New York Mercantile Exchange: Proposed Amendments to the New York Harbor Unleaded Regular Gasoline Futures Contract Relating to Grade and Quality Specifications

COMMODITY FUTURES TRADING COMMISSION

New York Mercantile Exchange: Proposed Amendments to the New York

Harbor Unleaded Regular Gasoline Futures Contract Relating to Grade and

Quality Specifications

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed contract market rule changes.

-----------------------------------------------------------------------

SUMMARY: The New York Mercantile Exchange (NYMEX or Exchange) has

submitted for Commission's approval, under section 5a(a)(12) of the

Commodity Exchange Act and Commission Regulation 1.41(b), proposed

amendments to its New York Harbor unleaded regular gasoline (gasoline)

futures contract. The proposed amendments revise the grade and quality

specifications for deliverable gasoline to reflect recently adopted EPA

requirements for reformulated gasoline. The amendments would apply only

to newly listed contracts beginning with the December 1994 and January

and February 1995 delivery months.

In accordance with section 5a(a)(12) of the Commodity Exchange Act

and acting pursuant to the authority delegate by Commission Regulation

140.96, the Acting Director of the Division of Economic Analysis

(Division) of the Commodity Futures Trading Commission (Commission) has

determined, on behalf of the Commission, that the proposed amendments

are of major economic significance. On behalf of the Commission, the

Division is requesting comment on these proposals.

DATES: Comments must be received on or before March 31, 1994.

ADDRESSES: Interested persons should submit their views and comments to

Jean A. Webb, Secretary, Commodity Futures Trading Commission, 2033 K

Street NW., Washington, DC 20581. Reference should be made to the New

York Mercantile Exchange New York Harbor unleaded regular gasoline

futures contract.

FOR FURTHER INFORMATION CONTACT: Please contact John Forkkio of the

Division of Economic Analysis, Commodity Futures Trading Commission,

2033 K Street NW., Washington, DC 20581, telephone 202-254-7303.

SUPPLEMENTARY INFORMATION: Acting on a mandate set forth in the amended

Clean Air Act of 1990, the U.S. Environmental Protection Agency (EPA)

on December 15, 1993, promulgated new regulations requiring that

gasoline sold in certain areas of the U.S. be ``reformulated'' to

reduce vehicle emissions of toxic and ozone forming compounds. The

delivery area of the NYMEX gasoline futures contract, the New York

harbor area, is one of those areas in the U.S. that will be affected by

the new EPA regulations.

To implement the reformulated gasoline regulations, the EPA has

devised a two-step approach. The first step, which will go into effect

on December 1, 1994, utilizes a simple model. This model requires

manufacturers (i.e., refiners, blenders, and importers) to certify that

their product meets applicable emission reduction standards with

respect to a gasoline's oxygen, benzene, heavy metal and aromatic

content, and Reid Vapor Pressure (RVP).1 In this respect, the EPA

has established two (2) methods by which compliance with the new

requirements can be achieved. Compliance with the new gasoline

standards can be met by using either a ``per gallon'' or an

``averaging'' method. The former method requires the manufacturer of

gasoline to ensure that every gallon of product meets a set of

standards for each gallon. The latter method, on the other hand, sets a

range for each standard within which a manufacturer's product must fall

as long as the manufacturer's average over a given period meets

specified standards.

---------------------------------------------------------------------------

\1\The second step will utilize a complex model and supplant the

simple model for certifying compliance with the new gasoline

standards as promulgated by the EPA. It will go into effect on

January 1, 1998.

---------------------------------------------------------------------------

Specifically, the new EPA regulations stipulate that, for gasoline

to be certified as reformulated under the ``per-gallon'' method, it

must satisfy the following requirements: (1) RVP--8.1 psi maximum from

May 1 through September 15; (2) oxygen--2.0% by weight minimum year

round; and (3) Benzene--1.0% by volume maximum year round. Under the

``averaging'' method, the specifications are: (1) RVP--8.3 psi maximum

on any gallon from May 1 through September 15, and 8.0 psi maximum on

average for the same period; (2) oxygen--1.5% by weight minimum year

round on any gallon, and 2.1% by weight minimum on an annual average,

with a 3.5% by weight maximum; and (3) benzene--1.3% by volume maximum

year round on any gallon and 0.95% by volume maximum on an annual

average basis.

The new EPA regulations also require each manufacturer or importer

of gasoline to designate its product as reformulated or conventional.

This designation is to be accomplished with the use of batch numbers

and EPA-assigned facility registration numbers. Finally, to further

enforce these new standards, the EPA has established enforcement test

tolerance values of 0.3 psi, 0.3 percent weight, and 0.21 percent

volume for RVP, oxygen and benzene, respectively.

