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Montana Administrative Register Notice 17-312 No. 24   12/23/2010    
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BEFORE THE DEPARTMENT OF ENVIRONMENTAL QUALITY

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 17.80.201, 17.80.202, and 17.80.203 and the adoption of New Rules I through IV pertaining to certification of certain energy production or development facilities or equipment for property tax classification or abatement, monitoring of compliance with certification criteria, and revocation of certification

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT AND ADOPTION

 

(TAX CERTIFICATION - POLLUTION CONTROL EQUIPMENT AND ENERGY FACILITIES)

 

            TO: All Concerned Persons

 

            1. On January 19, 2011, at 1:30 p.m., the Department of Environmental Quality will hold a public hearing in Room 111, 1520 East Sixth Avenue, Helena, Montana, to consider the proposed amendment and adoption of the above-stated rules.

 

            2. The department will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, please contact Elois Johnson, Paralegal, no later than 5:00 p.m., January 3, 2011, to advise us of the nature of the accommodation that you need. Please contact Elois Johnson at Department of Environmental Quality, P.O. Box 200901, Helena, Montana 59620-0901; phone (406) 444-2630; fax (406) 444-4386; or e-mail ejohnson@mt.gov.

 

            3. The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

 

            17.80.201 DEFINITIONS As used in this subchapter, unless indicated otherwise, the following definitions apply:

            (1) "Carbon dioxide" means a substance that is comprised of no less than 90% carbon dioxide by volume. All calculations of carbon dioxide purity must be made at the location of transfer from the carbon dioxide pipeline to the carbon sequestration point.

            (2) "Catastrophic circumstances," within the meaning of 15-6-158(2)(e), MCA, means a great and sudden, extraordinary, unexpected, and unforeseeable disaster or failure of equipment that is beyond the control of the owner and operator of a closed-loop enhanced oil recovery operation, that could not have been prevented, and that substantially interferes with the owner and operator's ability to retain injected carbon dioxide.

            (1) remains the same, but is renumbered (3).

            (4) "Location," within the meaning of 15-6-158(2)(d), MCA, means the injection well field, the pipeline terminus, the pipeline header, or the equipment related to a closed-loop enhanced oil recovery operation.

            (5) "Retains," within the meaning of 15-6-158(2)(e), MCA, means that the carbon dioxide is controlled by the operator underground, within the closed-loop system or in some other manner.

            (6) "Unforeseen circumstances," within the meaning of 15-6-158(2)(e), MCA, means circumstances beyond the control of the owner and operator of a closed-loop enhanced oil recovery operation that could not reasonably have been foreseen and that substantially interfere with the owner and operator's ability to retain injected carbon dioxide.

 

            AUTH: 15-24-3116, MCA

            IMP: 15-24-3112, MCA

 

            17.80.202  CERTIFICATION OF ELIGIBILITY FOR TAX ABATEMENT OR CLASSIFICATION AS CLASS FOURTEEN OR FIFTEEN PROPERTY (1) A taxpayer who wishes to obtain a certificate of eligibility for abatement of property tax liability under 15-24-3116 15-24-3111, MCA, for classification of property as class fourteen property under 15-6-157 and 15-24-3116, MCA, or for classification of property as class fifteen property under 15-6-158 and 15-24-3116, MCA, shall submit to the department a completed application for certification on a form available from the department.

            (2) through (4) remain the same.

 

            AUTH:  15-24-3116, MCA

            IMP:  15-6-157, 15-6-158, 15-24-3112, MCA

 

            17.80.203 APPLICATION REQUIREMENTS AND DECISION CRITERIA:  ALTERNATING CURRENT TRANSMISSION LINES UNDER 15-6-157(1)(q), MCA

            (1) through (2)(d) remain the same.

            (3) In making its certification determination, the department shall use the application materials and also may use any other credible information available to the department.

            (4) and (5) remain the same.

