[Federal Register Volume 61, Number 51 (Thursday, March 14, 1996)]
[Rules and Regulations]
[Pages 10622-10661]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5702]




[[Page 10621]]

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Part II





Department of Energy





_______________________________________________________________________



Office of Energy Efficiency and Renewable Energy



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10 CFR Part 490



Alternative Fuel Transportation Program; Final Rule

  Federal Register / Vol. 61, No. 51 / Thursday, March 14, 1996 / Rules 
and Regulations  

[[Page 10622]]


DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 490

[Docket No. EE-RM-95-110]
RIN 1904-AA64


Alternative Fuel Transportation Program

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy (DOE).

ACTION: Final rule.

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SUMMARY: The Department of Energy is today publishing a final rule 
required by the Energy Policy Act of 1992 to implement statutorily-
imposed alternative fueled vehicle acquisition requirements that apply 
to certain alternative fuel providers and some State government vehicle 
fleets. The rule principally covers: interpretations necessary for 
affected entities to determine whether and to what extent the statutory 
requirements apply; procedures for exemptions and administrative 
remedies; and a program of marketable credits to reward those who 
voluntarily acquire vehicles in excess of mandated requirements or 
before the requirements take effect, and to allow use of such credits 
in order to demonstrate compliance with those requirements.

EFFECTIVE DATE: This rule is effective April 15, 1996.

FOR FURTHER INFORMATION CONTACT: Kenneth R. Katz, Program Manager, 
Office of Energy Efficiency and Renewable Energy (EE-33), U.S. 
Department of Energy, 1000 Independence Avenue SW., Washington, DC 
20585, (202) 586-6116.

SUPPLEMENTARY INFORMATION:

I. Introduction
II. Provision of Lead Time to States and Covered Fuel Providers
III. Section-by-Section Discussion of Comments and Rule Provisions
    A. Subpart A--General Subpart
    B. Subpart B--[Reserved]
    C. Subpart C--Mandatory State Fleet Program
    D. Subpart D--Alternative Fuel Provider Acquisition Mandate
    E. Subpart E--[Reserved]
    F. Subpart F--Alternative Fueled Vehicle Credit Program
    G. Subpart G--Investigations and Enforcement
IV. Review Under Executive Order 12612

V. Review Under Executive Order 12778

VI. Review Under Executive Order 12866
VII. Review Under the Regulatory Flexibility Act
VIII. Review Under the Paperwork Reduction Act
IX. Review Under the National Environmental Policy Act
X. Impact on State Governments

