State Energy Program

DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Parts 420 and 450

[Docket No. EE-RM-96-402]

RIN 1904-AA81

State Energy Program

AGENCY: Office of Energy Efficiency and Renewable Energy, DOE.

ACTION: Final rule.

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

SUMMARY: Today the Department of Energy is publishing a final rule

revising the regulations for its State Energy Program in response to

comments received after the publication of the program's interim final

rule on July 8, 1996. With the exception of the revisions to the

interim final rule discussed herein, the interim final rule is being

adopted as it was printed on July 8, 1996.

EFFECTIVE DATE: June 13, 1997.

FOR FURTHER INFORMATION CONTACT: Thomas P. Stapp, Office of Building

Technology, State and Community Programs, Department of Energy, Mail

Stop 5G-063, EE-44, Forrestal Building, 1000 Independence Avenue, S.W.,

Washington, DC 20585, (202) 586-2096.

SUPPLEMENTARY INFORMATION:

I. Introduction and Description of the Program

II. The Revisions to the Interim Rule

III. Review Under Executive Order 12612

IV. Review Under Executive Order 12866

V. Review Under Executive Order 12988

VI. Review Under the Paperwork Reduction Act

VII. Review Under the National Environmental Policy Act

VIII. Review Under the Small Business Regulatory Enforcement

Fairness Act of 1996

IX. Review Under the Unfunded Mandates Reform Act of 1995

X. The Catalog of Federal Domestic Assistance

I. Introduction and Description of the Program

On July 8, 1996, the Department of Energy (Department or DOE)

published in the Federal Register an interim final rule consolidating

the State Energy Conservation Program (SECP) and the Institutional

Conservation Program (ICP) under the name ``State Energy Program'' (SEP

or program). 61 FR 35890 The program provides formula grants to States

for a wide variety of energy efficiency and renewable energy

initiatives, and, in years when funding is available, may also offer

financial assistance for a number of State-oriented competitively

awarded special project activities.

The Department also included in its July 8, 1996 rulemaking the

removal of 10 CFR part 450, which constituted prescriptive energy audit

procedures that are no longer needed.

Six comment letters were received regarding the changes made under

10 CFR part 420, which are discussed herein. No comments were received

regarding the removal of 10 CFR part 450, and its removal is herein

made final.

II. The Revisions to the Rule

With the exception of the revisions made and discussed below, this

rule is adopted as it was published in the program's interim rule on

July 8, 1996 (61 FR 35890). The major issues raised in the comments are

discussed below.

Section 420.2 Definitions

Several commenters argued that the revised definition for

``building'' was too restrictive, with some suggesting that the

definition be reduced to ``any structure.'' DOE is not making that

change because it would disregard the statutory definition of

``building'' requiring provision for a ``heating or cooling system, or

both, or for a hot water system''. 42 U.S.C. 6326. However, DOE has

revised the definition by limiting it to the wording in the statutory

definition.

Four exceptions included in the interim definition of ``building''

have been removed from the new definition and, as appropriate, moved to

the specific sections of the rule where they apply, as follows:

(1) The exception regarding buildings for which the peak design

rate of energy usage for all purposes is less than one watt (3.4 Btu's

per hour) per square foot of floor area has been moved to

Sec. 420.15(d)(1), which covers mandatory thermal efficiency standards

for new and renovated buildings. States are not required to implement

thermal efficiency standards for buildings that are covered by this

exception.

(2) The exception regarding buildings with neither a heating nor a

cooling system or a hot water sytem is incorporated into the definition

of ``building'' and does not need to be repeated, as a commenter

pointed out. Such buildings are not eligible for any type of assistance

under SEP.