 

            AUTH: 15-24-3116, MCA

            IMP: 15-6-157, 15-24-3116, MCA

 

            4. The proposed new rules provide as follows:

 

            NEW RULE I APPLICATION REQUIREMENTS AND DECISION CRITERIA: CARBON DIOXIDE PIPELINES (1) A taxpayer who wishes to obtain a certificate of eligibility for classification of a carbon dioxide pipeline as class fifteen property under 15-6-158, MCA, or for abatement of property tax liability under 15-24-3111, MCA, shall file an application on a form provided by the department pursuant to ARM 17.80.202.  The application must contain the following information:

            (a) the name and address of the applicant;

            (b) the name, address, telephone number, and e-mail address of a contact person for the applicant;

            (c) a description of the pipeline for which certification is sought, including its associated equipment, structures, interconnections, and injection points;

            (i) for pipelines still under construction at the end of a tax year, this would be a general description of the complete pipeline, with a more detailed description of that portion for which certification is sought;

            (d) a map or drawing showing the location of the pipeline and its associated equipment, structures, and interconnections and all injection points; 

            (e) the date construction of the pipeline commenced; 

            (f) certification that the standard prevailing rate of wages for heavy construction were, or will be, paid during construction of the pipeline in Montana;

            (g) a list of the carbon sequestration points meeting the requirements of 15-6-158, MCA, and this subchapter to which the carbon dioxide is, or will be, transported, including:

            (i) the location, or proposed location, of each sequestration point; and

            (ii) documentation of the amount of carbon dioxide that is expected to be transported to each sequestration point throughout each year; 

            (h) certification that each source of the carbon dioxide transported in the pipeline is, or will be, a plant or facility that produces or captures carbon dioxide, within the meaning of 15-6-158(2)(g), MCA, and is not, or will not be, a well from which the primary product is carbon dioxide;

            (i) a list of all plants or facilities that produce or capture, or will produce or capture, the carbon dioxide transported, or to be transported, in the pipeline;

            (j) certification that the pipeline transports, or will transport, carbon dioxide to one or more underground injection wells for which the Montana Board of Oil and Gas has issued, or will have issued, a final underground injection control (UIC) permit, including specification of the American Petroleum Institute number and UIC permit number for each well. If some or all permits have not been issued at the time of the application, the taxpayer shall update the certification annually, pursuant to [NEW RULE IV(2)], by providing the department with the information required under this subsection for permits issued after the date of the application; and

            (k) documentation of the purity level of the carbon dioxide transported, or to be transported, in the pipeline. For pipelines that are not operational at the time of the application, the applicant shall submit this documentation within 60 days after commencing commercial operation.

            (2) Upon request of the department, an applicant shall submit to the department documentation supporting any certification required under this rule.

            (3) If any information required under this rule already has been submitted to another Montana state agency, in lieu of submitting the information to the department in the application, the applicant may specify the agency that has the information. If, after reasonable efforts, the department is unable to obtain the information from the other agency, the applicant shall submit the information to the department, upon its request.

            (4) The equipment eligible for certification by the department under this rule includes the pipeline and its associated equipment, structures, and interconnections downstream from each meter used to measure the carbon dioxide received from each carbon dioxide source but does not include equipment downstream of the meter to the injection well field served by the pipeline.

            (5) In making its certification determination, the department shall use the application materials and may also use any other credible information available to the department.

            (6) The department shall revoke a certification issued under this rule, if the taxpayer no longer uses, or no longer will use, the pipeline to transport carbon dioxide to a carbon dioxide sequestration point, including a closed-loop enhanced oil recovery operation.

 

            AUTH: 15-24-3116, MCA

            IMP: 15-6-158, 15-24-3112, MCA

 

            NEW RULE II APPLICATION REQUIREMENTS AND DECISION CRITERIA: CLOSED-LOOP ENHANCED OIL RECOVERY OPERATION EQUIPMENT (1) A taxpayer who wishes to obtain a certificate of eligibility for classification of equipment used in a closed-loop enhanced oil recovery operation as class fifteen property under 15-6-158, MCA, or for abatement of property tax liability under 15-24-3111, MCA, shall file an application on a form provided by the department pursuant to ARM 17.80.201.  The application must contain the following information:

            (a) the name and address of the applicant;

            (b) the name, address, telephone number, and e-mail address of a contact person for the applicant;

            (c) a description of the equipment for which certification is sought;

