Alternative Fuel Transportation Program

DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 490

[Docket No. EE-RM-95-110A]

RIN 1904-AA64

Alternative Fuel Transportation Program

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of

Energy (DOE).

ACTION: Notice of limited reopening of the comment period.

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SUMMARY: On February 28, 1995, the Department of Energy (DOE) published

a notice of proposed rulemaking (60 FR 10970) to implement statutorily-

required alternative fueled vehicle acquisition requirements applicable

to certain alternative fuel providers and State government fleets under

sections 501 and 507(o) of the Energy Policy Act of 1992 (Act),

respectively. Public hearings were held in three cities and the 60-day

public comment period closed on May 1, 1995. The principal purpose of

this notice is to reopen the comment period for 30 days in order to

solicit comments on: options for defining the term ``substantial

portion'' which is used to determine coverage for certain petroleum

producers and importers; and options for modifying the proposed

definition of ``alternative fuel'' with respect to alcohol fuels and

biodiesel. In addition, this document announces DOE's receipt of new

information regarding automakers' alternative fueled vehicle production

plans for the near future.

DATES: Written comments (11 copies) on the issues presented in this

notice must be received by the Department on or before August 30, 1995.

ADDRESSES: Written comments (11 copies) should be addressed to: U.S.

Department of Energy, Office of Energy Efficiency and Renewable Energy,

EE-33, Docket No. EE-RM-95-110A, 1000 Independence Ave., SW,

Washington, DC 20585, (202-586-3012).

Docket: Supporting information used in developing the proposed rule

and written comments received on the Notice of Proposed Rulemaking are

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contained in Docket No. EE-RM-95-110A. This Docket is available for

examination in DOE's Freedom of Information Reading Room, 1E-090,

Forrestal Building, 1000 Independence Avenue, S.W., Washington, D.C.

20585, 202-586-6020, between 9 a.m. and 4 p.m., Monday through Friday,

except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Mr. Kenneth R. Katz, Program Manager,

Office of Energy Efficiency and Renewable Energy (EE-33), U.S.

Department of Energy, 1000 Independence Avenue, S.W., Washington, DC

20585, (202) 586-6116.

SUPPLEMENTARY INFORMATION:

I. Introduction

On February 28, 1995, DOE published a notice of proposed rulemaking

on implementation of statutorily-required alternative fueled vehicle

acquisition requirements applicable to certain alternative fuel

providers and State government fleets. Since the close of the 60-day

comment period on that notice of proposed rulemaking, the Department

has been reviewing the public comments. As a result of this review, the

Department is now considering several policy options that are

sufficiently different from the terms of the notice of proposed

rulemaking to warrant an additional, focused opportunity for public

comment.

On June 12, 1995, the Department published a notice reopening the

record for additional public comment on options being considered for

providing more lead time between the date the final rule is promulgated

and the date the obligation to comply begins. 60 F.R. 30795. Today the

Department publishes a notice reopening the record for additional

public comment on issues relating to the definitions of ``substantial

portion'' and ``alternative fuel.'' In addition, the Department is

taking this opportunity to give notice of the receipt of new

information regarding the availability of alternative fueled vehicles.

II. Definition of ``Substantial Portion''

Section 501(a)(2) of the Energy Policy Act of 1992 (the ``Act'')

defines the class of alternative fuel providers potentially subject to

the alternative fueled vehicle acquisition requirements to include

persons who: (1) qualify as a ``covered person'' under section 301(5)

of the Act, 42 U.S.C. 13211(5), and (2) produce or import an average of

50,000 barrels per day or more of petroleum and ``a substantial portion

of whose business is producing alternative fuels.'' 42 U.S.C.

13251(a)(2)(C). Thus, the term ``substantial portion'' is a key

statutory determinant of whether a covered person that produces or

imports petroleum is an alternative fuel provider required by the Act

to acquire alternative fueled vehicles.

However, even if an entity meets all of the qualifications for a

section 501(a)(2)(C) alternative fuel provider, including the

``substantial portion'' test, it nevertheless may be excepted from the

vehicle acquisition requirements under section 501(a)(3) or exempted by

DOE under section 501(a)(5). Under section 501(a)(3)(A), the vehicle

acquisition requirements only apply to an affiliate, division or

business unit of a covered person who is substantially engaged in the

alternative fuels business. See proposed Sec. 490.304. Moreover, under

section 501(a)(3)(B), the vehicle acquisition requirements do not apply

to any entity whose principal business is transforming alternative fuel

into a product other than alternative fuel or consuming such fuel to

manufacture a product that is not an alternative fuel. Under section

501(a)(5), DOE may exempt alternative fuel providers from the vehicle

acquisition requirements if they can show either that (1) alternative

fuels that meet their normal business requirements and practices are

not available; or (2) that alternative fueled vehicles that meet their

normal business requirements and practices are not offered for purchase

or lease on reasonable terms and conditions. See proposed Sec. 490.308.