I. Introduction

    This notice of final rulemaking concludes a regulatory action that 
is mandated under the Energy Policy Act of 1992 (the Act), Pub. L. 102-
486. That Act provides for a comprehensive national energy policy for 
strengthening U.S. energy security by reducing dependence on imported 
oil. Titles III, IV, V, and VI of the Act contain regulatory 
requirements and authorities, as well as various financial incentives 
aimed at displacing substantial quantities of oil consumed by motor 
vehicles. This rulemaking implements alternative fueled vehicle (AFV) 
acquisition requirements imposed by Congress in sections 501 and 507(o) 
of the Act on certain alternative fuel providers and some State 
government fleets. 42 U.S.C. 13251, 13257(o).
    On February 28, 1995, the Department of Energy (DOE) published a 
notice of proposed rulemaking under sections 501 and 507(o) of the Act. 
60 FR 10970. Public hearings were held in three cities with the 60-day 
public comment period closing on May 1, 1995. DOE received 
approximately 200 comments on the notice of proposed rulemaking.
    DOE's notice of proposed rulemaking incorporated the statutory 
acquisition schedules for alternative fuel providers and State fleets. 
It further stated that, as provided in the Act, those schedules would 
take effect at the beginning of model year 1996. 60 F.R. 10971. Many 
commenters argued that DOE could not require compliance with the Act's 
acquisition schedules in model year (``MY'') 1996 because it had failed 
to promulgate final regulations by certain deadlines set forth in the 
Act. They stated that imposing the requirements in MY 1996 would 
deprive them of lead time that Congress intended them to have to 
prepare to comply with the AFV acquisition requirements. After 
considering these comments, DOE published a notice in the Federal 
Register on June 12, 1995, reopening the rulemaking record for receipt 
of comment on various options DOE was considering to give States and 
covered fuel providers lead time to prepare to comply with the vehicle 
acquisition requirements. 60 FR 30795. DOE received approximately 80 
comments on this issue.
    On July 31, 1995, DOE published a second notice of limited 
reopening of the comment period. The principal purpose of this notice 
was to invite public comment on options for defining the term 
``substantial portion,'' which is used in section 501(a) of the Act to 
determine coverage for certain petroleum producers and importers, and 
on options for modifying the proposed definition of ``alternative 
fuel'' with respect to alcohol fuels and biodiesel. Notice of limited 
reopening, 60 FR 38974, corrected 60 FR 40539 (August 9, 1995). In 
response to this reopening of the comment period, DOE received 
approximately 20 additional comments.
    In response to comments from members of the public and State 
officials, and consistent with the Act, DOE has modified the proposed 
rule in a variety of ways. The principal modifications, which are 
explained in detail later in this Supplementary Information, are: (1) A 
one-year shift in the statutory alternative fueled vehicle acquisition 
schedules; (2) an automatic exemption to allow time for a State to 
apply for and obtain approval of an Alternative State Plan for State 
fleets; (3) a revised definition of the statutory term ``substantial 
portion'' that omits small refiners from acquisition requirements and 
includes large, integrated producers and importers; (4) the addition of 
neat biodiesel to the list of ``alternative fuels''; and (5) a 
provision for the allocation of credits to State government fleets and 
covered fuel providers for newly acquired medium and heavy duty 
alternative fueled vehicles.

A. Background

    A primary goal of the Energy Policy Act of 1992 is to enact a 
comprehensive national energy policy that strengthens U.S. energy 
security by reducing dependence on imported oil. Currently, the United 
States consumes seven million barrels of oil more per day than it 
produces. Section 502 of the Act (42 U.S.C. 13252) provides goals of a 
10 percent displacement in U.S. motor fuel consumption by the year 2000 
and a 30 percent displacement in U.S. motor fuel consumption by the 
year 2010 through the production and increased use of replacement 
fuels. Section 504 of the Act (42 U.S.C. 13254) allows the Secretary to 
revise these goals downward. According to the latest projections by the 
Energy Information Administration, the transportation sector will 
consume 13.1 million barrels per day of petroleum in 2010. Of this 
total, about 7.4 million barrels per day of petroleum are projected to 
be used by light duty vehicles. The Energy Information Administration 
also estimates that 65 percent of our total

[[Page 10623]]
petroleum demand will be imported in 2010.
    The greatest gains in displacing petroleum motor fuel consumption 
by the year 2010 are expected to occur by replacing gasoline with 
alternative fuels such as electricity, ethanol, hydrogen, methanol, 
natural gas and propane, in a portion of the U.S. car and truck 
population, which is projected to be in excess of 200 million vehicles 
in the year 2010. Currently, alternative fueled vehicles comprise a 
small fraction of the total U.S. vehicle stock. According to the Energy 
Information Administration, of the 180 million light duty vehicles 
registered in 1992, 250,000 were alternative fueled vehicles. Of this 
total, about 221,000 were fueled by liquified petroleum gas (propane), 
about 24,000 were fueled by compressed natural gas, and about 3,400 
were fueled by methanol or ethanol. The remaining quantity of vehicles 
was comprised of electric vehicles and vehicles fueled by liquified 
natural gas. In 1994, it was expected that 300,000 alternative fueled 
vehicles will be registered in the U.S. and that the proportion of 
vehicles operating on each fuel will be approximately the same. 
(Alternatives to Traditional Transportation Fuels: An Overview, DOE/
EIA-0585/O, 1994)
    To enable the Act's displacement goals to be met, alternative fuels 
must be readily accessible and motor vehicles that operate on these 
alternative fuels must be available for purchase. Thus, two important 
elements of reducing petroleum motor fuel consumption are: a nationwide 
alternative fuels infrastructure and the availability of alternative 
fueled vehicles for purchase at a reasonable cost by the general public 
in a wide variety of vehicle types and fueling options.