            (i) for a project still under construction at the end of a tax year, this would be a general description of the complete equipment, with a more detailed description of that portion for which certification is sought;

            (d) a map or drawing showing the location of the equipment;

            (e) the date construction of the project commenced;

            (f) certification that the standard prevailing rate of wages for heavy construction were, or will be, paid during the construction phase;

            (g) the location of each well in which carbon dioxide is injected, or is to be injected, as part of the closed-loop enhanced oil recovery operation;

            (h) a map or drawing showing the location of each well and injection point at the time of the application;

            (i) certification that each source of the carbon dioxide to be injected in the operation is, or will be, a plant or facility that produces or captures carbon dioxide, within the meaning of 15-6-158(2)(g), MCA, and is not, or will not be, a well from which the primary product is carbon dioxide;

            (j) a list of all plants or facilities that produce or capture, or will produce or capture, the carbon dioxide for the operation;

            (k) certification that a final UIC permit has been issued, or will be issued, by the Montana Board of Oil and Gas for each well in which carbon dioxide is injected, or is to be injected, as part of the closed-loop enhanced oil recovery operation, including specification of the American Petroleum Institute number and UIC permit number for each well. If some or all permits have not been issued at the time of the application, the taxpayer shall update the certification annually, pursuant to [NEW RULE IV(2)], by providing the department with the information required under this subsection for permits issued after the date of the application;

            (l) documentation of the purity level of the carbon dioxide received by the operation. For facilities that have not commenced operation of the closed-loop enhanced oil recovery equipment at the time of the application, the applicant shall submit this documentation within 60 days after commencing commercial operation; and

            (m) documentation that the closed-loop enhanced oil recovery operation retains, or will retain, as much of the injected carbon dioxide as is practicable, but not less than 85% of the carbon dioxide injected each year. Demonstrations may include, but are not limited to, modeling data, monitoring data, or engineering calculations sufficient to make the demonstration;

            (i) all demonstrations must be accompanied by a protocol describing how the data was obtained and describing all quality control and quality assurance procedures followed in gathering or producing the data.

            (2) Upon request of the department, an applicant shall submit to the department documentation supporting any certification required under this rule.

            (3) If any information required under this rule already has been submitted to another Montana state agency, in lieu of submitting the information to the department in the application, the applicant may specify the agency that has the information. If, after reasonable efforts, the department is unable to obtain the information from the other agency, the applicant shall submit the information to the department, upon its request.    

            (4) The equipment eligible for certification by the department under this rule includes the equipment used to inject and/or maintain carbon dioxide in a closed-loop enhanced oil recovery operation that is downstream of the pipeline meter used to measure the amount of carbon dioxide delivered to the closed-loop enhanced oil recovery operation. Pipelines eligible for certification under [NEW RULE I] are not considered enhanced oil recovery operation equipment.

            (5) In making its certification determination, the department shall use the application materials and may also use any other credible information available to the department.

            (6) The department shall revoke a certification issued under this rule if:

            (a) at any time after commencement of construction, the equipment no longer will be used to inject carbon dioxide for enhanced oil recovery;

            (b) after construction, installation, and testing has been completed and the enhanced oil recovery process has commenced, equipment certified under this rule no longer is used for enhanced oil recovery; or

            (c) the taxpayer no longer holds a valid underground injection control permit for each well served by the operation.

 

            AUTH: 15-24-3116, MCA

            IMP: 15-6-158, 15-24-3112, MCA

 

            NEW RULE III  CLOSED-LOOP ENHANCED OIL RECOVERY OPERATION EQUIPMENT COMPLIANCE DEMONSTRATION (1) If a taxpayer, who receives certification by the department of equipment used in a closed-loop enhanced oil recovery operation, does not substantially comply with the requirements specified in each underground injection control permit, issued by the Montana Board of Oil and Gas for the operation, or specified in the applicable rules adopted by the Montana Board of Oil and Gas, the department may revoke the certification.

            (2) If monitoring of a closed-loop enhanced oil recovery operation demonstrates that the equipment fails to maintain substantial compliance with eligibility requirements for tax classification or abatement, the department may revoke the certificate of eligibility, or a portion of the certificate of eligibility.