(3) The exception regarding mobile homes has been revised to cover

``manufactured homes,'' which is the current term of art, and has been

moved to Sec. 420.15(d)(1), which covers mandatory thermal efficiency

standards for new and renovated buildings. States are not required to

implement thermal efficiency standards for ``manufactured homes''

because that is already done by the U. S. Department of Housing and

Urban Development. (A definition for ``manufactured home'' has also

been added, as discussed under that term.) Buildings meeting the

definition of ``manufactured home'' are eligible for appropriate

assistance under SEP other than their exclusion from the SEP mandatory

thermal efficiency standards.

(4) The exception regarding buildings owned or leased by the United

States has been moved to Sec. 420.15(a)(2), which covers mandatory

lighting efficiency standards, and Sec. 420.15(d)(1), which covers

mandatory thermal efficiency standards. States are not required to

implement either of those types of standards for buildings owned or

leased by the United States. The exception for such buildings has also

been added as a new Sec. 420.18(e)(3) under expenditure prohibitions

and limitations. Buildings owned or leased by the United States are not

eligible under SEP for funding the purchase and installation of

equipment and materials for energy efficiency and renewable energy

measures.

A number of commenters stated that the definition of ``energy

audit'' was limiting due to its being confined to buildings and being

overly specific. DOE has therefore replaced that definition with a new

one suggested by two of the commenters (based on the definition in the

Act), which has broader application to all capital investments that are

eligible for funding under SEP. DOE will be providing energy audit

guidance for consideration by the States.

Several commenters expressed concern that the definition for

``energy conservation measure'' was too restrictive. DOE has changed

the term defined to ``energy efficiency measure'' to reflect the

broader current concerns of SEP, removing the restriction to buildings,

and providing for a wide range of cost-effective improvements.

DOE has added a definition for ``manufactured home'' in conjunction

with moving some of the exceptions to eligible buildings to

Sec. 420.15, as previously discussed. The term formerly used was

``mobile homes'' which was not defined.

A few commenters complained that the definition of ``renewable

energy measure'' was too restrictive, and DOE has revised this

definition to provide for a wider range of activities.

One commenter claimed that the definition of ``variable working

schedule'' should include, as an example, telecommuting. DOE has

[[Page 26725]]

revised that definition to provide for examples of allowable activities

including the activities formerly part of the definition plus

telecommuting.

Section 420.5 Reports.

Some commenters advocated that DOE require semiannual rather than

quarterly reports, and that the reports be simplified. DOE has

determined that quarterly reports are needed to adequately track the

progress of the program, but will work with the States to streamline

the reports and to expedite the quantification of results.

Section 420.11 Allocation of funds among the States.

A few commenters argued that two of the data elements in the base

allocation (population and SECP savings data) should be updated

annually. DOE has not made this change because it believes the base

allocation needs to remain constant to reflect and incorporate the

historical distribution of funding for SEP's component programs, SECP

and ICP, that formerly used different funding formulas.

One commenter recommended that DOE use only one approach for the

entire allocation, either the base allocation approach or the new

formula. For the reason stated in the previous paragraph, DOE believes

the base allocation should remain constant, with the new formula

applying only to available funding above $25.5 million, so DOE is not

making this change.

One commenter wanted DOE to use the most recent population and

energy consumption data for the new formula. DOE intends to do this, as

stated under Sec. 420.11(b)(4)(iii).

Section 420.12 State matching contribution.

One commenter asked if petroleum violation escrow (PVE) funds could

be used to meet the requirement for a State matching contribution.

Under SEP, PVE funds that are considered as ``Federally appropriated''

funds (such as Warner Amendment and Exxon funds) may not be used to

meet a State's matching contribution. However, PVE funds that are

considered as ``non-Federally appropriated'' (such as Stripper Well and

Diamond Shamrock funds) may be used to meet a State's matching

contribution.

Section 420.13 Annual State applications and amendments to State

plans.

A number of commenters requested that DOE simplify the information

required in SEP grant applications, including the requirement that

goals be specified and quantified each year under Sec. 420.13(b) (2)

and (3). DOE believes a State's goals need to be articulated each year

as part of making the program accountable, and therefore DOE is not

making this change. However, as mentioned under Sec. 420.5, Reports,

DOE will be working with the States to simplify and expedite the

quantification of program goals and results.

