposed amendments.
Based on these cost estimates, Air District staff estimated cost effectiveness for the proposed amendments. Staff assumes replacement of currently designed natural gas-fired space and water heating appliances with currently available electric heat pumps for purposes of this analysis. Costs of potential natural gas-fired zero NOx appliances are unknown at this time.
Estimates of the net annual costs (including annualized equipment costs, rate savings, and panel upgrades), annual emission reductions and cost effectiveness are shown on a per equipment unit basis in Table 6-1.
Table 6-1
Per Unit Compliance Cost and Cost Effectiveness for Proposed Amendments Equipment
Cost ($)
Net
Equipment
Compliance
Cost ($)
a
Panel
Upgrade
Cost ($)
Annualized
Equipment
Compliance
Cost
($/year)b
Annual
Rate
Savings
($/year)
Annualized
Panel
Upgrade
Cost
($/year)c
Annual
NOx
Reductions
(tons/year)
Cost
Effectiveness
($/ton)d
Rule 9-4 Amendments for Space Heating
Ultra-low NOx
Standard $5,650 $550 $0 $45 $0 $0 0.0008 $54,100
Zero NOx
Standard $8,030 $2,900 $2,630 $241 ($150) $161 0.0013 $72,100 -$199,800 Rule 9-6 Amendments for Water Heating
Zero NOx
Standard $2,820 $850 $960 $88 ($45) $59 0.0002
$250,400 -
$594,000
Notes:
a Net equipment compliance cost is estimated by calculating the difference in capital cost between equipment meeting the current standard and equipment meeting the applicable proposed standard.
b Annualized equipment compliance cost is estimated by amortizing the net equipment compliance cost over the lifetime of the equipment. c Annualized panel upgrade cost is estimated by amortizing the panel upgrade cost over the lifetime of the panel upgrade. d Ranges of cost effectiveness shown for the space heating and water heating zero-NOx standards represent the cost effectiveness for an equipment installation that does not require a panel upgrade (low end of range) and an equipment installation that does require a panel upgrade (high end of range).
Further information and details on the development of the cost estimates are provided in the following Section VI.C. The calculation of the NOx reductions is described in Section V.F. and shown in Figure 5-4 and Table 5-3 of this Report. Further details on the calculation of annualized net costs can be found in Appendix C. Note that cost estimates presented here are 53 Proposed Amendments to Rules 9-4 and 9-6 Page 33 March 2023 Final Staff Report
in 2019 and 2018 year dollars, and do not account for potential cost changes since that time due to recent inflation or other factors. Staff notes that between 2019 and 2022, the national construction cost index has increased 7.9%.
33 Staff expects that equipment and construction
costs associated with the proposed amendments will continue to change over time, with equipment costs expected to decrease. It is speculative to extend the short-term trends of 2019-2022 out to the compliance dates which begin in 2027. Changes to associated costs and therefore cost-effectiveness of the proposed amendments will be evaluated over time through the Implementation Working Group (see Section IX.C) if the proposed rule amendments are adopted. Staff does not believe it is appropriate to inflate the 2018-2019 cost data to current dollars due to uncertainty related the representativeness and applicability of recent inflation trends, particularly given the long-term compliance timelines under the proposed amendments.
For the zero NOx standards for space heating and water heating, a range of cost effectiveness values are shown in Table 6-1 to reflect installations that may or may not require an electrical panel upgrade; the low end of the range represents equipment installations where a panel upgrade would not be required, while the high end of the range represents equipment installations where a panel upgrade would be required. As shown in Table 6-1, the cost effectiveness can vary widely depending on the need for electrical panel upgrades. As discussed in the Technology Evaluation in Section IV of this report, staff anticipates that the availability and continued development of low voltage zero NOx solutions for space heating and water heating systems will be a key factor in the ability to install zero NOx equipment without electric panel upgrades. In addition, staff plans to convene an ongoing Implementation Working Group to investigate a number of implementation topics, including the accessibility and costs of zero NOx technology (further details on the Implementation Working Group can be found in Section IX.C. of this report). Staff anticipates that topics related to implementation costs will be a focus of the group as the status of low voltage technology development and availability, as well as financing and incentive programs, continues to evolve.
B. Incremental Cost Effectiveness
In this section, Staff presents incremental cost effectiveness information on other potential regulatory options for the Board and public’s consideration. Incremental cost effectiveness is calculated by 1) calculating the incremental difference in cost between the different regulatory options, and 2) dividing the incremental difference in cost by the incremental difference in emission reductions between each progressively more stringent regulation:
𝐼𝑛𝑐𝑟𝑒𝑚𝑒𝑛𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒𝑛𝑒𝑠𝑠 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑐𝑜𝑠𝑡 (𝐵) – 𝐴𝑛𝑛𝑢𝑎𝑙 𝑐𝑜𝑠𝑡 (𝐴)
𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 (𝐵) – 𝐸𝑚𝑖𝑠𝑠𝑖𝑜𝑛 𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 (𝐴)
1. Proposed Amendments to Rule 9-4
Air District staff identified a potential regulatory option for comparison that is less stringent than the proposed zero NOx standard for space heating equipment. This potential regulatory option would be to only adopt an ultra-low NOx standard of 14 ng/J instead of a zero NOx standard. (Note that the currently proposed amendments include the implementation of both an ultra-low NOx standard in 2024 and a zero NOx standard in 2029; the purpose of this incremental cost effectiveness analysis is to evaluate an ultra-low NOx standard as a less stringent regulatory option for comparison with the proposed zero NOx standard.) 33 Engineering News Record 20 City Construction Cost Index. Annual averages 2019-2022. Accessed February 2023.
54 Proposed Amendments to Rules 9-4 and 9-6 Page 34 March 2023 Final Staff Report
Air District staff estimated the incremental cost effectiveness of the proposed zero NOx standard compared to this ultra-low NOx option. Estimates of the net annual costs (including annualized equipment costs, rate savings, and panel upgrades), annual emission reductions, and cost effectiveness are shown for both the zero NOx and ultra-low NOx standards in Table 6-1 above. Based on these values, the incremental cost effectiveness of the zero NOx standard compared to the ultra-low NOx standard is estimated to range from $106,900 to $480,900 per ton of additional NOx reduction. This range of incremental cost effectiveness is a result of the range in costs associated with the zero NOx standard as described above and in Table 6-1.
2. Proposed Amendments to Rule 9-6
Air District staff did not identify a potential regulatory option for comparison that is less stringent than the proposed zero NOx standard for water heating equipment. As discussed in Section II.B., the existing NOx emission standards in Rule 9-6 are equivalent to those in SCAQMD Rules 1146.2 and 1121 and SJVUAPCD Rules 4308 and 4902 for similar equipment, and there have not been any lower, non-zero NOx emissions limits identified. Staff recognizes that discussions and considerations regarding the potential for other lower NOx emission levels and limits are ongoing, including considerations by the South Coast Air Quality Management District in the development of its 2022 Air Quality Management Plan; 34 however, the achievability,
feasibility, and costs associated with these emissions levels and types of devices are not currently known and cannot be accurately estimated within the scope of the staff’s analysis at this time.
C. Socioeconomic Impacts
The Air District is required to assess and consider potential socioeconomic impacts when adopting or amending regulations.
35 Air District staff contracted with an independent consultant, Applied Development Economics (ADE), to develop estimates of potential socioeconomic impacts for the proposed amendments to Rule 9-4 and Rule 9-6. The analysis and findings are summarized in this section, and the full report of the socioeconomic impact analysis is available in Appendix C.
Because the proposed amendments to Rule 9-4 and Rule 9-6 will likely have the greatest potential economic impact on residential consumers, the analysis is focused on consumer spending behavior and how the potential added expenses from appliance upgrades might factor into those spending patterns. In cases such as this, where the cost of compliance is borne by individual property owners, equity considerations must be kept at the forefront. The impact of these rule amendments on interest groups such as renters, affordable housing administrators, and others must also be adequately considered. Staff has discussed equity and cost concerns with stakeholders throughout the rule development process. Assuming no zero-NOx natural gas-fired solutions are developed and/or consumers choose to switch to electric appliances, significant additional costs beyond the capital cost of equipment such as electric service or panel updates could occur. However, improvements in available technology may lessen the cost of equipment as well as related electric service upgrades. For example, heat pump water 34 South Coast AQMD. 2022 Air Quality Management Plan – Policy Brief – Residential and Commercial Building Appliances. https://www.aqmd.gov/docs/default-source/clean-air-plans/air-quality-management-plans/2022-air-quality-management-plan/combined-residential-and-commercial-buildings-appliance.pdf?sfvrsn=8 35 California Health and Safety Code, Section 40728.5
55 Proposed Amendments to Rules 9-4 and 9-6 Page 35 March 2023 Final Staff Report
heaters that are compatible with 120-volt electric systems are currently entering the market, removing the need for upgrading electric service in older homes. While improvements in technology availability and costs may continue to occur in the future, ADE’s analysis of consumer costs is based on pricing and data for currently available technologies and equipment. As described in Section IX.C of this report, potential socioeconomic impacts may be further informed in the future by the Implementation Working Group and presented to the Board through staff’s interim reporting process. However, this current socioeconomic impact analysis represents the most current and best available information at the time of its preparation.
ADE began its analysis by looking at the income distribution patterns in the Bay Area to see how the proposed rule amendments might impact households based on their income, poverty status, and whether they are homeowners or renters. In order to identify household characteristics and accompanying spending patterns, ADE used data from the U.S. Census American Community Survey (ACS) and the Bureau of Labor Statistics Consumer Expenditure Survey (CES). The ACS is an annual survey of households that is used to identify socioeconomic characteristics by geographic area, and how they change on an annual basis.
Because the analysis focused on the nine Bay Area counties served by the Air District, all of the data comes from the combined county-level data.
The CES data is an ongoing household survey of consumer spending administered by the Bureau of Labor Statistics in order to calculate the Consumer Price Index (inflation rate). This data includes spending information by category, including housing, transportation, retail goods, services, and investments. For the socioeconomic analysis, the CES data is used to identify the proportion of household spending that goes towards major appliance and household equipment purchases. The data is cross-tabulated based on income range, homeownership status, and other household characteristics. This provides a useful benchmark for comparing existing household spending patterns with the potential cost of compliance for the Rule 9-4 and Rule 9-6 amendments. Note that when analyzing the degree to which socioeconomic impacts are significant or not significant, the Air District has previously used thresholds related to the percent change in return on equity (ROE) for an impacted industry (e.g., a threshold of costs exceeding ten percent of a business’ return on equity). This type of threshold is not directly applicable to the impacts on residential consumers, but a discussion comparing the compliance costs and existing household spending patterns is provided below.
ADE’s report includes a comparable review of the incremental cost differences between existing gas-fired appliances and electric units that, based on current market availability, are expected to be the most common zero NOx appliance installation. For proposed Rule 9-4 amendments, an incremental cost difference of $2,931 was used (installed costs of $8,027 compared to $5,096).
For proposed Rule 9-6 amendments, an incremental cost difference of $852 was used (installed costs of $2,824 compared to $1,972). Additionally, installation costs for electrical panel upgrades that may be necessary were estimated to be $4,256 for single family homes and $2,744 for low-rise multi-family homes. The incremental installed cost and panel upgrade costs were amortized over the equipment lifetime and combined with estimates of annual rate savings to develop total annual net costs (as shown previously in Table 6-1). Further details on the calculation of annualized net costs can be found in Appendix C.
It should be noted that these comparisons are based on existing costs using current technologies and volumes of scale. The analysis does not make any assumptions about future cost reductions, nor any rebate programs that often provide incentives for consumers to upgrade to more efficient appliances. Potential future sources of funding and incentive programs are discussed below. These issues are intended to be further evaluated as the 56 Proposed Amendments to Rules 9-4 and 9-6 Page 36 March 2023 Final Staff Report
market changes prior to the proposed zero NOx implementation dates through the Implementation Working Group and interim reporting process, which are discussed in Section IX.C of this report.
Detailed socioeconomic impacts of the proposed amendments can be found in the full report as Appendix C. Overall, the level of potential impact will vary considerably by income range.
Existing household expenditures on major appliances and other household equipment accounts for 1.1 percent to 5.7 percent of annual income, depending on the income range. The proposed Rule 9-4 and Rule 9-6 amendments will potentially increase this by up to 1.0 percentage points ($252 per year) for space heaters and 0.4 percentage points ($102 per year) for water heaters for the lowest income households. Additionally, shifts in consumer expenditures toward higher appliance costs and away from other retail goods and services could result in potential job losses in these sectors. During the highest impact implementation period (when both water heaters and space heaters would be replaced), shifts in consumer spending could result in potential annual losses of approximately 0.02 percent of jobs within the trade and services sectors regionwide (286 losses annually compared to 1.5 million total trade and services jobs).
D. Funding and Incentives
There are a variety of funding and incentive sources that are currently available to Bay Area residents who wish to install zero NOx emission heat pump furnace and water heater systems in their homes and businesses. As discussed above, the socioeconomic impacts for the proposed rule amendments were calculated without taking into account cost mitigations that may be available from financing, rebate, or other incentive programs. This is because these programs are currently small and are not consistently available to all consumers in the region. Through federal and state legislation and budget planning processes, there are also plans to greatly expand the funds and financing available and accessible over the course of the next decade.
Air District staff, along with the Implementation Working Group as discussed in Section IX.C, intends to track the development of these programs and work with administrators and other stakeholders to increase consumer awareness of and access to incentive funds. Table 6-2 summarizes significant funding sources that have recently been available to Bay Area residents.
Note that these funding sources may be limited to fully zero emission (electric) appliances and may not provide funding for zero NOx emission natural gas-fired appliances if they are developed.
