[Federal Register Volume 59, Number 40 (Tuesday, March 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4575]


[[Page Unknown]]

[Federal Register: March 1, 1994]


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COMMODITY FUTURES TRADING COMMISSION

 

New York Mercantile Exchange: Proposed Amendments to the New York 
Harbor Unleaded Regular Gasoline Futures Contract Relating to Grade and 
Quality Specifications

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed contract market rule changes.

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SUMMARY: The New York Mercantile Exchange (NYMEX or Exchange) has 
submitted for Commission's approval, under section 5a(a)(12) of the 
Commodity Exchange Act and Commission Regulation 1.41(b), proposed 
amendments to its New York Harbor unleaded regular gasoline (gasoline) 
futures contract. The proposed amendments revise the grade and quality 
specifications for deliverable gasoline to reflect recently adopted EPA 
requirements for reformulated gasoline. The amendments would apply only 
to newly listed contracts beginning with the December 1994 and January 
and February 1995 delivery months.
    In accordance with section 5a(a)(12) of the Commodity Exchange Act 
and acting pursuant to the authority delegate by Commission Regulation 
140.96, the Acting Director of the Division of Economic Analysis 
(Division) of the Commodity Futures Trading Commission (Commission) has 
determined, on behalf of the Commission, that the proposed amendments 
are of major economic significance. On behalf of the Commission, the 
Division is requesting comment on these proposals.

DATES: Comments must be received on or before March 31, 1994.

ADDRESSES: Interested persons should submit their views and comments to 
Jean A. Webb, Secretary, Commodity Futures Trading Commission, 2033 K 
Street NW., Washington, DC 20581. Reference should be made to the New 
York Mercantile Exchange New York Harbor unleaded regular gasoline 
futures contract.

FOR FURTHER INFORMATION CONTACT: Please contact John Forkkio of the 
Division of Economic Analysis, Commodity Futures Trading Commission, 
2033 K Street NW., Washington, DC 20581, telephone 202-254-7303.

SUPPLEMENTARY INFORMATION: Acting on a mandate set forth in the amended 
Clean Air Act of 1990, the U.S. Environmental Protection Agency (EPA) 
on December 15, 1993, promulgated new regulations requiring that 
gasoline sold in certain areas of the U.S. be ``reformulated'' to 
reduce vehicle emissions of toxic and ozone forming compounds. The 
delivery area of the NYMEX gasoline futures contract, the New York 
harbor area, is one of those areas in the U.S. that will be affected by 
the new EPA regulations.
    To implement the reformulated gasoline regulations, the EPA has 
devised a two-step approach. The first step, which will go into effect 
on December 1, 1994, utilizes a simple model. This model requires 
manufacturers (i.e., refiners, blenders, and importers) to certify that 
their product meets applicable emission reduction standards with 
respect to a gasoline's oxygen, benzene, heavy metal and aromatic 
content, and Reid Vapor Pressure (RVP).1 In this respect, the EPA 
has established two (2) methods by which compliance with the new 
requirements can be achieved. Compliance with the new gasoline 
standards can be met by using either a ``per gallon'' or an 
``averaging'' method. The former method requires the manufacturer of 
gasoline to ensure that every gallon of product meets a set of 
standards for each gallon. The latter method, on the other hand, sets a 
range for each standard within which a manufacturer's product must fall 
as long as the manufacturer's average over a given period meets 
specified standards.
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    \1\The second step will utilize a complex model and supplant the 
simple model for certifying compliance with the new gasoline 
standards as promulgated by the EPA. It will go into effect on 
January 1, 1998.
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    Specifically, the new EPA regulations stipulate that, for gasoline 
to be certified as reformulated under the ``per-gallon'' method, it 
must satisfy the following requirements: (1) RVP--8.1 psi maximum from 
May 1 through September 15; (2) oxygen--2.0% by weight minimum year 
round; and (3) Benzene--1.0% by volume maximum year round. Under the 
``averaging'' method, the specifications are: (1) RVP--8.3 psi maximum 
on any gallon from May 1 through September 15, and 8.0 psi maximum on 
average for the same period; (2) oxygen--1.5% by weight minimum year 
round on any gallon, and 2.1% by weight minimum on an annual average, 
with a 3.5% by weight maximum; and (3) benzene--1.3% by volume maximum 
year round on any gallon and 0.95% by volume maximum on an annual 
average basis.
    The new EPA regulations also require each manufacturer or importer 
of gasoline to designate its product as reformulated or conventional. 
This designation is to be accomplished with the use of batch numbers 
and EPA-assigned facility registration numbers. Finally, to further 
enforce these new standards, the EPA has established enforcement test 
tolerance values of 0.3 psi, 0.3 percent weight, and 0.21 percent 
volume for RVP, oxygen and benzene, respectively.
    Current NYMEX provisions stipulate that during the period April 1 
through April 30 deliverable gasoline must have an RVP not exceeding 
9.0 psi. If delivery is made during the period May 1 through September 
15, then the RVP must comply with the applicable state (i.e., New York 
or New Jersey) law requirements at the time of delivery. Existing 
provisions of the NYMEX gasoline futures contract do not contain any 
specifications for benzene or oxygen.
    To comply with the new EPA regulations noted above, the Exchange 
has decided to adopt the ``averaging'' method of compliance noted 
above. Accordingly, the NYMEX has revised specifications for RVP and 
has adopted specifications for oxygen and benzene. Specifically, the 
proposed amendments are as follows:

    Reid Vapor Pressure: Beginning December 1, 1994, gasoline 
delivered during the period from May 1 through September 15, shall 
not exceed 8.3 psi (EPA Test Method) and from September 16 through 
March 31 shall comply with the Colonial Pipeline Company 
specifications then in effect for the time and place of delivery. 
Provided that, deliveries on the September contract originally 
nominated for delivery on or before September 15 shall not exceed 
8.3 psi, regardless of the time of actual delivery.
    Oxygenation Level: Beginning December 1, 1994, gasoline 
delivered during the period May 1 through September 30 shall contain 
minimum 1.5% oxygen by weight; gasoline delivered during the period 
November 1 through the last day of February shall contain minimum 
2.7% oxygen by weight. Any oxygenates included in the product shall 
conform to the permissible oxygenate qualities contained in the 
Colonial Pipeline Company specifications for Northern Grade 47 
unleaded regular gasoline.
    Benzene: Beginning December 1, 1994, gasoline delivered shall 
contain maximum 1.3% benzene by volume.

    The proposed amendments also would incorporate into the NYMEX rules 
the EPA enforcement test tolerance values noted above, and require the 
seller making delivery on the futures contract to provide a written 
statement noting that, to his knowledge his deliverable product is 
reformulated gasoline, as defined by EPA.
    According to the NYMEX, the subject proposed amendments are 
necessary because, ``. . . [d]ata suggests that approximately 30% of 
total U.S. gasoline will be RFG [i.e., reformulated gasoline] starting 
in December 1994, and, further, the vast majority (around 75%) of the 
New York Harbor market will be RFG. RFG in the New York Harbor will 
conform to EPA enforcement regulations for Simple Model RFG in the 
Northeast . . . . '' The Exchange further maintains that it has adopted 
the ``averaging'' instead of the ``per-gallon'' standards as the method 
of compliance with the new EPA regulations for several reasons:

    First, it is not known at this time how many refiners, blenders 
and importers will be ``averaging'' and how many will be on the 
``per-gallon'' method. Therefore, the most conservative approach for 
the Exchange is to have standards that can be met under all 
circumstances, regardless of what compliance methodology 
manufacturers select. Because ``averaged'' gasoline is less 
restrictive than ``per-gallon'' gasoline, ``per-gallon'' gasoline 
would be deliverable against the Exchange's ``averaging'' contract. 
Second, Colonial Pipeline has indicated to the Exchange informally 
that it intends to introduce fungible product streams reflecting RFG 
for delivery to the Northeast market that meets the ``averaging'' 
requirements. Third, EPA has indicated that enforcement downstream 
of the manufacturer will consist of determining that the gasoline 
meets the minimum and maximum limits under the ``averaging'' 
standards.

    The NYMEX is proposing to apply the suspect amendments, at this 
time, only to three delivery months: December 1994 through February 
1995. These months are currently not listed for trading.
    The Commission requests comment on the proposed amendments to the 
NYMEX gasoline futures contract. The Commission is specifically 
requesting comments on the effect of the proposed amendments on the 
economically deliverable supply of gasoline available for the contract 
as well as the effect, if any, on the futures pricing basis.
    Copies of the amended terms and conditions will be available for 
inspection at the Office of the Secretariat, Commodity Futures Trading 
Commission, 2033 K Street, NW., Washington, DC 20581. Copies of the 
terms and conditions can be obtained through the Office of the 
Secretariat by mail at the above address or by phone at (202) 254-6314.
    The materials submitted by the Exchange in support of the proposed 
amendments may be available upon request pursuant to the Freedom of 
Information Act (5 U.S.C. 552) and the Commission's regulations 
thereunder (17 CFR Part 145 (1987)), except to the extent they are 
entitled to confidential treatment as set forth in 17 CFR 145.5 and 
145.9. Requests for copies of such materials should be made to the FOI, 
Privacy and Sunshine Act Compliance Staff of the Office of the 
Secretariat at the Commission's headquarters in accordance with 17 CFR 
145.7 and 145.8.
    Any person interested in submitting written data, views, or 
arguments on the proposed amendments should send such comments to Jean 
A. Webb, Secretary, Commodity Futures Trading Commission, 2033 K 
Street, NW, Washington, DC 20581 by the specified date.

    Issued in Washington, DC, on February 22, 1994.
Blake Imel,
Acting Director.
[FR Doc. 94-4575 Filed 2-28-94; 8:45 am]
BILLING CODE 6351-01-P