B. Description of the Energy Policy Act Alternative Fuel Transportation 
Program's Basic Provisions

1. General Structure
    Titles III, IV, V, and VI of the Act contain the basic provisions 
for regulatory mandates and authorities, as well as various financial 
incentives, all of which are aimed at displacing substantial quantities 
of oil consumed by motor vehicles. Title III contains general 
definitions which set forth legislatively mandated policy essential to 
understanding: (1) What constitutes an alternative fueled vehicle; (2) 
who must comply with regulatory mandates to acquire such vehicles; and 
(3) the extent to which a regulated entity's inventory of vehicles is 
subject to mandates to acquire alternative fueled vehicles. Title III 
also sets forth mandatory requirements for Federal fleet acquisitions 
of alternative fueled vehicles, which began in fiscal year 1993.
    Title IV includes a financial incentive program for States, a 
public information program, and a program for certifying alternative 
fuel technician training programs.
    Title V provides for separate regulatory mandates for the purchase 
of alternative fueled vehicles which apply to: (1) Alternative fuel 
providers; (2) State government fleets; and (3) private and municipal 
fleets. These mandates set forth annual percentages of new light duty 
motor vehicle acquisitions which must be alternative fueled vehicles. 
The minimum acquisition requirements are phased-in, escalating from 
year to year until reaching a fixed percentage. The acquisition 
schedules for alternative fuel providers and State governments were to 
take effect at the beginning of model year 1996. The acquisition 
schedule for private and municipal fleets in section 507(a) is a 
tentative schedule which may only take effect if confirmed in a DOE 
rulemaking. Such a rulemaking could conclude that imposition of a 
vehicle acquisition mandate on private and municipal fleets is not 
appropriate. Title V also allows for credits for alternative fueled 
motor vehicles acquired beyond what is legally required. These credits 
may be sold and used by other persons or fleets subject to a vehicle 
acquisition mandate. Finally, title V contains investigative and 
enforcement authorities including provisions for civil penalties and, 
in certain circumstances, criminal fines for noncompliance with the 
statutory mandates and implementing regulations.
    Title VI of the Act contains a variety of authorities to promote 
development and utilization of electric motor vehicles. More 
specifically, subtitle A provides for a commercial demonstration 
program, and subtitle B provides for an infrastructure and support 
systems development program.
    This notice of final rulemaking principally implements the title V 
vehicle acquisition mandates applicable to alternative fuel providers 
and to State governments.
2. Comparison to Environmental Protection Agency (EPA) Fleet 
Requirement Program
    The Clean Air Act, 42 U.S.C. 7401 et. seq., established a fleet 
vehicle acquisition program that is somewhat similar to those in the 
Energy Policy Act of 1992. Section 246 of the Clean Air Act requires 
each State in which there is located all or part of an ozone non-
attainment area classified as extreme, severe, or serious under the 
Clean Air Act, or a carbon monoxide non-attainment area with a design 
value at or above 16.0 parts per million, to submit a State 
implementation plan revision establishing a clean fuel vehicle program 
providing that, beginning in model year 1998, certain percentages of 
covered fleet vehicles must be clean fuel vehicles operating on clean 
alternative fuels. 42 U.S.C. Sec. 7586. Section 241 of the Clean Air 
Act contains definitions for the terms ``clean alternative fuel,'' 
``covered fleet,'' and ``covered fleet vehicle'' that contain some 
phrases later used in the definitions in section 301 of the Energy 
Policy Act of 1992.
    While there are these similarities in statutory text that should 
not be ignored by DOE in formulating its regulations, there are 
critical differences between the two pieces of legislation: (1) The 
primary goal of the EPA program is to significantly improve air quality 
through reduced emissions of pollutants, and the primary goal of the 
DOE program is to strengthen national energy security by reducing 
dependence on imported oil; (2) the lists of fuels enumerated in the 
definitions of ``clean alternative fuel'' under section 241 of the 
Clean Air Act and of ``alternative fuel'' under section 301 of the 
Energy Policy Act of 1992 are not identical, and the Department's 
rulemaking discretion to add to the section 301 list is limited by 
stringent statutory standards; (3) the EPA program applies to fleets as 
small as 10 vehicles while 20 is the minimum number of vehicles for a 
fleet as defined by section 301; (4) the EPA program applies to light 
duty motor vehicles (up to 8,500 gross vehicle weight rating) and heavy 
duty motor vehicles (up to 26,000 gross vehicle weight rating) while 
the DOE program applies only to light duty motor vehicles; (5) the 
States will administer the EPA program while DOE will directly 
administer the Energy Policy Act program; and (6) the EPA program 
applies only to fleets in certain ozone or carbon monoxide non-
attainment areas while the DOE program applies nationwide.
    DOE has attempted in this rule to minimize the compliance burden on 
fleet owners and operators who are subject to both the EPA and the DOE 
fleet acquisition requirements. In particular, DOE has adopted many of 
the definitions and interpretations of similar terms that EPA published 
on December 9, 1993 (58 FR 64679). However, the different statutory 
provisions and goals of the Energy Policy Act have prevented DOE from 
adopting EPA's provisions in every instance. The most notable instance 
of

