[Federal Register Volume 61, Number 110 (Thursday, June 6, 1996)]
[Rules and Regulations]
[Pages 28761-28763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14114]



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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 73

RIN 2060-AG41
[FRL-5513-4]


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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: Title IV of the Clean Air Act, as amended by the Clean Air Act 
Amendments of 1990, (the Act) authorized the U.S. Environmental 
Protection Agency to establish the Acid Rain Program to reduce the 
adverse health and ecological effects of acidic deposition. Under the 
Acid Rain Program, electric utilities must have an allowance for each 
ton of sulfur dioxide (SO<INF>2) that their generating facilities emit. 
Title IV mandates that EPA hold or sponsor yearly auctions and direct 
sales of allowances for a small portion of the total allowances 
allocated each year. EPA is also required to make available to new 
independent power producers (IPPs) guarantees ensuring priority in 
purchasing allowances in the direct sales.
    Section 416(c)(7) of the Act directs the Administrator to terminate 
the direct sale program if, during any two-year period, less than 20 
percent of the allowances available for direct sales have been 
purchased. The direct sale and IPP provisions were designed to help 
ensure that units, including new IPPs, have a public source of 
allowances beyond those already allocated initially. Because no 
allowances have been sold through the direct sale program since it 
began in June 1993, EPA is revising its regulations to terminate the 
direct sales. The allowances available previously in the direct sale 
program will now be available in the annual allowance auctions, the 
proceeds of which will continue to be returned to the utilities from 
which the allowances were withheld. In addition, because the IPP 
written guarantee program is implemented through the direct sales and 
no applications for such guarantees have been received, EPA is revising 
its regulations to terminate the guarantee program.
    The rule revision is being issued as a direct final rule because 
the Act mandates this action and no adverse comment is expected.

DATES: This direct final rule will be effective on August 5, 1996, 
unless significant, adverse comments are received by July 8, 1996. If 
significant adverse comments are received on any portion of this direct 
final rule, that portion of the direct final rule will be withdrawn 
through a notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Kenon Smith, U.S. Environmental 
Protection Agency, Acid Rain Division (6204J), 401 M Street, SW, 
Washington, D.C. 20460, (202) 233-9164, call the Acid Rain Hotline at 
(202) 233-9620, or visit the Acid Rain Program web page at <a href="http://
www.epa.gov/docs/acidrain/ardhome.html">http://
www.epa.gov/docs/acidrain/ardhome.html</a>. All material supporting this 
notice is available for viewing and copying under Docket A-96-19, EPA 
Air Docket (6102), U.S. Environmental Protection Agency, 401 M Street, 
SW., Washington, DC 20460, Telephone (202) 260-7548.

SUPPLEMENTARY INFORMATION: Any significant adverse comments received on 
any portion of this direct final rule, by the date listed above, will 
be addressed in a subsequent final rule. That final rule will be based 
on the relevant portion of the rule revision that is noticed as a 
proposed rule in the Proposed Rule Section of this Federal Register and 
that is identical to this direct final rule.
    EPA's Acid Rain Program established an innovative, market-based 
allowance trading system to reduce S0<INF>2 emissions, one of the 
primary precursors of acid rain. Under this system, fossil fuel-fired 
power plants, the principal emitters of S0<INF>2, were allotted 
tradeable allowances based on their past fuel usage and emissions. Each 
allowance entitles a boiler unit in a plant to emit 1 ton of S0<INF>2 
during or after the year specified in the allowance serial number. At 
the end of the year, the number of allowances a unit holds must equal 
or exceed the total emissions at that unit; otherwise, stringent 
penalties will apply. After the year 2000, the total number of 
allowances allocated each year will be about half of what the utility 
industry emitted in 1980.

[[Page 28762]]