Current NYMEX provisions stipulate that during the period April 1

through April 30 deliverable gasoline must have an RVP not exceeding

9.0 psi. If delivery is made during the period May 1 through September

15, then the RVP must comply with the applicable state (i.e., New York

or New Jersey) law requirements at the time of delivery. Existing

provisions of the NYMEX gasoline futures contract do not contain any

specifications for benzene or oxygen.

To comply with the new EPA regulations noted above, the Exchange

has decided to adopt the ``averaging'' method of compliance noted

above. Accordingly, the NYMEX has revised specifications for RVP and

has adopted specifications for oxygen and benzene. Specifically, the

proposed amendments are as follows:

Reid Vapor Pressure: Beginning December 1, 1994, gasoline

delivered during the period from May 1 through September 15, shall

not exceed 8.3 psi (EPA Test Method) and from September 16 through

March 31 shall comply with the Colonial Pipeline Company

specifications then in effect for the time and place of delivery.

Provided that, deliveries on the September contract originally

nominated for delivery on or before September 15 shall not exceed

8.3 psi, regardless of the time of actual delivery.

Oxygenation Level: Beginning December 1, 1994, gasoline

delivered during the period May 1 through September 30 shall contain

minimum 1.5% oxygen by weight; gasoline delivered during the period

November 1 through the last day of February shall contain minimum

2.7% oxygen by weight. Any oxygenates included in the product shall

conform to the permissible oxygenate qualities contained in the

Colonial Pipeline Company specifications for Northern Grade 47

unleaded regular gasoline.

Benzene: Beginning December 1, 1994, gasoline delivered shall

contain maximum 1.3% benzene by volume.

The proposed amendments also would incorporate into the NYMEX rules

the EPA enforcement test tolerance values noted above, and require the

seller making delivery on the futures contract to provide a written

statement noting that, to his knowledge his deliverable product is

reformulated gasoline, as defined by EPA.

According to the NYMEX, the subject proposed amendments are

necessary because, ``. . . [d]ata suggests that approximately 30% of

total U.S. gasoline will be RFG [i.e., reformulated gasoline] starting

in December 1994, and, further, the vast majority (around 75%) of the

New York Harbor market will be RFG. RFG in the New York Harbor will

conform to EPA enforcement regulations for Simple Model RFG in the

Northeast . . . . '' The Exchange further maintains that it has adopted

the ``averaging'' instead of the ``per-gallon'' standards as the method

of compliance with the new EPA regulations for several reasons:

First, it is not known at this time how many refiners, blenders

and importers will be ``averaging'' and how many will be on the

``per-gallon'' method. Therefore, the most conservative approach for

the Exchange is to have standards that can be met under all

circumstances, regardless of what compliance methodology

manufacturers select. Because ``averaged'' gasoline is less

restrictive than ``per-gallon'' gasoline, ``per-gallon'' gasoline

would be deliverable against the Exchange's ``averaging'' contract.

Second, Colonial Pipeline has indicated to the Exchange informally

that it intends to introduce fungible product streams reflecting RFG

for delivery to the Northeast market that meets the ``averaging''

requirements. Third, EPA has indicated that enforcement downstream

of the manufacturer will consist of determining that the gasoline

meets the minimum and maximum limits under the ``averaging''

standards.

The NYMEX is proposing to apply the suspect amendments, at this

time, only to three delivery months: December 1994 through February

1995. These months are currently not listed for trading.

The Commission requests comment on the proposed amendments to the

NYMEX gasoline futures contract. The Commission is specifically

requesting comments on the effect of the proposed amendments on the

economically deliverable supply of gasoline available for the contract

as well as the effect, if any, on the futures pricing basis.

Copies of the amended terms and conditions will be available for

inspection at the Office of the Secretariat, Commodity Futures Trading

Commission, 2033 K Street, NW., Washington, DC 20581. Copies of the

terms and conditions can be obtained through the Office of the

Secretariat by mail at the above address or by phone at (202) 254-6314.

The materials submitted by the Exchange in support of the proposed

amendments may be available upon request pursuant to the Freedom of

Information Act (5 U.S.C. 552) and the Commission's regulations

thereunder (17 CFR Part 145 (1987)), except to the extent they are

entitled to confidential treatment as set forth in 17 CFR 145.5 and

145.9. Requests for copies of such materials should be made to the FOI,

Privacy and Sunshine Act Compliance Staff of the Office of the

Secretariat at the Commission's headquarters in accordance with 17 CFR

145.7 and 145.8.

Any person interested in submitting written data, views, or

arguments on the proposed amendments should send such comments to Jean

A. Webb, Secretary, Commodity Futures Trading Commission, 2033 K

Street, NW, Washington, DC 20581 by the specified date.

Issued in Washington, DC, on February 22, 1994.

Blake Imel,

Acting Director.

[FR Doc. 94-4575 Filed 2-28-94; 8:45 am]

BILLING CODE 6351-01-P