Alternative Fuel Transportation Program

SUMMARY: The Department of Energy is today publishing a final rule

required by the Energy Policy Act of 1992 to implement statutorily-

imposed alternative fueled vehicle acquisition requirements that apply

to certain alternative fuel providers and some State government vehicle

fleets. The rule principally covers: interpretations necessary for

affected entities to determine whether and to what extent the statutory

requirements apply; procedures for exemptions and administrative

remedies; and a program of marketable credits to reward those who

voluntarily acquire vehicles in excess of mandated requirements or

before the requirements take effect, and to allow use of such credits

in order to demonstrate compliance with those requirements.

EFFECTIVE DATE: This rule is effective April 15, 1996.

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

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

Department of Energy, 1000 Independence Avenue SW., Washington, DC

20585, (202) 586-6116.

SUPPLEMENTARY INFORMATION:

I. Introduction

II. Provision of Lead Time to States and Covered Fuel Providers

III. Section-by-Section Discussion of Comments and Rule Provisions

A. Subpart A--General Subpart

B. Subpart B--[Reserved]

C. Subpart C--Mandatory State Fleet Program

D. Subpart D--Alternative Fuel Provider Acquisition Mandate

E. Subpart E--[Reserved]

F. Subpart F--Alternative Fueled Vehicle Credit Program

G. Subpart G--Investigations and Enforcement

IV. Review Under Executive Order 12612

V. Review Under Executive Order 12778

VI. Review Under Executive Order 12866

VII. Review Under the Regulatory Flexibility Act

VIII. Review Under the Paperwork Reduction Act

IX. Review Under the National Environmental Policy Act

X. Impact on State Governments

I. Introduction

This notice of final rulemaking concludes a regulatory action that

is mandated under the Energy Policy Act of 1992 (the Act), Pub. L. 102-

486. That Act provides for a comprehensive national energy policy for

strengthening U.S. energy security by reducing dependence on imported

oil. Titles III, IV, V, and VI of the Act contain regulatory

requirements and authorities, as well as various financial incentives

aimed at displacing substantial quantities of oil consumed by motor

vehicles. This rulemaking implements alternative fueled vehicle (AFV)

acquisition requirements imposed by Congress in sections 501 and 507(o)

of the Act on certain alternative fuel providers and some State

government fleets. 42 U.S.C. 13251, 13257(o).

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

notice of proposed rulemaking under sections 501 and 507(o) of the Act.

60 FR 10970. Public hearings were held in three cities with the 60-day

public comment period closing on May 1, 1995. DOE received

approximately 200 comments on the notice of proposed rulemaking.

DOE's notice of proposed rulemaking incorporated the statutory

acquisition schedules for alternative fuel providers and State fleets.

It further stated that, as provided in the Act, those schedules would

take effect at the beginning of model year 1996. 60 F.R. 10971. Many

commenters argued that DOE could not require compliance with the Act's

acquisition schedules in model year (``MY'') 1996 because it had failed

to promulgate final regulations by certain deadlines set forth in the

Act. They stated that imposing the requirements in MY 1996 would

deprive them of lead time that Congress intended them to have to

prepare to comply with the AFV acquisition requirements. After

considering these comments, DOE published a notice in the Federal

Register on June 12, 1995, reopening the rulemaking record for receipt

of comment on various options DOE was considering to give States and

covered fuel providers lead time to prepare to comply with the vehicle

acquisition requirements. 60 FR 30795. DOE received approximately 80

comments on this issue.

On July 31, 1995, DOE published a second notice of limited

reopening of the comment period. The principal purpose of this notice

was to invite public comment on options for defining the term

``substantial portion,'' which is used in section 501(a) of the Act to

determine coverage for certain petroleum producers and importers, and

on options for modifying the proposed definition of ``alternative

fuel'' with respect to alcohol fuels and biodiesel. Notice of limited

reopening, 60 FR 38974, corrected 60 FR 40539 (August 9, 1995). In

response to this reopening of the comment period, DOE received

approximately 20 additional comments.

In response to comments from members of the public and State

officials, and consistent with the Act, DOE has modified the proposed

rule in a variety of ways. The principal modifications, which are

explained in detail later in this Supplementary Information, are: (1) A

one-year shift in the statutory alternative fueled vehicle acquisition

schedules; (2) an automatic exemption to allow time for a State to

apply for and obtain approval of an Alternative State Plan for State

fleets; (3) a revised definition of the statutory term ``substantial

portion'' that omits small refiners from acquisition requirements and

includes large, integrated producers and importers; (4) the addition of

neat biodiesel to the list of ``alternative fuels''; and (5) a

provision for the allocation of credits to State government fleets and

covered fuel providers for newly acquired medium and heavy duty

alternative fueled vehicles.

A. Background

A primary goal of the Energy Policy Act of 1992 is to enact a

comprehensive national energy policy that strengthens U.S. energy

security by reducing dependence on imported oil. Currently, the United

States consumes seven million barrels of oil more per day than it

produces. Section 502 of the Act (42 U.S.C. 13252) provides goals of a

10 percent displacement in U.S. motor fuel consumption by the year 2000

and a 30 percent displacement in U.S. motor fuel consumption by the

year 2010 through the production and increased use of replacement

fuels. Section 504 of the Act (42 U.S.C. 13254) allows the Secretary to

revise these goals downward. According to the latest projections by the

Energy Information Administration, the transportation sector will

consume 13.1 million barrels per day of petroleum in 2010. Of this

total, about 7.4 million barrels per day of petroleum are projected to

be used by light duty vehicles. The Energy Information Administration

also estimates that 65 percent of our total

[[Page 10623]]

petroleum demand will be imported in 2010.

The greatest gains in displacing petroleum motor fuel consumption

by the year 2010 are expected to occur by replacing gasoline with

alternative fuels such as electricity, ethanol, hydrogen, methanol,

natural gas and propane, in a portion of the U.S. car and truck

population, which is projected to be in excess of 200 million vehicles

in the year 2010. Currently, alternative fueled vehicles comprise a

small fraction of the total U.S. vehicle stock. According to the Energy

Information Administration, of the 180 million light duty vehicles

registered in 1992, 250,000 were alternative fueled vehicles. Of this

total, about 221,000 were fueled by liquified petroleum gas (propane),

about 24,000 were fueled by compressed natural gas, and about 3,400

were fueled by methanol or ethanol. The remaining quantity of vehicles

was comprised of electric vehicles and vehicles fueled by liquified

natural gas. In 1994, it was expected that 300,000 alternative fueled

vehicles will be registered in the U.S. and that the proportion of

vehicles operating on each fuel will be approximately the same.

(Alternatives to Traditional Transportation Fuels: An Overview, DOE/

EIA-0585/O, 1994)

To enable the Act's displacement goals to be met, alternative fuels

must be readily accessible and motor vehicles that operate on these

alternative fuels must be available for purchase. Thus, two important

elements of reducing petroleum motor fuel consumption are: a nationwide

alternative fuels infrastructure and the availability of alternative

fueled vehicles for purchase at a reasonable cost by the general public

in a wide variety of vehicle types and fueling options.

B. Description of the Energy Policy Act Alternative Fuel Transportation

Program's Basic Provisions

1. General Structure

Titles III, IV, V, and VI of the Act contain the basic provisions

for regulatory mandates and authorities, as well as various financial

incentives, all of which are aimed at displacing substantial quantities

of oil consumed by motor vehicles. Title III contains general

definitions which set forth legislatively mandated policy essential to

understanding: (1) What constitutes an alternative fueled vehicle; (2)

who must comply with regulatory mandates to acquire such vehicles; and

(3) the extent to which a regulated entity's inventory of vehicles is

subject to mandates to acquire alternative fueled vehicles. Title III

also sets forth mandatory requirements for Federal fleet acquisitions

of alternative fueled vehicles, which began in fiscal year 1993.

Title IV includes a financial incentive program for States, a

public information program, and a program for certifying alternative

fuel technician training programs.

Title V provides for separate regulatory mandates for the purchase

of alternative fueled vehicles which apply to: (1) Alternative fuel

providers; (2) State government fleets; and (3) private and municipal

fleets. These mandates set forth annual percentages of new light duty

motor vehicle acquisitions which must be alternative fueled vehicles.

The minimum acquisition requirements are phased-in, escalating from

year to year until reaching a fixed percentage. The acquisition

schedules for alternative fuel providers and State governments were to

take effect at the beginning of model year 1996. The acquisition

schedule for private and municipal fleets in section 507(a) is a

tentative schedule which may only take effect if confirmed in a DOE

rulemaking. Such a rulemaking could conclude that imposition of a

vehicle acquisition mandate on private and municipal fleets is not

appropriate. Title V also allows for credits for alternative fueled

motor vehicles acquired beyond what is legally required. These credits

may be sold and used by other persons or fleets subject to a vehicle

acquisition mandate. Finally, title V contains investigative and

enforcement authorities including provisions for civil penalties and,

in certain circumstances, criminal fines for noncompliance with the

statutory mandates and implementing regulations.

Title VI of the Act contains a variety of authorities to promote

development and utilization of electric motor vehicles. More

specifically, subtitle A provides for a commercial demonstration

program, and subtitle B provides for an infrastructure and support

systems development program.

This notice of final rulemaking principally implements the title V

vehicle acquisition mandates applicable to alternative fuel providers

and to State governments.

2. Comparison to Environmental Protection Agency (EPA) Fleet

Requirement Program

The Clean Air Act, 42 U.S.C. 7401 et. seq., established a fleet

vehicle acquisition program that is somewhat similar to those in the

Energy Policy Act of 1992. Section 246 of the Clean Air Act requires

each State in which there is located all or part of an ozone non-

attainment area classified as extreme, severe, or serious under the

Clean Air Act, or a carbon monoxide non-attainment area with a design

value at or above 16.0 parts per million, to submit a State

implementation plan revision establishing a clean fuel vehicle program

providing that, beginning in model year 1998, certain percentages of

covered fleet vehicles must be clean fuel vehicles operating on clean

alternative fuels. 42 U.S.C. Sec. 7586. Section 241 of the Clean Air

Act contains definitions for the terms ``clean alternative fuel,''

``covered fleet,'' and ``covered fleet vehicle'' that contain some

phrases later used in the definitions in section 301 of the Energy

Policy Act of 1992.

While there are these similarities in statutory text that should

not be ignored by DOE in formulating its regulations, there are

critical differences between the two pieces of legislation: (1) The

primary goal of the EPA program is to significantly improve air quality

through reduced emissions of pollutants, and the primary goal of the

DOE program is to strengthen national energy security by reducing

dependence on imported oil; (2) the lists of fuels enumerated in the

definitions of ``clean alternative fuel'' under section 241 of the

Clean Air Act and of ``alternative fuel'' under section 301 of the

Energy Policy Act of 1992 are not identical, and the Department's

rulemaking discretion to add to the section 301 list is limited by

stringent statutory standards; (3) the EPA program applies to fleets as

small as 10 vehicles while 20 is the minimum number of vehicles for a

fleet as defined by section 301; (4) the EPA program applies to light

duty motor vehicles (up to 8,500 gross vehicle weight rating) and heavy

duty motor vehicles (up to 26,000 gross vehicle weight rating) while

the DOE program applies only to light duty motor vehicles; (5) the

States will administer the EPA program while DOE will directly

administer the Energy Policy Act program; and (6) the EPA program

applies only to fleets in certain ozone or carbon monoxide non-

attainment areas while the DOE program applies nationwide.

DOE has attempted in this rule to minimize the compliance burden on

fleet owners and operators who are subject to both the EPA and the DOE

fleet acquisition requirements. In particular, DOE has adopted many of

the definitions and interpretations of similar terms that EPA published

on December 9, 1993 (58 FR 64679). However, the different statutory

provisions and goals of the Energy Policy Act have prevented DOE from

adopting EPA's provisions in every instance. The most notable instance

of

[[Page 10624]]

divergence from EPA's regulations is the definition of the terms

``centrally fueled'' and ``capable of being centrally fueled'' in

Subpart A. Those definitions are explained in the section-by-section

discussion in this Supplementary Information.

With regard to burden of compliance, it is important to note that

the overlap between this final rule and EPA regulations is limited. The

EPA program applies only in certain nonattainment areas. In a final

program rule published on September 30, 1994, EPA identified 22

nonattainment areas covered by the Clean Fuel Fleet Program. 59 FR

50043. EPA officials have reported to DOE that California and Texas,

which contain 9 of the 22 areas, have submitted applications to ``opt

out'' of the Clean Fuel Fleet Program. In addition, EPA expects the

eastern States that are members of the Ozone Transport Commission to

opt out of the program in order to participate in a 49-State Low

Emission Vehicle Program that is being developed.

Thus, while irreconcilable differences in the Clean Air Act and the

Energy Policy Act prevent total congruence in implementing regulations,

the few different provisions in this final rule are not expected to

significantly impact many affected fleets.

II. Provision of Lead Time to States and Covered Fuel Providers

The Act required DOE to issue regulations implementing the

alternative fuel provider acquisition requirements in section 501(a) by

January 1, 1994, 20 months before the start of MY 1996 (beginning on

September 1, 1995). In addition, the Act required DOE to promulgate a

rule to implement the requirements for State government fleets in

section 507(o) by April 24, 1994, 16 months before the acquisition

requirements became effective in MY 1996. DOE was unable to meet the

statutory deadlines for promulgation of rules to implement sections 501

and 507(o) of the Act. The Act, which was enacted on October 24, 1992,

contained a multitude of new responsibilities, including the

alternative fueled vehicle acquisition mandates in title V. DOE was

forced to prioritize its implementation of these responsibilities, and

it periodically reported to Congress on the status of its

implementation progress. See, for example, U.S. Department of Energy,

Energy Policy Act of 1992: Implementation Status Report (Oct. 24,

1994). Although implementation of the alternative fueled vehicle

acquisition requirements was given a high priority for action, the

Administration's request for additional funds in fiscal year 1993 for

this purpose was not approved.

Many public comments on the notice of proposed rulemaking stated

that lead time was needed between promulgation of final rules by DOE

and compliance with the vehicle acquisition requirements. On June 12,

1995, DOE reopened the rulemaking record for receipt of comment on

various options it was considering for providing lead time to covered

fuel providers and States, which would allow sufficient time for them

to prepare to comply with the vehicle acquisition requirements. These

options included amending the statutory vehicle acquisition schedule,

staying enforcement, or some combination of amending the schedule and

staying enforcement. The notice specifically requested comment on the

statutory authority of DOE to amend or stay enforcement of the

acquisition schedules. See 60 F.R. 30796.

A. Summary of the Lead Time Provisions in the Final Rule

The final rule provisions related to providing lead time to States

and covered persons are summarized as follows:

Model Year 1996. To provide lead time for States and covered fuel

providers to prepare to comply with the vehicle acquisition

requirements, the acquisition schedules in Sec. 409.201 (for State

government fleets) and Sec. 490.302 (for alternative fuel providers)

have been revised to begin in MY 1997. The AFV acquisition requirements

for MY 1997, which starts on September 1, 1996, must be met by August

31, 1997 (the end of the model year).

Model Year 1997. Except for States that choose to comply with an

alternative plan under Sec. 490.203, DOE may provide lead time to

States and covered fuel providers in MY 1997, on a case-by-case basis,

using the exemption procedures set forth in Sec. 490.204 (for States)

and Sec. 490.308 (for fuel providers). Exemptions will be granted to

any State or covered person able to demonstrate that it cannot comply

with the MY 1997 vehicle acquisition requirements because of DOE's

failure to promulgate regulations by the statutory deadlines. An

automatic exemption is provided in Sec. 490.203(h) to allow time for a

State government fleet to apply for and obtain approval of a Light Duty

Alternative Fueled Vehicle Plan.