    Allowances may be bought, sold, or banked like any other commodity. 
If a unit has surplus allowances, it may sell them to units whose 
emissions levels exceed their allowance supply, or it may bank the 
allowances for future years.
    Because the availability of allowances is crucial to ensure the 
economic efficiency of the emissions limitation program and facilitate 
the addition of new electric-generating capacity, title IV mandates 
that EPA hold or sponsor yearly auctions and direct sales of allowances 
for a small portion of the total allowances allocated each year. The 
auction and the direct sales include both spot sales (allowances first 
usable in the year of sale) and advance sales (allowances first usable 
in the 7th year after the year of sale). In addition, title IV requires 
that EPA provide a written guarantee ensuring priority for certain new 
independent power producers in purchasing allowances in the direct 
sales. The auctions, sales, and IPP guarantee provisions of title IV 
were designed to help ensure that units, including new IPPs, would have 
a public source of allowances beyond those allocated initially.
    To supply the sales and auctions with allowances, EPA, as directed 
by the Act, has set aside in a Special Allowance Reserve 2.8 percent of 
the total annual allowances allocated to all units. During Phase I, 
when the allowances allocated total 5.7 million allowances annually, 
150,000 allowances are available every year for auctions. During Phase 
II, when allowance allocations total 8.95 million allowances yearly, 
200,000 allowances are earmarked annually for auctions and 50,000 
designated for the direct sales. The Act set the direct sale price for 
allowances to be $1,500 per allowance, adjusted by the Consumer Price 
Index.
    Section 416(c)(7) of the Act directs the Administrator to terminate 
the direct sale subaccount and transfer such allowances to the auction 
subaccount ``[i]f the Administrator determines that, during any period 
of 2 consecutive calendar years, less than 20 percent of the allowances 
available in the subaccount for direct sales established under this 
subsection have been purchased.'' 42 U.S.C. 76510(c)(7); see also 4O 
CFR 73.73(b). Since no allowances have ever been sold through the 
direct sale program since it began in 1993, EPA is terminating the 
direct sale program, beginning with the 1996 direct sale, and removing 
the regulations that established the program.
    EPA is also revising part 73 to provide that the allowances 
available previously in the direct sale program will now be available 
in the annual allowance auctions, the proceeds of which will continue 
to be returned to the utilities from which the allowances were 
originally withheld. As done in the previous three auctions, unsold 
advance allowances from the 1996 direct sale will be sold in the 6-year 
advance auction in the 1997 EPA auctions as allowances first usable in 
the 6th year after the year of sale. Allowances originally set aside 
for the advance direct sale in 1997, and each year thereafter, will be 
included in the advance auction of that respective year. Allowances 
originally set aside for the direct spot sales beginning in 2000, and 
each year thereafter, will be included in the spot auction of each 
respective year.
    In addition, EPA is eliminating the IPP written guarantee program 
(and the relevant regulations) under which IPPs can apply for and 
receive priority for purchasing allowances in direct sales. Under 
section 417(c), the guarantee program is implemented exclusively 
through the direct sale program, which is being terminated. Further, 
since the publication of the regulations establishing the guarantee 
program in December 1991 (56 FR 65592 (December 17, 1991)), no 
applications have been submitted to obtain guaranteed allowances. 
Because the Act set the price of guaranteed allowances to be $1,500.00 
per allowance, adjusted by the Consumer Price Index (CPI), EPA does not 
expect there to be any applications. Sufficient quantities of 
allowances are readily available in the private market at prices well 
below the guaranteed price.

Administrative Requirements

A. Executive Order 12866

    Under Executive Order 12866, 58 FR 51735 (October 4, 1993), the 
Administrator must determine whether the regulatory action is 
``significant'' and therefore subject to Office of Management and 
Budget (OMB) review and the requirements of the Executive Order. The 
Order defines ``significant regulatory action'' as one that is likely 
to result in a rule that may:
    (1) have an annual effect on the economy of Sec. 100 million or 
more or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities;
    (2) create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, it has been 
determined that this rule is a ``significant regulatory action'' 
because the rule seems to raise novel legal or policy issues. As such, 
this action was submitted to OMB for review. Any written comments from 
OMB to EPA, any written EPA responses to those comments, and any 
changes made in response to OMB suggestions or recommendations are 
included in the docket. The docket is available for public inspection 
at the EPA's Air Docket Section, which is listed in the FOR FURTHER 
INFORMATION section of this preamble.

B. Unfunded Mandates Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act'') requires that the Agency prepare a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in expenditure by State, local, and tribal governments, 
in aggregate, or by the private sector, of Sec. 100 million or more in 
any one year. Section 203 requires the Agency to establish a plan for 
obtaining input from and informing, educating, and advising any small 
governments that may be significantly or uniquely affected by the rule.
    Under section 205 of the Unfunded Mandates Act, the Agency must 
identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule for which a budgetary impact statement must 
be prepared. The Agency must select from those alternatives the least 
costly, most cost-effective, or least burdensome alternative that 
achieves the objectives of the rule, unless the Agency explains why 
this alternative is not selected or the selection of this alternative 
is inconsistent with law.
    Because this direct final rule is estimated to result in the 
expenditure by State, local, and tribal governments or the private 
sector of less than $100 million in any one year, the Agency has not 
prepared a budgetary impact statement or specifically addressed the 
selection of the least costly, most cost-effective, or least burdensome 
alternative. Because small governments will not be significantly or 
uniquely affected by this rule, the Agency is not required to develop a 
plan with regard to small governments. However, as discussed in this 
preamble, the rule reduces the potential burden on regulated entities 
(which may include

[[Page 28763]]

some investor-owned or municipal utilities) of participating in direct 
sales or applying for written guarantees.

