Revisions to the Permits and Sulfur Dioxide Allowance System Regulations Under Title IV of the Clean Air Act

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

Clean Air Act Amendments of 1990, authorizes the Environmental

Protection Agency (EPA or Agency) to establish the Acid Rain Program.

The program sets emissions limitations to reduce acidic particles and

deposition and their serious, adverse effects on natural resources,

ecosystems, materials, visibility, and public health.

The allowance trading component of the Acid Rain Program allows

utilities to achieve sulfur dioxide emissions reductions in the most

cost-effective way. Allowances are traded among utilities and recorded

in EPA's Allowance Tracking System for use in determining compliance at

the end of each year. The Acid Rain Program's permitting, allowance

trading, and emissions monitoring requirements are set forth in the

``core rules'' promulgated on January 11, 1993. This proposal would

amend certain provisions in the permitting and Allowance Tracking

System rules for the purpose of improving the operation of the

Allowance Tracking System and the allowance market, while still

preserving the Act's environmental goals.

DATES: Comments. Comments on this action must be received on or before

September 2, 1998, unless a hearing is requested by August 13, 1998. If

a hearing is requested, written comments must be received by September

17, 1998.

Public Hearing. Anyone requesting a public hearing must contact the

EPA no later than August 13, 1998. If a hearing is held it will be held

on August 14, 1998, beginning at 8:30 am.

ADDRESSES: Comments. Comments should be submitted in duplicate, to: EPA

Air Docket, Attention, Docket No. A-98-15, U.S. Environmental

Protection Agency, 401 M Street, S.W., Washington, DC 20460.

Public Hearing. If a hearing is held it will take place at the EPA

Auditorium at 401 M St., S.W., Washington DC.

Docket. Docket No. A-98-15, containing supporting information used

in developing the proposed rule, is available for public inspection and

copying between 8:30 a.m. and 3:30 p.m., Monday through Friday, at

EPA's Air Docket Section, Waterside Mall, room 1500, 1st Floor, 401 M

Street, S.W., Washington, DC 20460. A reasonable fee may be charged for

copying.

FOR FURTHER INFORMATION CONTACT: Donna Deneen, Permits and Allowance

Market Branch, Acid Rain Division (6204J), U.S. Environmental

Protection Agency, 401 M Street S.W., Washington, DC 20460 (202-564-

9089).

SUPPLEMENTARY INFORMATION: The information in this preamble is

organized as follows:

I. Affected Entities

II. Background

III. Revisions

A. Allowance Transfer Deadline

B. Compliance Determination

C. Signature Requirement for Transfer Requests

D. Impacts of Revisions on Acid Rain Permits

IV. Administrative Requirements

A. Executive Order 12866

B. Paperwork Reduction Act

C. Unfunded Mandates Act

D. Regulatory Flexibility

E. Applicability of Executive Order 13045: Children's Health

Protection

I. Affected Entities

Entities potentially regulated by this action are fossil-fuel fired

boilers or turbines that serve generators producing electricity,

generate steam, or cogenerate electricity and steam. Regulated

categories and entities include:

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Examples of regulated

Category entities

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Industry.................................. Electric service providers,

boilers from a wide range

of industries.

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This table is not intended to be exhaustive, but rather provides a

guide for readers regarding entities likely to be regulated by this

action. This table lists the types of entities that EPA is now aware

could potentially be regulated by this action. Other types of entities

not listed in the table could also be regulated. To determine whether

your facility is regulated by this action, you should carefully examine

the applicability criteria in Sec. 72.6 and Sec. 74.2 and the

exemptions in Secs. 72.7, 72.8, and 72.14 of title 40 of the Code of

Federal Regulations. If you have questions regarding the applicability

of this action to a particular entity, consult the persons listed in

the preceding FOR FURTHER INFORMATION CONTACT section.

II. Background

On January 11, 1993, EPA promulgated the ``core'' regulations that

implemented the major provisions of title IV of the Clean Air Act (CAA

or the Act), as amended on November 15, 1990, including the Permits

rule (40 CFR part 72) and the Sulfur Dioxide Allowance System rule (40

CFR part 73). Since promulgation, these rules have been applied to

three compliance years, 1995, 1996, and 1997 for which affected units

were required to meet the annual allowance holding requirements

established by the rules. During this time, the Agency has gained

experience in implementing these requirements and believes that certain

provisions in the rules should be revised to improve the operation of

the Allowance Tracking System and the allowance market. This proposal

contains changes to the allowance transfer deadline and compliance

determinations and clarifies the signature requirements for allowance

transfer requests.1 These revisions and the reasons for

their proposal are summarized below.

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\1\ In addition, Sec. 73.34(c)(4) is revised to eliminate the

reference to the direct sales provisions, which were previously

removed from part 73. 61 FR 28761, 28762 (1996).

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III. Revisions

A. Allowance Transfer Deadline

The ``allowance transfer deadline'' is the last day on which

allowance transfers may be submitted to EPA for recordation in a

compliance subaccount for use in meeting a unit's sulfur dioxide

(SO2) emissions limitation requirements for the year. 40 CFR

72.2 (definition of ``allowance transfer deadline''). EPA is proposing

to extend the allowance transfer deadline from the current date of

January 30 to March 1 (or February 29 in any leap year). As explained

below, this proposed change reflects the Agency's experience in

operating the Allowance Tracking System, particularly following the

1995, 1996, and 1997 compliance years, and the technological advances

that have been made regarding the submission of continuous emissions

monitoring system (CEMS) data.

EPA's reasoning for selecting the current date of January 30 for

the allowance transfer deadline is laid out in the preamble to the

January 11, 1993 core rules. 50 FR 3590, 3617 (1993). As the Agency

explained, it was anticipated that this date would provide utilities

with ample time to transact and submit allowance transfers at the end

of

[[Page 41359]]

the year, while giving EPA adequate time to complete its administrative

duties before the date (60 days after the end of the year) that excess

emissions offset plans were due. EPA's administrative duties involve

reviewing, recording, and notifying the authorized account

representatives of any transfers, and, if the authorized account

representatives review the notifications and submit error claims,

reviewing and resolving each error claim. The Agency noted that

extending the allowance transfer deadline to March 1 would leave no

time for these activities and was therefore not a viable option.

Id.2

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\2\ EPA also expressed concern that designated representatives

might need time between the allowance transfer deadline and March 1

to complete and submit excess emission offset plans. 56 63002, 63050

(1991). However, no utility has yet had to submit an offset plan.

Further, under part 77, as amended, any offset plan would simply

state that allowances are to be immediately deducted, except in an

extraordinary case when it could be shown that immediate deduction

would interfere with electric reliability. See 61 FR 68340, 68363

(1996).

