Acid Rain Program; Elimination of Direct Sale Program and IPP Written Guarantee Program: Final Rule

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 73

RIN 2060-AG41

[FRL-5513-4]

Acid Rain Program; Elimination of Direct Sale Program and IPP

Written Guarantee Program: Final Rule

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: Title IV of the Clean Air Act, as amended by the Clean Air Act

Amendments of 1990, (the Act) authorized the U.S. Environmental

Protection Agency to establish the Acid Rain Program to reduce the

adverse health and ecological effects of acidic deposition. Under the

Acid Rain Program, electric utilities must have an allowance for each

ton of sulfur dioxide (SO2) that their generating facilities emit.

Title IV mandates that EPA hold or sponsor yearly auctions and direct

sales of allowances for a small portion of the total allowances

allocated each year. EPA is also required to make available to new

independent power producers (IPPs) guarantees ensuring priority in

purchasing allowances in the direct sales.

Section 416(c)(7) of the Act directs the Administrator to terminate

the direct sale program if, during any two-year period, less than 20

percent of the allowances available for direct sales have been

purchased. The direct sale and IPP provisions were designed to help

ensure that units, including new IPPs, have a public source of

allowances beyond those already allocated initially. Because no

allowances have been sold through the direct sale program since it

began in June 1993, EPA is revising its regulations to terminate the

direct sales. The allowances available previously in the direct sale

program will now be available in the annual allowance auctions, the

proceeds of which will continue to be returned to the utilities from

which the allowances were withheld. In addition, because the IPP

written guarantee program is implemented through the direct sales and

no applications for such guarantees have been received, EPA is revising

its regulations to terminate the guarantee program.

The rule revision is being issued as a direct final rule because

the Act mandates this action and no adverse comment is expected.

DATES: This direct final rule will be effective on August 5, 1996,

unless significant, adverse comments are received by July 8, 1996. If

significant adverse comments are received on any portion of this direct

final rule, that portion of the direct final rule will be withdrawn

through a notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Kenon Smith, U.S. Environmental

Protection Agency, Acid Rain Division (6204J), 401 M Street, SW,

Washington, D.C. 20460, (202) 233-9164, call the Acid Rain Hotline at

(202) 233-9620, or visit the Acid Rain Program web page at http://

www.epa.gov/docs/acidrain/ardhome.html. All material supporting this

notice is available for viewing and copying under Docket A-96-19, EPA

Air Docket (6102), U.S. Environmental Protection Agency, 401 M Street,

SW., Washington, DC 20460, Telephone (202) 260-7548.

SUPPLEMENTARY INFORMATION: Any significant adverse comments received on

any portion of this direct final rule, by the date listed above, will

be addressed in a subsequent final rule. That final rule will be based

on the relevant portion of the rule revision that is noticed as a

proposed rule in the Proposed Rule Section of this Federal Register and

that is identical to this direct final rule.

EPA's Acid Rain Program established an innovative, market-based

allowance trading system to reduce S02 emissions, one of the

primary precursors of acid rain. Under this system, fossil fuel-fired

power plants, the principal emitters of S02, were allotted

tradeable allowances based on their past fuel usage and emissions. Each

allowance entitles a boiler unit in a plant to emit 1 ton of S02

during or after the year specified in the allowance serial number. At

the end of the year, the number of allowances a unit holds must equal

or exceed the total emissions at that unit; otherwise, stringent

penalties will apply. After the year 2000, the total number of

allowances allocated each year will be about half of what the utility

industry emitted in 1980.

[[Page 28762]]

Allowances may be bought, sold, or banked like any other commodity.

If a unit has surplus allowances, it may sell them to units whose

emissions levels exceed their allowance supply, or it may bank the

allowances for future years.

Because the availability of allowances is crucial to ensure the

economic efficiency of the emissions limitation program and facilitate

the addition of new electric-generating capacity, title IV mandates

that EPA hold or sponsor yearly auctions and direct sales of allowances

for a small portion of the total allowances allocated each year. The

auction and the direct sales include both spot sales (allowances first

usable in the year of sale) and advance sales (allowances first usable

in the 7th year after the year of sale). In addition, title IV requires

that EPA provide a written guarantee ensuring priority for certain new

independent power producers in purchasing allowances in the direct

sales. The auctions, sales, and IPP guarantee provisions of title IV

were designed to help ensure that units, including new IPPs, would have

a public source of allowances beyond those allocated initially.