 

            AUTH: 15-24-3116, MCA

            IMP: 15-24-3112, MCA

 

            NEW RULE IV REVOCATION OF CERTIFICATE (1) Pursuant to 15-6-157(5)(a), MCA, the department shall review certification of a transmission line ten years after the line is operational and, if the property no longer meets the requirements of 15-6-157, MCA, the department shall revoke the certification. Within the 30-day period preceding January 1 of the tenth year after the line is operational, the owner of a transmission line who has received certification of eligibility for tax classification or abatement from the department under this subchapter shall submit to the department a certified statement as to whether there have been any substantial changes that could affect eligibility for the classification or abatement. If there have been any substantial changes that could affect eligibility, the taxpayer shall fully describe those changes.

            (2) A taxpayer, other than the owner of a transmission line, who has received certification of eligibility for tax classification or abatement from the department under this subchapter shall submit to the department, by January 31 of each subsequent calendar year, a certified statement as to whether there have been in the last tax year, or will be in the present tax year, any substantial changes to the facility or equipment, or to operation of the facility or equipment. If there have been, or will be, any substantial changes, the taxpayer shall fully describe those changes. Substantial changes include, but are not limited to:

            (a) decreases in the purity of carbon dioxide transported or injected during the last tax year, or expected to be transported or injected during the next tax year; 

            (b) changes in the source(s) of carbon dioxide transported or injected;

            (c) for closed-loop enhanced oil recovery operations, changes in numbers and locations of injection wells associated with the operation. 

            (3) If the department becomes aware of any changes that could affect the value of a facility or equipment certified under this subchapter, the department shall notify the Department of Revenue. 

            (4) If a taxpayer fails to submit a ten-year or annual statement required under this rule, or if the department believes that a facility or equipment certified under this subchapter otherwise has failed to maintain substantial compliance with certification eligibility requirements, the department shall notify the taxpayer in writing of the noncompliance. In determining whether a facility or equipment has failed to maintain substantial compliance with certification eligibility requirements, the department shall consider the circumstances, extent, and duration of the noncompliance.

            (5) If a taxpayer fails to correct substantial noncompliance within 60 days after receipt of a notice of noncompliance, the department shall notify the taxpayer in writing of the department's intent to revoke the certificate or a portion of the certificate. The department's decision becomes final when 30 days have elapsed after the taxpayer's receipt of the notice unless the taxpayer requests a hearing before the department. 

            (6) When the department revokes a certificate, or a portion of a certificate, under this rule, the taxpayer may request a hearing before the department. A hearing request must be in writing and must be filed with the department, addressed to the department director, within 30 days after receipt of the department's revocation notice. Filing a request for a hearing postpones the effective date of the department's decision until issuance of a final decision by the department.

            (7) Pursuant to 15-24-3112(5), MCA, a hearing under this rule is governed by the contested case provisions of the Montana Administrative Procedure Act, Title 2, chapter 4, part 6, MCA.

            (8) Pursuant to 15-24-3112(2), MCA, within 30 days after revocation of a certificate, the department shall report the revocation to the Department of Revenue.

 

            AUTH: 15-24-3116, MCA 

            IMP: 15-6-157, 15-6-158, 15-24-3112, MCA      

 

            REASON:   In May 2007, the Montana Legislature enacted House Bill 3, the "Jobs and Energy Development Act" (HB 3). Chapter 2, Laws of Montana, May Special Session, 2007. Among other provisions, the Act amended Title 15, chapter 6, part 1, MCA, by creating new property tax classifications for certain energy-related equipment and facilities. The Act also added Title 15, chapter 24, part 31, MCA, providing for tax abatement for property related to certain energy production or development facilities. The new provisions and amendments were intended to provide property tax incentives for new investment in: the conversion, manufacture, and transport of renewable energy; clean coal development; carbon dioxide sequestration equipment, including closed-loop enhanced oil recovery ("EOR") operation equipment; clean advanced coal research and development equipment; and renewable energy research and development equipment.