Acquisition Level in MY 1997. DOE has reduced the required

acquisition percentages in the alternative fueled vehicle acquisition

schedules in Sec. 490.201 and Sec. 490.302 by one model year. Thus,

States and covered persons are required to acquire vehicles in MY 1997

at the statutory percentage for MY 1996; in MY 1998 at the MY 1997

statutory percentage; and so on.

Credits for MY 1996 Acquisitions. DOE has revised Sec. 490.503(b)

and (c) to provide that credits will be allocated for alternative

fueled vehicles acquired on or after October 24, 1992, and before

September 1, 1996, the beginning of MY 1997. Those purchases are early-

acquired vehicles.

B. Discussion of Lead Time

1. Comments Against Providing Lead Time

Many commenters, principally producers and suppliers of alternative

fuel and alternative fueled vehicles and related equipment, argued that

because the Act's requirements are relatively straightforward and have

been known since October 24, 1992, DOE need not provide lead time to

entities subject to the vehicle acquisition requirements, except as a

matter of equity in particular instances. Other commenters stated that

Congress expressly contemplated the need for delaying or reducing the

acquisition requirements when it enacted section 501(b). They argued

that because section 501(b) authorizes DOE to delay or modify the

requirements only for MY 1997 and later, DOE may not delay or reduce

the acquisition requirements for MY 1996. In addition, they stated that

because section 507(o) does not contain any provision allowing DOE to

delay or modify State purchase obligations, DOE may not delay or reduce

the State fleet acquisition requirements.

Some commenters stated that a delay of the vehicle acquisition

mandates would jeopardize investments they have made in the production

of alternative fueled vehicles or elements of alternative fuels

infrastructure.

2. Comments for Providing Lead Time

Many commenters, principally covered fuel providers and fleet

operators, argued that they are entitled to at least the amount of lead

time provided in sections 501(a) and 507(o) for fuel providers and

States, respectively. Some commenters made the additional argument that

Congress intended the acquisition requirements to take effect at the

beginning of a model year. In their view, DOE is required to delay the

statutory vehicle acquisition requirements until MY 1998 to provide

regulated entities the amount of time the Act provides between

promulgation of rules and compliance. Some commenters stated that

section 507(l) of the Act (42 U.S.C. 13257(l)), which

[[Page 10625]]

includes lead time requirements among various factors DOE shall take

into consideration in carrying out section 507, constitutes express

authority for DOE to delay the vehicle acquisition requirements for

State fleets and covered fuel providers.

One commenter also argued that DOE can and should grant fuel

providers a general exemption from the MY 1996 requirements, under

section 501(a)(5) of the Act, because alternative fueled vehicles

meeting the normal requirements and practices of covered entities will

not be reasonably available by MY 1996. In essence, this commenter

argued that because limited types or models of alternative fueled

vehicles will be available to satisfy fleet needs, all covered persons

should be relieved of the MY 1996 acquisition requirements.

Most of the comments favoring delay of the acquisition mandates

contained only general statements about the need for lead time.

However, commenters stated that many State government fleets and

covered persons cannot acquire alternative fueled vehicles in MY 1996

because their vehicle acquisition processes are too far advanced.

Commenters also stated that lead time was needed to discuss costs and

options with affected fleet managers, obtain vehicle and fueling

facility cost estimates, prepare budgets, identify funding mechanisms,

obtain approval of budgets, prepare specifications for vehicles and

fueling facilities, issue solicitations for bids, and provide training

for persons engaged in the fueling, operation, and repair of the

alternative fueled vehicles.

3. DOE Response to Public Comments on Lead Time

DOE does not agree with comments stating that DOE is not required

to, and should not, provide any lead time to allow States and covered

fuel providers to prepare to comply with the vehicle acquisition

mandates. Although regulated entities have had notice of the Act's

basic requirements since enactment in 1992, the Act provides for DOE to

promulgate rules filling in essential substantive, procedural, and

interpretive details before the statutory vehicle acquisition

requirements take effect. It is true that there is no express link in

the Act between the deadline dates for promulgation of rules and the

dates that the vehicle acquisition schedules take effect. Nevertheless,

the structure of the Act, including a hiatus between these dates,

indicates Congress's intent that regulated entities would have some

lead time between promulgation of final regulations and the effective

date of the vehicle acquisition requirements to comprehend the

programmatic requirements as fully defined by DOE, to apply for

applicable exemptions if appropriate, and otherwise plan and execute

pre-compliance activities.

DOE recognizes that section 501(b), which allows DOE to reduce or

delay the acquisition requirements for fuel providers (but not States)

in MY 1997 and thereafter, can be read as an implicit limitation on DOE

discretion to modify the statutory acquisition schedule for alternative

fuel providers because it is silent with respect to MY 1996. Similarly,

DOE recognizes that the silence in section 507(o) with regard to

modifying the schedule for State fleets can be interpreted as a lack of

authority to provide relief for MY 1996 or to provide limited exemption

to accommodate the right of a State to apply for approval of an

alternative compliance plan. However, both section 501 and 507(o) are

premised upon timely promulgation of regulations, and neither of these

provisions address what DOE should do in the event that it proved

impossible to promulgate on time. In order to make the necessary

adjustments, DOE is choosing to read section 501 and 507(o) without

drawing negative implications of lack of authority to deal with

problems caused by late promulgation that Congress could have

anticipated but omitted to address.1

\1\ At the same time, it is noted that DOE does not interpret

section 507(1), 42 U.S.C. 13257(1), as express authority to delay

the acquisition requirements for States and covered fuel providers.

Section 507(1), which applies only to decisions under that section,

has no applicability to the fuel provider mandate in section 501 of

the Act. As applied to the State program, section 507(1) directs DOE

to consider a variety of factors when it has discretion to consider

them. DOE has heeded this provision in preparing this final rule.

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DOE is not persuaded by the comments that it is required by the Act

to provide lead time to States and covered fuel providers in the amount

of the exact number of months in the Act between the deadline for

promulgation of final regulations and the date the statutory

acquisition schedules take effect. As pointed out above, the text of

the Act does not expressly link these dates. Moreover, the statutory

provisions making up the structure of the Act indicate that Congress

was not wedded to any fixed period of lead time. For example, the Act

provides different amounts of lead time for States (16 months) and

covered fuel providers (20 months). It also allows States to submit

alternative compliance plans at the end of the 12 month period provided

for submitting such a plan. In such a case, a State would only have a

few months lead time at most between DOE approval of plans and

compliance with the MY 1996 acquisition requirements (beginning

September 1, 1995). It is unlikely that the drafters of the Act thought

that States, some of which have biennial budgets, would need

significantly less time than fuel providers to prepare to comply with

the MY 1996 vehicle acquisition requirements. Moreover, the small

amount of lead time that a State with an alternative compliance plan

might have suggests that Congress did not think that 16 months, let

alone 20 months, of lead time is a necessity. It also is significant

that the statutory provision on alternative compliance plans for

States, section 507(o)(2), expressly provides for a 12 month period

beginning on the date of the promulgation of final regulations under

section 507(o). That language shows that Congress used very precise

words when it wanted to create a fixed lead time period. The omission

of similar expressed language in section 501 and 507(o)(2) implies that

Congress did not intend to establish an absolute amount of lead time

prior to State and fuel provider compliance with the vehicle

acquisition requirements.

Because MY 1996 has already begun, it is not possible for DOE to

both provide adequate lead time and require compliance with the

statutory MY 1996 acquisition requirements. DOE must, as a matter of

administrative necessity, relieve regulated entities from the MY 1996

requirements and determine a lead time period that is appropriate in

this situation. For the reasons stated hereafter, DOE has concluded

that it will best effectuate the Act's vehicle acquisition mandates

with an unconditional one-model year delay, combined with an automatic

exemption to allow a State to apply for and obtain approval of an

alternative compliance plan, and the case-by-case provision of lead

time through the exemption processes in the rule.

With some exemptions, such as States opting to develop alternative

compliance plans, States and fuel providers should be able to acquire

alternative fueled vehicles through their normal procurement processes.

States with annual budgets commonly will approve their fiscal year 1997

budgets in the summer of 1996. Model year 1997 begins on September 1,

1996, and States have until August 31, 1997 to meet their MY 1997

vehicle acquisition requirements. Assuming that State contracts for new

vehicles are awarded by the end of 1996, State agencies will have

several months to select and place orders for new vehicles in MY 1997.

As

[[Page 10626]]

explained in the discussion of Sec. 490.204, States that have biennial

budget cycles and cannot comply using their normal procurement

procedures will be granted exemptions from the requirements.

The record shows that covered fuel providers have a shorter and

more flexible procurement process than States.2 The record is

devoid of specific information showing that fuel providers generally

cannot comply by the end of MY 1997 through their normal procurement

processes. The commenters' desire for more time than most fuel

providers are likely to need is more than outweighed by the potential

damage to the interests of automakers and others who in reliance on the

Act have invested in alternative fueled vehicle production capacity or

other aspects of alternative fuel infrastructure, and who commented

critically on the policy options for providing lead time.

\2\ The Western States Petroleum Association, referring to a

National Association of Fleet Administrators study, stated that most

fleets make acquisition plans in July and August for October

delivery. (Comment No. 35, p. 9). The American Petroleum Institute

indicated that typically orders must be placed in August or early

September to obtain delivery in October. (Comment No. 147, p. 26).

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The rulemaking record also shows that alternative fueled vehicles

and alternative fuels will be widely available in MY 1997.

Manufacturers of alternative fueled vehicles and conversion kits and

alternative fuel equipment manufacturers and suppliers stated in their

comments that they have been preparing to meet the increased demand for

their products and services flowing from the vehicle acquisition

mandates. Although limited types of OEM vehicles will be available in

MY 1996, information supplied by automobile manufacturers shows a

growing capacity and a desire to meet demand for alternative fueled

vehicles in MY 1997. See, e.g., production plans described in the

second notice of limited reopening, 60 FR 38974, at 38977. DOE also

received comments from companies in the after-market conversion

business which stated that they are anticipating demand for their

products and services.

Although alternative fuels and alternative fueled vehicles will be

widely available in MY 1997, comprehensive information does not exist

on the precise quantities that will be available and whether they will

match fleets' needs. Undoubtedly, some fleets will not be able to

acquire alternative fueled vehicles in MY 1997 that meet their normal

requirements and practices. For example, the record shows that

currently few Original Equipment Manufacturer (OEM) alternative fueled

vehicles are offered in the compact size range. In addition, most OEM

alternative fueled vehicles are only available in one alternative fuel

configuration. Similarly, although alternative fueling sites exist and

are growing in number in many urban markets, alternative fueling

infrastructure is lacking in other areas.

However, the fact that some covered persons and fleets will not be

able to acquire alternative fueled vehicles or alternative fuels that

meet their needs in MY 1997 does not justify a longer unconditional

delay of the vehicle acquisition requirements. Congress was aware that,

initially, alternative fueled vehicles and alternative fuels would not

be available in sufficient amounts and types to satisfy the needs of

every covered person and fleet. Anticipating the possibility of uneven

availability of vehicles and fuel, Congress provided that exemptions

must be granted to both covered fuel providers (section 501(a)(5)) and

State fleets (section 507(i)) if alternative fuels or alternative

fueled vehicles that meet their normal requirements and practices are

not available. States also are eligible for an exemption if compliance

would produce an unreasonable financial hardship. DOE will use these

exemption processes, included as Sec. 490.204 and Sec. 490.308, to

provide additional lead time to covered fuel providers and States that

are unable to comply with the acquisition requirements in MY 1997

because of DOE's delay in promulgating a final rule.

DOE expects the criteria for granting exemptions will be flexible

enough to respond to exemption requests received in MY 1997 based on

inadequate lead time. For example, DOE would likely find unreasonable

financial hardship justifying an exemption for any State that cannot

meet the MY 1997 requirements by following its regular budget and

procurement processes (e.g., a State with a biennial budget). A whole

or partial exemption also would likely be granted under Sec. 490.204

if, despite a good faith effort, a State was unable to complete an

alternative compliance plan in time to comply in MY 1997. DOE also will

apply the criteria and documentation requirements in Sec. 490.308

flexibly in reviewing requests by covered fuel providers who show they

need additional lead time to comply.

C. Discussion of Adjustments to Vehicle Acquisition Levels

DOE invited public comment on the question of whether, at the end

of the lead time period, States and covered persons should be required

to acquire vehicles at the percentage levels set forth in the statutory

schedules for MY 1997 and after, or whether DOE should defer each step

of the statutory schedules by the lead time period.

1. Comments

Most commenters favoring a delay of the acquisition requirements

also favored lowering the acquisition percentages at the end of the

lead time period, with the effect of deferring each step of the

acquisition schedule by the period of the postponement of the initial

requirement. These commenters argued that if DOE required compliance

with the applicable statutory model year percentage at the end of the

lead time period, it would upset the Act's scheme for the gradual

``ramping up'' of alternative fueled vehicle purchases and the orderly

development of the alternative fuel infrastructure.

Many of the commenters opposing delay urged DOE to require

compliance with the MY 1997 statutory percentage in MY 1997. These

commenters also argued that if DOE delayed compliance for one year, it

should require States and covered fuel providers to make up the MY 1996

requirements in subsequent years. In this way, they argued, DOE could

satisfy the congressional intent that there be some lead time for

covered persons, while at the same time keeping the programs on track

with respect to overall vehicle acquisitions.

2. Response to Comments

DOE agrees with the commenters who argued that the Act's gradual

``ramping up'' scheme would be upset if DOE enforced the statutory MY

1997 vehicle acquisition percentages in MY 1997, after having delayed

the start of compliance by one year in order to provide lead time to

covered fuel providers and States. The statutory percentages for the

first year of compliance, MY 1996, are 10 percent for States and 30

percent for covered fuel providers. The MY 1997 alternative fueled

vehicle acquisition percentages are 15 percent for States and 50

percent for covered fuel providers.

DOE believes that the difference between the first and second year

requirements under the statutory schedules is significant and that it

would be inconsistent with the statutory framework to require covered

fuel providers and States to comply with the MY 1997 acquisition

levels, which Congress established for the second year of the

acquisition mandates, in what has become the first year of the program.

Further, having decided to require

[[Page 10627]]

compliance in MY 1997 at the MY 1996 statutory percentages, DOE

concludes that it is necessary to reduce future year percentages by one

model year in order to preserve the statutory scheme of gradually

increasing the acquisition requirements over a period of years.

Some comments pointed out that although section 501(b) permits DOE

to reduce the acquisition percentage requirements for covered fuel

providers for MY 1997 and thereafter, there is no comparable provision

in section 507(o) that permits DOE to lower the percentages for State

government fleets. There is no legislative history that explains the

different treatment of fuel providers and States, but some commenters

speculated that Congress did not include a provision permitting DOE to

lower the percentages for State fleets because the percentages in

section 507(o) are much lower than for fuel providers in the early

years of the program. In any event, DOE does not interpret the Act's

provisions to prevent it from making adjustments that are consistent

with Congress' evident intent to provide lead time to covered fuel

providers and States before requiring compliance with the mandates.

D. Discussion of Giving Credits for Alternative Fueled Vehicle

Acquisitions in MY 1996.

Several commenters stated that covered persons and fleets that have

made plans to comply with the acquisition requirements in MY 1996 would

be penalized if DOE delayed the compliance schedule and did not award

them credits for alternative fueled vehicle acquisitions in MY 1996.

DOE agrees. The final rule provides that the acquisition of alternative

fueled vehicles by covered persons and State fleets will be treated as

early-acquired vehicles, which are eligible for one credit for each

year they are acquired before they are required to be acquired.

Awarding credits for MY 1996 vehicle acquisitions will avoid any

disadvantage that otherwise would be experienced by State government

fleets and covered persons. It also creates an incentive for covered

persons and fleets to acquire alternative fueled vehicles in MY 1996,

which will further the petroleum displacement and air quality goals of

the Act.