57 Proposed Amendments to Rules 9-4 and 9-6 Page 37 March 2023 Final Staff Report
Table 6-2
Existing Funding Sources
Name of Funding
Source
Amount Agency/
Funder
Area Type of applications
TECH
(Technology and
Equipment for
Clean Heating)36
$120 million CEC California Jumpstart market for low
emissions space and
water heating
technology/heat pumps
(over 4 years)
BUILD (Building
Initiative for Low
Emissions
Development)37
$80 million CEC California All electric new housing
(new construction) (over
4 years)
Equitable Building
Decarbonization -
low-income
installations38
$622.4 million CEC California Direct-install building
retrofit program
Equitable Building
Decarbonization -
consumer
rebates39
$300 million CEC California Rebates for upgrades
and replacement of fossil
fuel equipment with
electric
Self-Generation
Incentive Program
(SGIP)40
$84.7 million CPUC California Demand-response
focused HPWH
installations. Half of
funds reserved for low-income customers
LIFT (Low-income
Tenants and
Families) Program
2.041
$10.6 million CPUC /
Marin Clean
Energy
Marin Whole building
multifamily program -
energy efficiency and
fuel substitution in low-income properties
36Borgeson, Merrian. CA Launches $200M in Programs to Reduce Building Emissions. https://www.nrdc.org/experts/merrian-borgeson/ca-launches-200m-programs-reduce-building-emissions 37 Ibid.
38 California State Budget 2022-2023. Accessed August 2022. https://www.ebudget.ca.gov/2022- 23/pdf/BudgetSummary/ClimateChange.pdf
39 Ibid.
40 California Public Utilities Commission. CPUC Provides Additional Incentives and Framework for Electric Heat Pump Water Heater Program. https://www.cpuc.ca.gov/news-and-updates/all-news/cpuc-provides-additional-incentives-and-framework-for-electric-heat-pump-water-heater-program 41 California Public Utilities Commission. Fact Sheet: Heat Pump Water Heater Incentive Programs. https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/building-decarb/cpuc-hpwh-and-electrification-fact-sheet_q22020.pdf 58 Proposed Amendments to Rules 9-4 and 9-6 Page 38 March 2023 Final Staff Report
Name of Funding
Source
Amount Agency/
Funder
Area Type of applications
Energy Efficiency
and Fuel
Substitution
Measures42
$31 million CPUC California Funds distributed for
local installations of heat
pump water heaters,
space conditioning and
dryers and induction
stoves
Energy Savings
Assistance (ESA)
Program43
$735 million CPUC PG&E
Territory
Appliance replacements
and other energy savings
for single family and
mobile homes (2021-
2026)
Energy Savings
Assistance (ESA)
Program44
$263 million CPUC PG&E
Territory
Appliance replacements
and other energy savings
for multifamily (2021-
2026)
Energy Savings
Assistance (ESA)
Program45
$49 million CPUC PG&E
Territory
Studies, training,
workforce education and
training, marketing
education and outreach
(2021-2026)
Wood Smoke
Program
$2 million BAAQMD Bay Area Change out ~322 wood
burning devices to heat
pumps
Some of the funding identified above, such as the TECH and BUILD programs have exhausted their funding available in Pacific Gas and Electric territory, and therefore the Bay Area. Air District staff anticipates the further expansion of these programs including more distributed administration of these programs across all areas within the Air District’s jurisdiction.
In August 2022, the federal government finalized the Inflation Reduction Act (IRA) which designates significant funds for a variety of programs related to reducing emissions related with building appliances. Programs initiated in the IRA include direct rebate programs that will be administrated through states as well as federal tax credits that are available now and will continue through 2032. The IRA includes multiple programs that apply to space and water heating appliances and other sources of energy usage in buildings. One significant program is the allocation of $4.275 billion over 10 years for point-of-sale rebates to income-qualified entities. These rebates allow for a maximum of $14,000 for the installation of new electric space and water heating equipment and ancillary costs. This program is focused on low- and middle-income entities in both single and multifamily residences, with 100 percent of project costs covered where annual income is less than 80 percent of the area median income (AMI).
Fifty percent of project costs are covered when annual income is 80-150 percent of the AMI.
The IRA also extends and increases a blanket tax credit for the installation of compliant appliances for all owners of their primary residence. Previously capped at $500, this tax credit 42 Ibid.
43 California Public Utilities Commission. Decision 21-06-015. https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M387/K107/387107687.PDF 44 Ibid.
45 Ibid.
59 Proposed Amendments to Rules 9-4 and 9-6 Page 39 March 2023 Final Staff Report
will provide $2,000 per eligible homeowner annually through 2032. State administrative agencies have up to two years to submit programmatic plans in order to receive IRA funds, at which time more details on process and access will become available.
Through the Implementation Working Group and the interim reporting process, Air District staff will continue to track and facilitate accessibility to funds, such as those described in this section, to Bay Area residents. Air District staff will work to ensure necessary and relevant working group membership, including staff from agencies responsible for disbursing state and federal funds. Due to the continuing growth and interest in this space, staff expects the landscape of funding and incentive programs to grow significantly over the next five to ten years and will assess the impact of this growth on costs of compliance in interim reports to the Board of Directors.
E. Valuation of Health Impacts
As previously discussed in Section V.I (Emissions and Emission Reductions; Exposure and Health Impacts), Air District staff modeled the health impacts associated with current NOx emissions from all space and water heating in residential and commercial buildings. The annual avoided incidences of health impacts listed in Table 5-7 are further analyzed below in Table 6-3, showing the potential valuation of these avoided incidences.
Table 6-3
Valuations of reductions in annual average PM2.5 concentrations due to an assumed case that eliminates space and water heating natural gas combustion emissions in the Bay Area
Health Impacta Total Valuation in 2020 U.S. Dollars,
Million Dollars Per Year
Secondary PM2.5 Total PM2.5
Premature mortality
All causesb 230–530 380–870
Chronic/severe illness
Non-fatal acute myocardial
infarction (heart attack)
Hospital admission, neurologicalc
Incidence, out of hospital cardiac
arrest
Incidence, stroke
Incidence, lung cancer
0.23–2.1
0.11 0.019
0.059
0.056
0.38–3.5
0.19 0.03
0.096
0.091
Hospital admissionsd
Respiratorye
Cardiovascularf
0.028
0.055
0.045
0.090
ER visits
Respiratoryg
Cardiovascularh
0.013
0.0084
0.021
0.014
Other effects
Restricted activity days
Work loss days
Hay fever/allergic rhinitis
1.9 1.1
0.31 3.2
1.8 0.52
60 Proposed Amendments to Rules 9-4 and 9-6 Page 40 March 2023 Final Staff Report
Health Impacta Total Valuation in 2020 U.S. Dollars,
Million Dollars Per Year
Secondary PM2.5 Total PM2.5
Asthma-related effects
Asthma symptoms/albuterol use
Onset of asthma
0.0037
3.6 0.0059
5.8 Sum
All health impacts included 240–540 400–890
a Each health impact is associated with one or more unique International Classification of Diseases-9-Clinical Modification (ICD-9-CM) code(s) (Medicode, 1996).
b
Includes all ICD-9 codes.
c First hospital admission (cause-specific, to indicate onset of the chronic disease) for dementia, Alzheimer’s disease, or Parkinson’s disease (ICD-9 codes 290, 331.0, or 332, respectively), and other neurological morbidities. d Hospital admissions due to acute exposure to air pollution are assumed to pass through the emergency room; however, the calculated value of hospital admissions does not account for the cost incurred in the emergency room visit. This strategy avoids double-counting.
e
Includes all respiratory diseases (ICD-9 codes 460–519). f
Includes cardio-, cerebro-, and peripheral vascular diseases (ICD-9 codes 410, omitting 410.x2; 410–414; 426–427; 428; 429; 430–438; 440–448).
g
Includes respiratory diseases (ICD-9 codes 480–486, 491, 492, 496, 460–465, 466, 477, 493, 786.07). h
Includes all cardiac outcomes (ICD-9 codes 390–549).
These valuations were determined using EPA’s May 2021 version BenMAP-CE paired with three sets of health impact functions deemed appropriate for use in the Bay Area. Further information about the methodology used and constraints of this modeling can be found in Appendix E. BenMAP-CE was designed to estimate changes in human health due to changes in air pollution levels and to estimate conventional valuations of these impacts (in 2020 U.S. dollars). The valuation process considers the direct and indirect costs of illnesses as well as the willingness to pay to avoid premature death. Direct costs include actual medical costs and lost worker hours, while indirect costs reflect willingness to pay to avoid pain and suffering.
As previously discussed, the valuation of secondary PM2.5 reductions represented above in the center column is associated with NOx emissions reductions. Therefore, the valuation of secondary PM2.5 reductions captured in this modeling represent the potential direct benefits of the emissions standards set forth in the proposed rule amendments. The righthand column of Table 6-3 represents the valuation of total PM2.5 reductions and therefore includes primary PM2.5 emissions from space and water heating appliances. While it is expected that, based on currently available zero NOx appliances, the amendments will result in the proliferation of electric space and water heating appliances, the development of natural gas-fired appliances that meet the proposed standards are possible. In that case, there still may be primary PM2.5 emissions from these appliances, depending on how they are designed, and the additional savings represented in the Total PM2.5 column of Table 6-3 would not be fully realized.
Figure 6-1 below summarizes the health valuations shown in Table 6-3. 61 Proposed Amendments to Rules 9-4 and 9-6 Page 41 March 2023 Final Staff Report
Figure 6-1
Summary of Health Valuations
These health outcomes were also attributed to potential valuations, which are reported below in Section VI.E (Economic Impacts; Valuation of Health Impacts) as well as in the full emissions modeling analysis, Appendix E.
F. Air District Impacts
Staff anticipates that the proposed amendments to Rules 9-4 and 9-6 will require additional staff time and resources.
The enforcement of the zero NOx standard is anticipated to result in increased staffing needs for the Compliance and Enforcement Division. While inspections to ensure continued compliance are ongoing, general compliance with the existing requirements of Rule 9-4 and 9-6 has been established throughout the region. This is supported by the longevity of the existing requirements as well as similar requirements throughout the state. As such, review of certifications has been streamlined and point-of-sale enforcement is not currently resource-intensive for the Air District.
In order to process certifications for compliant equipment and ensure point of sale compliance with the proposed ultra-low NOx requirement in Section 9-4-301.2, staff anticipates the need to allocate 0.5 FTE time to support the proposed rule amendments from January 1, 2024, through January 1, 2027. This time also includes potential compliance and enforcement involvement in the Implementation Working Group, addressing questions from retailers, distributors and other stakeholders and pre-processing applications for appliances that are compliant with the zero NOx standard.
Starting on January 1, 2027, which is the first zero NOx implementation date for small water heaters, staff anticipates an ongoing need for one additional FTE in the Compliance and Enforcement Division to ensure compliance with the requirements of Sections 9-6-301.3, 9-6- 301.5 and 9-6-303.5. This includes processing certifications for compliant equipment as well as performing regular inspections at retailers and other appliance distribution locations.
Additionally, implementation of the proposed rule amendments will require ongoing support from Rules and Strategic Policy and Planning and Climate Protection Divisions staff to facilitate and participate in the Implementation Working Group as well as to draft and submit to the Board the Interim Reports as required in Sections 9-4-405 and 9-6-404. Staff anticipates that the 62 Proposed Amendments to Rules 9-4 and 9-6 Page 42 March 2023 Final Staff Report
combined workload between these two divisions will amount annually to one FTE from January 1, 2023, to January 1, 2029.
There are no impacts to the Engineering Division of the Air District as equipment covered by Rules 9-4 and 9-6 does not require an Air District permit to operate.
VII. REGULATORY IMPACTS
Section 40727.2 of the California Health and Safety Code requires an air district, in adopting, amending, or repealing an air district regulation, to identify existing federal and air district air pollution control requirements for the equipment or source type affected by a proposed change in air district rules. The air district must then note any differences between these existing requirements and the requirements imposed by the proposed changes.
The proposed rule amendments impose changes to the pollution control requirements for equipment historically subject to Rules 9-4 and 9-6. Air District staff is proposing a lower NOx emission limit of 14 ng/joule in the near term for natural gas-fired fan type central furnaces. The proposed rule amendments also include a zero NOx requirement with compliance dates ranging from 2027 to 2031 for all-natural gas-fired furnaces and water heaters that are subject to the rules.
Additionally, proposed amendments to Rule 9-4 would result in an expanded set of sources being subject to these pollution control requirements. The proposed amendments expand the applicability of the rule to devices used in non-residential settings as well as devices that are not considered “fan-type central furnaces,” including wall furnaces, direct vent units and other natural gas-fired space heating units.
There are currently no state or federal regulations addressing emissions of nitrogen oxides from space and water heating appliances. In August 2022, the Sierra Club petitioned EPA to regulate space and water heating appliances under section 111 of the federal Clean Air Act.46 That petition is currently pending EPA’s consideration. In the 2022 State SIP Strategy, the California Air Resources Board signaled its intention to develop zero emission building appliance rules with a draft 2030 implementation date. No draft rulemaking has yet been proposed. The Air District’s proposed rule amendments specifically regulate NOx emissions from furnaces and water heaters, while CARB has indicated that it will pursue zero emission requirements for the same or similar sources. Air District staff sees the proposed rule amendments as complementary to the plan laid out in the CARB SIP Strategy. With the state showing its intent to regulate these sources in a similar manner, Air District staff expects market growth, and therefore accessibility of zero NOx appliances, to accelerate. 46 Sierra Club, et al. Petition for Rulemaking to List Heating Appliances as a Source Category Under Section 111(b)(1)(A) of the Clean Air Act and to Issue New Source Performance Standards for that Category under Section 111(b)(1)(B).
https://www.sierraclub.org/sites/default/files/Sierra%20Club%20Heating%20Appliance%20Rulemaking%2 0Petition.pdf
63 Proposed Amendments to Rules 9-4 and 9-6 Page 43 March 2023 Final Staff Report
VIII. ENVIRONMENTAL IMPACTS
The California Environmental Quality Act (CEQA), Public Resources Code Section 21000 et seq., require a government agency that undertakes or approves a discretionary project to consider the potential impacts of that project on all environmental media. The Air District contracts with an independent consultant to conduct a CEQA analysis of potential environmental impacts for rule making projects.