In the February 28, 1995 notice of proposed rulemaking, DOE

proposed to define the term ``substantial portion'' to mean that at

least two percent of a covered person's refinery yield of petroleum

products is composed of alternative fuels. See proposed Sec. 490.301.

DOE explained that it chose the two percent of refinery yield threshold

because it represented the average yield for the production of

alternative fuels by petroleum refiners, as reported by the Energy

Information Administration. 60 FR 10978.

The notice of proposed rulemaking also explained that in developing

the proposed definition of ``substantial portion,'' the Department had

considered, as an alternative, basing the definition on the portion of

the gross revenue an entity derives from the production of alternative

fuels. Ultimately, DOE did not propose a gross revenue threshold

because the information needed to support that alternative was more

fragmented than that available to support the two percent of refinery

yield criterion, and DOE believed the percent of refinery yield

criterion would adequately define the class of petroleum producers and

importers who are ``covered persons'' under the Act. 60 FR 10979.

Nevertheless, DOE asked for comment on whether reliable information

exists that would allow establishment of a revenue measure for

determining whether alternative fuels production comprises a

substantial portion of a company's business, and it solicited

suggestions for any other alternative definitions of ``substantial

portion.'' 60 FR 10979.

DOE received many comments on the definition of ``substantial

portion.'' Some commenters supported DOE's proposed definition of

``substantial portion,'' agreeing that if at least two percent of a

refinery's product yield is composed of an alternative fuel, the fuel

provider should have to meet the Act's acquisition requirements.

However, most comments on this issue criticized the two percent of

refinery yield as being too low a threshold. Some commenters stated

that the two percent refinery yield of petroleum products threshold

would impose vehicle acquisition requirements on many refineries that

only produce alternative fuels (principally propane) as incidental by-

products of the refining process. Several commenters recommended that

DOE modify the rule to provide that at least 10 percent of a covered

the percent of refinery yield criterion which focuses solely on

refining operations.

Despite the lack of comprehensive, publicly available information

about petroleum producers' and importers' revenue sources on a product-

by-product basis, DOE has been able to collect enough information about

their sales of alternative fuels to frame a possible definition of

``substantial portion'' based on percent of gross revenue derived from

alternative fuels.

One option DOE is considering is whether to define ``substantial

portion'' to mean that at least 30 percent of the annual gross revenue

of a covered person is derived from the sale of alternative fuels. This

percentage of gross revenue appears to be an appropriate gross revenue

threshold for two reasons. First, available information shows that

major U.S. energy producing companies historically derive at least 30

percent of their annual gross revenue from the sale of alternative

fuels.1 Major energy producers are typically consolidated or

integrated companies that are involved in oil and gas

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exploration, oil and gas production or importing, petroleum refining

and marketing, transportation of products, other energy operations

(coal, nuclear and other energy) and nonenergy businesses (primarily

chemicals). Second, this definition would exclude from the class of

covered persons subject to the vehicle acquisition person's refinery

yield of petroleum products must be composed of alternative fuels

before that person would be deemed to have a ``substantial portion'' of

its business involved in the production of alternative fuels. Other

commenters urged DOE to adopt a definition of ``substantial portion''

that would be the same as the ``principal business'' criterion used in

section 501(a)(2) for defining other categories of alternative fuel

providers.

\1\ Sources used were: Energy Information Administration's

Performance Profiles of Major Energy Producers, 1993 (DOE/EIA-0206);

Moody's 1994 Industrial Manual; 1995 U.S.A. Oil Industry Directory;

and Standard & Poor's 1994 Register--Corporations.

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A few of the commenters recommended that DOE adopt a percentage of

gross revenue derived from the sale of alternative fuels as the basis

for the definition of ``substantial portion.'' They pointed out that

gross revenue is the measure used for determining whether other

alternative fuel providers are ``covered persons'' because their

``principal business'' is in alternative fuels. In their view, if gross

revenue can be used to determine whether an entity's principal business

involves alternative fuels, it also should be used for determining

whether a petroleum producer or importer has a substantial portion of

its business in the production of alternative fuels.