[[Page 10624]]
divergence from EPA's regulations is the definition of the terms 
``centrally fueled'' and ``capable of being centrally fueled'' in 
Subpart A. Those definitions are explained in the section-by-section 
discussion in this Supplementary Information.
    With regard to burden of compliance, it is important to note that 
the overlap between this final rule and EPA regulations is limited. The 
EPA program applies only in certain nonattainment areas. In a final 
program rule published on September 30, 1994, EPA identified 22 
nonattainment areas covered by the Clean Fuel Fleet Program. 59 FR 
50043. EPA officials have reported to DOE that California and Texas, 
which contain 9 of the 22 areas, have submitted applications to ``opt 
out'' of the Clean Fuel Fleet Program. In addition, EPA expects the 
eastern States that are members of the Ozone Transport Commission to 
opt out of the program in order to participate in a 49-State Low 
Emission Vehicle Program that is being developed.
    Thus, while irreconcilable differences in the Clean Air Act and the 
Energy Policy Act prevent total congruence in implementing regulations, 
the few different provisions in this final rule are not expected to 
significantly impact many affected fleets.

II. Provision of Lead Time to States and Covered Fuel Providers

    The Act required DOE to issue regulations implementing the 
alternative fuel provider acquisition requirements in section 501(a) by 
January 1, 1994, 20 months before the start of MY 1996 (beginning on 
September 1, 1995). In addition, the Act required DOE to promulgate a 
rule to implement the requirements for State government fleets in 
section 507(o) by April 24, 1994, 16 months before the acquisition 
requirements became effective in MY 1996. DOE was unable to meet the 
statutory deadlines for promulgation of rules to implement sections 501 
and 507(o) of the Act. The Act, which was enacted on October 24, 1992, 
contained a multitude of new responsibilities, including the 
alternative fueled vehicle acquisition mandates in title V. DOE was 
forced to prioritize its implementation of these responsibilities, and 
it periodically reported to Congress on the status of its 
implementation progress. See, for example, U.S. Department of Energy, 
Energy Policy Act of 1992: Implementation Status Report (Oct. 24, 
1994). Although implementation of the alternative fueled vehicle 
acquisition requirements was given a high priority for action, the 
Administration's request for additional funds in fiscal year 1993 for 
this purpose was not approved.
    Many public comments on the notice of proposed rulemaking stated 
that lead time was needed between promulgation of final rules by DOE 
and compliance with the vehicle acquisition requirements. On June 12, 
1995, DOE reopened the rulemaking record for receipt of comment on 
various options it was considering for providing lead time to covered 
fuel providers and States, which would allow sufficient time for them 
to prepare to comply with the vehicle acquisition requirements. These 
options included amending the statutory vehicle acquisition schedule, 
staying enforcement, or some combination of amending the schedule and 
staying enforcement. The notice specifically requested comment on the 
statutory authority of DOE to amend or stay enforcement of the 
acquisition schedules. See 60 F.R. 30796.