One commenter expressed the opinion that annual applications should

be required, but not State plans. While DOE does not require complete

State plans to be resubmitted each year, amendments to plans need to be

submitted whenever the activities a State intends to undertake under

SEP change. If an activity for which funds are sought is not in the

State plan, then an amendment to that plan is necessary because the Act

only authorizes DOE to provide financial assistance to execute State

plans. The heading of this section and the wording of Sec. 420.13(a)

have been revised to clarify this.

One commenter suggested that States be allowed to submit an

assurance that the required activities under Sec. 420.15 have been

implemented. DOE was not persuaded by this comment, because these

activities need to be accounted for annually, as specified under

Sec. 420.13(b)(4)(v), which has been revised to make the requirement

clearer.

One commenter argued that States should only have to address the

issues specified under Sec. 420.13 (b)(5) and (b)(6) in cases where a

State is actually undertaking activities that apply to those

situations. That is DOE's intent, and those paragraphs have been

revised to clarfy that.

Section 420.14 Review and approval of annual State applications and

amendments to State plans.

One commenter suggested that ``plans'' be dropped from the heading

and that only applications be required. As already discussed under

Sec. 420.13, DOE is continuing to require amendments to plans to

reflect changes, and DOE has revised this heading to provide for

amendments to State plans. Unless the State elects to submit a complete

plan each year with its application, DOE only requires appropriate plan

amendments.

Section 420.15 Minimum criteria for required program activities for

plans.

One commenter wanted the references to ``plans'' in the heading and

the text of the section deleted and replaced with ``applications.'' As

with the discussions under Secs. 420.13 and 420.14, this commenter

argued that only applications should be required each year, not plans.

Since the statute requires that the State plan include the relevant

activities a State is undertaking, DOE is not deleting the requirement

for State plan amendments where warranted.

Section 420.17 Optional elements of State Energy Program plans.

One commenter thought only applications should be required and

wanted the reference to ``plans'' in the heading replaced with

``applications.'' As already discussed under Secs. 420.13, 420.14, and

420.15, DOE has not made this change because State plan amendments must

continue to be submitted with applications when a State changes the SEP

activities for which it is seeking financial assistance. Paragraphs

(a)(3) and (a)(7) have been revised to replace the term ``energy

conservation measure'' with ``energy efficiency measure'' to coincide

with the change in terms defined, as discussed under Sec. 420.2,

Definitions.

Section 420.18 Expenditure prohibitions and limitations.

One commenter asked that design costs be allowable as part of

energy efficiency and renewable energy measure costs, and DOE has

revised Sec. 420.18(e) to provide for reasonable design costs to be

allowable.

Some commenters advocated that DOE drop the 50 percent limit on

energy efficiency and renewable energy measure expenditures because it

was unnecessary. DOE believes that it is reasonable to have this 50

percent limitation in order to, in general, keep a balance between

State activities relating to energy efficiency and renewable energy

measures and the wide variety of other types of SEP activities that

States may undertake. On the other hand, DOE also believes it is

worthwhile to include the possibility of a waiver, provided for under

Sec. 420.18(e)(2), for States that plan to use more than 50 percent of

their SEP funds for energy efficiency and renewable energy measures.

DOE will treat any waiver requests expeditiously; States simply need to

explain how much funding they plan to devote to energy efficiency and

renewable energy measures, and why they need to exceed the 50 percent

limit. Therefore, DOE has not dropped the 50 percent limit.

One commenter claimed the restriction on loan repayments and the

prohibition on loan forgiveness specified under Sec. 420.18(e)(2)

should not apply to non-Federal funds used under SEP. DOE is of the

view that any funds used under SEP must be used in

[[Page 26726]]

compliance with the SEP rule, and is not changing those restrictions.