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Now, based on nearly four years of experience with the Allowance

Tracking System, EPA believes that changing the allowance transfer

deadline to March 1 is a viable option. The allowance transfer

processing activities cited in the January 11, 1993 preamble as an

obstacle to changing the deadline have turned out to have little or no

impact on the designated representative's ability to submit or the

Agency's ability to review excess emissions offset plans or compliance

certifications, which are also due on March 1 (or February 29 in any

leap year).3 The primary reason EPA sends out transfer

notifications to authorized account representatives is so they can

check whether EPA made an error in processing transfer requests. EPA

notes that although it has processed over 2500 private transfers of

allowances since the Allowance Tracking System first opened for

business, only one claim of error by EPA has been submitted. Moreover,

if EPA makes an error, EPA is obligated to correct the error and make

the change effective as of the date the authorized account

representative originally submitted the transfer form. This makes it

unnecessary for the notification and error claim process to take place

prior to the excess emissions offset plan and compliance certification

deadline. Once authorized account representatives have sent to EPA

their final allowance transfer requests, they have all the information

they need to determine whether their units are in compliance and

whether an excess emissions offset plan is needed. Of course, a

transfer notification from EPA could be used as a check on those

determinations; however, that is not the only way authorized account

representatives can ensure their determinations are correct. For

example, they can set up internal procedures in their companies to

ensure accurate allowance accounting and can access the Agency web site

via the internet for current allowance account balances in the

Allowance Tracking System. Moreover, authorized account representatives

that find the transfer notification useful for cross-checking allowance

balances can still submit their last transfer requests ahead of March 1

so they can use the notifications to make this check.

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\3\ Under Sec. 72.90, the annual compliance certification report

is required to be submitted within 60 days after the end of the

calendar year.

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EPA considered extending the allowance transfer deadline by two

weeks, rather than a month. However, EPA believes that making the

deadline coincide with the deadline for other acid rain submissions

(i.e., the compliance certification report and any excess emissions

offset plan) would reduce potential confusion because persons

responsible for complying with the requirements could focus on one

deadline for all of their end-of-year allowance-related submissions.

The 1 month extension also provides companies with additional time

to make last minute adjustments to allowance holdings in order to

reflect the actual level of emissions during the prior calendar year.

Under the current rule, the allowance transfer deadline coincides with

the fourth-quarter monitoring report deadline, leaving little or no

time for such adjustments. This makes it difficult for utilities to

cross-check what they believe to be the final emissions results with

feedback from EPA on the fourth-quarter report and then make allowance

adjustments, as necessary. The additional time will be particularly

useful because designated representatives who submit their emissions

reports electronically now receive immediate electronic feedback on the

substantive portion of their submissions. (In the past, designated

representatives did not receive this feedback, on fourth quarter

reports submitted around the report deadline, until April because the

Agency performed this review manually.) This feedback will identify

problems with submitted data, which could affect how the utility should

allocate its allowances among its units' accounts. The extension will

help to ensure utilities have the time they need to resolve any

emissions data problems and transfer allowances among their units'

accounts as needed.

The extension also helps utilities that are contemplating changes

to their monitoring systems that could temporarily affect their

reported emissions rate. For example, while correcting a problem (e.g.,

with monitor data availability), a utility or its software vendor may

take corrective actions that cause a different problem (e.g., actions

that fail to account for missing data in the hourly record data base)

and result in the unit's emissions being under-reported. Under the

current rule, such an oversight could have a significant effect on

reported emissions, especially if a company takes corrective actions in

the last quarter of the year. The fourth-quarter monitoring report is

due January 30 and any feedback from a report submitted on that date

would provide the company with little or no time to make the necessary

adjustments among its accounts for the reporting year. With the

proposed extension of the allowance transfer deadline, companies that

take corrective actions at the end of the year would have an

opportunity to make any necessary allowance adjustments after receiving

EPA feedback on their monitoring reports, and companies that might

normally delay making such changes until after the end of the year

would no longer need to do so. In addition, the extension would provide

some additional time for correcting any inadvertent errors (whether or

not associated with corrective monitoring actions) concerning allowance

holdings, e.g., in how allowances were distributed by a utility among

its units' accounts.

In sum, EPA believes the allowance transfer deadline should be

extended to March 1 because this would: reduce potential confusion over

end-of-year submission deadlines; allow authorized account

representatives to make final transfer decisions after receiving

feedback on their fourth-quarter monitoring reports; and give utilities

additional time to avoid inadvertent errors. Moreover, EPA believes

that it can successfully administer the Allowance Tracking System and

carry out its other end-of-year administrative duties without any delay

between the allowance transfer deadline and the March 1 deadline for

utilities' submissions of compliance certifications. EPA requests

comment on the proposed allowance transfer deadline and, specifically,

whether the allowance transfer deadline should be extended from January

30 to March 1 (or February 29 in any leap year).

B. Compliance Determination

Today's proposed revisions also change how excess emissions are

determined at a unit at the end of a

[[Page 41360]]

compliance year. The proposed revisions would effectively reduce the

number of tons of excess emissions a unit would otherwise have after

deductions for compliance are made under Sec. 73.35(b)(2) by allowing

up to a certain number of allowances for that unit to be deducted from

the compliance subaccounts of other units at the same source that have

unused allowances.

EPA is proposing these revisions because of concern that (even with

an extended allowance transfer deadline) inadvertent, minor accounting

mistakes by utilities, which under the proposed revision would have no

significant environmental impact, could lead to excessively high excess

emissions penalty payments. Currently, the excess emissions penalty of

$2000, adjusted for inflation since 1990 (i.e., over $2500), per ton is

more than 10 times the current market value of an allowance and applies

to all excess emissions at a unit even if they result from inadvertent,

minor errors. As a result, companies have the potential of making

enormous excess emissions penalty payments (i.e., the excess emissions

penalty times excess emissions) for what may be unintentional, minor

mistakes when performing their end-of-year accounting of emissions and

allowances. Under the circumstances in which the proposed revisions

would apply, imposition of such penalty payments does not seem

necessary or desirable, given the nature of such potential mistakes.

For example, a company may have acquired enough allowances to cover all

the emissions at a source, but distributed them erroneously among the

units at the source because of a mistake in determining how many

allowances were needed in each unit's account or in designating the

amounts transferred among the units' accounts. In light of the

potential for such mistakes, especially in Phase II when the number of

units subject to the allowance holding requirement will more than

quadruple, the Agency believes that the proposed revisions offer a more

reasonable approach than the existing rule for ensuring that allowance

holding requirements under the Acid Rain Program are met.

The major revisions for carrying out the proposed new approach are

to the compliance provisions of Sec. 73.35. Among other things, the

proposed revisions to Sec. 73.35 adjust the application of the ``Acid

Rain emissions limitation for sulfur dioxide'' when used to determine a

unit's excess emissions. The term ``excess emissions'' is defined in

Sec. 72.2 as ``[a]ny tonnage of sulfur dioxide emitted by an affected

unit during a calendar year that exceeds the Acid Rain emissions

limitation for sulfur dioxide for the unit''. The adjustment in

Sec. 73.35 of the application of the Acid Rain emissions limitation for

sulfur dioxide has the effect of adjusting the definition of excess

emissions.