            Sections 5, 7, and 11 of HB 3, codified at 15-24-3112, 15-6-158, and 15-6-157, MCA, respectively, require the department to determine whether certain facilities or equipment qualify for certain tax classifications or for tax abatement, and, if so, to issue a certificate of eligibility. Section 6 of HB 3, codified at 15-24-3116, MCA, requires the department to adopt rules necessary for certification of eligibility for tax abatement under 15-24-3112, MCA, or classification as Class fourteen or Class fifteen property under 15-6-157 and 15-6-158, MCA. HB 3 also requires that the rules address compliance with certification criteria and revocation of certificates. The new rules and amendments proposed in this rulemaking are necessary to meet this legislative mandate and address the desire of the Legislature to offer incentives for capturing and storing carbon dioxide that otherwise would be emitted to the atmosphere.

            The department previously adopted new rules providing general application procedures for certification of eligibility for tax abatement or classification as Class fourteen or Class fifteen property and providing specific application requirements and criteria for certification of alternating current transmission lines as Class fourteen property (ARM 17.80.201 through 17.80.203). 2008 Montana Administrative Register, Issue No. 10, p. 1027 (May 22, 2008). The present proposed new rules and amendments would add provisions for certification of carbon dioxide pipelines and equipment used in closed-loop EOR operations.

            The department is proposing to amend ARM 17.80.201 to add definitions of certain terms used in the statutes being implemented that are not defined in the statutes. The department believes that it is necessary to define these terms. However, if the department determines through comments received during the rulemaking process that one or more of these definitions are not necessary, the department will delete any unnecessary definitions from the final amendments. Among other proposed definitions, the department is proposing a definition of "carbon dioxide." The department is proposing to define the term as meaning a gas or liquid that is comprised of no less than 90% carbon dioxide by volume. The department is proposing this level of purity because the department believes it reflects the level of purity attainable by carbon dioxide capture equipment and because it reflects the Legislature's desire to provide tax incentives only for operations that substantially decrease the amount of carbon dioxide released into the atmosphere. However, the department requests comment on that percentage and may adopt a percentage that is higher or lower than 90%.

            The department is proposing to amend ARM 17.80.202(1) to correct references to the statutes being implemented by that rule. These amendments are not intended to have any substantive effect.

            The department is proposing to amend ARM 17.8.203(3) to state that the department is not required to, but may, use information in addition to application materials in making its certification decision. This amendment is necessary to clarify that, in making its certification decisions, the department is not required to review unnecessary additional information or information outside an application that the department does not find to be credible. The department is proposing this same language for New Rules I and II.

            New Rule I(1) and New Rule II(1) would provide application requirements and decision criteria for department certification of carbon dioxide pipelines and closed-loop EOR operation equipment, respectively. The application requirements and decision criteria are based on the requirements of ARM 17.80.203, which the department adopted in 2008 to implement certification of alternating transmission lines, with changes necessary to provide information specific to determination that equipment meets the statutory criteria for certification of carbon dioxide pipelines and EOR operation equipment.

            In both New Rule I(1) and New Rule II(1), the department is proposing to allow certification by the applicant of certain facts that are easily verified by the department, rather than requiring more detailed information or documentation. Where application information is easily verified by the department, requiring certification is more appropriate than requiring the applicant to submit extensive information and documentation that is not needed by the department. However, in order to ensure that the department is able to obtain all necessary information, New Rule I(2) and New Rule II(2) would require the applicant to submit any information supporting a certification, upon request of the department.

            In New Rule I(1)(a) through (d) and New Rule II(1)(a) through (d), the department is proposing to require submission of basic information concerning the application and the equipment and location of the equipment that is necessary for the department to identify the applicant, contact the applicant, determine how the equipment relates to carbon capture and sequestration equipment, and determine the location of the equipment for department inspection.

            New Rule I(1)(e) and New Rule II(1)(e) would require specification of the date that construction commenced. This is necessary because 15-24-3111(4)(a)(i), MCA, limits eligibility for tax abatement to equipment for which construction commenced after June 1, 2007, and because 15-24-3111(4)(e), MCA, limits eligibility for tax abatement to the construction period and the first 15 years after the facility commences operation, not to exceed a total of 19 years.