One commenter wanted the wording under Sec. 420.18(e)(3) revised to

provide for public buildings, not just State and local government

buildings. DOE believes this entire paragraph should be deleted; the

section applies to all eligible buildings and the range of eligible

buildings has already been specified under Sec. 420.17(a)(3). DOE is

replacing that paragraph with one excluding from eligibility for energy

efficiency and renewable energy measures buildings owned or leased by

the United States as was discussed earlier under the definition of

``building.''

Former Sec. 420.18 (e)(6), (e)(6)(i), and (e)(6)(ii) have been

redesignated Sec. 420.18 (f), (f)(1), and (f)(2), respectively, because

they are more logically separate paragraphs rather than continuations

of the limitations specified under paragraph (e).

One commenter wondered if the 50 percent limit on rebates specified

under new Sec. 420.18(f)(1) (former Sec. 420.18(e)(6)(i)) applied to

grants. This limit does not apply to grants, which may be for up to 100

percent of the cost of measures under SEP.

III. Review Under Executive Order 12612

Executive Order 12612, 52 FR 41685 (October 30, 1987) requires that

regulations, legislation and any other policy action be reviewed for

any substantial direct effects on States, on the relationship between

the National Government and the States, or on the distribution of power

among various levels of government. If there are sufficient substantial

direct effects, the Executive Order requires preparation of a

federalism assessment to be used in decisions by senior policy-makers

in promulgating or implementing the regulation.

Today's regulatory amendments will not have a substantial direct

effect on the traditional rights and prerogatives of States in

relationship to the Federal Government. Preparation of a federalism

assessment is therefore unnecessary.

IV. Review Under Executive Order 12866

Today's regulatory action has been determined not to be a

significant regulatory action under Executive Order 12866, Regulatory

Planning and Review, October 4, 1993. Accordingly, this action was not

subject to review under the Executive Order by the Office of

Information and Regulatory Affairs (OIRA).

V. Review Under Executive Order 12988

Section 3 of Executive Order 12988, 61 FR 4729 (February 7, 1996),

instructs each agency to adhere to certain requirements in promulgating

new regulations. These requirements, set forth in Section 3 (a) and

(b), include eliminating drafting errors and needless ambiguity,

drafting the regulations to minimize litigation, providing clear and

certain legal standards for affected legal conduct, and promoting

simplification and burden reduction. Agencies are also instructed to

make every reasonable effort to ensure that the regulation describes

any administrative proceeding to be available prior to judicial review

and any provisions for the exhaustion of administrative remedies. The

Department has determined that today's regulatory action meets the

requirements of Section 3 (a) and (b) of Executive Order 12988.

VI. Review Under the Paperwork Reduction Act

No new information collection or recordkeeping requirements are

imposed on the public by today's rules.

VII. Review Under the National Environmental Policy Act

A programmatic environmental assessment has been prepared covering

the grant program under the final regulations published today which was

sent to the States for comment on March 27, 1996. No comments were

received by the end of the 14-day comment period. This programmatic

environmental assessment resulted in a finding of no significant impact

(FONSI). A FONSI was issued on June 7, 1996. The documents relating to

this programmatic environmental assessment are available in the DOE

Freedom of Information Reading Room, United States Department of

Energy, Room 1E-190, Forrestal Building, 1000 Independence Avenue, SW.,

Washington, DC 20585, (202) 586-6020.

VIII. Congressional Notification

The final regulations published today are subject to the

Congressional notification requirements of the Small Business

Regulatory Enforcement Fairness Act of 1996 (Act), 5 U.S.C. 801. OMB

has determined that the final regulations do not constitute a ``major

rule'' under the Act, 5 U.S.C. 804. DOE will report to Congress on the

promulgation of the final regulations prior to the effective date set

forth at the beginning of this notice.