III. Section-By-Section Discussion of Comments and Rule Provisions

This section of the Supplementary Information responds to

significant comments on specific rule provisions. It also contains

explanatory material for some rule provisions that were not the subject

of public comment in order to provide interpretive guidance (mostly

drawn from the preamble to the notice of proposed rulemaking) to States

and persons that must comply with this part. Most changes from the

notice of proposed rulemaking are explained in this section. However,

some nonsubstantive changes, such as the renumbering of paragraphs and

changes to clarify the meaning of rule provisions, are not discussed.

A. Subpart A--General Subpart

Definition of ``Fleet,'' ``Centrally Fueled,'' and ``Capable of Being

Centrally Fueled''

To promote easier understanding, DOE has divided the statutory

definition of ``fleet'' into two parts. The main paragraph in the

statutory definition appears in Sec. 490.2 under the word ``fleet.''

This regulatory definition of ``fleet'' cross references Sec. 490.3,

which describes the categories of vehicles excluded by statute from the

definition.

Section 301(9) of the Act limits the term ``fleet'' to vehicles

used primarily in a metropolitan statistical area (MSA) or consolidated

metropolitan statistical area (CMSA) with a 1980 population of more

than 250,000. Consistent with the Act, the definition of ``fleet'' in

Sec. 490.2 cross references Appendix A to subpart A, which sets forth a

list of MSAs and CMSAs with 1980 Bureau of the Census population of

250,000 or more. Appendix A was generated from information in ``The

Statistical Abstract of the United States, 1993,'' which lists all of

the MSAs and CMSAs, as defined by the Office of Management and Budget

(OMB) as of December 31, 1992, with a Bureau of Census population of

250,000 or more as of 1991. This document also gives the 1980 Census

populations for these areas. The MSAs and CMSAs included in Appendix A

are those statistical areas, as defined by OMB at the end of 1992, that

have 1980 Census populations of 250,000 or more.

One commenter objected to the inclusion of a city in Appendix A

because its 1980 population was less than 250,000. The city and

surrounding area were subsequently classified as an MSA, prior to

October 24, 1992, based on census data. DOE has not removed the MSA

from the list because, as shown in the Bureau of the Census' 1993

statistical abstract, the area now classified as an MSA had a 1980

population greater than 250,000.

The statutory definition of ``fleet'' does not specify whether the

list must be updated in light of changes in the geographic areas

designated by the Bureau of the Census as MSAs and CMSAs which meet the

1980 population requirement of the Act. Comments were received as to

whether DOE should update the Appendix A list to add new MSAs/CMSAs

that had a 1980 population of 250,000. The majority of these comments

were against adding areas to the list because of the uncertainty that

updating might cause. DOE does not interpret section 301(9) of the Act

to require it to update the list of MSA/CMSAs, and in light of these

comments, has decided not to update the Appendix A list in the future.

A few comments urged DOE to remove areas from the list in Appendix

A if their populations have fallen below 250,000 since 1980. DOE has

not adopted this recommendation because the language of section 301(9)

of the Act, 42 U.S.C. 13211(9), is unambiguous in including all areas

having a 1980 population of 250,000, as determined by the Bureau of the

Census, in the definition of ``fleet.''

Consistent with the statutory language, the definition of ``fleet''

requires that there be a minimum of 20 light duty motor vehicles ``used

primarily'' in a relevant statistical area. As discussed below under

``Other Definitions,'' DOE interprets ``used primarily'' to mean that

the majority (i.e., over 50 percent) of each vehicle's total annual

miles are accumulated within a covered statistical area.

The statutory and regulatory definitions of ``fleet'' also provide

that the vehicles be ``centrally fueled or capable of being centrally

fueled.'' As discussed more fully below, Sec. 490.2 defines the term

``centrally fueled'' to mean that a vehicle is fueled at least 75

percent of the time at a location that is owned, operated, or

controlled by a fleet or covered person, or is under contract with the

fleet or covered person for refueling purposes. Vehicles that do not

meet the 75% centrally fueled criterion are excluded from the vehicles

counted to determine whether a ``fleet'' exists, and they are excluded

from the base used to calculate a covered fuel provider's or State

fleet's alternative fueled vehicle acquisition requirements. The Act

does not make the centrally fueled criterion applicable to the actual

operation of fleet vehicles. As explained elsewhere in this

Supplementary Information, section 501(a)(4) of the Act requires

alternative fueled vehicles acquired by covered fuel providers to be

operated solely on alternative fuels, except when operating in areas

where alternative fuel is not available. The Act does not establish

operational requirements for State government fleets subject to the

acquisition requirements.

It should be noted that the statutory requirement covers those

vehicles that

[[Page 10628]]

are centrally fueled or are capable of being centrally fueled. It is

possible that a vehicle that is not currently centrally fueled could be

centrally fueled. Therefore, an organization which has determined that

its vehicles are not centrally fueled must still determine if the

vehicles are capable of being centrally fueled. If the vehicles are so

capable, then the total vehicles either centrally fueled or capable of

being centrally fueled may result in a ``fleet'' or ``covered person''

that is subject to the acquisition requirements of the Act.

In determining whether 20 or more light duty motor vehicles within

a MSA or CMSA are centrally fueled or capable of being centrally

fueled, the organization must also consider situations where vehicles

that are centrally fueled or capable of being centrally fueled are

present in more than one location within the MSA or CMSA. The number of

vehicles at all locations that are centrally fueled or capable of being

centrally fueled must be totaled. For example, if a fleet or covered

person has 12 vehicles at location A that are centrally fueled or

capable of being centrally fueled and 10 vehicles at location B that

are also centrally fueled or capable of being centrally fueled, the

organization has 22 vehicles in a MSA or CMSA that are centrally fueled

or capable of being centrally fueled.

Relying upon EPA's determination that ``contract fueling'' is one

method of establishing whether fleet vehicles are centrally fueled, DOE

noted in the notice of proposed rulemaking that retail credit card

purchases by themselves are not considered to be a contractual

refueling agreement. However, the notice concluded, as did EPA, that

commercial fleet credit cards are considered to be a contractual

refueling agreement, since they are intended as a special fuel

arrangement for fleet purchases alone. The intent of DOE's proposed

definition was to ensure that only those fleet-based agreements which

provide special fleet refueling benefits at a particular facility or

group of facilities would qualify as central fueling.

Several commenters brought to DOE's attention that EPA had modified

its determination regarding the role that fleet payment methods play in

establishing whether fleet vehicles are centrally fueled or capable of

being centrally fueled. In a September 30, 1994, Federal Register

notice (59 FR 50068), EPA states that it ``will no longer recommend

that States look to the payment method as a key indicator of the

presence or absence of central fueling.'' In its place EPA recommends

that ``States look at the actual refueling patterns used by fleet

operators.'' DOE has deleted the reference to credit card agreements

from its definitions of ``centrally fueled'' and ``capable of being

centrally fueled'' to be consistent with EPA.

Section 490.2 defines the terms ``centrally fueled'' and ``capable

of being centrally fueled'' to mean a vehicle is or can be refueled at

least 75 percent of its time at a location, that is owned, operated, or

controlled by the fleet or covered person, or is under contract with

the fleet or covered person for refueling purposes. The method that DOE

is requiring for determining central fueling capability is whether 75

percent of a vehicle's total annual miles traveled are derived from

trips that are less than the operational range of the vehicle. As

defined by EPA, in its December 9, 1993, Federal Register notice (58 FR

64684) on the final rule for the definitions and general provisions for

the Clean Fuel Fleet Program, the operational range is the distance a

vehicle is able to travel on a round trip with a single refueling.

The DOE definitions differ from the EPA definitions of ``centrally

fueled'' and ``capable of being centrally fueled,'' at 40 CFR 88.302-

94, because the DOE definitions do not require that vehicles covered

must be capable of being centrally fueled 100 percent of the time. DOE

received comments, principally from representatives of natural gas and

propane producers and marketers that supported the 75 percent central

fueling standard in DOE's proposed definitions of ``centrally fueled''

and ``capable of being centrally fueled.'' Some of these commenters

stated that a 100 percent standard would allow fleets to easily avoid

the requirements by redefining vehicle missions and operating zones.

Other commenters, principally representatives of covered fuel providers

and fleet administrators, recommended that DOE adopt a 100 percent

central fueling definition. Most of these commenters argued that DOE

should adopt the EPA definition to minimize confusion and regulatory

burdens on fleets required to comply with both programs.

After considering the comments, DOE decided to retain the 75

percent central fueling standard in the final rule. DOE's decision to

not adopt EPA's definition of ``centrally fueled'' is rooted in

statutory differences between the Clean Fuel Fleet Program,

administered by EPA, and the Department's Alternative Fuel

Transportation Program.

EPA's program applies in certain non-attainment areas with the goal

of improving the air quality in those areas. EPA's explanation of its

final rule shows that EPA did not look favorably on the inclusion of

dual-fueled vehicles in the Clean Fuel Fleet Program. EPA concluded

that the purchase of flexible-fuel or dual-fueled vehicles would

achieve significantly less emissions reduction than dedicated

alternative fueled vehicles, which operate on a single type of fuel. 60

FR 64681. EPA expressly acknowledged that, by adopting a 100 percent

refueling standard, fewer vehicles would be covered by its program.

By contrast, DOE's Alternative Fuel Transportation Program applies

throughout the Nation, and its primary goal is to reduce the nation's

dependence on petroleum as a transportation fuel. DOE's program, as it

applies to covered fuel providers, is not limited to fleets operating

in large metropolitan statistical areas. ``Alternative fueled vehicle''

is defined in section 301(2) of the Act to include a dual fueled

vehicle. This shows that Congress anticipated that alternative fuels

would not be available to all covered vehicles all of the time. This is

also reflected in section 501(a)(4), which requires alternative fueled

vehicles acquired by covered fuel providers to operate solely on

alternative fuels except when operating in an area where the

appropriate alternative fuel is unavailable. 42 U.S.C.

Sec. 13251(a)(4).

DOE believes that allowing the use of all types of alternative

fueled vehicles, not just dedicated vehicles, provides flexibility to

fleet operators in acquiring vehicles that meet their normal

requirements and practices. This is especially important during the

initial years of the program, when the fueling infrastructure for

alternative fueled vehicles will not be fully developed.

In addition, vehicles acquired under DOE's program are required to

operate on fuels that are ``substantially not petroleum.'' See section

301(2) of the Act (definition of ``alternative fuel''). By contrast,

EPA's Clean Fuel Fleet Program may include vehicles that use

reformulated gasoline and clean diesel fuel. The greater availability

of reformulated gasoline and clean diesel makes the 100 percent

refueling standard more reasonable in the EPA program.

In summary, DOE believes a 100 percent standard for the definition

of ``centrally fueled'' and ``capable of being centrally fueled'' would

unduly compromise the Energy Policy Act's goals of displacing petroleum

and fostering development of an alternative fuels infrastructure.

The statutory definition of ``fleet'' requires that a minimum of 20

vehicles

[[Page 10629]]

be ``owned, operated, leased, or otherwise controlled by a governmental

entity or other person.'' 42 U.S.C. 13211(9). Section 490.2 contains a

definition of ``lease'' that excludes vehicles under rental agreements

of less than 120 days. This provision is consistent with the EPA

regulations. As EPA explained, a person does not have the same level of

control over a vehicle lease for a short period of time, and the 120-

day period takes into account short term variations in fleet operations

and the number of fleet vehicles that ought not to trigger the vehicle

acquisition mandates. 58 FR at 64687.

The statutory definition of ``fleet'' uses the concept of

``control'' to establish the guidelines for attributing vehicles to a

fleet for the purposes of determining whether the 50-vehicle minimum is

satisfied. There is similar language in the definition of ``covered

fleet'' which applies to the EPA fleet program requirement. EPA has

promulgated a definition of ``control'' (40 CFR Sec. 88.302-94), which

DOE has adopted with slight modifications to omit language not relevant

to DOE's program.

Other Definitions

Acquire. The Department was asked to define the term ``acquire'' by

a few commenters. They were uncertain as to whether the term referred

to ordering a vehicle, paying for a vehicle, or taking possession of a

vehicle. In Sec. 490.2, the Department defines ``acquire'' to mean

taking into possession or control, which is a dictionary definition.

Thus, a vehicle is acquired when it is taken into possession or

control.

After-Market Converted Vehicle. Section 490.2 defines the term

``after-market converted vehicle'' as a new or used conventional fuel

Original Equipment Manufacturer vehicle that has been converted to

operate on alternative fuel by an after-market converter. This

converter must be in compliance with all Federal, State, and local laws

at the time of conversion. After-market converted vehicles differ from

Original Equipment Manufacturer converted vehicles with respect to

which company warrants the conversion and its components. In the case

of an Original Equipment Manufacturer converted vehicle, the vehicle is

converted prior to first sale by a manufacturer or conversion company

under contract to the manufacturer to convert Original Equipment

Manufacturer vehicles, and is then offered by the Original Equipment

Manufacturer, with warranty coverage through the Original Equipment

Manufacturer, for sale to the general public. In the case of an after-

market converted vehicle, the conversion is performed by an after-

market converter, who provides the warranty for the vehicle conversion

and the conversion kit.

Alternative Fuel. Section 490.2 defines the term ``alternative

fuel'' consistent with the definition of that term in section 301 of

the Act.

Several commenters requested that propane (liquefied petroleum gas)

be removed from the list of fuels in the definition of ``alternative

fuel'' in Sec. 490.2. The definition of this term tracks section 301(2)

of the Act, which lists fuels that are alternative fuels and grants the

Secretary the authority to add fuels to the definition of ``alternative

fuel'', by rule, if they meet certain conditions. However, section

301(2) does not authorize the Secretary to delete any fuel listed in

the statutory definition. Thus, the Department has not removed

liquefied petroleum gas (or propane) from the definition of

``alternative fuel.''

Many commenters requested that biodiesel, and biodiesel blends, be

included in the Department's regulatory definition of ``alternative

fuel'' because biodiesel is a fuel ``(other than alcohol) derived from

biological materials.'' As described in the comments, biodiesel is

produced from vegetable oils, such as soybean oil, which are biological

materials. The commenters also 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.

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

Department included in its July 31, 1995 Federal Register notice its

tentative conclusion that neat (or 100 percent) biodiesel meets the

criteria in section 301(2) for an alternative fuel; namely, that it is

a fuel, other than alcohol, that is derived from biological materials.

Several comments were received in support of this designation. No

comments were received in opposition to this position. For the reasons

set forth in the July 31 notice, the Department has revised the

definition of ``alternative fuel'' in section 490.2 to include neat

biodiesel. It is noted, however, that a DOE interpretation of

``alternative fuel'' to include neat biodiesel does not relieve

biodiesel manufacturers from any Federal, State, local government, or

automobile manufacturer requirements that may apply to the production

and use of biodiesel for motor fuel.

In its July 31, 1995 notice, DOE stated that it did not intend to

include mixtures or blends of biodiesel in the definition of

``alternative fuel'' in this rulemaking. DOE stated that more study is

required before a determination on biodiesel blends can be made. After

reviewing all of the comments on this issue, DOE has concluded than an

additional rulemaking proceeding is required to develop the information

needed to reach a conclusion on which, if any, mixtures or blends of

biodiesel should be included in the definition of ``alternative fuel.''

One commenter stated that neat biodiesel may not be the only

biologically derived fuel that can be classified as an ``alternative

fuel,'' and requested clarification that the inclusion of neat

biodiesel in the definition would not preclude other biologically

derived fuels from receiving this designation. The Department is not

currently aware of any other biologically derived fuels that are not

already included in the definition of ``alternative fuel.'' However, if

DOE were asked to designate another biologically derived fuel as an

alternative fuel, the fuel would be evaluated on its merits to

determine if it meets the criteria for an alternative fuel.