To make this adjustment, the key provision that has been added is

proposed Sec. 73.35(b)(3).4 This new provision requires

that, after completing the annual compliance deductions in

Sec. 73.35(b)(2) for all affected units at the same source, the

Administrator may deduct, for a unit that would otherwise have excess

emissions, up to a certain amount of allowances from the compliance

subaccounts of other units at the same source that would otherwise have

unused allowances. This second deduction of allowances would reduce the

number of excess emissions at the unit by an equivalent amount. The

owners and operators of such unit would still be subject to the excess

emissions penalty and offset requirements, but for only the excess

emissions remaining for the unit after the second deduction.

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\4\ In addition, the definitions of ``allowance transfer

deadline,'' ``compliance subaccount,'' and ``current year

subaccount'' are revised to be consistent with proposed

Sec. 73.35(b)(3).

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The Agency considered allowing a unit that would otherwise have

excess emissions to use the unused allowances at other units at the

same source to completely eliminate all excess emissions without any

penalty. It rejected that approach, however, because of the Act's

pervasive unit-by-unit orientation, particularly with regard to

SO2 emissions. For example, under sections 402 (e.g., the

definitions of ``existing unit'' and ``utility unit''), 403(b), 403(e),

404(a), and 405, the applicability of title IV is determined on a unit-

by-unit basis. Further, section 403(a)(1) requires allocation of

allowances to, and sections 403(e), 404, 405, 406, 409, and 410 set

annual SO2 emission limitations for, individual units, and

not sources. Under section 411(a), excess emissions and penalties are

determined for each individual unit. Moreover, section 412(a) requires

unit-by-unit monitoring of emissions. Allowing in all cases the use of

allowances from other unit compliance subaccounts to completely

eliminate a unit's excess emissions would effectively change the unit

allowance holding requirement to a source allowance holding

requirement. Therefore, balancing, on one hand, the goal of retaining

in the regulations the general unit-by-unit orientation to compliance

reflected in title IV and, on the other hand, the perceived need for

some compliance flexibility to account for inadvertent, minor errors,

EPA proposes to allow a large portion (but not all) of the allowances

required to be deducted to come from subaccounts of other units at the

source. This approach would provide some flexibility but also maintain

a strong incentive for owners and operators to hold a sufficient number

of allowances in each unit compliance subaccount. EPA is also open to

comment on other ways of implementing this objective.

The number of allowances that could be deducted under proposed

Sec. 73.35(b)(3) would be related to the average price of an allowance.

The average allowance price is defined in Sec. 73.35(b)(3) as the

average price paid for a spot allowance at the auction held under

Sec. 73.70 during the year for which compliance is being determined.

The Agency proposes using the average price paid for a spot allowance

at the auction to determine the average price of allowances at the time

that compliance is being determined because a spot allowance is usable

in the year it is auctioned and the auction is an annual event

authorized under the Clean Air Act and results in allowance prices that

are generally available to the public. Advance allowances, which are

also auctioned, are not usable for 7 years. The Agency will publish the

average price paid for a spot allowance (as defined in

Sec. 73.35(b)(3)) in the Federal Register by October 15 of each

compliance year.

The formula for determining the number of allowances that can be

deducted from other unit accounts is proposed in Sec. 73.35(b)(3) and

incorporates the average price of an allowance as follows:

Maximum deduction from other units = Excess emissions if no

deduction from other units-[Excess emissions if no deduction from

other units x 3 (Average allowance price)/Excess emissions

penalty] 5

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\5\ ``Maximum deduction from other units'' is the maximum number

of allowances that may be deducted for the year for which compliance

is being established, for a unit otherwise having excess emissions

from the compliance subaccounts of other units at the same source,

rounded to the nearest allowance. ``Excess emissions if no deduction

from other units'' is the tons of excess emissions that a unit would

otherwise have if no allowances were deducted for the unit from

other units under proposed Sec. 73.35(b)(3). ``Excess emissions

penalty'' is the applicable dollar amount of the penalty for one ton

of excess emissions of sulfur dioxide under Sec. 77.6(b). ``Average

allowance price'' is a dollar amount (which the Administrator will

publish in the Federal Register by October 15 of each year) equaling

the total proceeds from the spot allowance auction (including EPA

Reserve allowances and any privately offered allowances) held under

Sec. 73.70 during the year divided by the number of allowances sold

at such auction, rounded to the nearest dollar.

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[[Page 41361]]

The formula applies to any unit that would otherwise have excess

emissions under the existing rule, with two exceptions. First, if the

amount calculated is less than zero, the maximum allowance deduction

from other units equals zero (i.e., a negative number of allowances

cannot be deducted). Second, if the amount calculated results in less

than 10 tons of excess emissions, the amount that can be deducted from

other accounts must be adjusted so that 10 tons of excess emissions, or

the tons of excess emissions that would result if no allowances could

be deducted from other unit accounts, whichever is less, remain for the

unit. This provision ensures that any unit that would have excess

emissions under the existing rule would continue to have some excess

emissions under the proposed rule.

For all other cases, the formula in proposed Sec. 73.35(b)(3) would

apply if a unit fails to hold enough allowances in its unit subaccount

to cover its emissions. Using the formula, the number of allowances

that could be deducted from other unit compliance subaccounts at the

same source would equal the tons of excess emissions that a unit would

otherwise have without applying Sec. 73.35(b)(3) minus a calculated

value. The calculated value (i.e., the term after the ``-'' sign in the

formula) represents 6 the number of tons emitted by a unit

which cannot be offset by allowances from other unit

accounts.7 This value also represents, assuming the maximum

allowances under the formula are deducted from other units' accounts,

the tons of excess emissions at the unit. These excess emissions would

be subject to the excess emissions penalty ($2000 in 1990 dollars per

ton of excess emissions, adjusted for inflation each year).8

Because there are fewer tons subject to the penalty (i.e., because the

tons for which allowances were deducted from other unit accounts are

not subject to the penalty), the total penalty payment would be less

than the total penalty payment under the existing rule. EPA proposes

that the maximum allowance deduction be based on three times the

allowance price (with a 10 ton minimum for excess emissions) because

the Agency believes the resulting penalty would provide adequate

incentive for compliance while reducing the penalty payment for

inadvertent, minor errors.

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\6\ When actually applying the formula, the term (without

rounding to the nearest ton) is subtracted from the ``tons of excess

emissions if no allowance deduction from other units'; rounding

takes place afterwards.

\7\ When this number is subtracted from the tons of excess

emissions the unit would otherwise have if no allowances could be

deducted from other units, the result is the maximum number of

allowances that can be deducted from other units.

\8\ For 1998, the inflation-adjusted penalty is $2,581 per ton

of excess emissions.