IX. Review Under the Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 imposes a

variety of procedural requirements on agencies proposing or finalizing

a ``Federal mandate'' on State, local, and tribal governments. 2 U.S.C.

1531-1535. None of these requirements apply to this rulemaking because,

by definition, enforceable duties that are a condition of Federal

financial asistance do not constitute a ``Federal mandate.'' 2 U.S.C.

658 (5)(A)(i)(I), (6).

X. The Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance number for the State

Energy Program is 81.041.

List of Subjects in 10 CFR Part 420

Energy conservation, Grant programs--energy, Reporting and

recordkeeping requirements, Technical Assistance, Incorporation by

reference.

Issued in Washington, DC, on April 11, 1997.

Christine A. Ervin,

Assistant Secretary, Energy Efficiency and Renewable Energy.

Accordingly, the interim rule revising 10 CFR part 420 and removing

10 CFR part 450 which was published at 61 FR 35890 on July 8, 1996, is

adopted as a final rule with the following changes to part 420:

PART 420--STATE ENERGY PROGRAM

1. The authority citation for part 420 continues to read as

follows:

Authority: Title III, part D, as amended, of the Energy Policy

and Conservation Act (42 U.S.C. 6321 et seq.); Department of Energy

Organization Act (42 U.S.C. 7101 et seq.)

Sec. 420.2 [Amended]

2. Section 420.2 is amended by (a) Revising the definitions for

``Building,'' ``Energy audit,'' ``Renewable energy measure,'' and

``Variable working schedule;'' by (b) adding, in alphabetical order,

the definitions of ``Energy efficiency measure,'' and ``Manufactured

home;'' and by (c) removing the definition of ``Energy conservation

measure,'' to read as follows:

Sec. 420.2 Definitions.

* * * * *

Building means any structure which includes provision for a heating

or cooling system, or both, or for a hot water system.

* * * * *

[[Page 26727]]

Energy audit means any process which identifies and specifies the

energy and cost savings which are likely to be realized through the

purchase and installation of particular energy efficiency measures or

renewable energy measures.

Energy efficiency measure means any capital investment that reduces

energy costs in an amount sufficient to recover the total cost of

purchasing and installing such measure over an appropriate period of

time and maintains or reduces non-renewable energy consumption.

* * * * *

Manufactured home means any dwelling covered by the Federal

Manufactured Home Construction and Safety Standards, 24 CFR part 3280.

* * * * *

Renewable energy measure means any capital investment that reduces

energy costs in an amount sufficient to recover the total cost of

purchasing and installing such measure over an appropriate period of

time and that results in the use of renewable energy to replace the use

of non-renewable energy.

* * * * *

Variable working schedule means a flexible working schedule to

facilitate activities such as carpools, vanpools, public transportation

usage, and/or telecommuting.

* * * * *

Sec. 420.13 [Amended]

3. Section 420.13 is amended by revising the heading, paragraph

(a), paragraph (b)(4)(iii), paragraph (b)(4)(v), paragraph (b)(5), and

paragraph (b)(6) to read as follows:

Sec. 420.13 Annual State applications and amendments to State plans.

(a) To be eligible for financial assistance under subpart B of this

part, a State shall submit to the cognizant Regional Support Office

Director an original and two copies of the annual application executed

by the Governor, including an amended State plan or any amendments to

the State plan needed to reflect changes in the activities the State is

planning to undertake for the fiscal year concerned. The date for

submission of the annual State application shall be set by DOE.

(b) * * *

(4) * * *

(iii) A narrative statement detailing the nature of State plan

amendments and of new program activities.

* * * * *

(v) An explanation of how the minimum criteria for required program

activities prescribed in Sec. 420.15 have been implemented and are

being maintained.

(5) If any of the activities being undertaken by the State in its

plan have environmental impacts, a detailed description of the increase

or decrease in environmental residuals expected from implementation of

a plan defined insofar as possible through the use of information to be

provided by DOE and an indication of how these environmental factors

were considered in the selection of program activities.

