# Alternative Fuel Transportation Program

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A96-5702

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** March 14, 1996
- **Citation:** 61 FR 10622

## Text

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.
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

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 t

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-5702. Public record. Not legal advice.