A. Notice of Preparation and Initial Study
The Air District prepared a Notice of Preparation and Initial Study (NOP/IS) in anticipation of a Draft Environmental Impact Report (DEIR) for proposed amendments to Rule 9-4 and Rule 9-6 and the NOP/IS was distributed to responsible agencies and interested parties for a 30-day review on May 19, 2022. A notice of availability of this document was distributed and was published on the Air District’s website and in newspapers throughout the area of the Air District’s jurisdiction. A CEQA scoping meeting was conducted on June 9, 2022, to solicit public comment regarding the scope and content of the information to be included in the DEIR. The NOP/IS initially identified the following environmental resources as being potentially significant, requiring further analysis in the DEIR:
• Utilities and Service Systems,
• Air Quality, and
• Greenhouse Gas Emissions
Staff received eight written comments in response to this release, which are posted to the Air District website. No verbal or written comments requested that the Air District expand the scope of the planned DEIR.
B. Draft Environmental Impact Report
The Air District prepared a DEIR, which is included as Appendix G of this report, to address the potential environmental impacts associated with the proposed amendments.
Impacts to air quality as well as greenhouse gas emissions and climate change were found to be less than significant and beneficial. The potential emission reductions associated with the proposed rule amendments are discussed in Section V of this Report as well as in the DEIR.
Impacts to utilities and service systems were found to be potentially significant. Air District staff contracted with Energy and Environmental Economics (E3) to perform modeling to determine potential additional electrical need associated with the proposed rule amendments. E3’s report is incorporated here in Appendix D. E3 assumed, for purposes of determining the “worst case” potential impact on the electric grid, that upon implementation of the proposed amendments all currently installed natural gas-fired space and water heating appliances in the Bay Area would be replaced with electric appliances upon burnout. E3 considered two potential baselines: a more likely “High Policy” case pursuant to which California moves forward with rules and regulations to meet its climate goals, including required heat pump adoption, and a “Low Policy” case that represents business as usual, with no major policy changes supporting building electrification and heat pump adoption other than currently existing incentives. Under the more conservative Low Policy Reference Scenario evaluated by E3, the proposed rule amendments would, over the long term, result in increased energy demand beyond the planned electric grid capacity growth represented in this scenario. E3 estimated that the proposed zero NOx 64 Proposed Amendments to Rules 9-4 and 9-6 Page 44 March 2023 Final Staff Report
standards could result in 6.2 terrawatt-hours per year of additional electric load growth by 2050, which would represent 2.2 percent of the total statewide electrical load by 2020 standards. The E3 study estimates that this level of demand could be met by the development of approximately 2,180 MW of incremental utility-scale solar capacity, corresponding to 19,500 acres of direct land use impacts. Almost all of this energy production is anticipated to occur outside of the Bay Area, and a portion will likely be developed outside of California. Development of these potential new energy resources is not part of the current project under review, but rather a potential indirect impact of implementation of the proposed amendments. Selection, location, development, review, and approval of any new energy resources is outside of BAAQMD’s jurisdiction and would be completed by other agencies. It is not possible to determine any particular energy resource that would be developed to meet growing demand; that determination is outside of BAAQMD’s jurisdiction and is unknown and speculative at this time. However, based on E3’s report, almost all of this energy production is anticipated to occur outside of the Bay Area, and a portion of it will likely be developed outside California. The potential construction and operational impacts associated with these energy facilities could be potentially significant.
Following the release of the NOP and IS, Air District staff also determined that impacts related to aesthetics and noise should also be further evaluated in the DEIR. As described in Appendix G, aesthetics impacts were found to be less than significant, while noise impacts were found to be potentially significant. The proposed amendments would result in the installation of appliances and equipment, such as heat pump units, inside and outside of existing buildings.
While noise from these new appliances would vary depending on size, model, location, and use type, this impact analysis conservatively evaluated the potential noise impacts from some of the loudest commercial equipment that might be installed and found that these impacts may be potentially significant. Lesser impacts may occur with smaller residential units and other installation features, such as equipment enclosures or screenings, but it is likely that some appliances would still exceed applicable standards in some locations and result in potentially significant impacts.
Alternatives considered in the environmental analysis include a no project alternative (where the proposed rule amendments are not adopted), an alternative with expedited compliance dates, and an alternative with delayed compliance dates. The CEQA alternatives analysis is intended to identify the alternative to minimize or avoid a project’s impact; as such, the alternative with delayed compliance dates was identified as the "environmentally superior alternative” due to the slight reduction of impacts on utilities and service systems compared to the proposed project. It is important to note that this finding under CEQA is based on the minimization and avoidance of environmental impacts, and the proposed project would result in a greater beneficial effect related to air quality and climate change impacts due to emissions reductions occurring sooner.
C. Final Environmental Impact Report
Thirteen comment letters were received during the comment period that address issues raised in the DEIR, and responses to those comments are included in the proposed Final EIR. No revisions have been made to the content of the DEIR.
Prior to making a decision on the adoption of the proposed amendments to Rule 9-4 and Rule 9-6, the Air District’s Board of Directors must review and certify the Final EIR as providing adequate information on the potential adverse environmental impacts of these actions. The proposed Final EIR concludes that there are potentially significant impacts associated with 65 Proposed Amendments to Rules 9-4 and 9-6 Page 45 March 2023 Final Staff Report
utilities and service systems (energy resources) as relocation or construction of new or expanded electric facilities may occur in response to the proposed rule amendments. These facilities could result in adverse environmental impacts. The proposed Final EIR also concludes that equipment used to comply with the proposed rule amendments could result in potentially significant noise impacts from long-term operational noise. Because impacts to noise and utilities and service systems remain potentially significant, the Board of Directors must also adopt a Statement of Overriding Considerations in order to move forward with the adoption of the proposed amendments to Rule 9-4 and Rule 9-6. While the potential utility resources and noise impacts warrant close and careful consideration by the Board, Staff believes the air pollution control and public health benefits of the proposed amendments described throughout this Staff Report outweigh the potential adverse impacts related to utility systems and noise.
IX. RULE DEVELOPMENT / PUBLIC PARTICIPATION PROCESS
A. Public Participation during Rule Development Process Air District staff initially received feedback from the public and the Air District Board of Directors on approaches to addressing emissions from building appliances at a November 2020 presentation to the Climate Protection Committee. Staff presented initial rule development concepts to the Stationary Source and Climate Impacts Committee and public stakeholders in April 2021. The Board and public both expressed general support for staff’s proposed concepts and emphasized the need for swift action in this space but also noted the importance of balancing complicating factors, such as equity and the availability of funding mechanisms for incentives and subsidies.
Air District staff has reached out to and met with regulatory, community and industry experts in the space and water heating and building sectors. This includes manufacturers, advocates, community organizers, research organizations, utilities, labor representatives, community choice aggregators, and other regulatory bodies such as Bay Area cities, SCAQMD, the California Air Resources Board and the California Energy Commission. Staff has presented as requested at existing industry working groups convened by groups such as the Building Decarbonization Coalition and Stop Waste.
In addition, staff convened a stakeholder working group to discuss specific issues relating to Rules 9-4 and 9-6 and drafting amendments. This working group included community and environmental advocates, equipment manufacturers, local city staff and representatives from the SCAQMD, the California Air Resources Board, the California Energy Commission and Pacific Gas and Electric, among others. Air District staff has convened four meetings of this group in Q2 and Q3 of 2021. These meetings consisted of:
• A "kickoff” meeting to discuss general direction of the rule amendments and equity concerns;
• Two meetings to discuss technical issues specifically related to space and water heating issues, respectively;
• An equity focused working group meeting.
All meetings of the group were held as interactive webinars including discussion questions for stakeholder response and use of Google Jamboards. Depending on interest in the specific topic, these meetings were attended by approximately 20-40 stakeholders. 66 Proposed Amendments to Rules 9-4 and 9-6 Page 46 March 2023 Final Staff Report
On September 30, 2021, staff released draft amendments to Rules 9-4 and 9-6 as well as a workshop report for public review. Staff then held a virtual public workshop on the evening of October 7, 2021, to discuss and receive feedback on the draft amendments. The workshop was attended by over 40 stakeholders and members of the public and staff received valuable feedback for consideration. Staff additionally presented to the Stationary Source and Climate Impacts committee on October 18, 2021, to discuss the draft amendments. The committee directed staff to continue in the current direction of rulemaking, with additional considerations for community and stakeholder involvement following potential rule amendment adoption. Staff updated the Stationary Source and Climate Impacts Committee on November 15, 2021, on public comments received and proposed an alternate schedule to allow for additional stakeholder engagement, environmental review, and cost analysis. Staff presented to the committee in April 2022 and provided updates on project timelines and recent work on this effort.
Staff released the CEQA Notice of Preparation (NOP) of an Environmental Impact Report (EIR) and Initial Study (IS) and held a scoping meeting in May 2022. Staff received eight written comments in response to this release, which are posted to the Air District website. No commenters requested that the Air District expand the scope of the planned DEIR. Staff additionally updated to the Board of Directors and the public on the status and makeup of the implementation working group and presented the health impacts modeling included in this Staff Report, at the October 17, 2022, Stationary Source and Climate Impacts Committee meeting.
On February 15, 2023, the Air District Board of Directors discussed funding options for retrofitting low-income homes with cleaner appliances with an emphasis on ensuring accessibility for all consumers.
On December 20, 2022, Air District staff released an initial Staff Report, proposed amendments to Rule 9-4 and Rule 9-6 and a draft Environmental Impact Report for public review and comment. Staff accepted and responded to written comments and will present a final proposal to the Air District Board of Directors for its consideration at a Public Hearing on March 15, 2023.
At the Public Hearing, the Air District Board of Directors will consider the final proposal and receive public input before taking any action on the proposed amendments to Rule 9-4 and Rule 9-6.
B. Considerations to Ensure Equitable Outcomes
The proposed rule amendments for both Rules 9-4 and 9-6 include the requirement that interim reports be brought to the Board of Directors by the APCO no later than two years prior to the three compliance dates for the zero NOX standards. During the 2021 working group meetings, Air District staff discussed guiding principles and factors that should be included in this analysis with stakeholders throughout the rule development process as well as specifically during the most recent stakeholder working group meeting. The following guiding questions have served Air District staff throughout the course of this rule amendment process:
• Who stands to benefit most from the implementation of this policy? Who may be disproportionately burdened by this policy?
• Who is missing from this process and how can we ensure their concerns are represented and addressed?
• What unintended consequences could result from these proposed amendments if they were adopted as envisioned/intended? What steps can be taken to mitigate these adverse impacts?
67 Proposed Amendments to Rules 9-4 and 9-6 Page 47 March 2023 Final Staff Report
• What additional barriers might prevent individuals in certain racial/ethnic/socioeconomic groups from benefitting fully from this policy? Are their further ways to maximize equitable outcomes?
• How will impacts and performance be documented and evaluated? What methodologies will be used? How will results be used?
Staff will continue to consider these questions throughout the time frame between rule adoption and the future effective date of the zero NOX standards. These questions will additionally serve to guide the interim report included in the proposed amendments. Further, staff will report on the status of the following factors at the time of the interim reports:
• Access to economic benefits, including robust market availability and affordability; • Ease of installation and coordination with local requirements; • Assurance that policy promotes affordable housing and anti-displacement outcomes; • Access to health and safety benefits, including resiliency during climate events; • Potential infrastructure impacts associated with rule compliance.
C. Implementation Working Group
Staff plans to convene a formalized ongoing Implementation Working Group (IWG) to support the proposed rule amendments after potential adoption and leading up to the proposed zero NOx compliance dates. Air District staff have been working to form this implementation working group along with a third-party facilitator.
The IWG, once formed, is intended to be an information-gathering body and to provide a forum to discuss technical and community/equity aspects and issues pertaining to building appliance rule amendments the Air District adopts. Although the IWG will not be a decision‐making body, IWG input will be considered in the implementation process, and feedback may be incorporated into interim reporting materials as deemed appropriate by the Air District. The Air District will retain its independent decision‐making role in the interim reporting process.
The IWG is intended to consist of a variety of stakeholders with different areas of expertise in reference to the implementation of the rule amendments. This may include community-based organizations, environmental justice groups, advocacy, and subject matter expert organizations, building technology experts, affordable and market rate housing developers and managers, local and state government staff, funding and financing agencies, equipment manufacturers and distributors, tenant representation organizations and labor organizations. The anticipated makeup and specific organizations represented will be presented at the public hearing for adoption of the proposed rule amendments. Implementation Working Group members will have access to stipends for their work which will be administered, as appropriate, through the Air District’s third-party facilitator.
Topics included in the scope of the IWG and that will be investigated through the course of their work include the market availability of compliant technology, projected costs of purchasing and installing compliant technology, incentive programs and other funding and financing available to Bay Area residents, and potential challenges and opportunities for facilitating an equitable implementation. Accessibility of compliant technology as well as funding and financing programs to low-income residents and small businesses will be a focus of the Implementation Working Group.
68 Proposed Amendments to Rules 9-4 and 9-6 Page 48 March 2023 Final Staff Report
The IWG will provide critical input and information to staff that staff will consider when preparing interim reports for the Board. This input may include the following:
• Costs, technology/appliance availability, impacts to different stakeholder groups (e.g., renters, homeowners, small businesses, industry, local governments); • Suggestions on new/enhanced funding/financing streams for lower income households;
• Status of zero NOx technology/appliance development, costs, and economic incentives;
• Potential barriers, including affordability for residents, and interventions needed to meet the compliance deadlines in Air District Rules; and
• Potential adjustments or guardrails to the Rule implementation timeline so that technology readiness, infrastructure readiness, available financing/investments, and cost feasibility are aligned.
The IWG process will consist of a dual focused approach, which will allow the IWG to ensure that both technical considerations as well as equity-based considerations are addressed. This will be achieved through the creation of a technical subcommittee as well as a community/equity subcommittee. The technical subcommittee will focus on appliance development and availability, costs of implementation, and existing economic incentives. The community/equity subcommittee will focus on affordability, equity, and incentives to address the needs and challenges associated with the implementation of these rule amendments.
D. Overview of Comments Received
During the written comment period (December 20, 2022 through February 6, 2023), Air District staff received letters from 565 commenters that represent a variety of stakeholders commenting on the regulatory package. Commenters included a public utility, the California Air Resources Board, local governments, equipment manufacturers, industry groups, environmental groups, community organizations, and individual members of the public. 404 of the correspondence expressed strong support for the adoption of the proposed amendments. Comments received covered a wide range of topics, including support for the proposals, along with concerns including, but not limited to, the cost of compliance, environmental impacts of the proposal, electric grid capacity and reliability, possibility for emergency replacements, and the cost and timeline associated with potentially needed electric panel upgrades.