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In general, the extent to which the total penalty payment is

reduced as a result of the revisions depends on the average market

price of an allowance and the excess emissions per ton penalty. For

instance, if three times the average market price of an allowance is 14

percent of the per ton excess emissions penalty, then the total penalty

payment for the unit would be about 9 14 percent of the

payment that would have resulted without the revisions. An exception is

where three times the average market price of an allowance is equal to

or greater than the per ton excess emissions penalty, in which case no

allowances would be deducted from other unit accounts and the total

penalty payment would be the same as under the existing rule. A second

exception is where three times the market price of an allowance, when

used in the formula, results in less than 10 tons of excess emissions.

In that case, the allowable allowance deduction from other unit

accounts would be adjusted so that the lesser of 10 tons of excess

emissions or the number of tons of excess emissions that would result

if no allowances could be deducted from other units would remain for

the unit.

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\9\ The relationship is approximate because the formula requires

rounding to the nearest allowance.

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This approach would reduce the total excess emissions penalty

payment owed for the unit while still ensuring, as intended by

Congress, that compliance would be always cheaper than emitting more

pollution than lawfully permitted.10 It would also encourage

use of the proposed provisions only in extraordinary or extenuating

circumstances and not as a matter of course. EPA is soliciting comment

on the formula in proposed Sec. 73.35(b)(3) and on any alternative

formulas that could be used to determine the number of allowances that

could be deducted from other unit compliance subaccounts at the same

source. Comment is specifically requested concerning: whether the limit

(in the proposed formula) on the number of allowances used from other

units should be based on three times the market price of an allowance

(and incorporate a 10 ton minimum); whether the limit should be raised

or lowered; and whether, with the limit, there would continue to be

appropriate incentives for compliance.

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\10\ See Senate Rep. No. 101-228 at 336, December 20, 1989,

(explaining that ``[t]he [excess emissions] fee, adjusted annually

to keep pace with inflation, is designed to be high enough that

pollution control options [e.g., acquiring allowances] will always

be cheaper than continuing to emit more pollution than lawfully

permitted.''

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The allowances deducted under proposed Sec. 73.35(b)(3) are limited

to those that are in the compliance subaccounts of other units at the

same source as the unit with excess emissions. This same-source

limitation ensures that only one designated representative is involved

in the deduction of allowances from other unit compliance subaccounts

and that changes necessary to existing contracts involving allowance

agreements among different owners of units are minimized. This approach

also limits the extent of deviation from title IV's general unit-by-

unit orientation by allowing a unit to use only allowances held for

other units that are at the same geographic location, i.e., at the same

plant.

In Sec. 73.35(b)(3)(i), EPA proposes two options for implementing

the provisions allowing, for a unit with excess emissions, deductions

of allowances from the compliance subaccounts of other units at the

source. EPA would implement only one of the two options. The options

are described below.

1. Option 1

Under Option 1, deductions from other unit compliance subaccounts

are automatic unless the authorized account representative requests

that no such deductions be made. This would allow the Agency to make

these deductions immediately after all other compliance deductions are

made and would reduce the risk of delay of final compliance

determinations. The proposed provision also specifies the order of unit

compliance subaccounts for which allowances would be deducted from

other unit compliance subaccounts and the order of the other unit

compliance subaccounts from which the allowances would be deducted,

allowing authorized account representatives to know in advance the

sequence of deduction. The sequence is based on the Allowance Tracking

System account numbers of the units involved. Allowances would be

deducted first for the unit that has the lowest account number of the

units at the source and then for each subsequent unit, in order of

increasing account number and ending with the unit with the highest

account number at the source. Likewise, allowances would be deducted

from the unit with unused allowances that has the lowest account number

at the source and then for each unit that has unused allowances, in

[[Page 41362]]

order of increasing account numbers at that source. Under this ordering

scheme, alphabetical characters would have values increasing in

alphabetical order and lower values than all numeric characters, and

the sort would begin on the left-most character and end on the right-

most character of each 12 character account number. This order is

consistent with how alphabetical and numeric characters are internally

represented and sorted in the Agency's mainframe computer that runs the

Allowance Tracking System, making this a cost effective approach for

handling the deductions. An example of the order of unit compliance

subaccounts from which (or for which) allowances would be deducted is

as follows: 00038700PFLG, 00038700PFL4, 000387004GT2. Within a

compliance subaccount, allowances would be deducted under

Sec. 73.35(b)(3) on a first-in, first-out (FIFO) accounting basis.

EPA considered that, under this approach in Option 1, authorized

account representatives would not have the discretion to choose the

order of the compliance subaccounts for which and from which allowances

are to be deducted. This may be a concern especially where the owners

or their ownership shares are different for different units at a

source. If, however, an authorized account representative objects to

the order described above (which is set forth in proposed

Sec. 73.35(b)(3)), a notification may be submitted at any time by the

allowance transfer deadline that identifies the units for which

Sec. 73.35(b)(3) is not to be applied. If such notification is

submitted for a unit and the unit fails to meet the unit allowance

holding requirement reflected in Sec. 73.35(b)(1) and (2), none of the

allowances from other unit compliance subaccounts would be used to

reduce the total amount of excess emissions at the unit. If no

notification is submitted, the Agency would automatically make the

deductions from the other units at the source, and the tons of excess

emissions would be reduced.

2. Option 2

EPA is also proposing a second option for deducting allowances from

other units at the sources. Under Option 2, the authorized account

representative would be allowed to submit for a unit, within 15 days of

receiving notice from the Agency of a unit's failure to hold sufficient

allowances in its unit account, the identification of the serial

numbers of the allowances (held in compliance subaccounts of other

units at the source) that are to be deducted under Sec. 73.35(b)(3) and

the compliance subaccounts from which those allowances would be

deducted. Like the first alternative, the authorized account

representative could choose not to have allowances deducted from other

compliance subaccounts. A disadvantage of this alternative is that it

would likely delay the Agency's end of year compliance determination

and extend the allowance freeze by at least two weeks because of the

time it would take to mail notification and wait for a response. The

Agency is soliciting comment on both Option 1 and Option 2.

The changes in today's proposal allowing allowances to be deducted

for a unit from other unit accounts are consistent with the provisions

in title IV governing excess emissions, i.e., sections 403(g), 411(a)

and (b), and 414 of the Act. Section 403(g) is a general prohibition

barring an affected unit from emitting sulfur dioxide in excess of the

number of allowances ``held for that unit for that year by the owner or

operator of the unit'' (42 U.S.C. 7651b(g)), section 411(a) establishes

the owner or operator's liability for an excess emissions penalty and

offset if sulfur dioxide is emitted at a unit in excess of the

allowances ``the owner or operator holds for use for the unit for that

calendar year'' (42 U.S.C. 7651j(a)), and section 414 states that the

operation of an affected unit to emit sulfur dioxide in excess of

allowances ``held for the unit'' is deemed a violation of the Act and

that each ton emitted in excess of allowances held constitutes a

separate violation (42 U.S.C. 7651m). In all three provisions, the Act

refers to holding allowances ``for'' a unit but does not specifically

dictate the account in which those allowances must be held. See also 42

U.S.C. 7651b(f) and 7651j(b).