(6) If a State is undertaking program activities involving purchase

or installation of materials or equipment for weatherization of low-

income housing, an explanation of how these activities would supplement

and not supplant the existing DOE program under 10 CFR part 440.

* * * * *

Sec. 420.14 [Amended]

4. Section 420.14 is amended by revising the heading and paragraph

(a) to read as follows:

Sec. 420.14 Review and approval of annual State applications and

amendments to State plans.

(a) After receipt of an application for financial assistance under

subpart B of this part and for approval of an amendment, if any, to a

State plan, the cognizant Regional Support Office Director may request

the State to submit within a reasonable period of time any revisions

necessary to make the application complete and to bring the application

into compliance with the requirements of this part. The cognizant

Regional Support Office Director shall attempt to resolve any dispute

over the application informally and to seek voluntary compliance. If a

State fails to submit timely appropriate revisions to complete an

application or to bring it into compliance, the cognizant Regional

Support Office Director may reject the application in a written

decision, including a statement of reasons, which shall be subject to

administrative review under Sec. 420.19 of this part.

* * * * *

Sec. 420.15 [Amended]

5. Section 420.15 is amended by revising paragraphs (a)(2) and

(d)(1) to read as follows:

Sec. 420.15 Minimum criteria for required program activities for

plans.

* * * * *

(a) * * *

(2) Apply to all public buildings (except for public buildings

owned or leased by the United States), above a certain size, as

determined by the State;

* * * * *

(d) * * *

(1) Be implemented throughout the State, with respect to all

buildings (other than buildings owned or leased by the United States,

buildings whose peak design rate of energy usage for all purposes is

less than one watt (3.4 Btu's per hour) per square foot of floor space

for all purposes, or manufactured homes), except that the standards

shall be adopted by the State as a model code for those local

governments of the State for which the State's law reserves the

exclusive authority to adopt and implement building standards within

their jurisdictions;

* * * * *

Sec. 420.17 [Amended]

6. Section 420.17 is amended by revising paragraph (a)(3)

introductory text, paragraph (a)(3)(i), and paragraph (a)(7) to read as

follows:

Sec. 420.17 Optional elements of State Energy Program plans.

(a) * * *

(3) Program activities for financing energy efficiency measures and

renewable energy measures--

(i) Which may include loan programs and performance contracting

programs for leveraging of additional public and private sector funds

and program activities which allow rebates, grants, or other incentives

for the purchase of energy efficiency measures and renewable energy

measures; or

* * * * *

(7) Program activities to identify unfair or deceptive acts or

practices which relate to the implementation of energy efficiency

measures and renewable energy measures and to educate consumers

concerning such acts or practices;

* * * * *

Sec. 420.18 [Amended]

7. Section 420.18 is amended by revising the introductory text to

paragraph (e), by revising paragraphs (e)(3) and (e)(5), and by

redesignating paragraphs (e)(6) introductory text, (e)(6)(i), and

(e)(6)(ii) as new paragraphs (f) introductory text, (f)(1), and (f)(2),

respectively, to read as follows:

Sec. 420.18 Expenditure prohibitions and limitations.

* * * * *

(e) A State may use funds under this part for the purchase and

installation of equipment and materials for energy efficiency measures

and renewable energy measures, including reasonable

[[Page 26728]]

design costs, subject to the following terms and conditions:

* * * * *

(3) Buildings owned or leased by the United States are not eligible

for energy efficiency measures or renewable energy measures under this

paragraph;

* * * * *

(5) Subject to paragraph (f) of this section, a State may use a

variety of financial incentives to fund purchases and installation of

materials and equipment under this paragraph including, but not limited

to, regular loans, revolving loans, loan buy-downs, performance

contracting, rebates and grants.

* * * * *

[FR Doc. 97-12641 Filed 5-13-97; 8:45 am]

BILLING CODE 6450-01-P