In its July 31, 1995, Federal Register notice, the Department

invited interested persons to submit data, reports and analyses in

support of previous requests that DOE revise the definition of

``alternative fuel'' to include alcohol blends containing no less than

70 percent alcohol by volume. In response, the Department received two

submissions containing information relevant to this issue. These

submissions show that decreasing the level of alcohol can improve the

cold start ability of alcohol fueled vehicles. The data shows that by

decreasing the level of alcohol to 70%, some vehicles are able to start

in weather 11 degrees F colder than they were previously able. But the

data and reports of field operation of these vehicles also show that

vehicles operating on 85% blends of ethanol or methanol can start in

winter conditions if certain procedures are followed and certain

precautions taken. These precautions and procedures are recommended for

cold-start of vehicles irrespective of what fuels they operate on. In

addition, it appears that several different combinations of non-alcohol

components with varying Reid Vapor Pressures are capable of providing

cold

[[Page 10630]]

start performance at the automakers' target temperature.

After carefully analyzing the information that has been submitted,

the Department has concluded that it needs additional information

before it can determine that 70 percent alcohol blends are required for

the cold-start of alcohol fueled vehicles. Therefore, the definition of

``alternative fuel'' in this rule retains the statutory 85 percent

standard for alcohol fuels. A separate rulemaking, initiated by DOE or

following a petition filed pursuant to Sec. 490.6 of this part, will

permit the issues related to lowering the alcohol percentage to be

fully explored.

DOE received many comments arguing that reformulated gasoline

should be added to the list of fuels included in the definition of ``

alternative fuel'' in Sec. 490.2. Commenters stated that use of

reformulated gasoline contributes to reduction of air pollutants and,

because of its increased oxygen content, displaces petroleum. Some of

these commenters argued that reformulated gasoline meets the statutory

test of being ``substantially not petroleum.'' Some commenters argued

that including reformulated gasoline in the definition of ``alternative

fuel'' would be consistent with Congress' allowance of reformulated

gasoline under EPA's clean fuel fleet program. One commenter argued

that use of reformulated gasoline should be permitted in air quality

non-attainment areas, but not elsewhere, in order to reduce the

regulatory burden on fleets in those areas. Other commenters stated

that allowing reformulated gasoline in the DOE program would help

industry recoup its investment in the production and marketing of

reformulated gasoline to meet air quality goals. Some commenters

recommended that DOE should seek amendment of the Energy Policy Act to

correct the omission of reformulated gasoline from the list of fuels

included in the statutory definition of ``alternative fuel.''

DOE also received many comments opposed to including reformulated

gasoline in the definition of ``alternative fuel'' in Sec. 490.2. These

commenters argued that reformulated gasoline is substantially petroleum

in composition, and that recognizing it as an alternative fuel would

not contribute to development of non-petroleum fueling and vehicle

technologies. Commenters stated that although reformulated gasoline is

a low-cost way to reduce hydrocarbon emissions, its use will not

significantly further the Act's petroleum displacement goals.

The Department adheres to its view that reformulated gasoline does

not meet the Act's criteria for designation as an ``alternative fuel.''

The percentage of petroleum in reformulated gasoline is too large to

warrant finding that it is ``substantially not petroleum,'' which is

required for classifying a fuel as an ``alternative fuel'' under

section 301(2) of the Act. The notice of proposed rulemaking stated

that reformulated gasoline is comprised of over 90 percent petroleum. A

commenter who represents the petroleum industry disputed this figure,

and stated that reformulated gasoline only contains 83 percent

petroleum. Even assuming that the commenter's figure of 83 percent is

correct, that percent petroleum volume is still too large to warrant a

determination that reformulated gasoline is ``substantially not

petroleum.''

Several comments were received requesting that low-sulphur diesel

and clean diesel be included as alternative fuels. The Department has

not adopted these recommendations because low-sulphur diesel and clean

diesel are fuels comprised almost totally of petroleum, and thus,

cannot be considered to be substantially not petroleum.

Covered Person. Section 490.2 defines the term ``covered person''

consistent with the definition of that term in section 301 of the Act.

Dealer Demonstration Vehicles. No comments were received on the

definition of ``dealer demonstration vehicle.'' Section 490.2 follows

the EPA definition of the term ``dealer demonstration vehicle'' found

at 40 CFR Sec. 88.302-94. EPA defines ``dealer demonstration vehicle''

as any vehicle that is operated by a motor vehicle dealer solely for

the purpose of promoting motor vehicle sales, either on the sales lot

or through other marketing or sales promotions, or for permitting

potential purchasers to drive the vehicle for pre-purchase or pre-lease

evaluation. Vehicles held by dealers for their own business purposes,

such as shuttle buses, loaner vehicles, or other repair or business-

related vehicles are not exempt, unless they are also offered for

retail sale as part of the dealer stock or are rotated through the

fleet back to the dealer stock.

Dedicated Vehicle. The notice of proposed rulemaking included the

statutory definition of ``dedicated vehicle'' in section 301(6) of the

Act, 42 U.S.C. 13211(6). Section 301(6) provides that a dedicated

vehicle is either: (i) a ``dedicated automobile'' as defined in section

513(h)(1)(C) of the Motor Vehicle Information and Cost Savings Act,

codified at 49 U.S.C. 32901(a)(7), or (ii) a motor vehicle, other than

an automobile, that operates solely on alternative fuel.

DOE received no public comments on the proposed definition of

``dedicated vehicle.'' Nevertheless, in the final rule DOE has revised

the portion of the definition relating to a ``dedicated automobile'' to

include the language of the cross-referenced statute, as a convenience

for regulated entities. As defined in the Motor Vehicle Information and

Cost Savings Act, a ``dedicated automobile'' means ``an automobile that

operates only on alternative fuel.'' 49 U.S.C. 32901(a)(7) (emphasis

added). DOE interprets the word ``automobile,'' as used in the

definition of ``dedicated automobile'' and incorporated by reference in

section 301(6), to mean an ``automobile,'' as that term is defined in

section 501(1) of the Motor Vehicle Information and Cost Savings Act,

codified at 49 U.S.C. 32901(a)(3). DOE has added a definition of

``automobile'' to Sec. 490.2, which is adapted from and is intended to

have the same meaning as ``automobile'' defined in section 501(1) of

the Motor Vehicle Information and Cost Savings Act.

Dual Fueled Vehicle. Section 301(8) of the Act, 42 U.S.C. 13211(8)

defines ``dual fueled vehicle'' as: (i) a dual fueled automobile, as

such term is defined in section 513(h)(1)(D) of the Motor Vehicle

Information and Cost Savings Act, or (ii) a motor vehicle, other than

an automobile, that is capable of operating on alternative fuel and is

capable of operating on gasoline or diesel fuel. DOE included the

statutory definition in the proposed rule, with slight modifications to

make clear that term includes all vehicles that are capable of

operating on an alternative fuel and on gasoline or diesel fuel,

including those commonly referred to as ``bi-fuel,'' flexible fuel,''

and ``dual fuel'' vehicles.

DOE received public comment on the proposed definition of ``dual

fueled'' vehicle. One commenter urged DOE to adopt definitions of

``dual fuel vehicle'' and ``flexible fuel vehicle'' in regulations

published by EPA for its Clean Fuel Fleet Program (59 FR 50042, Sept.

30, 1994). DOE cannot adopt this recommendation in its entirety because

of differences in the underlying statutes. The Clean Air Act

establishes clean alternative fuel standards for flexible fuel vehicles

and dual fuel vehicles, 42 U.S.C. 7581. EPA has, in implementing

regulations, defined the term ``dual fuel vehicle'' to mean a ``bi-fuel

vehicle'' (i.e., one that is engineered and designed to be operated on

two fuels, but not a mixture of two or more different fuels) and the

term ``flexible

[[Page 10631]]

fuel vehicle'' to mean a vehicle that is engineered and designed to be

operated on any mixture of two or more different fuels. 59 FR 50045. By

contrast, section 301(3) of the Act defines an ``alternative fueled

vehicle'' to mean a ``dedicated vehicle'' or a ``dual fueled vehicle.''

Thus, if DOE were to adopt EPA's definition of ``dual fuel vehicle,''

flexible fuel vehicles would be excluded from the definition of

``alternative fueled vehicle,'' and the acquisition of such vehicles

would not count for compliance purposes under the Act. There is nothing

in the text of the Act or its legislative history that indicates an

intent to exclude flexible fuel vehicles from DOE's Alternative Fuel

Transportation Program. A flexible fuel vehicle, authorized by the

manufacturer to operate on an alternative fuel and on gasoline or

diesel, clearly fits within the definition of ``dual fueled vehicle''

in section 301(8).

In response to the comments, DOE has made several changes in the

regulatory text to clarify that the statutory term ``dual fueled

vehicle'' includes flexible fuel vehicles. The definition of ``dual

fueled vehicle'' in Sec. 490.2 has been revised to expressly include

flexible fuel vehicles. A definition of ``flexible fuel vehicle'' has

been added to Sec. 490.2. The term is defined as ``any motor vehicle

engineered and designed to operate on any mixture of two or more

different fuels.'' This definition is taken from EPA's regulation on

clean-fuel vehicles, 40 CFR 88.102-94. The definition of ``alternative

fueled vehicle'' in Sec. 490.2 also has been revised to clarify that

flexible fuel vehicles are included.

Several commenters asked the Department to clarify whether vehicles

that are capable of operating on neat biodiesel and diesel can be

considered dual-fueled vehicles. A bi-fuel vehicle that is authorized

by the vehicle manufacturer to be operated on neat biodiesel or diesel

would meet the definition of a dual-fueled vehicle. A flexible fuel

vehicle that is authorized by the vehicle manufacturer to be operated

on neat biodiesel or diesel also would meet the definition of a dual-

fueled vehicle. These vehicles would meet this definition principally

because they are capable of operating on an ``alternative fuel'' as

defined by section 301(2) of the Act, in addition to being operated on

a petroleum-based fuel. As explained earlier in the discussion of the

definition of ``alternative fuel,'' DOE has concluded that an

additional rulemaking is needed to reach a conclusion on which, if any,

mixtures of biodiesel should be included in the definition of

``alternative fuel.'' Consequently, until such a rulemaking designates

a mixture of biodiesel and diesel as an alternative fuel, a vehicle

powered by such a mixture or conventional diesel would not qualify as a

``dual fueled vehicle.''

Emergency Motor Vehicles. Section 490.2 adopts EPA's definition for

the term ``emergency vehicle'' in 40 CFR Sec. 88.302-94. EPA defines

``emergency vehicle'' to mean any vehicle that is legally authorized by

a governmental authority to exceed the speed limit to transport people

and equipment to and from situations in which speed is required to save

lives or property, such as a rescue vehicle, fire truck or ambulance.

These vehicles normally have red and/or blue flashing lights and

sirens. DOE is relying on the speed limit criterion because this is the

way that many States define ``emergency vehicles.''

The Department received comments from utilities asking DOE to

determine that vehicles used for emergency restoration of utility

service are covered by the definition of ``emergency motor vehicles.''

These vehicles are not normally considered emergency motor vehicles

because their primary function does not include exceeding the speed

limit to transport people and equipment to and from situations in which

speed is required to save lives or property. For this reason, they are

not usually equipped with red and/or blue flashing lights and sirens.

Emergency power restoration vehicles are not excluded from the

definition of ``fleet'' unless, on a vehicle-by-vehicle basis, they are

specifically and legally authorized by a governmental authority to

exceed speed limits when responding to emergencies.

Law Enforcement Motor Vehicles. Section 490.2 adopts EPA's

definition of the term ``law enforcement vehicle'' found at 40 CFR

Sec. 88.302-94. EPA defines ``law enforcement vehicle'' to mean any

vehicle which is primarily operated by a civilian or military police

officer or sheriff, or by personnel of the Federal Bureau of

Investigation, the Drug Enforcement Administration, or other law

enforcement agencies of the Federal Government, or by State highway

patrols, municipal law enforcement, or other similar law enforcement

agencies, and which is used for the purpose of law enforcement

activities including, but not limited to, chase, apprehension,

surveillance, or patrol of people engaged in or potentially engaged in

unlawful activities.

This definition is intended to clarify the difference between law

enforcement motor vehicles and vehicles used for other security

purposes. Under this definition, a vehicle is considered to be a law

enforcement motor vehicle by virtue of its use for official law

enforcement purposes, as authorized by local, State or Federal

government authority. Private security vehicles are not excluded from

the definition of ``fleet'' unless, through a contract or other

arrangement, they are used by a law enforcement agency for the purposes

described above.

One commenter inquired whether vehicles operated by a State

corrections department and used for transport of prisoners or for

administrative duties would be considered a ``law enforcement motor

vehicle.'' DOE concludes that these vehicles are law enforcement motor

vehicles because State corrections departments are engaged in law

enforcement activities.

Lease. No comments critical of the definition of ``lease'' were

received. Section 490.2 defines the term ``lease'' to mean use of a

vehicle for transportation purposes pursuant to a rental contract or

similar arrangement, and the term of such contract or similar

arrangement is for a period of 120 days or more. This definition

closely tracks EPA's definition of ``owned or operated, leased or

otherwise controlled by such person,'' found at 40 CFR Sec. 88.302-94.

Light Duty Vehicle. One commenter inquired whether a vehicle's

gross vehicle weight rating is to be determined before or after

conversion to operate on alternative fuel. DOE has determined that the

gross vehicle weight rating applies to newly acquired vehicles prior to

conversion and has amended the definition of the term ``light duty

motor vehicle'' to reflect this determination.

Model Year. No comments critical of the definition of ``model

year'' were received. Section 490.2 defines the term ``model year'' for

the purposes of vehicle acquisition requirements as September 1 of the

previous calendar year through August 31. This definition closely

tracks EPA's definition of ``model year,'' found at 40 CFR Sec. 88.302-

94. The model year, thus defined, coincides with the period in which

most automobile manufacturers introduce their new annual models, which

should facilitate compliance since covered persons and State fleets can

make their acquisition plans regarding alternative fueled vehicles when

they make plans for acquiring new model year vehicles. For compliance

purposes, the definition of model year is important to ensure that all

fleets and covered persons acquire vehicles based on the same annual

period. Thus, any new vehicles that are acquired by a fleet or covered

person between September 1 and August 31 of

[[Page 10632]]

the next year are counted and used as the basis for determining the

acquisition requirement of the same year.

Motor Vehicle. The notice of proposed rulemaking included the

definition of ``motor vehicle'' in section 301(13) of the Act, 42

U.S.C. 13211(13), which incorporates the definition of ``motor

vehicle'' in section 216(2) of the Clean Air Act, 42 U.S.C. 7550(2). In

this rule, DOE has included the text of section 216(2) so that

regulated entities will not have to consult another source for the

meaning of this term. A comment was received that requested that non-

road vehicles be expressly excluded from the definition of ``motor

vehicle.'' The Department has amended the definition of ``motor

vehicle'' to make clear that non-road vehicles are excluded. A

definition of ``non-road vehicle,'' which is drawn from section 412(b)

of the Act, has been added to this section.

Non-road Vehicle. This term is defined to mean a vehicle not

licensed for on-road use, including vehicles used principally for

industrial, farming or commercial use, for rail transportation, at an

airport, for marine purposes and other vehicles.

Original Equipment Manufacturer Vehicle. Section 490.2 defines the

term ``Original Equipment Manufacturer Vehicle'' to mean a vehicle

engineered, designed, produced and warranted by an Original Equipment

Manufacturer. This term applies to conventionally fueled Original

Equipment Manufacturer vehicles as well as to alternative fueled

vehicles. Included in this definition are vehicles that were

conventionally fueled Original Equipment Manufacturer vehicles, but

were converted prior to sale by the Original Equipment Manufacturer,

through a contract with a conversion company, to operate on an

alternative fuel and which are covered under the Original Equipment

Manufacturer warranty. The proposed definition did not reference

Original Equipment Manufacturer warranties. This omission was pointed

out by a commenter, and it is corrected in this rule.