Under the January 11, 1993 Acid Rain core rules, these statutory

provisions were generally interpreted to mean allowances for a unit

could be held only in the compliance subaccount of the unit for which

allowances were being deducted. The Agency, however, believes this

interpretation should be reconsidered and revised to provide some

compliance flexibility while balancing the need for compliance

flexibility with the general unit-by-unit orientation of title IV.

Because of the multiple references to allowances held ``for'' a unit,

the Agency believes the language is broad enough to support today's

proposed interpretation, which allows most (but not all) of the

allowances to be deducted from the compliance subaccount of other units

at the same source and thus establishes a limited departure from the

general unit-by-unit orientation for compliance.

Allowing a unit to use allowances from the compliance subaccounts

of other units at the same source is consistent with the limited

exception to unit-by-unit compliance currently allowed for units

sharing a common stack but not individually monitoring emissions under

part 75. Under existing Sec. 73.35(e), the authorized account

representative for affected units that share a common stack and lack

individual-unit monitoring may arbitrarily assign a percentage of

allowances to be deducted from the compliance subaccount for each unit.

This assignment, which can be submitted as late as 60 days after the

end of the year when the annual compliance report is due, can result in

100 percent of the required allowance deduction coming from the

compliance subaccount of only one of the units sharing the common

stack. Such a single deduction would not necessarily represent the

emissions from each unit, because each unit sharing the common stack

may have discharged some portion of the emissions measured. Thus, under

the existing regulations, allowances already can be deducted, under

limited circumstances, from the compliance subaccounts of other units

at the same source. This limited exception to unit-by-unit compliance

is allowed in order to avoid requiring monitoring of the ducts of each

common stack unit, which may not be physically possible, and to

minimize the need for redesigning stack and duct configurations to make

individual-unit monitoring possible. See, e.g., Docket # A-90-51,

Response to Public Comment on the Core Rules of the Acid Rain Program,

Volume III at p. M-393 (October 1992). Although there are a number of

affected units under the Acid Rain Program that are subject to the

common stack provision (i.e., 23 percent of the affected units

operating in 1996 reported SO2 or NOX data that

included the emissions from two or more units), EPA has seen no adverse

effects on the functioning of the Acid Rain Program during the first

three years of compliance determinations.

Like the common stack provisions, today's revisions would permit

allowances to be deducted for a unit that would otherwise have excess

emissions from the compliance subaccounts of other units at the same

source even though the emissions involved did not come from those other

units. However, unlike the common stack provision, the proposed

revisions would limit the number of allowances that could be deducted

from the compliance subaccounts of other units. The reason for this

difference is that the

[[Page 41363]]

common stack provisions address primarily situations where it may not

be feasible to monitor the emissions from individual units sharing a

common stack. In contrast, today's revisions would address primarily

cases where feasibility of monitoring is not at issue, but because of

inadvertent, minor errors in accounting for emissions or in handling

allowances, a unit fails to hold enough allowances in its compliance

subaccount at the end of the year. Because today's revisions apply to

units that, absent inadvertent, minor errors, could have complied with

the individual unit allowance holding requirement, the Agency believes

it is appropriate to strike a balance between, on one hand, compliance

flexibility to reduce total excess emission penalty payments for

failing to hold enough allowances because of inadvertent, minor errors

and, on the other hand, maintenance of the general unit-by-unit

orientation of title IV. Today's proposed revision reflects this

balancing of objectives by allowing deductions of allowances from other

units but limiting the extent of such deductions so that significant

excess emissions penalty payments would still result from failing to

hold sufficient allowances in the unit's own compliance subaccount.

This approach would ensure that utilities would continue to strive to

meet the unit allowance holding requirement.

Today's proposed changes, while designed primarily to address the

consequences of making inadvertent, minor errors, would apply to all

allowance holding violations and would not require a demonstration

concerning the nature of the error. The Agency maintains that it would

be difficult, and costly in terms of time and resources, to investigate

and determine why a unit compliance subaccount failed to hold

sufficient allowances and to distinguish between unintentional, minor

errors and other errors. Since the proposed allowance deduction

flexibility is not limited to inadvertent, minor errors, that is an

additional reason for limiting that flexibility, i.e., by limiting the

number of allowances that can be deducted from other units at a source.

This limitation would provide an incentive to avoid any errors and

would minimize any abuse of this flexibility. EPA believes that

generally the total amount of excess emissions penalty payment (i.e.,

which, at the 1997 auction price of an allowance, would be about 14

percent of the penalty payments under the existing rule) that would

remain even if unused allowances were available from other units at the

source would deter companies from using this provision except in

extraordinary situations.

In sum, the adjustment to the allowance holding requirement in

today's proposal addresses the potential for inadvertent, minor errors

by utilities regulated under the Acid Rain Program and provides a

reasonable approach for addressing such errors. EPA requests comment on

all aspects of this proposed revision, including the options presented

concerning notification by the authorized account representative and

the effect, if any, of the revision on the auction or market price of

allowances traded during the year or on trading behavior. EPA also

requests comment on how Option 1 and Option 2 would apply to a source

that has two authorized account representatives under Sec. 74.4(c)

(i.e., one for the utility units, and one for the opt-in units, at the

same source).

C. Signature Requirement for Transfer Requests

Under the current rule, Sec. 73.50(b)(1) requires authorized

account representatives seeking recordation of an allowance transfer to

submit a request for the transfer that contains, among other things,

signatures of the authorized account representatives for both the

transferor and the transferee accounts. The Agency proposes to add

Sec. 73.50(b)(2) to clarify that the authorized account representative

for a transferee account can meet the signature requirement by

submitting, along with or in advance of a transfer request from the

authorized account representative for any transferor account, a signed

statement identifying the accounts into which any transfer of

allowances, on or after the date of EPA's receipt of the statement, is

authorized. The signed statement would state that, upon receipt by the

Administrator, the authorization is binding on the authorized account

representative and on any new authorized account representative

11 for all such allowance transfers into the specified

accounts until such time as EPA receives a signed statement from the

authorized account representative retracting the authorization.

Proposed Sec. 73.50(b)(2) sets forth the specific language that would

be included in the statement. Under existing Secs. 72.23 (a) and (b),

any new authorized account representative would, in fact, be bound by

such a statement. Once the statement is received and an allowance

transfer request is received and processed, EPA would still send both

authorized account representatives transfer confirmation reports of any

recorded transfer so that the authorized account representatives of

both accounts have the opportunity to review the transfer after it has

been recorded.

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

\11\ Binding future authorized account representatives to the

statement ensures that the reduced burden resulting from submitting

a signature in advance is not lost automatically when an authorized

account representative changes.