The Response to Comments document in Appendix H provides a detailed listing of the comments received, the commenters, and the Air District staff’s response to the comments received, including comments on the DEIR.
X. CONCLUSION/RECOMMENDATIONS
Pursuant to the California Health and Safety Code Section 40727, before adopting, amending, or repealing a rule the Board of Directors must make findings of necessity, authority, clarity, consistency, non-duplication, and reference. This section addresses each of these findings.
A. Necessity
As stated in California Health and Safety Code Section 40727(b)(1), “‘Necessity’ means that a need exists for the regulation, or for its amendment or repeal, as demonstrated by the record of the rulemaking authority.”
69 Proposed Amendments to Rules 9-4 and 9-6 Page 49 March 2023 Final Staff Report
The San Francisco Bay Area does not currently attain all state and national ambient air quality standards for ozone or particulate matter, and further reductions of ozone precursor and particulate matter emissions are needed for attainment and maintenance of the standards. The proposed amendments to Rule 9-4 and Rule 9-6 would reduce nitrogen oxide and secondary particulate matter emissions from space and water heating appliances which are a large area source of these pollutants in the Bay Area. The proposed amendments to Rule 9-4 and Rule 9- 6 are needed to ensure attainment and maintenance of these ambient air quality standards and to provide clean air and public health benefits.
Space and water heating appliances generate a substantial portion of NOx emissions from all sources (including mobile) in the Bay Area, and these emissions contribute to the formation of secondary particulate matter. These emissions result in PM exposures in communities throughout the Bay Area, which can contribute to a number of adverse health outcomes, including premature deaths. In addition, the health impact modeling described in this report indicates that these exposures are not distributed equally amongst different communities and race/ethnicity groups. The proposed amendments to Rule 9-4 and Rule 9-6 are needed to achieve these reductions in emissions and pollutant exposures throughout the Bay Area and would yield substantial health benefits in these communities and throughout the jurisdiction of the Air District.
B. Authority
The California Health and Safety Code Section 40727(b)(2) states that “‘Authority’ means that a provision of law or of a state or federal regulation permits or requires the regional agency to adopt, amend, or repeal the regulation.”
The Air District has the authority to adopt these rule amendments under Sections 40000, 40001, 40702, and 40725 through 40728.5 of the California Health and Safety Code.
C. Clarity
The California Health and Safety Code Section 40727(b)(3) states that “‘Clarity’ means that the regulation is written or displayed so that its meaning can be easily understood by the persons directly affected by it.”
The proposed amendments to Rule 9-4 and 9-6 are written so that their meaning can be easily understood by the persons directly affected by them. Further details in the Staff Report clarify the proposals, delineate the affected industry, compliance options, and administrative requirements for the industries and persons subject to this rule.
D. Consistency
The California Health and Safety Code Section 40727(b)(4) states that “‘Consistency’ means that the regulation is in harmony with, and not in conflict with or contradictory to, existing statutes, court decisions, or state or federal regulations.” The proposed amendments to Rule 9-4 and Rule 9-6 are consistent with other Air District rules and not in conflict with state or federal law.
70 Proposed Amendments to Rules 9-4 and 9-6 Page 50 March 2023 Final Staff Report
E. Non-Duplication
The California Health and Safety Code Section 40727(b)(5) states that “‘Nonduplication’ means that a regulation does not impose the same requirements as an existing state or federal regulation unless a district finds that the requirements are necessary or proper to execute the powers and duties granted to, and imposed upon, a district.” The proposed amendments to Rule 9-4 and Rule 9-6 are non-duplicative of other statutes, rules, or regulations.
F. Reference
The California Health and Safety Code Section 40727(b)(6) states that “‘Reference’ means the statute, court decision, or other provision of law that the district implements, interprets, or makes specific by adopting, amending, or repealing a regulation.” By adopting the proposed amendments to Rule 9-4 and Rule 9-6, the Air District Board of Directors will be implementing, interpreting or making specific the provisions of California Health and Safety Code Sections 40000, 40001, 40702 and 40727.
The proposed amendments to Rule 9-4 and Rule 9-6 have met all legal noticing requirements, have been discussed with the regulated community and other interested parties, and reflect consideration of the input and comments of many affected and interested stakeholders.
G. Recommendations
Staff prepared a Final EIR and Response to Comments for the Board’s consideration after consideration of comments on the proposed amendments, DEIR, and the initial Staff Report.
Following a review of public comments, Air District staff recommends that the Air District Board of Directors (1) certify the Final EIR and adopt of Statement of Overriding Considerations due to the potentially significant noise and utility systems impacts of the proposed amendments; and (2) adopt the proposed amendments to Regulation 9, Rule 4: Nitrogen Oxides from Fan Type Residential Central Furnaces and Regulation 9, Rule 6: Nitrogen Oxides Emissions from Natural Gas-Fired Boilers and Water Heaters.
Staff also recommends that the Air District submit the proposed rule amendments to EPA for inclusion in the State Implementation Plan. This action will be brought before the Board of Directors separately, if the Board adopts the proposed rule amendments. 71 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-4-1
REGULATION 9
INORGANIC GASEOUS POLLUTANTS
RULE 4
NITROGEN OXIDES FROM NATURAL GAS-FIRED FAN TYPE RESIDENTIAL
CENTRAL FURNACES
INDEX
9-4-100 GENERAL
9-4-101 Description
9-4-102 Applicability
9-4-200 DEFINITIONS
9-4-201 Fan Type Central Furnace
9-4-2012 Annual Fuel Utilization Efficiency (AFUE)
9-4-202 BTU
9-4-203 Furnace
9-4-204 Heat Input
9-4-205 Natural Gas
9-4-206 Nitrogen Oxides (NOX)
9-4-2073 Useful Heat Delivered to the Heated Space
9-4-300 STANDARDS
9-4-301 Residential Central Natural Gas-Fired Ffurnace Emission Standards 9-4-302 Certified Furnaces
9-4-400 ADMINISTRATIVE REQUIREMENTS
9-4-401 Certification
9-4-402 Compliance Statement
9-4-403 Identification
9-4-404 Enforcement
9-4-405 Interim Report
9-4-500 MONITORING AND RECORDS (NOT INCLUDED)
9-4-600 MANUAL OF PROCEDURES (NOT INCLUDED)
9-4-601 Determination of Emissions
72 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-4-2
73 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-4-3
REGULATION 9
INORGANIC GASEOUS POLLUTANTS
RULE 4
NITROGEN OXIDES FROM NATURAL GAS-FIRED FAN TYPE RESIDENTIAL
CENTRAL FURNACES
9-4-100 GENERAL
9-4-101 Description: This Rule limits emissions of nitrogen oxides from natural gas-fired fan type residential central furnaces.
(Amended December 7, 1983)
9-4-102 Applicability: This Rule applies to any person who sells, installs, or offers for sale a natural gas-fired furnace for use within the District (Section 9-4-300s Standards) and any manufacturer who intends to sell or distribute for sale or installation a natural gas-fired furnace for use within the District (Section 9-4-400s Administrative Requirements and Section 9-4-600s Manual of Procedures).
9-4-200 DEFINITIONS
9-4-201 Fan Type Central Furnace: A self contained space heater providing for circulaltionof heated air at pressures other than atmospheric through ducts more than 25 cm (10 in) in length with an input rate of less than 175,000 BTU/hr, excluding heating/cooling units utilizing three phase electric current.
(Amended December 7, 1983)
9-4-2012 Annual Fuel Utilization Efficiency (AFUE): The efficiency as defined by Section
4.2.35 of the Code of Federal Regulations, Title 10, Part 430, Subpart B, Appendix N. (Amended December 7, 1983)
9-4-202 BTU: British thermal unit or units.
9-4-203 Furnace: A product with a heat input rate less than 175,000 BTU/hr which is designed to be a source of interior space heating.
203.1 Natural Gas-Fired Furnace: A furnace that utilizes single-phase, three-phase or direct current in conjunction with natural gas.
203.2 Natural Gas-Fired Fan Type Central Furnace: A self-contained space heater providing for circulation of heated air at pressures other than atmospheric through ducts more than 25 cm (10 in) in length with a heat input rate of less than 175,000 BTU/hr. This includes combination heating/cooling 74 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-4-4
units with natural gas heating and also an electric cooling rate less than 65,000 BTU/hr.
9-4-204 Heat Input: The heat of combustion based on the gross (higher) heating value of the fuel, excluding the enthalpy of incoming combustion air. 9-4-205 Natural Gas: A mixture of gaseous hydrocarbons containing at least 80 percent methane by volume as determined by ASTM Standard D1945, 2003. 9-4-206 Nitrogen Oxides (NOx): The sum of nitrogen oxide (NO) and nitrogen dioxide (NO2), collectively expressed as nitrogen dioxide.
9-4-2073 Useful Heat Delivered to the Heated Space: The Annual Fuel utilization efficiency (expressed as a fraction) multiplied by the heat input. (Amended December 7, 1983)
9-4-300 STANDARDS
9-4-301 Residential Central Natural Gas-Fired Furnace Emission Standards: A person shall not sell, install or offer for sale within the District any stationary residential natural gas-fired fan type central furnace manufactured after January 1, 1984 that emits more than 40 nanograms of oxides of nitrogen expressed as NO2 per joule of useful heat delivered to the heated space. A person shall not sell, install or offer for sale within the District:
301.1 Any stationary residential natural gas-fired fan type central furnace manufactured after January 1, 1984, that emits more than 40 nanograms of nitrogen oxides expressed as NO2 per joule of useful heat delivered to the heated space.
301.2 Any natural gas-fired fan type central furnace manufactured after January 1, 2024, that emits more than 14 nanograms of nitrogen oxides expressed as NO2 per joule of useful heat delivered to the heated space. 301.3 Any natural gas-fired furnace manufactured after January 1, 2029, that emits more than 0.0 nanograms of nitrogen oxides expressed as NO2 per joule of useful heat delivered to the heated space. This includes non-central installations such as wall furnaces as well as units installed in non-residential applications.
This section does not apply to furnaces used for mobile homes. (Amended December 7, 1983)
75 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-4-5
9-4-302 Certified Furnaces: A person shall not sell, install or offer for sale within the District furnaces subject to the requirements of Section 9-4-301 unless such furnaces are certified in accordance with Sections 9-4-401, 402, 403, and 404. (Amended and Renumbered December 7, 1983)
9-4-400 ADMINISTRATIVE REQUIREMENTS
9-4-401 Certification: The manufacturer shall have each appliance model tested in accordance with the following:
401.1 Nitrogen oxides, carbon dioxide and oxygen measurements, test equipment, and other required test procedures shall be in accordance with Oxides of nitrogen measurements, test equipment, and other required test procedures shall be in accordance with methods and standards or equivalent procedures approved by the APCO .Section 9-4-601.
401.2 Operation of the furnace shall be in accordance with the procedures specified in Section 3.1 of the Code of Federal Regulations, Title 10, Part 430, Subpart B, Appendix N.
401.3 The following calculation One of the two formulas shown below shall be used to determine the nanograms emissions of NOx in units of nanograms per joule of useful heat delivered to heated space:
𝑁 =
3.655 × 10ଵ × 𝑃
(20.9 − 𝑌) × 𝑍 × 𝐸
or
𝑁 =
4.566 × 10ସ × 𝑃 × 𝑈
𝐻 × 𝐶 × 𝐸
Where:
N = Nanograms Calculated mass emissions of NOx per unit of useful heat (nanogramsemitted per joule of useful heat delivered to the heated space).
P = Measured concentration of NOx in flue gas (Pparts per million of NOx by volume).
Y = Measured concentration Percentage of O2 in flue gas (percentage by volume).
Z = Gross Hheating value of gas in(joules per cubic (meter) 3 at 0.0 degrees
Celcisus, 1 atm).
E = AFUE (percentage), as defined in Section 9-4-201.
U = Volume percent Concentration of CO2 in water-free flue gas for stoichiometric combustion (percentage by volume).
H = Gross heating value of the fuel, (BTU/cu. ft. per cubic foot, (60oF, 30-in Hg.).
76 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-4-6
C = Measured volume percent concentration of CO2 in water-free flue gas, (percentage by volume) assuming complete combustion and no CO present.
(Amended December 7, 1983)
9-4-402 Compliance Statement: The manufacturer shall submit to the APCO a either of the following:
402.1 A statement that each affected furnace the model meets the standards set forth in Section 301 of this Rule. The statement shall be signed and dated, and shall attest to the accuracy of all information. The statement shall include the brand name and model number as its appears on the furnace rating plate., and be on forms provided by the APCO. or
402.2 A valid South Coast Air Quality Management District (SCAQMD) certification for SCAQMD Rule 1111 for furnaces demonstrating compliance with Section 9-4-301.2.
(Amended December 7, 1983)
9-4-403 Identification: The manufacturer shall display the model number of the furnace complying with this rule on the shipping carton and rating plate. 9-4-404 Enforcement: The APCO may require the emission test results to be provided when deemed necessary to verify compliance and may periodically conduct such tests as are deemed necessary to iensure compliance.
9-4-405 Interim Report: At least two years prior to the compliance date listed in Section 9-4- 301.3, the APCO shall present to the Air District Board of Directors for consideration at a public meeting a report that includes the technology options currently (and projected to be) available to be sold, installed or offered for sale that do not conflict with the standard in Section 9-4-301.3; the projected costs of purchase and installation of such technology, including any ancillary costs, as applicable; any incentive programs available to reduce these costs; and infrastructure readiness associated with rule compliance.
9-4-600 MANUAL OF PROCEDURES
9-4-601 Determination of Emissions: Furnaces subject to Sections 9-4-301 and 302 shall be tested in accordance with the following provisions:
601.1 Each furnace model shall receive certification based on emission tests of a randomly selected unit of that furnace model.
601.2 The measurement of nitrogen oxides emissions shall be conducted in accordance US EPA Reference Method RM-7 (40 CFR Part 60, Appendix A, Test Method 7E.