Used Primarily. The definitions of the terms ``fleet'' and

``covered person'' include the requirement that a vehicle must be

``used primarily'' within a metropolitan statistical area to be

included in a ``fleet.'' In response to comments requesting

clarification the Department has defined ``used primarily'' to mean

that a majority (i.e., over 50 percent) of a vehicle's total annual

miles are accumulated within a covered metropolitan statistical or

consolidated metropolitan statistical area.

Section 490.3 Excluded Vehicles

Section 490.3 sets forth the categories of vehicles that are not

counted in determining the existence of a ``fleet'' as defined in

Sec. 490.2. Some of the exclusions are discrete categories defined in

Sec. 490.2, including ``dealer demonstration vehicle,'' ``emergency

vehicle,'' and ``law enforcement vehicle.''

The statutory definition of ``fleet'' also excludes motor vehicles

held for lease or rental to the general public; motor vehicles used for

motor vehicle manufacturer product evaluations or tests; motor vehicles

which under normal operations are garaged at personal residences at

night; and motor vehicles that the Secretary of Defense certifies must

be exempt for national security reasons. This latter category was not

subject to public comment and is self-explanatory. The other

categories, however, either were subject to comment or require some

explanation.

DOE has adopted EPA's interpretation of ``motor vehicles held for

lease or rental to the general public.'' EPA interprets the phrase to

mean a vehicle that is owned or controlled primarily for the purpose of

short-term rental or extended-term leasing, without a driver, pursuant

to a contract. 40 CFR Sec. 88.302-94. Under this definition, a firm

will not be found to ``lease'' its vehicles to its employees unless the

vehicles are owned primarily for leasing them to the general public and

they are leased pursuant to formal contracts which give control of the

vehicle to the lessee. No critical comments were received on this

interpretation.

DOE also has adopted EPA's interpretation of ``motor vehicles used

for motor vehicle manufacturer product evaluations and tests,'' which

are excluded from the definition of ``fleet.'' Section 490.3 follows

EPA's definition of the phrase ``vehicle used for motor vehicle

manufacturer product evaluations and tests'' at 40 CFR Sec. 88.302-94.

It is the intent of this provision to exclude vehicles which are used

by an Original Equipment Manufacturer for production control or quality

control reasons. No critical comments were received on this

interpretation.

DOE has only partially adopted EPA's definition of ``motor vehicles

which under normal operations are garaged at personal residences at

night.'' The notice of proposed rulemaking included this statutory

language in Sec. 490.2. A number of commenters criticized DOE for not

adopting all of EPA's definitions, and one commenter specifically urged

DOE to adopt EPA's definition of this phrase. EPA defined the nearly

identical statutory language to mean ``a vehicle that, when it is not

in use, is normally parked at the personal residence of the individual

who usually operates it, rather than at a central refueling,

maintenance, and/or business location.'' 40 CFR Sec. 88.302-94. EPA

concluded that the words ``at night'' in section 241(6) of the Clean

Air Act did not preclude extending the exclusion to persons who work at

night. 58 FR 64679, 64690. DOE believes that this is a reasonable

interpretation of the statutory phrase and, in light of the comments

urging consistency in definitions, has decided to adopt the EPA

language in Sec. 490.2.

A few commenters also pointed out that some vehicles that are

garaged at personal residences of employees overnight are in fact

centrally fueled, and they urged DOE not to exclude such vehicles from

a ``fleet.'' EPA, in its definition, did not exclude a vehicle that was

in fact centrally fueled, because the relevant Clean Air Act provision

refers only to a vehicle which ``is capable of being centrally

fueled.'' 58 FR 64679, 64690. By contrast, the definition of ``fleet''

in section 301(9) of the Act excludes a vehicle garaged at a personal

residence from the definition, regardless of whether it is centrally

fueled or capable of being centrally fueled. Therefore, DOE has not

adopted that portion of EPA's definition.

Fleet operators and covered persons should subtract vehicles in

these excluded categories from the total number of new light duty

vehicles to be acquired in a model year to determine the basis for

calculating the number of alternative fueled vehicles they are required

to acquire in the model year.

Example: A covered person is going to acquire 105 new light duty

vehicles in model year 1997. Of these 105 vehicles, five are

vehicles in excluded categories. To determine how many alternative

fueled vehicles must be acquired the covered person shall make the

following calculation: [(Number of new light duty vehicles to be

acquired)--(Number of new light duty vehicles in excluded

categories)] x (Acquisition percentage for that model year). In

this example, the covered person is required to acquire 30

alternative fueled vehicles in model year 1997 {[(105)-(5)] x

(.30) = 30}.

Section 490.5 Requests for an Interpretive Ruling

Section 490.5 establishes a process for States and covered persons

to obtain DOE interpretive rulings as to how the Department intends to

construe and apply its regulations to particular factual situations,

and for whom other procedures such as petitions for

[[Page 10633]]

exemption are irrelevant. One commenter objected to this provision,

stating that it will lead to inconsistencies in implementation. DOE

does not agree with this comment. Publicly available interpretive

rulings should promote uniformity in implementation, even though any

interpretive ruling that the Department issues would apply only to the

person who requested it.

Section 490.7 Relationship to Other Law

Section 490.7 makes a declaratory statement to avoid arguments that

provisions of part 490, by implication, authorize acquisition of

vehicles, conversion of vehicles, or use of fuels as motor fuel in a

manner that does not comply with other Federal, State, or local laws.

B. Subpart B--[Reserved]

C. Subpart C--Mandatory State Fleet Program

Section 490.201 Alternative Fueled Vehicle Acquisition Mandate

Schedule

Section 490.201 sets forth the requirements, subject to some

exemptions, for the percentage of new light duty motor vehicles that

must be alternative fueled vehicles when acquired for State fleets

under the Mandatory State Fleet Program.

In response to comments that inquired about what would happen if a

State agency grew in size or moved its vehicle operations to one of the

MSAs listed in Appendix A to subpart A, the Department has added

paragraph (d). Paragraph (d) states that if, in the future, a State

agency becomes subject to this subpart because it owns, operates or

controls a fleet, the State agency shall start acquiring alternative

fueled vehicles according to the schedule percentage in effect for the

next model year. For example, if a State agency first owns, operates or

controls a fleet in model year 1998, then for model year 1999, 25

percent of the State agency's new light duty motor vehicles acquired

for its fleet should be alternative fueled vehicles. However, paragraph

(d) also recognizes that, in some cases, State agencies that are newly

required to acquire alternative fueled vehicles may qualify under

section 490.204 for an exemption or reduction of the acquisition

percentage. One commenter questioned the rounding convention in the

proposed rule for calculating acquisition requirements. After

reconsidering this issue, DOE has revised paragraph (c) to provide for

rounding up or down to the next whole number, depending on whether the

fraction is equal to or greater than one half or is less than one half.

Section 490.202 Acquisitions Satisfying the Mandate

Section 490.202 provides in substance that an acquisition of an

alternative fueled vehicle, regardless of the year of manufacture,

counts toward satisfaction of the vehicle acquisition mandate. Such a

vehicle would be new to the fleet operator. Credits acquired under

subpart F also count toward satisfaction of the mandate.

DOE received many comments opposed to the proposed rule's

requirement that new vehicles must be converted before they are placed

into service in a fleet. The Department has revised Sec. 490.202(a) to

allow States and State agencies to convert newly acquired Original

Equipment Manufacturer vehicles within four months after vehicle

acquisition. The basis for the 4-month period for conversion of newly

acquired vehicles is explained in the discussion of Sec. 490.305 in

this Supplementary Information section. Section 490.305 applies to

covered fuel providers, but its provisions are the same as those in

Sec. 490.202. Many fuel providers also objected to the proposal to

require vehicles to be converted prior to being placed into service in

a fleet and, to avoid redundancy, DOE addresses all of the comments on

this issue in the discussion of Sec. 490.305.

The Department would prefer that these vehicles be converted in the

same model year that they are acquired, but realizes that this is not

always possible. Thus, a vehicle acquired in MY 1997 could be converted

during MY 1998 (beginning on September 1, 1997), and count towards

compliance in MY 1997, if the conversion occurred within four months of

the vehicle's acquisition. However, those conversions could not be

counted for compliance with the MY 1998 requirements.

A few comments pointed out that the proposed rule did not include

any statement about a State not being required to acquire converted

vehicles, as provided in section 507(j) of the Act. The Department has

not revised the rule in response to these comments because it sees no

need to restate the statutory provision in this final rule.

Many commenters requested that the Department allow the conversion

of vehicles already in service in a fleet to count towards compliance

once the rule goes into effect. The proposed rule would not have

allowed the conversion of existing fleet vehicles to count. Upon

further analysis, the Department has decided that is was correct in not

allowing these vehicles to count towards compliance. Section 507(o)

specifically refers to ``* * * percentages of new light duty motor

vehicles acquired annually * * *'' 42 U.S.C. 13257(o) (emphasis added).

The Act's focus on vehicles new to the regulated entity indicates a

congressional intent to regulate inventory turnover and stimulate

production of new alternative fueled vehicles. Conversion of existing

fleet vehicles could seriously undermine those goals.

Although conversion of an existing fleet vehicle does not qualify

as an acquisition under the Act, DOE (as explained in the discussion of

Sec. 490.502 in Subpart F) will allocate credits for motor vehicles

that were purchased or leased by regulated entities on or after October

24, 1992, and converted to alternative fueled vehicles before the

effective date of the applicable acquisition requirements. For purposes

of calculating credits, DOE will not apply the four-month time limit to

conversions that occurred before the effective date of this rule.

Section 490.203 Light Duty Alternative Fueled Vehicle Plan

The Act provides an alternative means of compliance for States. In

lieu of a State meeting the acquisition requirements of Sec. 490.201

solely through State acquisitions, a State may comply with a Light Duty

Alternative Fueled Vehicle Plan submitted by the State and approved by

DOE. Under such an alternative compliance plan, a State may satisfy its

acquisition requirements with the voluntary participation of non-

covered State, municipal, and private fleets. However, section

507(o)(2)(A) of the Act states that any State plan must provide for the

acquisition of light duty motor vehicles by State, local and private

fleets, which in aggregate meet or exceed the applicable vehicle

percentage for any given model year.

Section 490.203(3) provides that any acquisition of light duty

alternative fueled vehicles for a State may be part of the Plan,

irrespective of whether the vehicles are in the categories of vehicles

excluded from the definition of ``fleet,'' as enumerated in Sec. 490.3.

This allows for law enforcement vehicles, or other vehicles excluded

from the definition of ``fleet'' to be part of a Light Duty Alternative

Fueled Vehicle Plan.

Unless covered by an exemption, a State is subject to the

requirements in Sec. 490.201. A State also may be required to comply

with the requirements of Sec. 490.201 if a State plan participant (such

as a municipality) fails to fulfill its commitments under the Plan.

However, if the State is able to find a

[[Page 10634]]

substitute participant, then the State may submit to DOE for approval

an amendment to the Plan.

Paragraph (b) of this section requires States to monitor and verify

on an ongoing basis the implementation of its Plan. This is to ensure

that all participants in the Plan are indeed in compliance, and that at

the end of the model year, all requirements will have been met. If for

whatever reasons a participant is unable to fulfill its commitments,

the State is obligated to find a substitute participant before the end

of the year.

Paragraph (c) establishes a general requirement that a State must

submit to DOE, for approval, its Light Duty Alternative Fueled Vehicle

Plan no later than the June 1 prior to the model year(s) covered by the

Plan. However, because section 507(o)(2)(A) of the Act specifies that

States may submit their Plan to the Department within 12 months after

final rule promulgation, DOE will not require States to submit a Plan

for model year 1996, and a plan for model year 1997 may be submitted by

March 14, 1997. After MY 1997, the Department believes that a State

should know by June 1 the number and type of light duty motor vehicles

it plans to acquire during the upcoming model year and should have

begun the procurement process for these vehicles.

A few commenters requested that States opting to comply through

these alternative compliance plans be allowed to use gallons of

petroleum displaced, instead of alternative fueled vehicles acquired,

as the measure of compliance. DOE has not adopted this recommendation

because section 507(o)(2)(A) requires each State alternative compliance

plan to provide for the acquisition of light duty motor vehicles ``in

numbers greater than or equal to the number of State alternative fueled

vehicles required pursuant to [the acquisition schedule in section

507(o)(1)].'' Thus, DOE may not adopt a petroleum displacement

standard, in lieu of requiring alternative fueled vehicle acquisitions,

for compliance under State alternative compliance plans.

Other comments asked DOE to clarify the meaning of ``voluntary''

acquisition. DOE has determined that ``voluntary'' acquisition occurs

when an entity, that is not required by the Act to acquire alternative

fueled vehicles, acquires alternative fueled vehicles. Because

municipalities and private companies, other than those determined to be

covered persons subject to the requirements under section 501, are not

currently required to acquire alternative fueled vehicles, any

acquisition of alternative fueled vehicles by these entities would be

voluntary. In addition, the acquisition of alternative fueled vehicles

by a State agency that is not an operator of a ``fleet,'' because it

does not operate at least 20 vehicles in any of the MSAs/CMSAs found in

Appendix A to subpart A, would be voluntary. The acquisition of

vehicles in categories of excluded vehicles under Sec. 490.3 also would

be voluntary.

A few comments raised the possibility of double counting of

vehicles by private and local government fleets, when and if they are

required to acquire alternative fueled vehicles under a future

rulemaking under section 507 (b) or (g) of the Act. The possibility of

the future allocation of credits for acquisitions by municipal and

private fleets depends upon a DOE finding, by rule, that a municipal or

private fleet program is necessary to meet the Act's fuel replacement

goals. 42 U.S.C. 13257 (b), (e), (f). DOE has not begun a rulemaking to

determine whether to make such a finding. Initiation of such a program

is not a foregone conclusion. Therefore, participation in a State

alternative compliance plan will not conflict with any present, and

possibly future, compliance obligations under the Act.

Section 490.204 Process for Granting Exemptions

Section 507(i)(1) of the Act provides that a State may seek

exemptions in whole or in part from the annual acquisition percentages

in three situations. As interpreted in this final rule, a State may

seek exemption if it can demonstrate that--

(1) Alternative fuels that meet the normal requirements and

practices of the principal business of the State fleet are not

available from fueling sites that will allow the fleet to be centrally

fueled in the area where the vehicles are to be operated; or

(2) Alternative fueled vehicles that meet the normal requirements

and practices of the principal business of the State fleet are not

available for sale or lease commercially on reasonable terms and

conditions within the State; or

(3) The application of such requirements would pose an unreasonable

financial hardship.

Categories 1 and 2 basically track section 507(i)(1) (A) and (B) of

the Act. DOE is aware that all domestic Original Equipment

Manufacturers sell or lease vehicles to fleets exclusively through

their dealerships, the only exception being fleet sales to the Federal

government. Other Original Equipment Manufacturers, such as vehicle

manufacturers that do not belong to the American Automobile

Manufacturers Association, sell or lease their vehicles directly to the

customer without the benefit of a motor vehicle dealer network.

Thus, to receive an exemption based on vehicle unavailability, a

State must show that no Original Equipment Manufacturer can deliver

alternative fueled vehicles to a State fleet on reasonable terms and

conditions that meet the normal requirements and practices of the

principal business of the fleet. An applicant for an exemption must

establish vehicle unavailability by submitting documentation from

vehicle manufacturers or from motor vehicle dealers, as appropriate to

its situation. Documentation requirements are explained in the

discussion of Sec. 490.308 in this Supplementary Information section.