To supply the sales and auctions with allowances, EPA, as directed

by the Act, has set aside in a Special Allowance Reserve 2.8 percent of

the total annual allowances allocated to all units. During Phase I,

when the allowances allocated total 5.7 million allowances annually,

150,000 allowances are available every year for auctions. During Phase

II, when allowance allocations total 8.95 million allowances yearly,

200,000 allowances are earmarked annually for auctions and 50,000

designated for the direct sales. The Act set the direct sale price for

allowances to be $1,500 per allowance, adjusted by the Consumer Price

Index.

Section 416(c)(7) of the Act directs the Administrator to terminate

the direct sale subaccount and transfer such allowances to the auction

subaccount ``[i]f the Administrator determines that, during any period

of 2 consecutive calendar years, less than 20 percent of the allowances

available in the subaccount for direct sales established under this

subsection have been purchased.'' 42 U.S.C. 76510(c)(7); see also 4O

CFR 73.73(b). Since no allowances have ever been sold through the

direct sale program since it began in 1993, EPA is terminating the

direct sale program, beginning with the 1996 direct sale, and removing

the regulations that established the program.

EPA is also revising part 73 to provide that the allowances

available previously in the direct sale program will now be available

in the annual allowance auctions, the proceeds of which will continue

to be returned to the utilities from which the allowances were

originally withheld. As done in the previous three auctions, unsold

advance allowances from the 1996 direct sale will be sold in the 6-year

advance auction in the 1997 EPA auctions as allowances first usable in

the 6th year after the year of sale. Allowances originally set aside

for the advance direct sale in 1997, and each year thereafter, will be

included in the advance auction of that respective year. Allowances

originally set aside for the direct spot sales beginning in 2000, and

each year thereafter, will be included in the spot auction of each

respective year.

In addition, EPA is eliminating the IPP written guarantee program

(and the relevant regulations) under which IPPs can apply for and

receive priority for purchasing allowances in direct sales. Under

section 417(c), the guarantee program is implemented exclusively

through the direct sale program, which is being terminated. Further,

since the publication of the regulations establishing the guarantee

program in December 1991 (56 FR 65592 (December 17, 1991)), no

applications have been submitted to obtain guaranteed allowances.

Because the Act set the price of guaranteed allowances to be $1,500.00

per allowance, adjusted by the Consumer Price Index (CPI), EPA does not

expect there to be any applications. Sufficient quantities of

allowances are readily available in the private market at prices well

below the guaranteed price.

Administrative Requirements

A. Executive Order 12866

Under Executive Order 12866, 58 FR 51735 (October 4, 1993), the

Administrator must determine whether the regulatory action is

``significant'' and therefore subject to Office of Management and

Budget (OMB) review and the requirements of the Executive Order. The

Order defines ``significant regulatory action'' as one that is likely

to result in a rule that may:

(1) have an annual effect on the economy of Sec. 100 million or

more or adversely affect in a material way the economy, a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local or tribal governments or communities;

(2) create a serious inconsistency or otherwise interfere with an

action taken or planned by another agency;

(3) materially alter the budgetary impact of entitlements, grants,

user fees, or loan programs or the rights and obligations of recipients

thereof; or

(4) raise novel legal or policy issues arising out of legal

mandates, the President's priorities, or the principles set forth in

the Executive Order.

Pursuant to the terms of Executive Order 12866, it has been

determined that this rule is a ``significant regulatory action''

because the rule seems to raise novel legal or policy issues. As such,

this action was submitted to OMB for review. Any written comments from

OMB to EPA, any written EPA responses to those comments, and any

changes made in response to OMB suggestions or recommendations are

included in the docket. The docket is available for public inspection

at the EPA's Air Docket Section, which is listed in the FOR FURTHER

INFORMATION section of this preamble.

B. Unfunded Mandates Act

Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded

Mandates Act'') requires that the Agency prepare a budgetary impact

statement before promulgating a rule that includes a Federal mandate

that may result in expenditure by State, local, and tribal governments,

in aggregate, or by the private sector, of Sec. 100 million or more in

any one year. Section 203 requires the Agency to establish a plan for

obtaining input from and informing, educating, and advising any small

governments that may be significantly or uniquely affected by the rule.

Under section 205 of the Unfunded Mandates Act, the Agency must

identify and consider a reasonable number of regulatory alternatives

before promulgating a rule for which a budgetary impact statement must

be prepared. The Agency must select from those alternatives the least

costly, most cost-effective, or least burdensome alternative that

achieves the objectives of the rule, unless the Agency explains why

this alternative is not selected or the selection of this alternative

is inconsistent with law.