601.3 The measurement of carbon dioxide shall be conducted in accordance with the Manual of Procedures, Volume IV, Method ST-5 or US EPA Method 3A. 77 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-4-7
601.4 The measurement of oxygen shall be conducted in accordance with the Manual of Procedures, Volume IV, Method ST-14 or US EPA Method 3A. 78 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-6-1
REGULATION 9
INORGANIC GASEOUS POLLUTANTS
RULE 6
NITROGEN OXIDES EMISSIONS FROM
NATURAL GAS-FIRED BOILERS AND WATER HEATERS
INDEX
9-6-100 GENERAL
9-6-101 Description
9-4-102 Applicability
9-6-110 Exemptions
9-6-200 DEFINITIONS
9-6-201 Boilers and Water Heaters
9-6-202 BTU
9-6-203 Direct-Vent Water Heater
9-6-204 Heat Input
9-6-205 Heat Output
9-6-206 Instantaneous Water Heater
9-6-207 Mobile Home Water Heater
9-6-208 Natural Gas
9-6-209 NOx Emissions
9-6-210 Pool/Spa Heater
9-6-211 Power Direct-Vent Water Heater
9-6-212 Power-Vent Water Heater
9-6-213 Rated Heat Input Capacity
9-6-214 Storage Tank Water Heater
9-6-300 STANDARDS
9-6-301 Natural Gas-Fired Storage Tank Water Heaters with a Rated Heat Input Capacity of 75,000 BTU/Hour or Less
9-6-302 Certification of Boilers and Water Heaters
9-6-303 Natural Gas-Fired Boilers and Water Heaters with a Rated Heat Input Capacity of 75,001 to 2,000,000 BTU/Hour
9-6-304 Natural Gas-Fired Mobile Home Water Heaters
9-6-305 Natural Gas-Fired Pool/Spa Heaters
9-6-400 ADMINISTRATIVE REQUIREMENTS
9-6-401 Compliance with Emission Standards
9-6-402 Compliance Statement Application for Certification 9-6-403 Identification
9-6-404 Interim Report
9-6-500 MONITORING AND RECORDS (Not Included)
9-6-600 MANUAL OF PROCEDURES
9-6-601 Determination of Emissions
79 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-6-2
REGULATION 9
INORGANIC GASEOUS POLLUTANTS
RULE 6
NITROGEN OXIDES EMISSIONS FROM NATURAL GAS-FIRED WATER
HEATERS
(Adopted April 1, 1992)
9-6-100 GENERAL
9-6-101 Description: This rule limits the emissions of nitrogen oxides from natural gas-fired water heaters and boilers.
(Amended November 7, 2007)
9-6-102 Applicability: This Rule applies to any person who sells, installs, or offers for sale a natural gas-fired water heater for use within the District (Section 9-6-300s Standards) and any manufacturer who intends to sell or distribute for sale or installation a natural gas-fired water heater for use within the District (Section 9-6-400s Administrative Requirements and Section 9-6-600s Manual of Procedures). 9-6-110 Exemptions: The requirements of Section 9-6-301 shall not apply to the following:
110.1 Natural gas-fired boilers and water heaters with a rated heat input capacity of greater than 2,000,000 BTU/Hour.
110.2 Natural gas-fired water heaters used in recreational vehicles. 110.3 Water heaters using a fuel other than natural gas. 110.4 Natural gas-fired pool/spa heaters with less than 400,000 Btu/Hour rated heat input capacity used exclusively to heat swimming pools, hot tubs or spas. (Amended November 7, 2007)
9-6-200 DEFINITIONS
9-6-201 Boilers and Water Heaters: Any combustion equipment used to heat water or produce steam and that is not exclusively used to produce electricity for sale. For the purposes of this Rule, a boiler does not include any waste heat recovery boiler that is used to recover sensible heat from the exhaust of a combustion turbine or any unfired waste heat recovery boiler that is used to recover sensible from the exhaust of any combustion equipment.
(Adopted November 7, 2007)
9-6-202 BTU: British thermal unit or units.
(Adopted November 7, 2007)
9-6-203 Direct-Vent Water Heater: A storage tank water heater with air intake and exhaust ducts that use a gravity system to collect air from outside a building for combustion and exhaust combustion byproducts to the outside of a building. (Adopted November 7, 2007)
9-6-204 Heat Input: The heat of combustion released by fuels burned in a unit based on the higher heating value of fuel. This does not include the enthalpy of incoming combustion air.
(Adopted November 7, 2007)
9-6-205 Heat Output: The product obtained by multiplying the recovery efficiency, as defined by Section 6.1.3 of the Code of Federal Regulation, Title 10, Part 430, Subpart B, Appendix E, by the input rating of the water heater.
(Renumbered November 7, 2007)
80 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-6-3
9-6-206 Instantaneous Water Heater: A device in which water is heated only when the water flows through a heat exchanger.
(Adopted November 7, 2007)
9-6-207 Mobile Home Water Heater: A closed vessel manufactured exclusively for mobile home use in which water is heated and is withdrawn for use external to the vessel at pressures not exceeding 160 psig, including the apparatus by which heat is generated and all controls and devices necessary to prevent water temperatures from exceeding 210ºF (99ºC).
(Adopted November 7, 2007)
9-6-208 Natural Gas: A mixture of gaseous hydrocarbons containing at least 80 percent methane by volume as determined according to Standard Method ASTM D1945-64. (Renumbered November 7, 2007)
9-6-209 NOx Emissions: The sum of nitric oxide and nitrogen dioxide in the flue gas, collectively expressed as nitrogen dioxide.
(Adopted November 7, 2007)
9-6-210 Pool/Spa Heater: A device in which water is heated when pool or spa water circulates through a heat exchanger.
(Adopted November 7, 2007)
9-6-211 Power Direct-Vent Water Heater: A storage tank water heater with an air intake duct outside of a building with a blower installed to assist in the expulsion of exhaust gases. (Adopted November 7, 2007)
9-6-212 Power-Vent Water Heater: A storage tank water heater with an air intake duct outside of a building with a blower installed to assist in the expulsion of exhaust gases. (Adopted November 7, 2007)
9-6-213 Rated Heat Input Capacity: The heat input capacity specified on the nameplate of the combustion unit.
(Renumbered November 7, 2007)
9-6-214 Storage Tank Water Heater: A closed vessel, in which water is heated and is withdrawn for use external to the vessel at pressures not exceeding 160 psig, including the apparatus by which heat is generated and all controls and devices necessary to prevent water temperatures from exceeding 2100F.
(Renumbered November 7, 2007)
9-6-300 STANDARDS
9-6-301 Natural Gas-Fired Storage Tank Water Heaters with a Rated Heat Input Capacity of 75,000 BTU/Hour or Less:
301.1 No person shall sell, install, or offer for sale within the District any natural gas-fired storage tank water heater, manufactured after July 1, 1992, with a rated heat input capacity of 75,000 BTU/Hour or less, that emits more than 40 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output. 301.2 No person shall sell, install, or offer for sale within the District any natural gas-fired storage tank water heater less than or equal to 50 gallons capacity that is manufactured after January 1, 2009, and that emits more than 10 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output.
This subsection shall not apply to direct-vent, power-vent, power direct-vent water storage tank heaters and water heaters used for mobile homes. 81 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-6-4
301.3 No person shall sell, install, or offer for sale within the District any natural gas-fired storage tank water heater greater than 50 gallons capacity that is manufactured after January 1, 2010, and that emits more than 10 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output. This subsection shall not apply to direct-vent, power-vent, power direct-vent storage tank water heaters and water heaters used for mobile homes. 301.4 No person shall sell, install, or offer for sale within the District any natural gas-fired storage tank water heater that is manufactured after January 1, 2011, and that emits more than 10 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output. This subsection shall not apply to water heaters used for mobile homes.
301.5 No person shall sell, install, or offer for sale within the District any natural gas-fired storage tank water heater that is manufactured after January 1, 2027, with a rated heat input rating of 75,000 BTU/hour or less, that emits more than 0 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output.
This subsection shall not apply to mobile home water heaters. (Amended November 7, 2007)
9-6-302 Certification of Boilers and Water Heaters: No person shall sell, install, or offer for sale within the District any water heaters subject to Section 9-6-301, 303, 304, or 305 unless the water heater manufacturer brand name and model is certified in accordance with Sections 9-6-401, and 402.
(Amended November 7, 2007)
9-6-303 Natural Gas-Fired Boilers and Water Heaters with a Rated Heat Input Capacity of 75,001 to 2,000,000 BTU/Hour:
303.1 No person shall sell, install, or offer for sale within the District any large natural gas-fired boiler, storage tank water heater, or instantaneous water heater with a rated heat input capacity from 75,001 to 400,000 BTU/Hour, inclusive, manufactured after January 1, 2008, that emits more than 40 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output. 303.2 No person shall sell, install, or offer for sale within the District any large natural gas-fired boiler, storage tank water heater, or instantaneous water heater with a rated heat input capacity from 75,001 to 400,000 BTU/Hour, inclusive, manufactured after January 1, 2013, that emits more than 14 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output. 303.3 No person shall sell, install, or offer for sale within the District any large natural gas-fired boiler, storage tank water heater, or instantaneous water heater with a rated heat input capacity from 400,001 to 2,000,000 BTU/Hour, inclusive, manufactured after January 1, 2008, that emits more than 20 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output, or more than 30 ppm NOx at 3% O2, dry.
303.4 No person shall sell, install, or offer for sale within the District any large natural gas-fired boiler, storage tank water heater, or instantaneous water heater with a rated heat input capacity from 400,001 to 2,000,000 BTU/Hour, inclusive, manufactured after January 1, 2013, that emits more than 14 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output, or more than 20 ppm NOx at 3% O2, dry.
303.5 No person shall sell, install, or offer for sale within the District any large natural gas-fired boiler, storage tank water heater, or instantaneous water heater with a rated heat input capacity from 75,001 to 2,000,000 BTU/Hour, inclusive, manufactured after January 1, 2031, that emits more than 0.0 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output. (Adopted November 7, 2007)
9-6-304 Natural Gas-Fired Mobile Home Water Heaters: No person shall sell, install, or offer for sale within the District any natural gas-fired mobile home water heater 82 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-6-5
manufactured after January 1, 2008, that emits more than 40 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output.
(Adopted November 7, 2007)
9-6-305 Natural Gas-Fired Pool/Spa Heaters:
305.1 No person shall sell, install, or offer for sale within the District any natural gas-fired pool/spa heater with an input rating from 400,001 to 2,000,000 BTU/Hour, inclusive, manufactured after January 1, 2008, that emits more than 40 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output, or more than 55 ppm NOx at 3% O2, dry.
305.2 No person shall sell, install, or offer for sale within the District any natural gas-fired pool/spa heater with an input rating from 400,001 to 2,000,000 BTU/Hour, inclusive, manufactured after January 1, 2013, that emits more than 14 nanograms of nitrogen oxides (calculated as NO2) per joule of heat output, or more than 20 ppm NOx at 3% O2, dry.
(Adopted November 7, 2007)
9-6-400 ADMINISTRATIVE REQUIREMENTS
9-6-401 Compliance with Emissions Standards: The manufacturer shall obtain confirmation from an independent testing laboratory that each boiler or water heater model it intends to sell or distribute for sale into the District that is subject to the requirements of Sections 9-6-301, 303, 304, or 305 has been tested in accordance with the procedures in Section 9-6-601.
(Amended November 7, 2007)
9-6-402 Compliance Statement: Application for Certification: The manufacturer shall submit to the APCO either of the following:
402.1 The Each manufacturer shall submit an application a statement to the APCO that each boiler or water heater model meets the emission standard set forth in Section 9-6-301 or 9-6-303. for certification of their compliant boiler or water heater model. The compliance statement application must:
402.1.1 Provide the following general information: name and address of manufacturer, brand name, trade name, model number and heat input rating as it appears on the water heater rating plate. 402.1.2 Provide a description of the model being certified 402.1.3 Include a complete certification source test report demonstrating that the boiler or water heater model was tested in accordance with procedures in Section 9-6-601 and a written statement that the model complies with Section 9-6-301, 303, 304, or 305 and is tested in accordance with procedures in Section 9-6-601.
402.1.4 Be submitted to the District APCO no more than 90 days after the date of the emissions compliance test conducted in accordance with Section 9-6-401.
402.1.5 Be submitted to the District APCO no less than 90 days before the intention to sell or distribute a new water heater model within the District, or no less than 90 days before the effective dates in Section 9-6-301, 303, 304, 305.
402.2 After completing review of the application for certification and source test report, the APCO will approve, or will deny approval of, the device. 402.3 Certification status shall be valid for three years from the date of approval by the APCO. After the third year, recertification shall be required according to the requirements in 9-6-402.
402.24 In lieu of submitting an application as provided in Section 9-6-402.1, tThe manufacturer may shall submit to the District APCO an approved South Coast Air Quality Management District (SCAQMD) certification issued pursuant to 83 Bay Area Air Quality Management District DRAFT: December 20, 2022 9-6-6
SCAQMD Rules 1121 and 1146.2 to demonstrate compliance that complies with Section 9-6-301.1 through 301.4, 303.1 through 303.4, 304, or 305. This option does not apply to units demonstrating compliance with Sections 9-6- 301.5 and 303.5.
(Amended November 7, 2007)
9-6-403 Identification: The water heater manufacturer shall display the model number and the certification status of a water heater complying with this rule on the shipping carton and on the rating plate of each unit.
(Amended November 7, 2007)
9-6-404 Interim Report: At least two years prior to the compliance date listed in Sections 9-6- 301.5 and 303.5, the APCO shall present to the Air District Board of Directors for consideration at a public meeting a report that includes the technology options currently (and projected to be) available to be sold, installed or offered for sale that do not conflict with the standard in Section 301.3; the projected costs of purchase and installation of such technology, including any ancillary costs, as applicable; any incentive programs available to reduce these costs; and infrastructure readiness associated with rule compliance.