After carefully reviewing all of the comments received on this

issue, DOE thinks that a percentage of gross revenue derived from the

sale of alternative fuels may be a better measure of an entity's

involvement in the alternative fuels business than is the percentage of

refinery yield of petroleum products included in the proposed rule's

definition of ``substantial portion.'' As pointed out by some

commenters, a gross revenue measure can be applied to all producers and

importers of petroleum, unlike the requirements those refiners who

produce alternative fuels only as an incidental by-product of the

refining process. Refiners are typically involved only in petroleum

refining and marketing operations.

DOE also believes this gross revenue percentage comports with the

terms of section 501(a)(2) of the Act, 42 U.S.C. Sec. 13251(a)(2). If

the term ``substantial portion'' were defined to include a percentage

of gross revenue derived from alternative fuels that was higher than 30

percent, the distinction in the Act between ``substantial portion''

which applies to covered petroleum producers and importers

(Sec. 501(a)(2)(C)) and ``principal business'' which applies to other

alternative fuel providers (Sec. 501(a)(2)(A) and (B)) would be

rendered meaningless. As noted in the preamble to the notice of

proposed rulemaking, alternative fuels constitute an entity's

``principal business'' if the entity derives a plurality of its gross

revenue from sales of alternative fuels, and a plurality may be less

than 50 percent. 60 FR 10978. Therefore, DOE believes that 30 percent

of gross revenue from alternative fuels may constitute a reasonable

basis for the definition of ``substantial portion.''

This possible interpretation of ``substantial portion'' also

appears to be consistent with the underlying intent of Congress with

regard to petroleum-related entities. That intent was to apply the

alternative fueled vehicle acquisition requirements only to major

energy producers and importers.

DOE requests comments from interested members of the public on this

possible option for defining ``substantial portion'' or any alternative

options they would like DOE to consider. DOE is particularly interested

in receiving data or analysis that are relevant to this issue.

III. Definition of ``Alternative Fuel''

Section 301(2) of the Energy Policy Act,\2\ 42 U.S.C. 13211,

defines the term ``alternative fuel'' to mean ``methanol, denatured

ethanol, and other alcohols; mixtures containing 85 percent or more (or

such other percentage, but not less than 70 percent, as determined by

the Secretary, by rule, to provide for requirements relating to cold

start, safety or vehicle functions) by volume of methanol, denatured

ethanol, and other alcohols with gasoline or other fuels; natural gas;

liquefied petroleum gas; hydrogen; coal-derived liquid fuels; fuels

(other than alcohol) derived from biological materials; electricity

(including electricity from solar energy); and any other fuel the

Secretary determines, by rule, is substantially not petroleum and would

yield substantial energy security benefits and substantial

environmental benefits.''

\2\ The conference report on the Energy Policy Act of 1992

states that ``the intent of section 501(a)(1) is not to cover all

affiliates or divisions of the many large energy companies which

have some, but not all, of their corporate units engaged in

alternative fuels operations. For example, the oil and gas

production affiliate or division of a major energy company described

in 501(a)(1)(C) would be covered; so might a propane pipeline unit

or a natural gas processing division, if the ``substantially

engaged'' test is met. But an oil tanker division, a gasoline

marketing affiliate, or a petrochemical unit whose major operations

are the production of plastics, for example, would not be covered. .

. .'' H.R. Rep. 1018, 102d Cong., 2d Sess. 387 (1992).

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A. Alcohol Blends

In proposed Sec. 490.2, DOE defined ``alternative fuel'' to include

mixtures containing 85 percent or more by volume of methanol, denatured

ethanol, and other alcohols. However, the proposal did not decrease the

alcohol percentage to no less than 70 percent as authorized by section

301(2) of the Act. DOE received comments requesting that the definition

of ``alternative fuel'' include alcohol blends down to no less than 70

percent alcohol by volume. These comments point out that automobile

manufacturers' winter test programs have shown that lower level alcohol

blends are required for improved cold start performance in winter

conditions and are recommended in Owners' Manuals. Some comments also

point out that recent cold weather testing by American Automobile

Manufacturers Association (AAMA) members on alcohol blends indicates

that the cold start threshold (the lowest temperature at which a

vehicle will start) can be lowered by 10-15 degrees Fahrenheit by

decreasing the alcohol content from 85% down to 70%. However, none of

these commenters submitted test data to support their request to lower

the minimum alcohol percentage.

DOE recognizes the concerns that these commenters have with the

cold start capability of alcohol-fueled vehicles in winter conditions.

DOE, therefore, invites interested persons to provide additional data,

reports and analyses that are relevant to this matter. DOE will

evaluate any information it receives in response to this invitation and

decide whether to amend the proposed definition of ``alternative fuel''

to include a lower alcohol percentage as provided in section 301(2).