Comments received from State and local governments and fleet

managers regarding the process for granting exemptions because of the

unavailability of alternative fueled vehicles or alternative fuels are

addressed in the discussion of Sec. 490.308, which deals with

exemptions for covered alternative fuel providers. The same statutory

criteria apply to granting exemptions to State government fleets (under

Sec. 490.204) and to covered fuel providers (under Sec. 490.308) when

alternative fueled vehicles or alternative fuels are not available.

Therefore, there is no need to duplicate the discussion of the comments

and the approach that DOE will take in granting exemptions in these

situations.

Regarding category 3, section 507(i)(1)(C) allows States to request

an exemption based on unreasonable financial hardship. Some commenters

requested clarification as to what qualifies as unreasonable financial

hardship. Many of these same commenters suggested the circumstances

that should qualify as a financial hardship. Some commenters

recommended using a life-cycle cost analysis to determine financial

hardship and provided the cost premium and payback period that should

be used. One State provided a formula and specific examples of how to

use the formula in different circumstances. Some commenters recommended

that a financial hardship exemption be granted if an alternative fueled

vehicle's initial cost was some factor greater than the cost of a

conventionally fueled vehicle. A commenter recommended tying a

financial hardship exemption to the national inflation rate. Other

commenters suggested that financial hardship should be recognized if

the

[[Page 10635]]

requirements cause more than a specified percentage increase in the

total fleet's annual budget. Another commenter suggested that if a

State is required to build a fueling facility, a financial hardship

exemption should be granted.

The Department has carefully reviewed all of the comments on this

issue and has concluded that ``unreasonable financial hardship,'' as

used in section 507(i)(1)(C) of the Act, must be determined on a case-

by-case basis. The relevant conditions in States, such as the

availability and cost of alternative fuel, will vary at any point in

time. Therefore, it is not possible to determine now, by rule, that all

States will experience unreasonable financial hardship at some time in

the future if, for example, the cost of alternative fueled vehicles is

a certain percentage or amount above the cost of conventionally-fueled

vehicles.

DOE will evaluate financial hardship exemption requests in light of

the budget constraints in the applicant State. For example, some States

have multi-year budgets, and funding for the acquisition of alternative

fueled vehicles may be insufficient in some model year. That is a

situation in which DOE would likely grant at least a partial exemption

from the requirements based on financial hardship.

DOE received comments requesting confirmation that partial

exemptions may be granted and how they might affect future vehicle

purchases. In response, the Department added paragraph (d) which states

that exemptions may be granted in whole or in part to a State. When

granting an exemption in part, DOE may, depending upon the

circumstances, completely relieve a State from a portion of the vehicle

acquisition requirements for a model year or require a State to acquire

all or some of the exempted vehicles in future years.

Paragraph (g) provides that the Assistant Secretary for Energy

Efficiency and Renewable Energy shall grant or deny a request for

exemption within 45 days. In order to keep the procedures simple, the

Assistant Secretary may act finally for the Department, and there is no

requirement to obtain the specific approval of the Secretary. If the

Assistant Secretary denies the request for exemption, paragraph (h)

further provides that a State may appeal to the Department's Office of

Hearings and Appeals, whose decision would be final for the purpose of

judicial review. Further discussion on the exemption process is found

in section-by-section analysis for the Alternative Fuel Provider

Vehicle Acquisition Mandate.

Section 490.205 Reporting Requirements

Section 490.205 requires each State that is subject to the vehicle

acquisition mandate to submit an annual report to DOE. This report will

assist DOE to determine if a State has met the requirements of this

subpart as well as how successfully the goals and requirements of this

subpart are being met. One commenter suggested that DOE should require

States and fuel providers to report whether a vehicle is dedicated or

dual-fueled and the type of fuel the vehicle is capable of operating

on. The Department has adopted this recommendation, in new

subparagraphs (b)(5) (iv) and (v), because it agrees that this

information is needed to assist DOE in carrying out its

responsibilities under title V.

DOE received several comments regarding the definition of a State

fleet. Some of these comments suggested specific agencies' fleets that

should be included in a State fleet. The most common suggestion was

that State university and college fleets should be included. Other

comments suggested characteristics of agencies for the purpose of

determining whether the fleets of these agencies should be classified

as a State fleet. A few of the comments suggested that the

determination of which agencies are to be included in a State fleet be

left up to each individual State.

Based on these comments, DOE has decided to allow each State to

determine for itself which agencies operate or control a State fleet

for reporting purposes. However, DOE will expect States to follow the

common understanding of what constitutes a ``State agency.'' State

agencies are usually authorized and funded by the State legislature,

receive funding from the State budget, or are situated on State

property. Examples of agencies that DOE expects to be classified as

State agencies are departments, offices and divisions of State

government, State colleges and universities, port authorities, and

other State entities.

In addition to allowing States to determine initially which

agencies are State agencies, DOE is giving States some leeway in how

they report the alternative fueled vehicle acquisitions of the State

agencies. Although DOE would prefer one report from each State that

aggregates the State's alternative fueled vehicle acquisitions, it is

aware that some States may have difficulty aggregating these numbers

due to the unique structure of each State. In place of one aggregate

report for a State, a State may assign a limited number of State

agencies the task of preparing the individual reports for many other

State agencies. For example, a State division of general services might

prepare and submit the report for its fleet along with reports from the

State universities and the State port authority. The State would then

submit these separate reports to DOE as its annual report. DOE believes

these reporting options will lessen the burden on the States.

For further discussion on reporting requirements, see section

490.309.

D. Subpart D--Alternative Fuel Provider Vehicle Acquisition Mandate

1. Which Alternative Fuel Providers Must Comply With the Alternative

Fueled Vehicle Acquisition Mandate

The Energy Policy Act of 1992 defines the class of alternative fuel

providers potentially subject to the alternative fueled vehicle

acquisition requirements to include persons who qualify as a ``covered

person'' under section 301(5) of the Act, 42 U.S.C. 13211(5), and fall

within one of the categories of covered alternative fuel providers in

section 501(a)(2). 42 U.S.C. 13251(a)(2). The term ``covered person''

is defined in section 301(5) to mean a person that owns, operates,

leases, or otherwise controls a ``fleet'' (defined at Sec. 490.2) and a

total of at least 50 motor vehicles within the United States. Paragraph

(a)(2) of section 501 describes the categories of covered persons

subject to the requirements as follows:

(A) A covered person, whose principal business is producing,

storing, refining, processing, transporting, distributing, importing,

or selling at wholesale or retail any alternative fuel other than

electricity;

(B) A non-Federal covered person whose principal business is

generating, transmitting, importing, or selling at wholesale or retail

electricity; or

(C) A covered person--

(i) Who produces, imports, or produces and imports in combination,

an average of 50,000 barrels per day or more of petroleum; and

(ii) A substantial portion of whose business is producing

alternative fuels.

42 U.S.C. 13251(a)(2). The final rule interprets the phrase ``principal

business'' at Sec. 490.301.

As illustrated in the Appendix to this Supplementary Information,

even if an entity meets all of the qualifications for a covered

alternative fuel provider under section 501(a)(2), 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

[[Page 10636]]

requirements only apply to an affiliate, division or business unit of a

covered person that is substantially engaged in the alternative fuels

business. See Sec. 490.304 (see also Sec. 490.301 for definition of

``substantially engaged''). 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 Sec. 490.308.

The term ``substantial portion'' in section 501(a)(2)(C) is a key

statutory determinant of whether a covered person that produces or

imports petroleum is an alternative fuel provider required to acquire

alternative fueled vehicles. Section 490.301 defines the term

``substantial portion'' to mean that at least 30 percent of a covered

person's annual gross revenue is derived from the sale of alternative

fuels. This definition is different from the one included in DOE's

notice of proposed rulemaking.

In its notice of proposed rulemaking, DOE defined 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. 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. DOE received

many comments that criticized the proposed definition of ``substantial

portion.'' They argued that the two percent of refinery yield was too

low a threshold for classifying an entity as a ``covered person.'' Some

commenters stated that the two percent refinery yield of petroleum

products would impose vehicle acquisition requirements on many

refineries that only produce alternative fuels as incidental by-

products of the refining process, and that the alternative fuel so

produced is not sold as motor fuel. A few of the comments 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 is 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 reviewing these comments, DOE published a notice on July 31,

1995, reopening the comment period to receive public comments on

alternative definitions of the term ``substantial portion.'' 60 F.R.

38974 (corrected 60 FR 40539, Aug. 9, 1995). DOE stated that it was

persuaded by the comments 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 a

percentage of refinery yield of petroleum products. As pointed out by

some commenters, a gross revenue measure can be applied to all

producers and importers of petroleum, unlike the percent of refinery

yield measure which focuses solely on refining operations.

DOE also invited public comment specifically on the alternative of

defining ``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. DOE stated that this percentage of gross revenue

appeared 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. Major energy producers are

typically consolidated or integrated companies that are involved in oil

and gas exploration, oil and gas production or importing, petroleum

refining and marketing, transportation of products, other energy

operations (coal, nuclear and other energy) and non-energy businesses

(primarily chemicals). Second, this definition would exclude from the

class of covered persons subject to the vehicle acquisition

requirements those refiners involved only in petroleum refining and

marketing operations and that produce alternative fuels as an

incidental by-product of the refining process. DOE specifically

requested interested persons to submit data or analysis relevant to

this issue.

DOE received approximately 20 comments on the notice inviting

comment on possible alternative definitions of ``substantial portion.''

Two commenters argued strenuously that DOE should adhere to the 2% of

refinery yield threshold for determining which companies are covered

persons. In their view, the 30% gross revenue threshold will exempt too

many refineries and, thus, compromise the Act's goal of reducing the

nation's dependency on foreign oil. Several petroleum refiners and

marketers expressed support for the 30% gross revenue threshold. They

stated that the 30% gross revenue test properly describes the class of

producers and importers of petroleum that Congress intended to be

covered alternative fuel providers.

Several other commenters stated that a 30% of gross revenue

threshold is still too expansive. Their principal argument is that

Congress intended the alternative fueled vehicle mandates to apply only

to entities that deal directly in alternative fuels that are intended

for use as motor fuel. One commenter, for example, argued that any

definition of ``substantial portion'' must exclude materials that are

not sold directly as transportation fuel, such as non-compressed

natural gas or other materials that must be chemically or physically

altered to be used as transportation fuel. Another commenter stated

that the sale of a commodity such as natural gas does not constitute

the sale of an ``alternative fuel'' for transportation purposes. This

commenter further stated that because even compressed natural gas has

several uses, only the sale of compressed natural gas for use in the

storage compartment of a motor vehicle would constitute the sale of

``alternative fuel'' under the Act.

After reviewing the comments on this issue and having analyzed the

statutory text and its legislative history, DOE has concluded for a

variety of reasons that the Act may not be interpreted to limit the

alternative fueled vehicle acquisition mandate to entities that deal

directly in alternative fuel which is intended for use as motor fuel.

First, section 301 defines ``alternative fuel'' to include various

materials, including natural gas and electricity, but it does not limit

the term to fuel produced or handled for transportation purposes. In

this regard, it is significant that ``natural gas,'' rather than

``compressed natural gas'' is included in the definition of

``alternative fuel.'' Second, section 501(a), which imposes the

alternative fueled vehicle acquisition requirements on fuel providers,

does not expressly

[[Page 10637]]

limit coverage to entities that deal in alternative fuel for

transportation purposes. Third, the exemptions provided in section

501(a)(3)(B) necessarily imply that Congress did not intend to limit

the vehicle acquisition requirements to entities that directly deal in

motor fuels. That section exempts entities whose principal business is

``transforming alternative fuels into a product that is not an

alternative fuel'' or ``consuming alternative fuels as a feedstock or

fuel in the manufacture of a product that is not an alternative fuel.''

These exemptions show that Congress expressly addressed the question of

whether there should be an exemption based upon the use of an

``alternative fuel.'' The specification of the two particular

exemptions based upon use in a section that elaborately details

exceptions implies that Congress did not intend to create, or authorize

DOE to create, an exception for all uses of alternative fuels other

than transportation purposes.

In addition, the legislative history of the Act is contrary to the

interpretation recommended by the petroleum company commenters. The

most authoritative source regarding Congress' intent in enacting

section 501 is the Conference Report on the Act. That report's only

discussion of title V of the Act, the alternative fuels title, deals

with precisely this issue:

``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.

``The Secretary has broad discretion to define the coverage of this

provision. For example, he may in his discretion exempt some crude oil-

related operations of an oil and gas production affiliate (but not the

gas-related operations), or the petrochemical operations of a covered

methanol unit (but not the methanol-related business).''

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

There is no relevant Senate report language. However, the House

report on H.R. 776 contains the following explanation of the fuel

provider alternative fueled vehicle acquisition mandate, which sheds

additional light on the question of whether Congress intended to limit

the terms ``substantial portion'' and ``alternative fuel'' to fuels

only used for transportation purposes:

``The program applies to firms owning, for example, natural gas

pipelines or methanol plants. Their ready access to alternative fuel

supplies and their profit motive for developing a growing AFV market

makes them an excellent starting point for a successful transition to

alternative fuels.''

H.R. Rep. 102-474, 102d Cong., 2d Sess. 187 (1992).

Thus, the relevant conference and committee reports clearly show

that Congress foresaw coverage of some oil and gas production

affiliates, propane pipeline units, and natural gas processing

divisions.

The commenters arguing for a limiting interpretation of

``substantial portion'' or ``alternative fuel'' neither relied on any

phrase in the statutory text, nor cited any parts of the above-

referenced legislative reports, to support their narrow interpretation

of these terms. They relied almost entirely upon floor statements of

individual Members of Congress, quoted out of context, which only show

that those Members expected the Act to stimulate the development of an

alternative fueled vehicle market by various incentives and mandates

designed to encourage the replacement of gasoline with alternative

transportation fuels. None of the floor statements show an intent to

limit the term ``alternative fuel'' to transportation fuel, or

``substantial portion'' to fuel providers exclusively in the

alternative transportation fuel business. In comparison to the above-

discussed statutory text and report language, the relevance of these

floor statements to this question is marginal at best.

A few commenters argued that besides limiting ``covered persons''

to entities that directly deal in motor fuel, DOE should adopt a

percentage of gross revenue that is higher than 30 percent. One

commenter argued that if 30 percent of gross revenue represents the

lowest expected alternative fuel activity of major energy producers,

then the gross revenue percentage included in the definition of

``substantial portion'' should be raised to exceed the average of all

major energy producers. However, none of the comments provided

information that contradicts DOE's conclusion that major energy

companies historically derive at least 30 percent of their gross

revenue from the sale of alternative fuels. For the reasons given in

its July 31, 1995 notice (60 FR 38974), DOE concludes that 30 percent

of annual gross revenue derived from the sale of alternative fuels

satisfies the ``substantial portion'' test contained in section

501(a)(2)(C)(ii) of the Act.

A few commenters objected to a percentage of gross revenue measure

to determine ``substantial portion'' on the ground that it would be

more complicated to implement than other measures. One of their main

concerns was that DOE may require covered companies to disclose

confidential information or institute new accounting systems. DOE does

not foresee such a result; instead, it believes coverage can be

determined from existing public documents. As several commenters

requested, this determination will normally be made using information

found in an annual report or an annual Form 10-K report filed with the

Securities and Exchange Commission by covered persons.

2. Section-by-Section Discussion

This section discusses comments on specific provisions of subpart

D. DOE has also included explanations of some provisions that were not

the subject of comment where it believes explanations will assist

regulated entities to comply with this subpart. Some nonsubstantive

changes from the notice of proposed rulemaking, such as renumbering of

rule provisions and nonsubstantive language changes, are not discussed.