9-6-600 MANUAL OF PROCEDURES
9-6-601 Determination of Emissions: Emissions of oxides of nitrogen from water heaters subject to Section 9-6-301, 303, 304, or 305 shall be tested in accordance with the South Coast Air Quality Management District Protocol: “Nitrogen Oxides Emission Compliance Testing for Natural Gas-Fired Water Heaters and Small Boilers, January 1995”, or in accordance with the following provisions:
601.1 Each water heater model shall receive certification Confirmation shall be based on emission tests of a randomly selected unit of that each water heater model.
601.2 The measurement of nitrogen oxides emissions shall be conducted in accordance with the Manual of Procedures, Volume IV, Method ST-13B or EPA Reference Method 7, including 7A-7E.
601.3 Each tested water heater shall be operated in accordance with Section 2.4 of American National Standards ANSI Z21.10.1-1990 at normal test pressure, input rates, and with a five-foot exhaust stack installed during the nitrogen oxides emissions tests.
601.4 The following procedure shall be used to calculate the NOx emission rate in nanograms of NOx per joule of heat output:
HxCxE
x xPxU N
4 4.566 10
Where:
N = NOx Emission Rate in nanograms of NOx emitted per joule of heat output
P = Concentration of NOx in the flue gas in parts per million (volume) U = Dry volume percent of CO2 in flue gas necessary for stoichiometric combustion
H = Gross heating value of the gas, BTU/ft3 (at 60oF and 30"Hg) C = Dry volume percent of CO2 in flue gas
E = Recovery efficiency, percentage, as defined in Section 6.1.3 of the Code of Federal Regulation, Title 10, Part 430, Subpart B, Appendix E. (Amended November 7, 2007)
84 Item No. 6
PENINSULA CLEAN ENERGY AUTHORITY
JPA Board Correspondence
DATE: March 3, 2023
BOARD MEETING DATE: March 13, 2023
SPECIAL NOTICE/HEARING: None
VOTE REQUIRED: Majority Present
TO: Peninsula Clean Energy Executive Committee
FROM: Jan Pepper, CEO
Shawn Marshall, COO
Shayna Barnes, Operations Specialist
SUBJECT: Recommend Approval to the Board of Directors of Diversity, Equity, Accessibility, and Inclusion (DEAI)-Related Amendments to the Strategic Plan and Policies 9 and 10
RECOMMENDATION
Recommend approval to the Board of Directors of Diversity, Equity, Accessibility, and Inclusion (DEAI)-related amendments to the Strategic Plan and Policies 9 and 10.
BACKGROUND:
Peninsula Clean Energy has been working on our DEAI initiative for over two years. This initiative started with the formation of a Citizens Advisory Committee (CAC) Equity Working Group in July 2020. The CAC Equity Working Group worked on a draft equity statement for our organization for several months, and ultimately brought it to the Peninsula Clean Energy Board of Directors at their January 28, 2021 meeting. At that meeting, the Board of Directors accepted the draft equity statement and formed a DEAI Subcommittee to build on the statement and create a DEAI organizational policy and action plan for Peninsula Clean Energy. Board members on this subcommittee include Directors Donna Colson, Sam Hindi, Carlos Romero, Roderick Daus-Magbual, and former Director Michael Smith.
To create the DEAI organizational policy and action plan, Peninsula Clean Energy staff drafted a Request for Proposals (RFP) for DEAI consulting services under direction from the DEAI Subcommittee to be released as a competitive solicitation. The solicitation was released in early May 2021, with responses due in mid-June 2021. Staff and the DEAI Subcommittee conducted several interviews over the summer of 2021 with the top respondents of this RFP. The DEAI Subcommittee recommended that the consultant team from GCAP Services, Inc. be selected to carry out the DEAI work as they were best fit for Peninsula Clean Energy’s range of needs. The full Peninsula Clean Energy Board approved the contract with GCAP Services, Inc. at the Board meeting on October 28, 2021. The scope of work for the engagement with GCAP Services had five main tasks:
1. Review Relevant DEAI Legislation and Regulatory Requirements (complete)
2. Conduct DEAI organizational needs assessment (complete) 85 Item No. 6
3. Create organizational DEAI Policy (complete)
4. Update relevant organizational policies, including: Strategic Plan, Employee Handbook, Policy #9 Ethical Vendor Standards, Policy #10 Inclusive and Sustainable Workforce Policy (in progress)
5. DEAI Action Plan: Create organizational departmental goals, practices, and metrics to operationalize DEAI policies (in progress)
We are seeking Executive Committee recommendation for Board approval for three of the four policies/documents updated as part of task 4 of the DEAI scope of work. These policies/documents include Peninsula Clean Energy’s Strategic Plan, Policy #9, and Policy #10. Employee handbook edits are still in progress and will be presented to the Board at a later date.
DISCUSSION:
Strategic Plan
We are proposing the below edits to the Organizational Excellence pillar of the Strategic Plan:
Current: Ensure organizational excellence by adhering to sustainable business practices and fostering a workplace culture of innovation, diversity, transparency, and integrity.
Proposed Change: Ensure organizational excellence by adhering to sustainable business practices and fostering a workplace culture of innovation, diversity, equity, accessibility, inclusion, transparency, and integrity.
We anticipate making more updates to the Strategic Plan at the Key Tactic level during implementation of the DEAI Action Plan. Those updates are at a staff level and do not require Board approval.
Policy #9
This policy is currently titled “Ethical Vendor Standards.” We are proposing changing the title to “Ethical Procurement Standards”. With the proposed revisions to the policy, the focus has broadened from our vendors’ conduct to also include staff’s procurement conduct and activities.
The entirety of the proposed revised policy is new language except for Section 1: Ethical Vendor Standards. We borrowed heavily from the County of San Mateo’s Code of Ethical Conduct:
Procurement Ethics when drafting the additions to the policy. Complete redline and clean versions of Policy #9 are attached as Attachments 1 and 2 to this memo.
Policy #10
We are proposing the following changes to Policy #10: Inclusive and Sustainable Workforce Policy:
• Updated formatting: addition of numbered section headers for easier policy navigation • Reformatting of Policy Statement under Section 1: primarily restructuring language that was already included in the original policy, also includes proposed revised Organizational Excellence goal from the Strategic Plan (see above) and reference to the recently approved Policy 22: Diversity, Equity, Accessibility, and Inclusion • Revised item 4 in Section 2b: Supply Chain to request information from suppliers and contractors of their status as a minority, women, LGBT, disabled veteran, or persons with disabilities owned business, rather than collecting information on inclusivity of their workforce (which is addressed in item 6 of this section) 86 Item No. 6
• Revised item 6 in Section 2b: Supply Chain to encourage, not require, reporting from developers and large vendors on inclusivity in business staff. Removed reference to business ownership from this item, as that is now addressed in the proposed edits to item 4 in this section
• Added Attachment A: Supply Chain Code of Conduct to the policy, now referenced in item 7 of Section 2b: Supply Chain
• Addition of the City of Los Banos in Section 2c: Inclusive Business Practices • Addition of the City of Los Banos/Merced County/Central Valley when defining “local” in Section 3b: Sustainable Workforce Objectives
• Modification of language in Section 3d: Peninsula Clean Energy Owned Generation Projects from “shall require” to “shall use best efforts to require” • Modification of the apprenticeship requirement in Section 3d: Peninsula Clean Energy Owned Generation Projects to better comport with Inflation Reduction Act (IRA) requirements to receive full tax credits
• Removal of entire section/paragraph on PCE Feed-In Tariff Price Projects • Renaming Section 3e to Peninsula Clean Energy Programs from PCE Energy Efficiency Projects, and updating the rest of this section to reference energy programs as opposed to energy efficiency projects
Meetings with Labor Representatives regarding Policy #10 Inclusive and Sustainable Workforce Policy
Peninsula Clean Energy staff initially brought the edited Policy #10 to the Executive Committee at their meeting on January 9th, 2023. At that meeting, the Executive Committee directed staff to meet with local labor representatives regarding the suggested edits to Section 3d: Peninsula Clean Energy Owned Generation Projects before recommendation of Executive Committee approval to the full Board of Directors. Based on this direction , Peninsula Clean Energy staff member Marc Hershman reached out to labor representatives to schedule a meeting to discuss the proposed edits. Peninsula Clean Energy staff members Jan Pepper, Marc Hershman, and Shayna Barnes held a meeting with labor representatives Bart Pantoja (San Mateo Building and Construction Trades Council), Dave Mauro (IBEW 617), Scott Wein (IBEW 617), and Rick Bonilla on January 25th, 2023 to discuss revisions to section 3d of Policy #10.
At the meeting on January 25th, 2023, labor representatives expressed concern over the modification from “shall” to “shall use best efforts,” in Section 3d of Policy #10. They also expressed concern over the previously proposed edit of an increase in the apprenticeship requirement from 20% to 25% in Section 3d. Peninsula Clean Energy staff explained the reasoning behind changing the language to “shall use best efforts,” including a desire for increased flexibility, particularly for smaller projects where there may not be interest from union firms, and to balance other Peninsula Clean Energy priorities, including DEAI goals. Peninsula Clean Energy staff also reaffirmed our commitment to make best efforts to work with labor while prioritizing Peninsula Clean Energy’s core mission to reduce greenhouse gas emissions by expanding access to sustainable and affordable energy solutions. Peninsula Clean Energy staff and labor representatives also discussed the modification of the apprenticeship requirements from 20% to 25%. Peninsula Clean Energy staff originally suggested a 25% apprenticeship requirement based on our initial understanding of the Inflation Reduction Act’s (IRA’s) requirements to receive full tax credits. At the meeting on January 25th, Peninsula Clean Energy staff and labor agreed that further clarification was needed on the IRA’s apprenticeship requirements for increased tax credits. 87 Item No. 6
Peninsula Clean Energy staff proposed the following, and are seeking the Board’s direction with regard to item 1 below :
1. Retain the proposed edits for “shall use best efforts” language to present to the Executive Committee for their guidance and consideration at the February 13th, 2023 meeting.
Peninsula Clean Energy staff recommends this language for the reasons stated above (increased flexibility and balancing multiple priorities in pursuit of our primary mission, which is to reduce greenhouse gas emissions).
2. Conduct further research on the IRA’s apprenticeship requirements to receive full tax credits.
After the meeting, Peninsula Clean Energy staff members Marc Hershman and Shayna Barnes reached out to outside counsel to seek clarification on the Internal Revenue Services’ (IRS) issued guidance on apprenticeship requirements to qualify for full tax credits under the IRA. Peninsula Clean Energy staff have since amended our proposed edits to Section 3d of Policy #10, removing the previous 25% modification, and adding a direct reference to the IRS guidance, Notice 2022-
61. The IRS guidance in Notice 2022-61 describes three different kinds of apprenticeship requirements that must be satisfied in order to qualify for the increased tax benefit: (1) Apprenticeship Labor Hour Requirements; (2) Apprenticeship Ratio Requirements; and (3) Apprenticeship Participation Requirements. These three requirements do not necessarily conflict with the existing 20% requirement in the previously approved Policy #10. Thus, Peninsula Clean Energy staff recommends retaining the 20% percentage in the policy as well.
Peninsula Clean Energy staff drafted a report and brought these policy revisions to the February 13th, 2023 Executive Committee for their consideration. The February 13th meeting was adjourned prior to this agenda item being heard. Peninsula Clean Energy staff met again with labor representatives on March 6th, 2023 to discuss the proposed revisions to Policy 10, specifically section 3d: Peninsula Clean Energy Owned Generation Projects. Labor representatives reiterated their concern with the proposed language change to “shall use best efforts” in this section.
Peninsula Clean Energy staff are deferring to the Executive Committee for their decision on whether to recommend Policy 10 with these proposed changes to the full Board.
Complete redline and clean versions of Policy #10 are attached as Attachments 3 and 4 to this memo. The new addition to the policy, Attachment A: Supply Chain Code of Conduct is included as Attachment 5 to this memo.
STRATEGIC PLAN:
The DEAI Initiative, and these policy updates specifically, support the Organizational Excellence pillar of the Strategic Plan to ensure organizational excellence by adhering to sustainable business practices and fostering a workplace culture of innovation, diversity, equity, accessibility, inclusion, transparency, and integrity. This initiative seeks to support the following objective and key tactics under this pillar:
Objective D: External Vendor Partners: Implement Vendor Policies that embrace diversity and inclusion and that optimize engagement results
• Key Tactic 1: Develop methods to ensure adherence to the organization’s Inclusive and Sustainable Workforce Policy
• Key Tactic 2: Develop methods to ensure adherence to the organization’s Ethical Vendor Procurement Standards Policy
This initiative also supports the Community Energy Programs pillar of the strategic plan to implement robust energy programs that reduce greenhouse gas emissions, align energy supply 88 Item No. 6
and demand, and provide benefits to community stakeholder groups. The DEAI initiative seeks to support the following objectives and key tactics under this pillar:
Objective B: Community Benefits: Deliver tangible benefits throughout our diverse communities • Key Tactic 1: Invest in programs that benefit underserved communities • Key Tactic 3: Support workforce development programs in the County ATTACHMENTS:
Attachment 1: Redlined Policy 9: Ethical Procurement Standards Attachment 2: Clean Policy 9: Ethical Procurement Standards Attachment 3: Redlined Policy 10: Inclusive and Sustainable Workforce Policy Attachment 4: Clean Policy 10: Inclusive and Sustainable Workforce Policy Attachment 5: Attachment A to Policy 10: Supply Chain Code of Conduct 89 Policy Number: 9
Board Adoption: November 17, 2016
Revised: XX XX, XXXX
Ethical Procurement Standards
Policy: This policy is designed to provide guidance and standards for Peninsula Clean Energy (PCE) staff in order to fully serve our customers and vendors to the highest standards of ethical procurement conduct.
Staff will abide by and uphold ethical procurement practices in relation to all procurement activities as outlined in the following sections.
1. Ethical Vendor Standards
Peninsula Clean Energy is committed to the highest standards of responsible behavior and integrity in all of its business relationships. PCEAs such, Peninsula Clean Energy will consider a company’s business practices, environmental track record, and commitment to sustainability in its procurement decisions.
2. Sustainability and Social Responsibility
As a leader in clean and renewable energy, Peninsula Clean Energy is committed to reducing emissions and finding innovative ways to conserve energy and cut waste which includes sustainable purchasing.