            New Rule I(1)(f) and New Rule II(1)(f) would require certification that the standard prevailing rate of wages were paid, or will be paid, for heavy construction. This is necessary because 15-6-158(3) and 15-24-3111(4)(a)(ii), MCA, require payment of the standard prevailing rate of wages during the construction phase in order for the equipment to be eligible for classification as Class 15 property or for abatement, respectively.

            In New Rule I(1)(g), the department is proposing to require a list of the carbon sequestration points meeting the requirements of 15-6-158, MCA, and the proposed rules to which the carbon dioxide is, or will be, transported, along with the location of each sequestration point and the amount of carbon dioxide transported to each point each year. This is necessary to ensure that the pipeline meets the definition of "carbon dioxide pipeline" in 15-6-158(2)(a), MCA, which requires that the pipeline transport carbon dioxide for long-term storage in a geologic formation or for retention in a closed-loop EOR operation and to allow the department to verify that the volume transported is approximately equivalent to the volume injected.

            In New Rule I(1)(h) and (i) and New Rule II(1)(i) and (j), the department is proposing to require certification that each source of the carbon dioxide transported or injected is, or will be, a plant or facility that produces or captures carbon dioxide, within the meaning of 15-6-158(2)(g), MCA, and a list of all such plants or facilities. This is necessary to ensure that the pipeline or closed-loop EOR operation meets the requirements of 15-6-158(2)(a), (b) and (e) and 15-24-3111(3)(l) and (m), MCA, which limit eligibility for classification as Class fifteen property and for tax abatement to pipelines that transport carbon dioxide from a plant or facility that produces or captures carbon dioxide and closed-loop EOR operations that receive carbon dioxide from a carbon dioxide pipeline.

            Section 15-6-158(2)(a), MCA, states that: "'[c]arbon dioxide pipeline' means a pipeline that transports carbon dioxide from a plant or facility that produces or captures carbon dioxide to a carbon sequestration point, including a closed-loop enhanced oil recovery operation." Section 15-6-158(2)(g), MCA, states that: "'Plant or facility that produces or captures carbon dioxide' means a facility that produces a flow of carbon dioxide that can be sequestered or used in a closed-loop enhanced oil recovery operation. This does not include wells from which the primary product is carbon dioxide." Section 15-6-158(2)(b), MCA, states that: "'Carbon sequestration' means the long-term storage of carbon dioxide from a carbon dioxide pipeline in geologic formations, including but not limited to . . . closed-loop enhanced oil recovery operations." Section 15-24-3102(1)(8), MCA, states that: "'Carbon sequestration' means the long-term storage of carbon dioxide from a plant or facility that produces or captures carbon dioxide, as defined in 15-6-158, in geologic formations, including but not limited to . . . closed-loop enhanced oil recovery operations." Section 15-24-3101, MCA, states in relevant part that: " . . . It is also the policy of the state of Montana that the classifications, rates, abatements, and exemptions . . . are to encourage investment in energy development that is consistent with maintaining a clean and healthful environment . . . ."

            The department believes that, when read individually, the statutes cited above may be ambiguous concerning whether all of the carbon dioxide transported in a pipeline or injected in a closed-loop EOR operation must be from a plant or facility in order to be eligible for the tax incentives. However, reading the statutes together, the department believes that the most reasonable interpretation is that the Legislature intended the tax incentives to be provided only for pipelines and closed-loop EOR operations that transport or inject carbon dioxide from plants or facilities that otherwise would vent carbon dioxide to the atmosphere, and not from natural sources such as wells that are intended primarily to produce carbon dioxide for uses such as in carbon dioxide pipelines and closed-loop EOR operations. The department believes that this interpretation is supported by the policy statement in 15-24-3101, MCA, cited above, because providing tax incentives for intentionally removing carbon dioxide from a natural source that otherwise prevents the carbon dioxide from being emitted into the atmosphere contributes to greenhouse gas emissions and is not consistent with maintaining a clean and healthful environment.