B. Biodiesel

Many commenters requested that biodiesel be included in the

Department's regulatory definition of ``alternative fuel.'' As

described in the comments, biodiesel is produced from vegetable oils,

such as soybean oil, which are biological materials. The commenters

stated that biodiesel offers significant reduction in harmful tailpipe

emissions of hydrocarbons, carbon monoxide and particulate matter; is

essentially free of sulfur and harmful aromatics; and is non-toxic and

biodegradable. These commenters also submitted information to show that

biodiesel can be made wholly from domestic products, and that it has a

positive energy balance in its production process.

[[Page 38977]]

After carefully reviewing all of the comments on this issue, it

appears that neat (or 100 percent) biodiesel is already covered in the

statutory and proposed regulatory definitions of ``alternative fuel''

which refer to any ``fuel, other than alcohol, that is derived from

biological materials.'' The Department, therefore, is considering

amending the proposed definition of ``alternative fuel'' specifically

to include neat biodiesel. DOE requests interested members of the

public to submit views and information relating to this possible

revision to the definition of the term ``alternative fuel.'' It is

noted that a DOE interpretation of ``alternative fuel'' to include neat

biodiesel would not relieve biodiesel manufacturers from other federal

or state regulatory requirements or modify automobile manufacturer

warranty requirements with respect to motor fuels.

Many commenters also urged DOE to include mixtures or blends of

biodiesel in the definition of ``alternative fuel.'' The issue of

including biodiesel mixtures or blends comprised of more than 20

percent biodiesel is currently under study. However, this subject is

complex and will require significantly more data and information, and a

separate, future rulemaking, before DOE can make a determination as to

whether to include them in the definition of ``alternative fuel.''

IV. Automobile Manufacturers' Alternative Fueled Vehicle Production

Plans

On May 25, 1995, representatives of DOE met with representatives of

the American Automobile Manufacturers Association (AAMA). This meeting

was one in a series of periodic meetings that have been held between

the DOE and the AAMA since 1993 to exchange information on subjects of

mutual interest. At this meeting, the automobile manufacturers'

representatives presented DOE with publicly available information about

each company's upcoming alternative fueled vehicle production plans.

Both Ford and Chrysler provided to DOE a one-page list of their

alternative fueled vehicle offerings for Model Years 1995 and 1996.

Ford also provided a copy of a presentation that was delivered on May

2, 1995, at the 6th Annual Alternative Vehicle Fuels Market Fair &

Symposium in Austin, Texas. This presentation included detailed

information regarding when Ford alternative fueled vehicles could be

ordered and when deliveries can be expected.

Although Chrysler representatives did not provide DOE with

documentation of its plans, they did state that Chrysler will begin

taking orders for its dedicated compressed natural gas line of trucks

and full-size vans (utilizing the 5.2L engine) in June 1995, with

deliveries scheduled to begin in August 1995. Chrysler plans to begin

taking orders for dedicated compressed natural gas minivans (using the

3.3L engine) during the last quarter of 1995, with anticipated

deliveries scheduled to begin in the first quarter of 1996. Chrysler

representatives also stated that an electric minivan may be available

in calendar year 1997.

General Motors (GM) representatives stated that GM does not plan to

manufacture any alternative fueled vehicles for Model Year 1996.

However, GM does plan on making alternative fueled vehicles in Model

Year 1997. According to a May 11, 1995, press release that GM provided,

all of the model year 1997 Chevrolet S-series and GMC Sonoma 4-cylinder

light duty pickup trucks will be produced as flexible-fuel vehicles,

which can operate on ethanol, gasoline, or a combination of the two

fuels. These trucks are scheduled for production beginning in the

summer of 1996. GM also indicated that customers can currently order

vehicles in several models and engine families that are powered by

gaseous fuel compatible engines. These engines can be converted to

operate on propane or natural gas. According to GM, the engine families

that are gaseous fuel compatible and the vehicles that they power are

the 4-cylinder 2.2L (Corsica), the 4.3L V-8 (Caprice), and the 6.0L V-8

and 7.0L V-8 (Topkick, Kodiak and School Bus).

Copies of the written information provided to DOE at this meeting

have been entered into the public docket for this rulemaking.

Issued in Washington, DC, July 26, 1995.

Christine A. Ervin,

Assistant Secretary, Energy Efficiency and Renewable Energy

[FR Doc. 95-18737 Filed 7-28-95; 8:45 am]

BILLING CODE 6450-01-P