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

The Agency believes the existing rules already allow for this

approach. Existing Sec. 73.50(b)(1) allows the Administrator to specify

a format for submitting a transfer request, which means the

Administrator can already allow information from each authorized

account representative to come in separately. Further, under existing

Sec. 73.50(b)(1), the transferee authorized account representative

certifies the transfer by attesting to the language in the allowance

transfer form, which is also set forth in Sec. 72.21(b). This is the

same language to which he or she would attest when authorizing

transfers in advance. Moreover, existing Sec. 73.50(b)(1)(iii) through

(v) specifies the information (i.e., the signatures and identification

numbers of the authorized account representatives and the date of the

signatures) that must be submitted by both authorized account

representatives, but does not require the information from both

individuals to come in simultaneously. Therefore, the Administrator is

not precluded from accepting a signature from an authorized account

representative for the transferee account that is submitted prior to

the submission of the signature of the authorized account

representative for the transferor account. In light of the minimal, if

any, protection that simultaneously submitted signatures would provide

to the parties,12 it is unnecessary for both signatures to

come in at the same time. Hence, under the existing regulations, EPA

can allow a signature of the transferee authorized account

representative to be submitted prior to the signature of the transferor

authorized account representative. Nevertheless, EPA believes that

clarifying, through specific rule language, that this approach can be

used would be helpful to authorized account representatives who wish to

authorize, in advance, future transfers into an account and reduce

their burden by eliminating the need for each party to the transfer to

see and sign the allowance transfer form. Proposed

[[Page 41364]]

Sec. 73.50(b)(2) is added to make this clarification.

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\12\ The two-signature requirement, required in section 403(b)

of the Act, was apparently intended to protect the transferor and

transferee during the transfer process, but it is the parties'

private agreement, not the allowance transfer form submitted to EPA,

that protects the transferor and transferee.

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

Today's clarification is spurred by a desire to put in place a

system that allows for submitting transfer requests electronically to

the Agency. According to comments received from both industry and

environmental organizations, such a system would increase efficiency,

reduce personnel requirements, reduce data entry errors and paperwork,

make the Allowance Tracking System more attractive to users, and result

in a more vibrant and active market. See, e.g., Docket # A-91-43,

Response to Public Comment on the Core Rules of the Acid Rain Program,

Volume I at p. A-27. In response, the Agency has been working with

utility representatives in an effort to put in place Electronic Data

Interchange (EDI) technology, a uniform standard set by the American

National Standards Institute for electronic interchange of business

transactions, to address this issue. Comments by experts familiar with

established protocols for EDI have indicated that requiring two

signatures on the same submission makes implementation of the EDI

technology much more difficult. Proposed Sec. 73.50(b)(2) would make it

clear to utilities that they have the option of submitting a signature

in advance, which would remove this obstacle and make it easier to use

EDI.13 In the meantime, in light of the Agency's existing

authority to do so, the Agency has begun to accept signature statements

from authorized account representatives who want to take advantage of

this option immediately for transfer requests submitted either in hard

copy or electronically.

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

\13\ EPA considered completely eliminating the signature

requirement for the authorized account representative for the

transferee account; however, the Agency is constrained from doing so

by statutory language in section 403(b) of the Act, which states

that ``[t]ransfers of allowances shall not be effective until

written certification of the transfer, signed by a responsible

official of each party to the transfer, is received and recorded by

the Administrator.'' 42 U.S.C. 7651b(b).

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

The streamlining benefit of having the signature of the authorized

account representative for the transferee account submitted prior to

any specific transfer request is consistent with the general purposes

of section 403(d) of the statute. This provision requires that the

Administrator specify ``all necessary procedures and requirements for

an orderly and competitive functioning of the allowance system.'' 42

U.S.C. 7651b(d). Because an advance signature authorization from the

authorized account representative for the transferee account would make

subsequent allowance transfers less burdensome (both EDI-initiated and

hard copy-initiated transfers), it would enhance the operation of the

Allowance Tracking System and the allowance market as a whole.

For the above reasons, the Agency has added Sec. 73.50(b)(2) to

clarify that a signature statement from the authorized account

representative for the transferee account can be submitted prior to the

signature of the authorized account representative for the transferor

account.

D. Impacts of Revisions on Acid Rain Permits

Today's proposed revisions are designed so that the contents of

existing acid rain permits and the State regulations required to issue

acid rain permits would not have to be changed in order for the

revisions to become effective. With the exception of changes in the

definitions of ``allowance transfer deadline,'' ``compliance

subaccount,'' and ``current year subaccount,'' all of today's revisions

are made in 40 CFR part 73. Forty CFR part 73 governs EPA's operation

of the Allowance Tracking System and does not contain any requirements

for permitting or any other activities for which State permitting

authorities are responsible. For this reason, 40 CFR part 73 has not

been, and is not required to be, adopted by State permitting

authorities under Sec. 72.72. Thus, it would be unnecessary for State

permitting authorities to revise the acid rain permits they have issued

or regulations they have adopted to reflect today's proposed changes to

40 CFR part 73.

Similarly, the proposed changes could go into effect without State

permitting authorities revising acid rain permits or regulations to

reflect the two revised definitions in 40 CFR part 72. Under existing

Sec. 72.50(b), each Acid Rain permit is deemed to incorporate the

definitions in Sec. 72.2. Consequently, even if an acid rain permit

would be issued before the proposed changes to the Sec. 72.2

definitions would be adopted and become effective, the Agency would

propose to apply the final revised definitions to the units covered by

the permit in determining end-of-year compliance for all calendar years

for which the existing allowance transfer deadline (January 30) is on

or after the effective date of the revised definitions. Moreover, the

revised definitions would not affect the permitting activities of State

permitting authorities under 40 CFR part 72 and would be adopted in the

federal rules to implement changes made in EPA's operation of the

Allowance Tracking System under 40 CFR part 73.

While the final revised definitions in Sec. 72.2 would be applied

for any calendar year ending on or after the effective date of the

federal rule revision, State permitting authorities should revise their

own regulations to reflect such new definitions after they are

finalized. This would avoid any potential confusion on the part of

regulated entities and the public as to how end-of-year compliance

would be determined.

IV. Administrative Requirements

A. Executive Order 12866

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

Agency must determine whether the regulatory action is ``significant''

and therefore subject to Office of Management and Budget (OMB) review

and the requirements of the Executive Order. The Order defines

``significant regulatory action'' as one that is likely to result in a

rule that may:

(1) Have an annual effect on the economy of $100 million or more

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

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

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

communities;

(2) Create a serious inconsistency or otherwise interfere with

an action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlements,

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

recipients thereof; or

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

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

the Executive Order.

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

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

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

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

OMB to EPA, any written EPA response to those comments, and any changes

made in response to OMB suggestions or recommendations are included in

the docket. The docket is available for public inspection at the EPA's

Air Docket Section, which is listed in the ADDRESSES section of this

preamble.

B. Unfunded Mandates Act

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L.