Because this direct final rule is estimated to result in the

expenditure by State, local, and tribal governments or the private

sector of less than $100 million in any one year, the Agency has not

prepared a budgetary impact statement or specifically addressed the

selection of the least costly, most cost-effective, or least burdensome

alternative. Because small governments will not be significantly or

uniquely affected by this rule, the Agency is not required to develop a

plan with regard to small governments. However, as discussed in this

preamble, the rule reduces the potential burden on regulated entities

(which may include

[[Page 28763]]

some investor-owned or municipal utilities) of participating in direct

sales or applying for written guarantees.

C. Paperwork Reduction Act

This rule does not provide for any new collection of information

and, in fact, removes some information requirements of the current

regulations. The removal of these requirements reduces the estimated

burden, as compared to the burden under the current regulations, by an

average of 48.5 hours per IPP guarantee application and 1.5 hours per

direct sale application for an overall burden reduction from the

original estimation of 4,850 hours. These estimates include time for

reviewing instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information. An Information Collection Request document

and estimates of the public reporting burden were prepared in

connection with the current regulations establishing the direct sale

and guarantee programs. 56 FR 65601.

Send comments regarding this collection of analysis or any other

aspect of this collection of information, including suggestions for

reducing the burden, to Chief, Information Policy Branch, EPA, 401 M

Street, SW. (Mail Code 2136), Washington, DC 20460; and to the Office

of Information and Regulatory Affairs, Office of Management and Budget,

Washington, DC 20503, marked ``Attention: Desk Officer for EPA.''

D. Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., requires

each federal agency to consider potential impacts of its regulations on

small business ``entities.'' Under 5 U.S.C. 604(a), an agency issuing a

notice of proposed rulemaking must prepare and make available for

public comment a regulatory flexibility analysis. Such an analysis is

not required if the head of an agency certifies that a rule will not

have a significant economic impact on a substantial number of small

entities, pursuant to 5 U.S.C. 605(b).

In the preamble of the current regulations establishing the direct

sale and guarantee programs, the Administrator certified that those

regulations, including the provisions revised by today's final rule,

would not have a significant impact. 56 FR 65601. The final rule

revisions adopted today are not significant enough to change the

economic impact addressed in that preamble. Pursuant to the provisions

of 5 U. S.C. 605(b), I hereby certify that the revised rule will not

have a significant, adverse impact on a substantial number of small

entities.

E. Miscellaneous

In accordance with section 117 of the Act, issuance of this rule

was preceded by consultation with any appropriate advisory committees,

independent experts, and federal departments and agencies.

List of Subjects in 40 CFR Part 73

Environmental protection, Acid rain, Air pollution control,

Electric utilities, Reporting and recordkeeping requirements, and

Sulfur dioxide.

Dated: May 24, 1996.

Carol M. Browner,

Administrator, U.S. Environmental Protection Agency.

For the reasons set forth in the preamble, chapter I of title 40 of

the Code of Federal Regulations is amended as follows:

PART 73--[AMENDED]

1. The authority citation for part 73 continues to read as follows:

Authority: 42 U. S.C. 7601 and 7651, et seq.

2. Section 73.70 is amended by revising table I of paragraph (a) as

follows: Sec. 73.70 Auctions.

(a) * * *

Table I.--Allowance Schedule for Auctions

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Spot Advance Advance

Year of purchase auction auction auction*

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1993..................................... 50,000 a 100,000 b

1994..................................... 50,000 a 100,000 b 25,000 c

1995..................................... 50,000 a 100,000 b 25,000 c

1996..................................... 150,000 100,000 b 25,000 c

1997..................................... 150,000 125,000 b 25,000 c

1998..................................... 150,000 125,000 b

1999..................................... 150,000 125,000 b

2000 and after........................... 125,000 125,000 b

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a Not usable until 1995.

b Not usable until 7 years after purchase.

c Not usable until 6 years after purchase.

*These are unsold advance allowances from the direct sale program for

1993, 1994, 1995, and 1996 respectively.

* * * *

3. Section 73.72 is revised to read as follows:

Sec. 73.72 Direct sales.

Allowances that were formerly part of the direct sale program,

which has been terminated under Sec. 73.73(b), will be included in the

annual allowance auctions in accordance with Sec. 73.70(a).

4. Sections 73.74, 73.75, 73.76, and 73.77 are removed from subpart

E.

[FR Doc. 96-14114 Filed 6-5-96; 8:45 am]

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