Section 490.301 Definitions

Affiliate, Business Unit, and Division. Section 490.301 provides

definitions for the terms ``affiliate,'' ``division,'' and ``business

unit'' which are used in section 501 of the Act. The first two are

dictionary definitions. ``Business unit'' is defined to make clear the

grouping of business activities must be similar in autonomy to

affiliates and divisions. Based on comments, language has been added to

the definitions of ``business unit'' and ``division'' to include the

concept of control. One commenter argued that ``affiliate'' should be

defined as an entity below the covered person in a corporate structure.

DOE has not changed the definition to adopt this narrow interpretation

of the meaning of ``affiliate'' because there is no reason to believe

that Congress intended DOE to define ``affiliate'' at variance with

normal usage.

Alternative Fuels Business. Section 490.301 contains a definition

of the term ``alternative fuels business'' which tracks the language of

section 501(a)(2). No comments specifically critical of this definition

were received.

Normal Requirements and Practices. Section 490.301 defines the term

[[Page 10638]]

``normal requirements and practices'' to mean the operating business

practices and required conditions under which the principal business of

the covered person operates. Several comments were received on this

definition. They are addressed in the discussion of section 490.308,

which deals with exemptions based on the unavailability of alternative

fuel or alternative fueled vehicles.

Principal Business. No comments specifically critical of this

definition were received. Section 490.301 defines the term ``principal

business'' to mean the largest sales-related gross revenue producing

activity. If an organization derives a plurality of gross revenue from

sales-related alternative fuels activity, then the organization's

principal business is alternative fuels. Sales-related in this context

means that the gross revenue does not come from investments such as

corporate stocks. As it is used above, plurality does not require that

over 50 percent of an organization's sales-related gross revenue be

based on activities related to alternative fuels. For example, if an

organization derives 35 percent of its sales-related gross revenue from

alternative fuels and the next largest single source of sales-related

gross revenue comprises 25 percent of the organization's gross revenue,

the organization's principal business is alternative fuels.

Substantially Engaged. Section 490.301 defines the term

``substantially engaged'' to mean that a covered person, or affiliate,

division, or other business unit thereof, regularly derives sales-

related gross revenue from an alternative fuels business. To determine

whether a covered person or affiliate, division, or other business unit

thereof is ``substantially engaged'' in the alternative fuels business,

it is important to look at the involvement the covered person,

affiliate, division, or other business unit has with the alternative

fuels business. Thus, only that affiliate, division, or business unit

that meets the substantially engaged criteria is subject to the

acquisition requirements of this program. A comment was received that

asked DOE not to include business units engaged in alternative fuel

production activities that are incidental to a company's principal

business in this definition. An example given was of a covered fuel

provider whose principal business is manufacturing denatured ethanol,

but which also operates a chain of camping stores that regularly sells

one-liter bottles of propane for use with camping stoves. The

Department would not consider that division to be substantially engaged

in the alternative fuels business if the sale of propane contributes

only an incidental or insignificant amount of the gross revenue of the

chain of stores. DOE does not think this type of situation is likely to

arise. Business units of covered persons that already have been

determined to be in the alternative fuels business, and which regularly

derive revenue from an alternative fuel business, will normally be

substantially engaged in alternative fuels. If rare situations arise in

which that is not the case, DOE can address them through case-by-case

interpretations. Nonetheless, in light of the comment, DOE has revised

the definition of ``substantially engaged'' to clarify that a business

unit will not be subject to acquisition requirements if it only derives

a negligible amount of revenue from alternative fuels.

The covered person is responsible for clearly defining the specific

affiliate, division, or other business unit that is substantially

engaged and is therefore subject to the acquisition requirements of

this rule. If this designation is not made or is not made clearly, DOE

will assume that the entire organization is subject to the acquisition

requirements of this rule and will enforce it as such.

Section 490.302 Vehicle Acquisition Mandate Schedule

Section 490.302 sets forth the schedule for the acquisition of

light duty motor vehicles which alternative fuel providers must comply

with if they are classified as covered persons subject to the

requirements.

One commenter argued that calendar years should be used instead of

model years in the schedule in paragraph (a). Section 501 specifically

requires acquisition on a model year basis. The Department has not

changed the time frame for vehicle acquisition.

Paragraph (b) states that, except as provided by section 490.304,

these requirements apply to all new light duty vehicles acquired by

those business units of covered persons that are substantially engaged

in the alternative fuels business, not just those vehicles acquired for

the fleets which initially qualified the alternative fuel provider as a

subject ``covered person.'' These requirements also apply regardless of

where the new vehicles are to be located. For example, if an

alternative fuel provider, that is a covered person, is acquiring new

light duty motor vehicles for locations that are not within MSAs or

CMSAs, these vehicles must be added to those to be acquired for the

subject MSA/CMSAs before applying the applicable percentage in

paragraph (a) to determine how many of these vehicles must be

alternative fueled vehicles.

DOE received many requests to narrow the acquisition requirements

to only vehicles acquired for use by fleets in the MSA/CMSAs listed in

Appendix A to subpart A. Some commenters stated that DOE has

misinterpreted the Act's requirements for ``covered persons'' by

concluding that all new light duty vehicles acquired by covered fuel

providers must be included in the base for determining the number of

alternative fueled vehicles to be acquired in a model year, regardless

of whether the vehicles will be operated in fleets in MSAs/CMSAs. These

commenters argued that because Congress defined ``covered person'' as a

person that owns or otherwise controls a ``fleet,'' which in turn is

defined to include only vehicles operated in an MSA or CMSA, Congress

intended the MSA/CMSA to be the basic defining criteria for the

acquisition requirements. These commenters also discerned no reason why

Congress would impose a greater burden on fuel providers than on

States. ``Covered person,'' in their view, is simply used in the Act as

a convenient way of referring to covered fuel providers.

Electric utilities argued that the acquisition requirements should

be limited, as a matter of policy, to fleets operated in MSAs/CMSAs.

These commenters stated that forcing covered utilities to purchase

alternative fueled vehicles in rural areas, where the alternative fuels

infrastructure does not exist, is impractical and likely to undermine

development of alternative fueled fleets in urban areas. They stated

that there are not likely to be enough electric vehicles to supply both

areas, and electric vehicles are not suited for operation in many rural

areas because of climate, terrain, and vehicle operational

requirements.

DOE does not agree with comments arguing that it has misconstrued

the provisions of the Act. Section 501(a) states unambiguously that the

acquisition schedules apply to ``the new light duty motor vehicles

acquired by a covered person.'' By contrast, the phrase ``for a fleet''

is used throughout section 507 in reference to the vehicle acquisition

mandates for State, local, and private fleets. The phrase ``for a

fleet'' is not found in section 501. DOE also disagrees with commenters

who stated that Congress could not have intended to impose different

acquisition requirements on States and alternative fuel providers. The

legislative history shows that Congress included a fuel provider

mandate because of fuel

[[Page 10639]]

providers' ``ready access to alternative fuel supplies.'' See Report on

H.R. 776, The Comprehensive National Energy Policy Act, H.R. Rep. 102-

474, 102 Cong. 2d Sess. 197 (1992).

DOE has not, therefore, revised paragraph (b) of Sec. 490.302 as

requested by these commenters. Nevertheless, DOE recognizes the

legitimate concerns of covered persons about acquisition of alternative

fueled vehicles in areas outside of the MSAs/CMSAs listed in Appendix A

of subpart A. DOE believes the Act and the final rule provide adequate

means of providing relief from the requirements when it is justified.

As discussed in connection with Sec. 490.308, section 501(a)(5) of the

Act prescribes a ``simple and reasonable'' process for granting an

exemption from the acquisition requirements if either alternative

fueled vehicles or alternative fuels that meet ``the normal

requirements and practices of the principal business of [the covered

person]'' are not available in the area in which the vehicles are to be

operated. 42 U.S.C. 13251(a)(5). In revising Sec. 490.308, DOE has

added a central fueling criterion and simplified the process for

obtaining an exemption for any covered person whose vehicles are

located outside of MSAs/CMSAs. An exemption will be granted if the

covered person can show that central fueling does not meet the normal

requirements and practices of that person's principal business. In

areas outside of MSAs/CMSAs, the covered person is not required to map

the location of vehicles operational areas and alternative fuel sites

if facts can otherwise be presented to establish that central fueling

is incompatible with its normal requirements and practices.

One commenter questioned the rounding convention in the proposed

rule for calculating acquisition requirements. After reconsidering this

issue, DOE has revised paragraph (c) to provide for rounding up or down

to the next whole number, depending on whether the fraction is greater

or equal to one half or is less than one half.

In response to comments that inquired about what would happen if an

alternative fuel provider grew in size or moved its vehicle operations

to one of the MSAs listed in Appendix A to subpart A, the Department

has added paragraph (e). Paragraph (e) states that if, in the future,

an alternative fuel provider first becomes a covered person subject to

the requirements, the fuel provider shall start acquiring alternative

fueled vehicles the next model year according to the schedule

percentage in effect for that model year. If an alternative fuel

provider is newly classified as a covered person in model year 1997,

then for model year 1998, 50 percent of the covered person's new light

duty motor vehicles must be alternative fueled vehicles. However, DOE

expects that some newly classified covered persons will qualify for at

least a partial exemption under Sec. 490.308 during the start-up

period.

Section 490.303 Who Must Comply

This section tracks section 501(a)(2) of the Act. The criteria for

determining which fuel providers are ``covered persons'' subject to the

vehicle acquisition mandate are discussed at the beginning of the

discussion of subpart F in this Supplementary Information section.

As stated in the notice of proposed rulemaking, municipal gas and

electric utilities possessing the required fleet size, fueling

characteristics, and located within the specified geographical areas

are classified as covered persons under section 501(a)(2)(B).

Therefore, they are expected to comply with the requirements of the

mandate under Sec. 490.302; they will not be subject to any future

municipal fleet mandate imposed by rule under section 507 of the Act.

No public comments critical of this interpretation were received.

The Department received comments seeking clarification regarding

the coverage of holding companies and their subsidiaries and

affiliates. For the purposes of compliance the Department considers the

holding company to be the ``covered person'' and the individual

companies that it owns to be its affiliates. However, once DOE

determines that a holding company is a covered person subject to the

vehicle acquisition mandate, DOE will permit the holding company to

choose to comply with its acquisition requirements either: (1) By

assuming sole responsibility for the holding company's compliance; or

(2) by choosing to have its affiliates which are substantially engaged

in the alternative fuels business assume the responsibility and report

their alternative fueled vehicle acquisitions as separate ``covered

persons.'' Holding companies may prefer one option over the other, and

DOE does not want to inhibit these holding companies in choosing among

options.

Paragraph (b) of Sec. 490.303 describes those covered persons who

are excluded by section 501(a)(3)(B) of the Act from having to comply

with this subpart. Two categories of covered persons are excluded from

the requirements of this regulation: (1) Those who transform

alternative fuels into a product that is not an alternative fuel; and

(2) those who consume alternative fuels as a feedstock or fuel in the

manufacture of a product that is not an alternative fuel.

An example of an excluded person described in paragraph (b)(1)

would be a manufacturer of windshield washer fluid. The manufacturer

would be classified as an excluded person because it blends an

alternative fuel, methanol, in producing windshield washer fluid, which

is not an alternative fuel. An example of an excluded person described

in paragraph (b)(2) would be a company that burns natural gas to

provide a heat source for a manufacturing operation. An example of an

excluded person under both paragraphs (b)(1) and (b) (2) would be an

entity whose principal business is the production of alcoholic

beverages.

Section 490.304 Which New Light Duty Motor Vehicles Are Covered

Under section 501(a)(3)(A) of the Act, if a covered person has more

than one affiliate, division, or other business unit, only an

affiliate, division, or business unit that is ``substantially engaged

in the alternative fuels business'' is subject to the vehicle

acquisition mandate. Section 490.304 reflects the provisions of section

501(a)(3)(A), and should be read in conjunction with the definitions of

``affiliate,'' ``division,'' and ``business unit'' in Sec. 490.301.

Comments which opposed the application of the acquisition schedule

to all new light duty motor vehicles acquired by a covered person are

discussed in the analysis of section 490.302.

Section 490.305 Acquisitions Satisfying the Mandate

Section 490.305 defines the four categories of alternative fueled

vehicle acquisitions that will count toward compliance with section

490.302, including the application of alternative fueled vehicle

credits under Subpart F. These categories provide flexibility for

organizations in acquiring vehicles to meet this regulation. An

alternative fueled light duty motor vehicle shall be considered to be

new, regardless of the model year it was manufactured, if:

(1) The vehicle is an Original Equipment Manufacturer vehicle

capable of operating on alternative fuels and was not previously under

the control of the covered person; or

(2) The vehicle is an after-market converted vehicle and was not

previously under the control of the covered person; or

(3) The vehicle is an Original Equipment Manufacturer vehicle that

has been converted to operate on alternative fuels within four months

[[Page 10640]]

after it comes under the control of the covered person.

A vehicle that meets the description of paragraph (1) is one that

is manufactured by an Original Equipment Manufacturer to be capable of

operating on alternative fuels. For example, if a covered person

acquires a 1994 model year flex-fuel light duty motor vehicle during

model year 1997, this vehicle is classified as being a new acquisition

for that organization. A vehicle that meets the description of

paragraph (2) is one that has been converted to be capable of operating

on alternative fuels before it is acquired by a covered person.

DOE received many comments, from both covered persons subject to

this subpart and States, on its proposal that an Original Equipment

Manufacturer vehicle must be converted prior to its first use in

service in order to be counted for compliance. The majority of these

commenters felt that this requirement was too burdensome on fleet

owners and would result in many vehicles sitting idle while awaiting

conversion. The comments also stated that because delivery schedules

for both vehicles and conversion equipment are unpredictable, it may be

difficult to schedule vehicle conversions to occur when the fleets

would require them. Other comments stated that many fleet operators

break-in a vehicle for up to 1,000 miles in order to determine whether

the vehicle has reliability problems, and that they would engage in the

same break-in period before converting a vehicle to alternative fuel

use. It also was stated that some fleet managers take delivery of

vehicles before deciding which specific vehicles to convert.

Most of the comments received on this issue recommended a specific

time-frame within which the vehicles should be allowed to be converted.

The time-frames recommended ranged from 60 days to 2 years. Various

reasons were provided in support of the specific time-frames, including

that time was needed for conversion equipment to be certified,

scheduling and completing vehicle conversion, and vehicle inspection.

Various time-frames were attributed to each activity (1 to 2 months for

some activities) as well as estimates of the compound effect a possible

delay would have on the total time needed to convert a vehicle.

After analyzing all these comments, DOE has determined that a four

month time period after vehicle acquisition should provide sufficient

time for a fleet to convert a vehicle to operate on alternative fuels.

None of the comments contained information showing that four months is

not an adequate time period for a general requirement. In addition, the

Department's experience with Federal fleet vehicle conversions shows

that a four month time period is more than sufficient to allow for the

conversion of vehicles. All Federal vehicles that were converted in

this program had their conversions completed within a three month time

period.

Many commenters requested the Department to allow the conversion of

vehicles already in service in fleets to count towards compliance once

the rule goes into effect. The notice of proposed rulemaking would not

have allowed the conversion of existing vehicles to count and, after

analyzing the comments, DOE has concluded that conversion of existing

fleet vehicles is not permitted by the Act. Section 501 of the Act

specifically refers to ``* * * new light duty motor vehicles acquired

by a covered person * * *'' 42 U.S.C. 13254(a). As explained in the

discussion of Sec. 490.202 of this Supplementary Information section,

the Department has interpreted this section to mean that vehicles,

regardless of the date of manufacture, must be newly acquired by the

covered person or State in order to count as acquisitions.

A few comments pointed out that the proposed rule did not include

any statement about a fleet operator not being required to acquire

converted vehicles, as provided in section 507(j) of the Act. The

Department has not revised the rule in response to these comments

because it sees no need to restate the statutory provision in this

final rule.