3. Transparency
Peninsula Clean Energy staff will ensure that formal RFP solicitations will be conducted in a fair, open, consistent, and transparent manner. Information on the solicitation and procurement process in which goods and services are procured will be available to all key parties. Additionally, solicitation information not subject to commercial confidentialityto confidentiality rules or other applicable regulations, willabout solicitations will be available to the public on aby request basis once thewthen the contract with the selected proposer has been completed.
4. Confidentiality
To the extent allowed by law, Peninsula Clean Energy staff shall maintain the confidentiality of the procurement and proposer information until the solicitation process has been completed.
5. Impartiality
Peninsula Clean Energy staff will be impartial when designing and implementing the solicitation and award of contract. This includes selecting unbiased panelists for award selection.
6. Professionalism
As representatives of Peninsula Clean Energy, staff must conduct themselves in a professional and ethical manner.
90 MM/DD/YYYY-rev Page 2 of 2
7. Compliance
Peninsula Clean Energy staff must conduct procurement activities in compliance with all federal, state, and local laws, applicable regulations, and Peninsula Clean Energy operational policies.
8. Accountability
Peninsula Clean Energy staff are responsible for their own actions and have an reponsibiityresponsibility and oobligation to report or seek further guidance on actions that they believe may not follow ethical procurement practices.concerns about compliance with this policy.
It is ouris Peninsula Clean Energy’s shared responsibility to immediately report any concerns regarding ethical conduct and/or compliance with this policy to Human Resources and/or senior management.
91 Policy Number: 9
Board Adoption: November 17, 2016
Revised: XX XX, XXXX
Ethical Procurement Standards
Policy: This policy is designed to provide guidance and standards for Peninsula Clean Energy (PCE) staff in order to fully serve our customers and vendors to the highest standards of ethical procurement conduct.
Staff will abide by and uphold ethical procurement practices in relation to all procurement activities as outlined in the following sections.
1. Ethical Vendor Standards
Peninsula Clean Energy is committed to the highest standards of responsible behavior and integrity in all of its business relationships. As such, Peninsula Clean Energy will consider a company’s business practices, environmental track record, and commitment to sustainability in its procurement decisions.
2. Sustainability and Social Responsibility
As a leader in clean and renewable energy, Peninsula Clean Energy is committed to reducing emissions and finding innovative ways to conserve energy and cut waste which includes sustainable purchasing.
3. Transparency
Peninsula Clean Energy staff will ensure that formal RFP solicitations will be conducted in a fair, open, consistent, and transparent manner. Information on the solicitation and procurement process in which goods and services are procured will be available to all key parties. Additionally, solicitation information not subject to confidentiality rules or other applicable regulations, will be available to the public by request when the contract with the selected proposer has been completed.
4. Confidentiality
To the extent allowed by law, Peninsula Clean Energy staff shall maintain the confidentiality of the procurement and proposer information until the solicitation process has been completed.
5. Impartiality
Peninsula Clean Energy staff will be impartial when designing and implementing the solicitation and award of contract. This includes selecting unbiased panelists for award selection.
6. Professionalism
As representatives of Peninsula Clean Energy, staff must conduct themselves in a professional and ethical manner.
92 MM/DD/YYYY-rev Page 2 of 2
7. Compliance
Peninsula Clean Energy staff must conduct procurement activities in compliance with all federal, state, and local laws, applicable regulations, and Peninsula Clean Energy operational policies.
8. Accountability
Peninsula Clean Energy staff have a responsibility and obligation to report or seek further guidance on concerns about compliance with this policy.
It is Peninsula Clean Energy’s shared responsibility to immediately report any concerns regarding ethical conduct and/or compliance with this policy to Human Resources and/or senior management.
93 Inclusive and Sustainable Workforce Policy
1. Policy: One of PCE’s strategic goals is to “foster a work environment that espouses sustainable business practices and cultivates a culture of innovation, diversity, transparency, integrity, and commitment to the organization’s mission and the communities it serves.” PCE Statement
Peninsula Clean Energy recognizes that an inclusive and sustainable workforce helps PCEPeninsula Clean Energy meet its core mission and goals more effectively, serve its by:
• Serving our customers in a more culturally sensitive manner, and reflect the businesses we partner with and ; and
• Reflecting the community we serve more comprehensively. PCEand the businesses with which we partner.
Peninsula Clean Energy strives to have a workforce that is as inclusive as the community it servescommunities it serves. Additionally, Peninsula Clean Energy strives to create employment opportunities to help build and sustain healthy and sustainable communities.
Inclusive Workforce
PCEThis policy, Inclusive and Sustainable Workforce, along with Policy Number 22, Diversity, Equity, Accessibility, and Inclusion (DEAI) represent Peninsula Clean Energy’s commitment to its strategic goal of “ensuring organizational excellence by adhering to sustainable business practices and fostering a workplace culture of innovation, diversity, equity, accessibility, inclusion, transparency, and integrity”.
2. Inclusive Workforce
a. Peninsula Clean Energy Staff
PCEPeninsula Clean Energy relies on its employees to provide clean, cost-effective, alternative energy to its customers. These customers live in diverse communities, and an inclusive workforce comprised of staff who reflect and are invested in these communities allows Peninsula Clean Energy to serve them more effectively. An inclusive staff also provides good jobs for people from diverse communities.
To help maintain and strengthen PCE’sPeninsula Clean Energy’s inclusive staff, PCEPeninsula Clean Energy will:
(1) Engage in broad outreach efforts in diverse communities, including disadvantaged and low-income communities, to ensure a diverse pool of candidates for open positions; (2) Provide fair compensation that aligns with regional market indicators for compensation levels for each position;
(3) Be transparent about these practices and lessons learned; and (4) Provide contact information for staff who can answer questions about this policy. 94 b. Supply Chain
Peninsula Clean Energy’s commitment to inclusion also extends to its supply chain. Where and from whom PCEPeninsula Clean Energy purchases goods and services have important consequences for businesses, customers, and their communities. An inclusive supply chain is an important driver for successful delivery of PCE’sPeninsula Clean Energy’s services to its customers, and of fair and equitable economic development generally.
To help ensure an inclusive supply chain, PCEPeninsula Clean Energy will:
(1) Strive to use local businesses and provide fair compensation in the purchase of services and supplies;
(2) Proactively seek services from local businesses and from businesses that have been Green Business certified and/or are taking steps to protect the environment; (3) Engage in efforts to reach diverse communities to ensure an inclusive pool of potential suppliers;
(4) Collect Request information from suppliers and contractors on the inclusivity ofand diversity in their workforcebusiness ownership, including their status as a woman, minority, disabled veteran, LGBT and/or persons with disabilities owned business enterprise; (5) Include questions about supplier inclusivity in requests for proposals (RFPs) for services; (6) Encourage reporting from developers and large vendors on inclusivity in business ownership and staff;
(7) Require developers abide by our Supply Chain Code of Conduct, derived from the United Nations Guiding Principles on Business and Human Rights, the Core Conventions of the International Labour Organization (“ILO”), including the ILO Declaration on Fundamental Principles and Rights at Work, the Solar Energy Industries Association Solar Industry Commitment to Environmental and Social Responsibility, and the Responsible Business Alliance Code of Conduct, attached herein as Attachment A of this policy; (7)(8)Be transparent about these practices and lessons learned; and (8)(9)Provide contact information for staff who can answer questions about this policy. c. Inclusive Business Practices
To fulfill its core mission to provide energy choices to the diverse residents and communities of San Mateo County, PCE and the City of Los Banos, Peninsula Clean Energy must ensure that its services and information are accessible to all communities. Accordingly, PCEPeninsula Clean Energy will:
(1) Strive to provide information on PCE’sPeninsula Clean Energy’s services in the multiple languages commonly spoken in PCE’sPeninsula Clean Energy’s service area (including mailers, tabling materials, customer service, call center, workshops and outreach events, advertisements, and other means of customer engagement); (2) Conduct marketing and outreach in diverse communities (including advertising in minority-owned media, establishing partnerships with community organizations, and using various media, such as radio and television) to increase awareness of PCE’sPeninsula Clean Energy’s services and programs;
95 (3) Strive to attend important multi-cultural community events with multi-lingual materials and speakers;
(4) Share information about activities and initiatives that promote inclusion, access, and diverse engagement in the community.
d. Non-Discrimination Pledge
PCEPeninsula Clean Energy will not discriminate, and will require that its suppliers do not discriminate, on the basis of race, color, national origin, ancestry, age, disability (physical or mental), sex, sexual orientation, gender identity, marital or domestic partner status, religion, political beliefs or affiliation, familial or parental status (including pregnancy), medical condition (cancer-related), military service, or genetic information.
1.3.Sustainable Workforce
a. Compensation and Workforce Opportunities
Support of local businesses, union labor and apprenticeship and pre-apprenticeship programs that create employment opportunities are important components of building and sustaining healthy and sustainable communities. It is in the interest of Peninsula Clean Energy in San Mateo County (PCE) to provide fair compensation and sustainable workforce opportunities within a framework of competitive service and the promotion of renewable energy, energy efficiency and greenhouse gas reduction.
PCE RecognizesPeninsula Clean Energy recognizes the importance of locally-generated renewable energy in assuring that California is provided with (1) adequate supplies of renewable energy for economic growth, (2) sustained local job opportunities and job creation, and (3) effective means to reduce the impacts of greenhouse gas emissions. PCEPeninsula Clean Energy also recognizes the opportunities that energy efficiency programs provide for local workforce training and employment.
PCEPeninsula Clean Energy supports fair compensation in direct hiring, renewable development projects, energy efficiency programs and in procurement of PCEPeninsula Clean Energy services and supplies. PCEPeninsula Clean Energy also supports quality State of California approved apprenticeship and pre-apprenticeship training programs in construction craft occupations to foster long-term, fairly compensated employment opportunities for program graduates and believes that local apprenticeship and pre- apprenticeship programs are an efficient vehicle for delivering quality training in construction in industry craft occupations.
b. Sustainable Workforce Objectives
Peninsula Clean Energy therefore desires to facilitate and accomplish the following objectives:
(1) Support for and direct use of local businesses;
(1) Support for and direct use of union members from multiple trades; (2) Support including support for and use of training and State of California approved apprenticeship programs, and pre-apprenticeship programs from within Peninsula Clean Energy’s service territory; and
96 (3) Support for and direct use of green and sustainable businesses. “Local” is defined as:
1.) San Mateo County; 2.) and the City of Los Banos;
2.) Nine Bay Area Counties (Alameda, Contra Costa, Marin, Napa, San Mateo, San Francisco, Santa Clara, Solano, Sonoma); 3.) Northern California; 4.) ) and the County of Merced;
3.) Northern California and the Central Valley; and
4.) California.
Preference will be given first to San Mateo County and the City of Los Banos; second, to the Nine Bay Area Counties and the county of Merced; third, to Northern California and the Central Valley; fourth, to California.
Peninsula Clean Energy will support the objectives stated above in the following ways:
a.c. PCEPeninsula Clean Energy Power Purchase Agreements with Third Parties PCEPeninsula Clean Energy shall collect information from respondents to any bidding and/or RFP/RFQ process regarding past, current and/or planned efforts by project developers and their contractors to:
• Employ workers and use businesses from the PCEPeninsula Clean Energy service territory. • Employ properly licensed (A, B, C10, C7, C46) contractors and California Certified electricians. • Utilize multi-trade project labor agreements on the proposed project or any prior project developments.
• Utilize local apprentices, particularly graduates of local pre-apprenticeship programs. • Pay workers the correct prevailing wage rates for each craft, classification and type of work performed.
• Display a poster at jobsites informing workers of prevailing wage requirements. • Provide workers compensation coverage to on-site workers. • Support and use State of California approved apprenticeship programs.
Relevant information submitted by proposers will be used to evaluate potential workforce impacts of proposed projects with the goal of promoting fair compensation, fair worker treatment, multi-trade collaboration, and support of the existing wage base in local communities where contracted projects will be located.
b.d.PCEPeninsula Clean Energy Owned Generation Projects 97 Any PCEPeninsula Clean Energy-owned renewable development project shall use best efforts to use local businesses, union labor, and apprenticeship programs through multi-trade agreements and/or through multiple agreements for work. Each construction contractor or subcontractor performing work on any PCEPeninsula Clean Energy-owned project shall use best efforts to use a combination of local labor, union labor and apprenticeship programs, and shall follow fair compensation practices, including proper assignment of work to crafts that traditionally perform the work. For each renewable energy project, PCEPeninsula Clean Energy or its construction contractor shall use best efforts to: 1) require of its regular workforce that at least 50% of all “journey level” employees shall be graduates of a State of California approved apprenticeship program; (2) andrequire at leastthat its regular workforce shall be in conformance with all state and federal apprenticeship requirements, including the guidance issued by the Internal Revenue Service in Notice 2022-61; and (3) require that the percentage of its regular workforce 20% shall be enrolled and participating in a local State of California approved apprenticeship program be the greater of at least 20% or the percentage required by clause (2) above. . Apprenticeship programs must be approved by the State Department of Apprenticeship Standards. 98 Policy Number: 10
Board Adoption: December 15, 2016
First Revised: October 25, 2018
Second Revised: XX XX, XXXX
PCE Feed-In Tariff Price Projects
PCE shall use best efforts to ensure each construction contractor or subcontractor performing work on any PCE Feed-in Tariff project utilize local businesses, union labor, multi-trade agreement, apprenticeship programs, and fair compensation practices including proper assignment of work to crafts that traditionally perform the work.
e. PCEPeninsula Clean Energy Programs
PCEPeninsula Clean Energy shall use best efforts to support local businesses, union labor, and local apprenticeship programs in the implementation of its energy programs.
Peninsula Clean Energy shall use best efforts to ensure each construction contractor or subcontractor performing work on any PCE energy efficiencyPeninsula Clean Energy program utilize local businesses, union labor, local apprenticeship, and fair compensation practices in program implementation including proper assignment of work to crafts that traditionally perform the work..