            In New Rule I(1)(j) and New Rule II(1)(k), the department is proposing to require certification that the Montana Board of Oil and Gas has issued a final underground injection control permit for each well to be injected with carbon dioxide that is served by the carbon dioxide pipeline or closed-loop EOR operation equipment. This is necessary to ensure that the carbon dioxide is being transported to a geologic formation for long-term storage or to a closed-loop EOR operation that will retain at least 85% of the carbon dioxide injected each year, as required in 15-6-158(2)(b) and (e) and 15-24-3111(3)(l) and (m), MCA. The rules would require specification of American Petroleum Institute well numbers and Board of Oil and Gas underground injection control (UIC) permit numbers for each well to be served. This is necessary to allow the department to communicate with Department of Natural Resources and Conservation and Board of Oil and Gas staff concerning the wells and to review relevant permit conditions, including monitoring provisions, to ensure that the pipeline or equipment meets the statutory criteria for certification.

            New Rule I(1)(k) and New Rule II(1)(l) would require the applicant to document the purity level of the carbon dioxide transported in the pipeline or received by the closed-loop EOR operation. This is necessary to ensure that the substance transported in the pipeline or received by the EOR operation constitutes carbon dioxide, within the meaning of the statutes and rules.

            To avoid unnecessary duplication by the applicant, New Rule I(3) and New Rule II(3) would allow an applicant that has submitted information required under the rules to another Montana state agency to inform the department of where the information can be located, in lieu of submitting the information to the department. The rules would allow the department to require the applicant to submit the information if the department is unable to obtain it from the other agency after reasonable efforts.

            New Rule I(4) would describe the equipment that the department believes reasonably is an integral part of a carbon dioxide pipeline and, therefore, is eligible for certification by the department. This would include the pipeline and its associated equipment, structures, and interconnections downstream from each meter used to measure the carbon dioxide received from each carbon dioxide source, but would not include equipment downstream of the meter to the injection well field served by the pipeline.

            New Rule I(5) and New Rule II(5) would require the department, in making its certification decision, to use the information in the application materials, but also would allow the department to use any other credible information available to the department. This provision is necessary to allow the department to rely upon information it obtains from site inspections, other agencies, or other credible sources of information.

            New Rule I(6) and New Rule II(6) would require the department to revoke a certification if the taxpayer no longer uses, or intends to use, a certified pipeline or EOR operation equipment for the purposes that make the pipeline or equipment eligible for certification.

            New Rule II(1)(m) would require documentation that the closed-loop enhanced oil recovery operation retains, or will retain, as much of the injected carbon dioxide as is practicable, but not less than 85% of the carbon dioxide injected each year. Demonstrations may include, but are not limited to, modeling data, monitoring data, or engineering calculations sufficient to make the demonstration. This is necessary to ensure that the operation meets the requirements in 15-6-158(2)(e), MCA, incorporated by reference in 15-24-3111(3)(l), MCA, for certification of a closed-loop EOR operation.

            New Rule III(1) would require the department to revoke certification of EOR operation equipment if the taxpayer does not comply with the requirements specified in the UIC permits issued by the Montana Board of Oil and Gas for the operation or in rules adopted by the Montana Board of Oil and Gas. New Rule III(2) would require the department to revoke a certification if monitoring of an EOR operation demonstrates that the equipment fails to maintain substantial compliance with eligibility requirements for certification. These provisions are necessary to ensure that certification is revoked if certified equipment no longer meets eligibility criteria.

            New Rule IV(1) would state the requirement of 15-6-157(5)(a), MCA, that the department review certification of a transmission line ten years after the line is operational and, if the property no longer meets the requirements of 15-6-157, MCA, revoke the certification. Although this requirement already is stated in the statute, it is necessary to include it in the rule to convey the meaning of the subsequent requirement in the rule that the taxpayer submit a certification ten years after the line becomes operational to enable the department to review continued eligibility for certification.

            New Rule IV(2) would provide for annual department review of continued eligibility for certification for equipment other than transmission lines. The statutes do not specify a review period for equipment other than transmission lines, and the department is proposing an annual review period, rather than a longer period, to ensure that the department revokes its certification in a timely manner if equipment no longer meets certification eligibility requirements. Annual review also is consistent with annual review of property evaluations by the Department of Revenue. The rule would require reporting of substantial changes in equipment or operation and would list decreases in purity of carbon dioxide, changes in carbon dioxide sources, and, for closed-loop EOR operations, changes in numbers and locations of injection wells as examples of changes that would need to be reported. It is necessary for the department to be informed of substantial changes in order for the department to conduct inspections and determine whether any changes affect eligibility for certification.