Section 490.306 Vehicle Operation Requirements

Section 490.306 tracks section 501(a)(4) of the Act, which requires

that all alternative fueled vehicles acquired pursuant to section 501

be operated solely on alternative fuels, except when these vehicles are

operating in an area where alternative fuel is not available. DOE

received several comments requesting clarification of whether electric-

hybrid vehicles would be considered to be operating solely on

alternative fuels. In Sec. 490.2, an electric-hybrid vehicle is defined

as ``a vehicle primarily powered by an electric motor that draws

current from rechargeable storage batteries, fuel cells or other

sources of electric current and also relies on a non-electric source of

power.'' DOE also notes that the definition of an electric motor

vehicle in section 601 of the Act may include an electric-hybrid

vehicle. Thus, by definition, an electric-hybrid vehicle is considered

to be an electric vehicle. Many electric-hybrid vehicles are designed

with a non-electric power source which operates on an alternative fuel,

such as a natural gas turbine or a hydrogen fuel cell. DOE recognizes

that some electric-hybrid vehicles may be designed to operate on

gasoline or diesel engines, but in almost all cases these engines

provide supplementary power to the vehicle, while the electricity

generator provides the vast majority of the power to the vehicle's

electric drivetrain. Therefore, the use of these vehicles in a covered

person's fleet meets the requirement for operating solely on

alternative fuels.

The Department also received comments seeking clarification as to

whether fuel providers that operate dual-fueled vehicles will comply

with this section. Inclusion of dual-fueled vehicles in the definition

of ``alternative fueled vehicle'' in section 301 and the qualifying

phrase in section 501(a)(4) of the Act, show that Congress recognized

that some fuel providers may operate in areas where alternative fuels

are not available and that if dual-fueled vehicles are used in these

territories, they may have to refuel on a petroleum-based fuel. It is

clear that, under the Act, the operation of a vehicle on petroleum-

based fuel is allowable as long as the dual-fueled vehicle refuels on

alternative fuel when it travels in an area where alternative fuel is

available.

Section 490.307 Option for Electric Utilities

Section 490.307 deals with the statutory option available to

electric utilities. Paragraph (a) tracks the provisions of section

501(c) of the Act, which provides that a covered person whose principal

business is generating, transmitting, importing, or selling, at

wholesale or retail, electricity has the option of delaying the

alternative fuel vehicle acquisition schedule in section 501(a) of the

Act until January 1, 1998, if that covered person intends to comply

with this regulation by acquiring electric motor vehicles.

DOE received several inquiries as to whether a combination utility,

i.e., a utility that provides both natural gas and electricity, would

be allowed to comply as two separate entities, thereby allowing the

electric side of the utility to apply for the electric utility option.

These comments stated that many combination utilities support both

electric vehicle and natural gas vehicle market development and wish to

comply with the acquisition requirements by acquiring both kinds of

vehicles. The comments stated that the proposed rule appeared to

require combination utilities to choose one type of vehicle only to

comply with their

[[Page 10641]]

acquisition requirements, even though it may be contrary to the

strategic plans of that utility.

The Department has decided to allow the electric affiliate,

division or business unit of a combination utility to apply for a delay

in the implementation of its vehicle acquisition schedule until January

1, 1998. Section 490.307 has been revised to reflect this change by

adding the words ``or its affiliate, division or business unit'' in

paragraphs (a)-(c) and by including these words in new paragraph (d).

In such circumstances, a schedule delay would be granted to that

portion of the utility whose business is the production, generation,

distribution or transmission of electricity.

Paragraph (b) contains the acquisition schedule that an electric

utility, or its affiliate, division or other business unit must comply

with if the Secretary is notified by the required date.

Many commenters argued that if an electric utility, having chosen

the electric utility option, is unable despite a good faith effort to

acquire suitable or sufficient numbers of electric vehicles to meet its

requirements, DOE should grant that utility a full or partial exemption

for the applicable model year. These commenters supported a case-by-

case exemption process that requires utilities to make a showing of

``good faith'' efforts to comply. Some commenters stated that it would

be appropriate to ``roll over'' compliance obligations to succeeding

model years in certain situations (e.g., the inability of automobile

manufacturers to produce sufficient numbers of electric vehicles.)

However, they stated that rolling over requirements would not be

appropriate in other situations (e.g., vehicles that meet the normal

business requirements of the fleet operator are not available).

DOE has added paragraph (c) to clarify that electric utilities that

choose the electric utility option may apply for an exemption under

Sec. 490.308 if alternative fueled vehicles or alternative fuels that

meet their normal requirements and practices are not available.

Many of the electric utility commenters also urged DOE to

categorically provide that an electric utility that chooses to comply

with electric vehicles will never be required to purchase another type

of alternative fueled vehicle to satisfy the acquisition mandate. They

argued that Congress intended that the fuel of choice for covered fuel

providers should be the fuel that fuel provider deals in or sells. They

stated that inclusion of the electric utility option shows that

Congress intended to allow electric utilities to comply with electric

vehicles only. They argued that if an electric utility is ultimately

unable to meet the acquisition schedule, it would be inequitable and

contrary to the Act for DOE to require the utility to acquire some

other type of alternative fueled vehicle. Not only would this force

electric utilities to create a market for a competitor's fuel, it would

require them to divert investment capital away from development of an

electric vehicle market.

DOE is generally sympathetic to these arguments, but the utility

commenters did not identify any statutory text or legislative history

to support their suggestion for a categorical exemption. Nevertheless,

in DOE's view, these arguments may be relevant to requests for

exemptions under Sec. 490.308 from the acquisition requirements on the

basis that non-electric alternative fueled vehicles do not meet the

``normal requirements and practices'' of their principal business. If

utilities can successfully argue that this is generally true, then DOE

is prepared to issue an appropriate interpretive rule.

Comment was received inquiring what would happen to the acquisition

schedule of an electric utility, or its affiliate, division or other

business unit if it chooses to rescind its election of the electric

utility option. In response, DOE has added paragraph (d), which

provides that an electric utility, or its affiliate, division or other

business unit will have to comply with the acquisition schedule in

Sec. 490.302, unless otherwise exempt, if it rescinds its election of

the option.

Section 490.308 Process for Granting Exemptions

Section 490.308 implements the requirements of section 501(a)(5) of

the Act, which provides for a simple and reasonable exemption process

for those covered persons seeking exemptions either because alternative

fuel is not available or alternative fueled vehicles are not reasonably

available. Paragraph (a) describes the procedure that a covered person

needs to complete to receive an exemption.

Paragraph (b) contains the criteria for exemption, as interpreted

by DOE. The first category of exemption is if any covered person

demonstrates to the satisfaction of DOE that alternative fuels that

meet the normal requirements and practices of the principal business of

the covered person's fleet are not available from fueling sites that

will allow the fleet to maintain its centrally fueled character in the

area where the vehicles are to be operated. The second category of

exemption is if any covered person demonstrates to the satisfaction of

DOE that alternative fueled vehicles that meet the normal requirements

and practices of the principal business of that person are not

available for sale or lease on reasonable terms and conditions in any

State included in a MSA/CMSA in which the fleet operates.

These exemptions would be granted for one model year only. To

receive exemptions for additional model years, alternative fuel

providers must reapply to the Department each year. Exemption decisions

will be based on documentation that relates to the criteria for

determining the availability of alternative fuels and alternative

fueled vehicles.

DOE received many comments on the process for obtaining an

exemption when either alternative fuels or alternative fueled vehicles

that meet the normal requirements and practices of the principal

business are not available. Because the statutory criteria for granting

exemptions on these grounds are identical for State government fleets

and covered persons, DOE consolidates here its summary of the comments

of both States and covered fuel providers.

a. Discussion of alternative fuel availability. Most of the

comments on unavailability of fuel focused on the explanation of

Sec. 490.204(a)(1) and Sec. 490.308(a)(1) in the preamble of the notice

of proposed rulemaking, rather than on the text of the proposed rule

provisions. In the notice of proposed rulemaking, DOE explained the

process for determining fuel availability as follows:

[A]n alternative fuel provider must map out the operating area

and base of operations for its fleet of vehicles. Next, it must

locate on the map the alternative fueling facilities within its MSA

or CMSA. Then, for each vehicle, it must determine whether any

location providing alternative fuel is in the area in which the

vehicle is operated. If there is any location providing alternative

fuel within the vehicle's operating area, alternative fuel is

available. If there are no locations providing alternative fuel, for

any alternative fuel that meets the normal requirements and

practices of the covered person's principal business, within the

vehicle's operating area, then alternative fuel is ``not

available.'' 60 F.R. 10980.

Many commenters argued that this explanation of the fuel

availability exemption did not take into account other factors that

must be considered in determining fuel availability. For example,

commenters argued that alternative fuel should not be considered to be

available if--

(1) it is not readily deliverable to motor vehicles because it is

not of the proper composition for motor fuel, or there are no

dispensers of the fuel;

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(2) it is not available at convenient locations and times, or the

fueling facility does not provide the same range of services; or

(3) fueling at an alternative fueling facility significantly

increases the fueling time.

DOE believes these are factors that are properly considered in

determining whether fuel is available that meets ``the normal

requirements and practices'' of the principal business of the covered

person or fleet. DOE will consider factors such as these when

determining whether to grant or deny a request for an exemption because

alternative fuel is not available.

DOE will, to the extent consistent with its statutory

responsibilities, defer to reasonable fleet operators' judgments about

the alternative fueled vehicles and alternative fuels that best meet

their needs. DOE offers the following example to illustrate this:

A State government fleet operator reasonably determines that

vans are the only available vehicles that meet its normal business

requirements and practices. In searching for alternative fueled

vans, the State fleet operator determines that only CNG-powered vans

are available, but CNG is not available in the fleet's operating

area. However, ethanol fueling facilities are available in the

fleet's operating area. Because the State fleet operator has

determined that no ethanol vans are available, it can apply for an

exemption. DOE is likely to grant an exemption under paragraph

(b)(1) for this situation.

Numerous commenters, including many electric utilities, stated that

the proposed exemption requirements would force them to operate

alternative fueled vehicles in rural areas that lack the refueling

infrastructure or are otherwise unsuited to alternative fueled vehicle

use because of terrain, climate, and other factors. Some commenters

argued that an alternative fuel site located near the far edge of a

vehicle's operating range is not a suitable refueling location for the

fleet. Several commenters stated that the requirement of mapping

operating areas and fueling sites is burdensome and impractical. One

commenter argued that if an alternative fuel facility is not available

that allows the fleet to maintain its centrally fueled characteristics,

an exemption should be granted. Other commenters recommended that DOE

revise the rule to specify a distance in miles, beyond which

alternative fuel would be deemed ``unavailable.''

In response to these comments, DOE has revised Sec. 490.308 to

state, in paragraph (b)(1), that alternative fuel is not available if

it cannot be obtained from fueling sites that permit central fueling of

the covered person's fleet. Paragraph (c)(2) provides that a covered

person that operates light duty vehicles outside of the MSAs/CMSAs

listed in Appendix A of Subpart A is not required to map the vehicle

operation zones and alternative fuel site locations if it can otherwise

show that central fueling does not meet the normal requirements and

practices of its principal business.

DOE notes that some of the comments which criticized the proposed

exemption provision reflect a misunderstanding of Sec. 490.306, which

incorporates the Act's requirement that alternative fueled vehicles

owned or controlled by covered persons must operate solely on

alternative fuels. As explained in the discussion of Sec. 490.306, that

requirement does not apply when vehicles are operating in areas where

the appropriate alternative fuel is not available.

b. Discussion of alternative fueled vehicle availability. To

receive an exemption based on the criteria in subparagraph (b)(2), the

covered person (or State fleet operator under Sec. 490.204) must show

that alternative fueled vehicles that meet the normal practices and

requirements of its principal business are not available for commercial

acquisition on reasonable terms and conditions for each MSA/CMSA that

they operate a fleet in, within any of the States a MSA/CMSA comprises.

For example, a covered person operating a fleet in the Louisville MSA

(KY-IN) would have to show that no alternative fueled vehicle that

meets the needs of its fleet are available in Kentucky or Indiana on

reasonable terms and conditions.

Covered fuel providers having vehicles outside of MSAs/CMSAs, which

are centrally fueled or capable of central fueling, must show that

alternative fueled vehicles that meet the normal requirements and

practices of their principal business are not commercially available on

reasonable terms within the States those vehicles operate in.

Many commenters asked for clarification of the factors that DOE

will take into account when determining whether vehicles are

commercially available on reasonable terms and conditions. Some

commenters pointed out that fleets procure vehicles in regular cycles,

and in the case of States, sometimes multi-year cycles. In addition,

the availability of alternative fueled vehicles produced by automobile

manufacturers is limited, and delivery dates are sometimes uncertain.

As a result, States and covered persons claim they may be unable to

acquire alternative fueled vehicles during the model year in which they

are required, even if they have acted in good faith and taken

reasonable steps to meet their requirements. Many electric utilities

submitted comments expressing concern about the consequences of being

unable, despite a good faith effort, to obtain electric vehicles to

satisfy their requirements. See discussion of Sec. 490.307.

DOE will examine each request, and supporting documentation, to

determine whether the State fleet or covered person has acted in good

faith and taken reasonable steps to acquire vehicles for the model year

in question. DOE will take into account the terms and conditions of any

contracts or agreements a State fleet or covered person has entered

into to obtain alternative fueled vehicles, as well as purchase orders

placed by States and covered persons. For this determination, terms and

conditions refer to stipulations, provisions, limitations, and

prerequisites that are included in the contracts or agreements that

enable the covered person to acquire motor vehicles.

If a fleet operator has ordered alternative fueled vehicles during

a model year with a reasonable expectation that they would be delivered

by the end of the model year, DOE will grant an exemption for that

model year if the vehicles are not delivered in time to satisfy the

requirement. Those vehicles would not then count as acquisitions in the

model year in which they were delivered. On the other hand, DOE may not

grant an exemption if it determines that a fleet or covered person has

not made a good faith effort to acquire alternative fueled vehicles for

a model year.

In the case of fuel providers, including utilities choosing the

electric utility option under Sec. 490.307, DOE will take into account

steps the covered person has taken to help develop a market for

alternative fueled vehicles that use the fuel that they provide.

Some commenters stated that requiring a State or covered person to

inquire about alternative fueled vehicle availability from every dealer

in a State is onerous. These commenters stated that the paperwork

burden and the time involved in this process would be excessive. The

Department does not wish to impose an undue paperwork burden on those

States and fuel providers that are required to acquire alternative

fueled vehicles under this program. To lessen the burden, DOE will only

require a State or fuel provider to submit documentation from Original

Equipment Manufacturers showing that

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alternative fueled vehicles meeting its normal requirement and

practices will not be available directly or through any dealer in a

particular State. Returning to the above example of a covered person

operating a fleet in the Louisville MSA, the covered person needs to

provide documentation that shows that Original Equipment Manufacturers

will not provide alternative fueled vehicles that meet its normal

requirements and practices either directly or through a dealer in

Kentucky or Indiana. Thus, the final rule only requires a covered

person to submit documentation from a limited number of sources showing

vehicle unavailability, as opposed to documentation from every dealer

in a State. The Department believes that this will greatly simplify the

process for States and covered persons in determining the availability

of alternative fueled vehicles that meet their normal requirements and

practices.

DOE has added paragraph (e) to clarify that an exemption may be

granted in whole or in part. One situation in which a partial waiver

(e.g., exempting a fleet from model year requirements, but requiring

some or all of the vehicles to be acquired in the next model year) may

be appropriate is when a fleet or covered person cannot acquire

vehicles in time to satisfy a model year's requirements.

Some commenters sought clarification or offered recommendations

concerning the meaning of ``normal requirements and practices'' when

used in determining whether alternative fueled vehicles are available.

Several commenters argued that the r

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