99 Policy Number: 10
Board Adoption: December 15, 2016
First Revised: October 25, 2018
Second Revised: XX XX, XXXX
Inclusive and Sustainable Workforce Policy
1. Policy Statement
Peninsula Clean Energy recognizes that an inclusive and sustainable workforce helps Peninsula Clean Energy meet its core mission and goals more effectively by:
• Serving our customers in a culturally sensitive manner; and • Reflecting the community we serve and the businesses with which we partner.
Peninsula Clean Energy strives to have a workforce that is as inclusive as the communities it serves. Additionally, Peninsula Clean Energy strives to create employment opportunities to help build and sustain healthy and sustainable communities.
This policy, Inclusive and Sustainable Workforce, along with Policy Number 22, Diversity, Equity, Accessibility, and Inclusion (DEAI) represent Peninsula Clean Energy’s commitment to its strategic goal of “ensuring organizational excellence by adhering to sustainable business practices and fostering a workplace culture of innovation, diversity, equity, accessibility, inclusion, transparency, and integrity”.
2. Inclusive Workforce
a. Peninsula Clean Energy Staff
Peninsula Clean Energy relies on its employees to provide clean, cost-effective, alternative energy to its customers. These customers live in diverse communities, and an inclusive workforce comprised of staff who reflect and are invested in these communities allows Peninsula Clean Energy to serve them more effectively. An inclusive staff also provides good jobs for people from diverse communities.
To help maintain and strengthen Peninsula Clean Energy’s inclusive staff, Peninsula Clean Energy will:
(1) Engage in broad outreach efforts in diverse communities, including disadvantaged and low-income communities, to ensure a diverse pool of candidates for open positions;
(2) Provide fair compensation that aligns with regional market indicators for compensation levels for each position;
(3) Be transparent about these practices and lessons learned; and 100
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(4) Provide contact information for staff who can answer questions about this policy.
b. Supply Chain
Peninsula Clean Energy’s commitment to inclusion also extends to its supply chain.
Where and from whom Peninsula Clean Energy purchases goods and services have important consequences for businesses, customers, and their communities. An inclusive supply chain is an important driver for successful delivery of Peninsula Clean Energy’s services to its customers, and of fair and equitable economic development generally.
To help ensure an inclusive supply chain, Peninsula Clean Energy will:
(1) Strive to use local businesses and provide fair compensation in the purchase of services and supplies;
(2) Proactively seek services from local businesses and from businesses that have been Green Business certified and/or are taking steps to protect the environment;
(3) Engage in efforts to reach diverse communities to ensure an inclusive pool of potential suppliers;
(4) Request information from suppliers and contractors on the inclusivity and diversity in their business ownership, including their status as a woman, minority, disabled veteran, LGBT and/or persons with disabilities owned business enterprise;
(5) Include questions about supplier inclusivity in requests for proposals (RFPs) for services;
(6) Encourage reporting from developers and large vendors on inclusivity in business staff;
(7) Require developers abide by our Supply Chain Code of Conduct, derived from the United Nations Guiding Principles on Business and Human Rights, the Core Conventions of the International Labour Organization (“ILO”), including the ILO Declaration on Fundamental Principles and Rights at Work, the Solar Energy Industries Association Solar Industry Commitment to Environmental and Social Responsibility, and the Responsible Business Alliance Code of Conduct, attached herein as Attachment A of this policy; (8) Be transparent about these practices and lessons learned; and (9) Provide contact information for staff who can answer questions about this policy.
c. Inclusive Business Practices
To fulfill its core mission to provide energy choices to the diverse residents and communities of San Mateo County and the City of Los Banos, Peninsula Clean Energy 101
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must ensure that its services and information are accessible to all communities.
Accordingly, Peninsula Clean Energy will:
(1) Strive to provide information on Peninsula Clean Energy’s services in the multiple languages commonly spoken in Peninsula Clean Energy’s service area (including mailers, tabling materials, customer service, call center, workshops and outreach events, advertisements, and other means of customer engagement);
(2) Conduct marketing and outreach in diverse communities (including advertising in minority-owned media, establishing partnerships with community organizations, and using various media, such as radio and television) to increase awareness of Peninsula Clean Energy’s services and programs;
(3) Strive to attend important multi-cultural community events with multi-lingual materials and speakers;
(4) Share information about activities and initiatives that promote inclusion, access, and diverse engagement in the community.
d. Non-Discrimination Pledge
Peninsula Clean Energy will not discriminate, and will require that its suppliers do not discriminate, on the basis of race, color, national origin, ancestry, age, disability (physical or mental), sex, sexual orientation, gender identity, marital or domestic partner status, religion, political beliefs or affiliation, familial or parental status (including pregnancy), medical condition (cancer-related), military service, or genetic information.
3. Sustainable Workforce
a. Compensation and Workforce Opportunities
Support of local businesses, union labor and apprenticeship and pre-apprenticeship programs that create employment opportunities are important components of building and sustaining healthy and sustainable communities. It is in the interest of Peninsula Clean Energy to provide fair compensation and sustainable workforce opportunities within a framework of competitive service and the promotion of renewable energy, energy efficiency and greenhouse gas reduction.
Peninsula Clean Energy recognizes the importance of locally-generated renewable energy in assuring that California is provided with (1) adequate supplies of renewable energy for economic growth, (2) sustained local job opportunities and job creation, and (3) effective means to reduce the impacts of greenhouse gas emissions. Peninsula Clean Energy also recognizes the opportunities that energy programs provide for local workforce training and employment.
Peninsula Clean Energy supports fair compensation in direct hiring, renewable development projects, energy programs and in procurement of Peninsula Clean Energy 102
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services and supplies. Peninsula Clean Energy also supports quality State of California approved apprenticeship and pre-apprenticeship training programs in construction craft occupations to foster long-term, fairly compensated employment opportunities for program graduates and believes that local apprenticeship and pre- apprenticeship programs are an efficient vehicle for delivering quality training in construction in industry craft occupations.
b. Sustainable Workforce Objectives
Peninsula Clean Energy therefore desires to facilitate and accomplish the following objectives:
(1) Support for and direct use of local businesses;
(2) Support for and direct use of union members from multiple trades including support for and use of training and State of California approved apprenticeship programs, and pre-apprenticeship programs from within Peninsula Clean Energy’s service territory; and
(3) Support for and direct use of green and sustainable businesses. “Local” is defined as:
1.) San Mateo County and the City of Los Banos;
2.) Nine Bay Area Counties (Alameda, Contra Costa, Marin, Napa, San Mateo, San Francisco, Santa Clara, Solano, Sonoma) and the County of Merced;
3.) Northern California and the Central Valley; and
4.) California.
Preference will be given first to San Mateo County and the City of Los Banos; second, to the Nine Bay Area Counties and the County of Merced; third, to Northern California and the Central Valley; fourth, to California.
Peninsula Clean Energy will support the objectives stated above in the following ways:
c. Peninsula Clean Energy Power Purchase Agreements with Third Parties Peninsula Clean Energy shall collect information from respondents to any bidding and/or RFP/RFQ process regarding past, current and/or planned efforts by project developers and their contractors to:
• Employ workers and use businesses from the Peninsula Clean Energy service territory.
• Employ properly licensed (A, B, C10, C7, C46) contractors and California Certified electricians.
• Utilize multi-trade project labor agreements on the proposed project or any prior project developments.
103
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• Utilize local apprentices, particularly graduates of local pre-apprenticeship programs.
• Pay workers the correct prevailing wage rates for each craft, classification and type of work performed.
• Display a poster at jobsites informing workers of prevailing wage requirements. • Provide workers compensation coverage to on-site workers. • Support and use State of California approved apprenticeship programs.
Relevant information submitted by proposers will be used to evaluate potential workforce impacts of proposed projects with the goal of promoting fair compensation, fair worker treatment, multi-trade collaboration, and support of the existing wage base in local communities where contracted projects will be located.
d. Peninsula Clean Energy Owned Generation Projects
Any Peninsula Clean Energy-owned renewable development project shall use best efforts to use local businesses, union labor, and apprenticeship programs through multi-trade agreements and/or through multiple agreements for work. Each construction contractor or subcontractor performing work on any Peninsula Clean Energy-owned project shall use best efforts to use a combination of local labor, union labor and apprenticeship programs, and shall follow fair compensation practices, including proper assignment of work to crafts that traditionally perform the work. For each renewable energy project, Peninsula Clean Energy or its construction contractor shall use best efforts to: 1) require of its regular workforce that at least 50% of all “journey level” employees shall be graduates of a State of California approved apprenticeship program; (2) require that its regular workforce shall be in conformance with all state and federal apprenticeship requirements, including the guidance issued by the Internal Revenue Service in Notice 2022-61; and (3) require that the percentage of its regular workforce enrolled and participating in a local State of California approved apprenticeship program be the greater of at least 20% or the percentage required by clause (2) above. Apprenticeship programs must be approved by the State Department of Apprenticeship Standards. e. Peninsula Clean Energy Programs
Peninsula Clean Energy shall use best efforts to support local businesses, union labor, and local apprenticeship programs in the implementation of its energy programs.
Peninsula Clean Energy shall use best efforts to ensure each construction contractor or subcontractor performing work on any Peninsula Clean Energy program utilize local businesses, union labor, local apprenticeship, and fair compensation practices in program implementation including proper assignment of work to crafts that traditionally perform the work.
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Supply Chain Code of Conduct
Buyer is committed to ensuring that the fundamental human rights of workers are protected, including addressing the potential risks of forced labor, child labor, servitude, human trafficking and slavery across our portfolio.
Our requirements and expectations for Seller’s supply chain are detailed below in our Supply Chain Code of Conduct (“Supply Chain Code”). Seller must comply with all applicable Laws and this Supply Chain Code, even when this Supply Chain Code exceeds the requirements of applicable Law.
These standards are derived from the United Nations Guiding Principles on Business and Human Rights, the Core Conventions of the International Labour Organization (“ILO”), including the ILO Declaration on Fundamental Principles and Rights at Work, the Solar Energy Industries Association Solar Industry Commitment to Environmental & Social Responsibility, and the Responsible Business Alliance Code of Conduct.
1. Freely Chosen Employment
Forced, bonded (including debt bondage) or indentured labor, involuntary or exploitative prison labor, slavery or trafficking of persons is not permitted. This includes transporting, harboring, recruiting, transferring, or receiving persons by means of threat, force, coercion, abduction or fraud for labor or services. There shall be no unreasonable restrictions on workers’ freedom of movement in the facility in addition to unreasonable restrictions on entering or exiting company provided facilities including, if applicable, workers’ dormitories or living quarters. All work must be voluntary, and workers shall be free to leave work at any time or terminate their employment without penalty if reasonable notice is given as per worker’s contract. Employers, agents, and sub-agents’ may not hold or otherwise destroy, conceal, or confiscate identity or immigration documents, such as government-issued identification, passports, or work permits. Employers can only hold documentation if such holdings are required by law. In this case, at no time should workers be denied access to their documents. Workers shall not be required to pay employers’ agents or sub-agents’ recruitment fees or other related fees for their employment. If any such fees are found to have been paid by workers, such fees shall be repaid to the worker.
2. Young Workers
Child labor is not to be used in any stage of manufacturing. The term “child” refers to any person under the age of 15, or under the age for completing compulsory education, or under the minimum age for employment in the country, whichever is greatest. Suppliers shall implement an appropriate mechanism to verify the age of workers. The use of legitimate workplace learning programs, which comply with all laws and regulations, is supported.
Workers under the age of 18 shall not perform work that is likely to jeopardize their health or safety, including night shifts and overtime. Suppliers shall ensure proper management of student workers through proper maintenance of student records, rigorous due diligence of educational partners, and protection of students’ rights in accordance with applicable laws and regulations. Suppliers shall provide appropriate support and training to all student workers. In the absence of local law, the wage rate for student workers, interns, and apprentices shall be at least the same wage rate as other entry-level workers performing 105
equal or similar tasks. If child labor is identified, assistance/remediation is provided.
3. Working Hours
Studies of business practices clearly link worker strain to reduced productivity, increased turnover, and increased injury and illness. Working hours are not to exceed the maximum set by local law. Further, a workweek should not be more than 60 hours per week, including overtime, except in emergency or unusual situations. All overtime must be voluntary.
Workers shall be allowed at least one day off every seven days.
4. Wages and Benefits
Compensation paid to workers shall comply with all applicable wage laws, including those relating to minimum wages, overtime hours and legally mandated benefits. In compliance with local laws, workers shall be compensated for overtime at pay rates greater than regular hourly rates. Deductions from wages as a disciplinary measure shall not be permitted. For each pay period, workers shall be provided with a timely and understandable wage statement that includes sufficient information to verify accurate compensation for work performed. All use of temporary, dispatch and outsourced labor will be within the limits of the local law.
5. Humane Treatment
There is to be no harsh or inhumane treatment including violence, gender-based violence, sexual harassment, sexual abuse, corporal punishment, mental or physical coercion, bullying, public shaming, or verbal abuse of workers; nor is there to be the threat of any such treatment. Disciplinary policies and procedures in support of these requirements shall be clearly defined and communicated to workers.
6. Non-Discrimination/Non-Harassment
Suppliers should be committed to a workplace free of harassment and unlawful discrimination. Companies shall not engage in discrimination or harassment based on race, color, age, gender, sexual orientation, gender identity and expression, ethnicity or national origin, disability, pregnancy, religion, political affiliation, union membership, covered veteran status, protected genetic information or marital status in hiring and employment practices such as wages, promotions, rewards, and access to training. Workers shall be provided with reasonable accommodation for religious practices. In addition, workers or potential workers should not be subjected to medical tests that could be used in a discriminatory way or otherwise in violation of applicable law. This was drafted in consideration of ILO Discrimination (Employment and Occupation) Convention (No.111).
7. Freedom of Association
In conformance with local law, Suppliers shall respect the right of all workers to form and join trade unions of their own choosing, to bargain collectively, and to engage in peaceful assembly as well as respect the right of workers to refrain from such activities. Workers and/or their representatives shall be able to openly communicate and share ideas and concerns with management regarding working conditions and management practices without fear of discrimination, reprisal, intimidation, or harassment.
8. Restricted Jurisdictions
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Supplier shall not manufacture or produce products in the Xinjiang Uyghur Autonomous Region of China, or knowingly procure goods and services mined, produced or manufactured in the same.
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