104-4, establishes requirements for federal agencies to assess the

effects of their regulatory actions on State, local, and tribal

governments and the private sector. Under section 202 of the UMRA, EPA

generally must prepare a written statement, including a cost-benefit

[[Page 41365]]

analysis, before promulgating a proposed or final rule that includes a

federal mandate that may result in expenditure by State, local, and

tribal governments, in aggregate, or by the private sector, of $100

million or more in any one year. Section 205 generally requires that,

before promulgating a rule for which a written statement must be

prepared, EPA identify and consider a reasonable number of regulatory

alternatives and adopt the least costly, most cost-effective, or least

burdensome alternative that achieves the objectives of the rule. The

provisions of section 205 do not apply when they are inconsistent with

applicable law. Moreover, section 205 allows EPA to adopt an

alternative other than the least costly, most cost-effective, or least

burdensome alternative if the Administrator explains why that

alternative was not adopted. Finally, section 203 requires that, before

establishing any regulatory requirements that may significantly or

uniquely affect small governments, EPA must have developed a small

government agency plan. The plan must provide for notifying any

potentially affected small governments to have meaningful and timely

input in the development of EPA regulatory proposals with significant

federal intergovernmental mandates, and informing, educating, and

advising small governments on compliance with the regulatory

requirements.

Because the proposed rule is estimated to result in the expenditure

by State, local, and tribal governments or the private sector of less

than $100 million in any one year, the Agency has not prepared a

budgetary impact statement or specifically addressed the selection of

the least costly, most cost-effective, or least burdensome alternative.

Because small governments will not be significantly or uniquely

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

with regard to small governments.

The proposed revisions to parts 72 and 73 will potentially reduce

the burden on regulated entities by streamlining the allowance transfer

process, extending the allowance transfer deadline, and providing more

flexible allowance holding requirements. The revisions will not

otherwise have any significant impact on State, local, and tribal

governments.

C. Paperwork Reduction Act

This action proposing revisions to parts 72 and 73 will not impose

any new information collection burden subject to the Paperwork

Reduction Act (44 U.S.C. 3501, et seq.). In fact, if anything, the

revisions reduce burden by clarifying that the signature of the

authorized account representative for a transferee account can be

submitted in advance of an allowance transfer form, eliminating the

need for that authorized account representative to see and sign future

allowance transfer forms. To the extent any new information will be

required by proposed revisions concerning the holding of allowances in

other units' compliance subaccounts, the Agency projects that less than

ten companies per year will be affected by those revisions. Overall,

the revisions will result in no material change in the type or amount

of information collected under the existing ICR. OMB has previously

approved the relevant information collection requirements contained in

parts 72 and 73 under the provisions of the Paperwork Reduction Act and

has assigned OMB control number 2060-0258. 58 FR 3590, 3650 (1993).

Burden means the total time, effort, or financial resources

expended by persons to generate, maintain, retain, or disclose or

provide information to or for a Federal agency. This includes the time

needed to review instructions; develop, acquire, install, and utilize

technology and systems for the purposes of collecting, validating, and

verifying information, processing and maintaining information, and

disclosing and providing information; adjust the existing ways to

comply with any previously applicable instructions and requirements;

train personnel to be able to respond to a collection of information;

search data sources; complete and review the collection of information;

and transmit or otherwise disclose the information.

Copies of the ICR may be obtained from the Director, Regulatory

Information Division; EPA; 401 M St. SW (mail code 2137); Washington,

DC 20460 or by calling (202) 564-2740. Include the ICR and/or OMB

number in any correspondence.

D. Regulatory Flexibility

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, et seq.,

generally requires an agency to conduct a regulatory flexibility

analysis of any rule subject to notice and comment rulemaking

requirements unless the agency certifies that the rule will not have a

significant economic impact on a substantial number of small entities.

Small entities include small businesses, small not-for-profit

enterprises, and small government jurisdictions.

This proposed rule would not have a significant impact on a

substantial number of small entities. As discussed above, the revisions

would reduce the burden on regulated entities by streamlining and

adding flexibility to the regulations. Therefore, I certify that this

action will not have a significant economic impact on a substantial

number of small entities.

E. Applicability of Executive Order 13045: Children's Health Protection

This proposed rule is not subject to Executive Order 13045,

entitled Protection of Children from Environmental Health Risks and

Safety Risks (62 FR 19885 (1997)), because it does not involve

decisions on environmental health risks or safety risks that may

disproportionately affect children.

List of Subjects in 40 CFR Parts 72 and 73

Environmental protection, Acid rain, Administrative practice and

procedure, Air pollution control, Compliance plans, Electric utilities,

Penalties, Reporting and recordkeeping requirements, Sulfur dioxide.

Dated: July 28, 1998.

Carol M. Browner,

Administrator, U.S. Environmental Protection Agency.

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

Code of Federal Regulations is proposed to be amended as follows:

PART 72--[AMENDED]

1. The authority citation for part 72 continues to read as follows:

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

Sec. 72.2 [Amended]

2. Section 72.2 is amended by:

i. Removing from the definition of ``Allowance transfer deadline''

the words ``January 30 or, if January 30'' and adding, in their place,

the words ``March 1 (or February 29 in any leap year) or, if such

day''; and removing the word ``unit's'', after the words ``meeting

the'';

ii. Removing from the definition of ``Compliance subaccount'' the

word ``unit's'', after the words ``meeting the''; and

iii. Adding to the definition of ``Current year subaccount'' the

words ``, or any other affected unit at the same source to the extent

provided under Sec. 73.35(b)(3),'' after the words ``for use by the

unit'' and removing from the same definition the word ``its'' and

adding, in its place, the word ``the''.

3. Section 72.40 is amended by adding to paragraph (a)(1) the words

``, or in the compliance subaccount of another affected unit at the

same source

[[Page 41366]]

to the extent provided in Sec. 73.35(b)(3),'' after the words ``under

Sec. 73.34(c) of this chapter)''.

PART 73--[AMENDED]

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

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

Sec. 73.34 [Amended]

5. Section 73.34 is amended by removing from paragraph (c)(4) the

words ``or direct sale pursuant to subpart E of this part''.

6. Section 73.35 is amended by revising paragraph (a)(2) and adding

paragraph (b)(3) to read as follows:

Sec. 73.35 Compliance.

(a) * * *

(2) Such allowance is:

(i) Recorded in the unit's compliance subaccount; or

(ii) Transferred to the unit's compliance subaccount, with the

transfer submitted correctly pursuant to subpart D for recordation in

the compliance subaccount for the unit by not later than the allowance

transfer deadline of the calendar year following the year for which

compliance is being established in accordance with subpart D of this

part; or

(iii) Held in the compliance subaccount of another affected unit at

the same source in accordance with paragraph (b)(3) of this section.