            New Rule IV(3), (5), (6), (7), and (8) would repeat statutory language concerning information related to valuation of property and revocation and hearing procedures. It is necessary to include these provisions in the rule for completeness.

            New Rule IV(4) and (5) would provide procedures for notice of noncompliance and notice of the department's intent to revoke a certificate or portion of a certificate and procedures for a taxpayer to request a contested case hearing. The department is proposing to issue a notice of noncompliance and provide a 60-day period for correction of noncompliance prior to issuing a notice of intent to revoke a certificate. The noncompliance notice and corrective action period would provide the opportunity to achieve compliance and resolve any disputes without expending the resources necessary to proceed to a contested case hearing.

            New Rule IV(4) would require the department to consider the circumstances, extent, and duration of any noncompliance in determining whether a taxpayer has failed to maintain substantial compliance with eligibility criteria and whether revocation of certification is appropriate. For example, this provision would allow the department to consider the availability of high purity carbon dioxide or the availability of carbon dioxide from plants or facilities that produce or capture carbon dioxide if the purity of carbon dioxide transported or injected falls below the required level or if an operation transports or injects some amount of carbon dioxide from a source other than a plant or facility that produces or captures carbon dioxide, such as a well that primarily produces carbon dioxide. Consideration of the circumstances in determining the appropriateness of revocation is necessary in order to implement the Legislature's desire to encourage investments in carbon capture, transportation, and sequestration and due to the unknown variables involved in carbon capture, transportation, and sequestration in Montana at this time.

            In New Rule IV(5), the department is proposing a 30-day period for requesting a hearing because this period is consistent with most of the time periods for requesting a hearing under other statutes implemented by the department.

            The intent is to harmonize the proposed rule amendments and new rules with anticipated future rules by the U.S. Environmental Protection Agency and the Montana Department of Natural Resources and Conservation. When such rules are promulgated, the department will review the amendments and new rules adopted in the present rulemaking proceeding for consistency with such rules, and the department will initiate further rulemaking if necessary for consistency.

 

            5. Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing. Written data, views, or arguments may also be submitted to Elois Johnson, Paralegal, Department of Environmental Quality, 1520 E. Sixth Avenue, P.O. Box 200901, Helena, Montana 59620-0901; faxed to (406) 444-4386; or e-mailed to ejohnson@mt.gov, no later than January 21, 2011. To be guaranteed consideration, mailed comments must be postmarked on or before that date.

 

            6. David Rusoff, attorney, has been designated to preside over and conduct the hearing.

 

            7. The department maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name and mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding: air quality; hazardous waste/waste oil; asbestos control; water/wastewater treatment plant operator certification; solid waste; junk vehicles; infectious waste; public water supplies; public sewage systems regulation; hard rock (metal) mine reclamation; major facility siting; opencut mine reclamation; strip mine reclamation; subdivisions; renewable energy grants/loans; wastewater treatment or safe drinking water revolving grants and loans; water quality; CECRA; underground/above ground storage tanks; MEPA; or general procedural rules other than MEPA. Notices will be sent by e-mail unless a mailing preference is noted in the request.  Such written request may be mailed or delivered to Elois Johnson, Paralegal, Department of Environmental Quality, 1520 E. Sixth Ave., P.O. Box 200901, Helena, Montana 59620-0901; faxed to (406) 444-4386; e-mailed to ejohnson@mt.gov; or may be made by completing a request form at any rules hearing held by the department.

 

            8. The bill sponsor contact requirements of 2-4-302, MCA, do not apply.

 

Reviewed by:                                                DEPARTMENT OF ENVIRONMENTAL

                                                                        QUALITY

 

 

 

/s/ David Rusoff                                   BY: /s/ Richard H. Opper                        

DAVID RUSOFF                                          RICHARD H. OPPER, Director

Rule Reviewer

 

            Certified to the Secretary of State, December 13, 2010.

 

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