C. Paperwork Reduction Act

    This rule does not provide for any new collection of information 
and, in fact, removes some information requirements of the current 
regulations. The removal of these requirements reduces the estimated 
burden, as compared to the burden under the current regulations, by an 
average of 48.5 hours per IPP guarantee application and 1.5 hours per 
direct sale application for an overall burden reduction from the 
original estimation of 4,850 hours. These estimates include time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information. An Information Collection Request document 
and estimates of the public reporting burden were prepared in 
connection with the current regulations establishing the direct sale 
and guarantee programs. 56 FR 65601.
    Send comments regarding this collection of analysis or any other 
aspect of this collection of information, including suggestions for 
reducing the burden, to Chief, Information Policy Branch, EPA, 401 M 
Street, SW. (Mail Code 2136), Washington, DC 20460; and to the Office 
of Information and Regulatory Affairs, Office of Management and Budget, 
Washington, DC 20503, marked ``Attention: Desk Officer for EPA.''

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., requires 
each federal agency to consider potential impacts of its regulations on 
small business ``entities.'' Under 5 U.S.C. 604(a), an agency issuing a 
notice of proposed rulemaking must prepare and make available for 
public comment a regulatory flexibility analysis. Such an analysis is 
not required if the head of an agency certifies that a rule will not 
have a significant economic impact on a substantial number of small 
entities, pursuant to 5 U.S.C. 605(b).
    In the preamble of the current regulations establishing the direct 
sale and guarantee programs, the Administrator certified that those 
regulations, including the provisions revised by today's final rule, 
would not have a significant impact. 56 FR 65601. The final rule 
revisions adopted today are not significant enough to change the 
economic impact addressed in that preamble. Pursuant to the provisions 
of 5 U. S.C. 605(b), I hereby certify that the revised rule will not 
have a significant, adverse impact on a substantial number of small 
entities.

E. Miscellaneous

    In accordance with section 117 of the Act, issuance of this rule 
was preceded by consultation with any appropriate advisory committees, 
independent experts, and federal departments and agencies.

List of Subjects in 40 CFR Part 73

    Environmental protection, Acid rain, Air pollution control, 
Electric utilities, Reporting and recordkeeping requirements, and 
Sulfur dioxide.

    Dated: May 24, 1996.
Carol M. Browner,
Administrator, U.S. Environmental Protection Agency.

    For the reasons set forth in the preamble, chapter I of title 40 of 
the Code of Federal Regulations is amended as follows:

PART 73--[AMENDED]

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

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

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

    (a) * * *

                Table I.--Allowance Schedule for Auctions               
------------------------------------------------------------------------
                                             Spot     Advance    Advance
             Year of purchase               auction   auction   auction*
------------------------------------------------------------------------
1993.....................................  50,000 <SUP>a  100,000 <SUP>b          
1994.....................................  50,000 <SUP>a  100,000 <SUP>b  25,000 <SUP>c
1995.....................................  50,000 <SUP>a  100,000 <SUP>b  25,000 <SUP>c
1996.....................................   150,000  100,000 <SUP>b  25,000 <SUP>c
1997.....................................   150,000  125,000 <SUP>b  25,000 <SUP>c
1998.....................................   150,000  125,000 <SUP>b          
1999.....................................   150,000  125,000 <SUP>b          
2000 and after...........................   125,000  125,000 <SUP>b          
                                                                        
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<SUP>a Not usable until 1995.                                                
<SUP>b Not usable until 7 years after purchase.                              
<SUP>c Not usable until 6 years after purchase.                              
*These are unsold advance allowances from the direct sale program for   
  1993, 1994, 1995, and 1996 respectively.                              

* * * *
    3. Section 73.72 is revised to read as follows:


Sec. 73.72  Direct sales.

    Allowances that were formerly part of the direct sale program, 
which has been terminated under Sec. 73.73(b), will be included in the 
annual allowance auctions in accordance with Sec. 73.70(a).
    4. Sections 73.74, 73.75, 73.76, and 73.77 are removed from subpart 
E.

[FR Doc. 96-14114 Filed 6-5-96; 8:45 am]
BILLING CODE 6560-50-P