Option 1

(b) * * *

(3)(i) If, after the Administrator completes the deductions under

paragraph (b)(2) of this section for all affected units at the same

source, a unit would otherwise have excess emissions and one or more

other affected units at the source would otherwise have unused

allowances in their compliance subaccounts and available for such other

units under paragraphs (a)(1) and (a)(2)(i) and (ii) of this section

for the year for which compliance is being established, the

Administrator will deduct such allowances from the compliance

subaccounts of the units otherwise having unused allowances, and reduce

the tons of excess emissions otherwise at the unit by an equal amount,

up to the amount calculated as follows:

Maximum deduction from other units = Excess emissions if no

deduction from other units-[Excess emissions if no deduction from

other units x 3 (Average allowance price) / Excess emissions

penalty]

Where:

``Maximum deduction from other units'' is the maximum number of

allowances that may be deducted, for the year for which compliance

is being established, for a unit otherwise having excess emissions

from the compliance subaccounts of other units at the same source,

rounded to the nearest allowance.

``Excess emissions if no deduction from other units'' is the

tons of excess emissions that a unit would otherwise have if no

allowances were deducted for the unit from other units under this

paragraph (b)(3)(i) or paragraph (b)(3)(ii) of this section.

``Excess emissions penalty'' is the applicable dollar amount of the

penalty for one ton of excess emissions of sulfur dioxide for the

year under Sec. 77.6(b) of this chapter.

``Average allowance price'' is a dollar amount (which the

Administrator will publish in the Federal Register by October 15 of

each year) equaling the total proceeds from the spot allowance

auction (including EPA Reserve allowances and any privately offered

allowances) held under Sec. 73.70 during the year divided by the

number of allowances sold at such auction, rounded to the nearest

dollar.

(ii) Notwithstanding paragraph (b)(3)(i) of this section,

(A) If the amount calculated is less than or equal to zero, the

maximum allowance deduction from other units will equal zero; and

(B) If the amount calculated is greater than zero and results in

less than 10 tons of excess emissions, the maximum allowance deduction

from other units shall be adjusted so that 10 tons of excess emissions,

or the tons of excess emissions that would result if no allowances

could be deducted from other units, whichever is less, remain for the

unit.

(iii) Beginning with the unit having the lowest Allowance Tracking

System account number and ending with the unit having the highest

account number (with account numbers sorted beginning on the left-most

character and ending on the right-most character of each 12 character

account number and with the letter characters assigned values in

alphabetical order and less than all numeric characters), the

Administrator will deduct allowances in accordance with paragraphs

(b)(3)(i) and (ii) of this section:

(A) For each unit, at the source, otherwise having excess

emissions; and

(B) From each unit, at the source, otherwise having unused

allowances in its compliance subaccount.

(iv) Allowances in a compliance subaccount will be deducted under

paragraphs (b)(3)(i) and (ii) of this section on a first-in, first-out

(FIFO) accounting basis in accordance with paragraph (c)(2) of this

section.

(v) Notwithstanding paragraphs (b)(3)(i) and (ii) of this section,

if the Administrator receives a written notification by the authorized

account representative for a source, on or before the allowance

transfer deadline for the year for which compliance is being

established, that the provisions in paragraphs (b)(3)(i) and (ii) of

this section are not to be applied to specified units at the source,

the Administrator will not make any deductions under paragraphs

(b)(3)(i) and (ii) of this section for the specified units at the

source.

Option 2

(b) * * *

(3)(i) If, after the Administrator completes the deductions under

paragraph (b)(2) of this section for all affected units at the same

source, a unit would otherwise have excess emissions and one or more

other affected units at the source would otherwise have unused

allowances in their compliance subaccounts and available for such other

units under paragraph (a)(1) and (a)(2)(i) and (ii) of this section for

the year for which compliance is being established, the Administrator

will notify in writing the authorized account representative that he or

she may specify which of such allowances are to be deducted from the

compliance subaccounts of the units otherwise having unused allowances

in order to reduce the tons of excess emissions otherwise at the unit

by an equal amount, up to the amount calculated as follows:

Maximum deduction from other units = Excess emissions if no

deduction from other units-[Excess emissions if no deduction from

other units x 3 (Average allowance price) / Excess emissions

penalty]

Where:

``Maximum deduction from other units'' is the maximum number of

allowances that may be deducted for the year for which compliance is

being established, for a unit otherwise having excess emissions from

the compliance subaccounts of other units at the same source,

rounded to the nearest allowance.

``Excess emissions if no deduction from other units'' is the

tons of excess emissions that a unit would otherwise have if no

allowances were deducted for the unit from other units under this

paragraph (b)(3)(i) or paragraph (b)(3)(ii) of this section.

``Excess emissions penalty'' is the applicable dollar amount of the

penalty for one ton of excess emissions of sulfur dioxide under

Sec. 77.6(b) of this chapter.

``Average allowance price'' is a dollar amount (which the

Administrator will publish in the Federal Register by October 15 of

each year) equaling the total proceeds from the spot allowance

auction (including EPA Reserve allowances and any privately offered

allowances) held under Sec. 73.70 during the year divided by the

number of allowances sold at such auction, rounded to the nearest

dollar.

(ii) Notwithstanding paragraph (b)(3)(i) of this section,

[[Page 41367]]

(A) If the amount calculated is less than or equal to zero, the

maximum allowance deduction from other units will equal zero; and

(B) If the amount calculated is greater than zero and results in

less than 10 tons of excess emissions, the maximum allowance deduction

from other units shall be adjusted so that 10 tons of excess emissions,

or the tons of excess emissions that would result if no allowances

could be deducted from other units, whichever is less, remain for the

unit.

(iii) If the authorized account representative submits within 15

days of receipt of a notification under paragraph (b)(3)(i) of this

section a written request specifying allowances to be deducted in

accordance with paragraph (b)(3)(i) of this section, the Administrator

will deduct such allowances, and reduce the tons of excess emissions

otherwise at the unit by an equal amount, up to the amount calculated

under paragraph (b)(3)(i) of this section.

7. Section 73.50 is amended by redesignating paragraph (b)(2) as

(b)(3) and adding new paragraph (b)(2) as follows:

Sec. 73.50 Scope and submission of transfers.

* * * * *

(b) * * *

(2)(i) The authorized account representative for the transferee

account can meet the requirements in paragraphs (b)(1)(ii) and (iii) of

this section by submitting, in a format prescribed by the

Administrator, a statement signed by the authorized account

representative and identifying each account into which any transfer of

allowances, submitted on or after the date on which the Administrator

receives such statement, is authorized. Such authorization shall be

binding on any authorized account representative for such account and

shall apply to all transfers into the account that are submitted on or

after such date of receipt, unless and until the Administrator receives

a statement in a format prescribed by the Administrator and signed by

the authorized account representative retracting the authorization for

the account.

(ii) The statement under paragraph (b)(2)(i) of this section shall

include the following: ``By this signature, I authorize any transfer of

allowances into each Allowance Tracking System account listed herein,

except that I do not waive any remedies under 40 CFR part 73, or any

other remedies under State or federal law, to obtain correction of any

erroneous transfers into such accounts. This authorization shall be

binding on any authorized account representative for such account

unless and until a statement signed by the authorized account

representative retracting this authorization for the account is

received by the Administrator.''

* * * * *

[FR Doc. 98-20605 Filed 7-31-98; 8:45 am]

BILLING CODE 6560-50-U