A. Summary of the Lead Time Provisions in the Final Rule

    The final rule provisions related to providing lead time to States 
and covered persons are summarized as follows:
    Model Year 1996. To provide lead time for States and covered fuel 
providers to prepare to comply with the vehicle acquisition 
requirements, the acquisition schedules in Sec. 409.201 (for State 
government fleets) and Sec. 490.302 (for alternative fuel providers) 
have been revised to begin in MY 1997. The AFV acquisition requirements 
for MY 1997, which starts on September 1, 1996, must be met by August 
31, 1997 (the end of the model year).
    Model Year 1997. Except for States that choose to comply with an 
alternative plan under Sec. 490.203, DOE may provide lead time to 
States and covered fuel providers in MY 1997, on a case-by-case basis, 
using the exemption procedures set forth in Sec. 490.204 (for States) 
and Sec. 490.308 (for fuel providers). Exemptions will be granted to 
any State or covered person able to demonstrate that it cannot comply 
with the MY 1997 vehicle acquisition requirements because of DOE's 
failure to promulgate regulations by the statutory deadlines. An 
automatic exemption is provided in Sec. 490.203(h) to allow time for a 
State government fleet to apply for and obtain approval of a Light Duty 
Alternative Fueled Vehicle Plan.
    Acquisition Level in MY 1997. DOE has reduced the required 
acquisition percentages in the alternative fueled vehicle acquisition 
schedules in Sec. 490.201 and Sec. 490.302 by one model year. Thus, 
States and covered persons are required to acquire vehicles in MY 1997 
at the statutory percentage for MY 1996; in MY 1998 at the MY 1997 
statutory percentage; and so on.
    Credits for MY 1996 Acquisitions. DOE has revised Sec. 490.503(b) 
and (c) to provide that credits will be allocated for alternative 
fueled vehicles acquired on or after October 24, 1992, and before 
September 1, 1996, the beginning of MY 1997. Those purchases are early-
acquired vehicles.

B. Discussion of Lead Time

1. Comments Against Providing Lead Time
    Many commenters, principally producers and suppliers of alternative 
fuel and alternative fueled vehicles and related equipment, argued that 
because the Act's requirements are relatively straightforward and have 
been known since October 24, 1992, DOE need not provide lead time to 
entities subject to the vehicle acquisition requirements, except as a 
matter of equity in particular instances. Other commenters stated that 
Congress expressly contemplated the need for delaying or reducing the 
acquisition requirements when it enacted section 501(b). They argued 
that because section 501(b) authorizes DOE to delay or modify the 
requirements only for MY 1997 and later, DOE may not delay or reduce 
the acquisition requirements for MY 1996. In addition, they stated that 
because section 507(o) does not contain any provision allowing DOE to 
delay or modify State purchase obligations, DOE may not delay or reduce 
the State fleet acquisition requirements.
    Some commenters stated that a delay of the vehicle acquisition 
mandates would jeopardize investments they have made in the production 
of alternative fueled vehicles or elements of alternative fuels 
infrastructure.
2. Comments for Providing Lead Time
    Many commenters, principally covered fuel providers and fleet 
operators, argued that they are entitled to at least the amount of lead 
time provided in sections 501(a) and 507(o) for fuel providers and 
States, respectively. Some commenters made the additional argument that 
Congress intended the acquisition requirements to take effect at the 
beginning of a model year. In their view, DOE is required to delay the 
statutory vehicle acquisition requirements until MY 1998 to provide 
regulated entities the amount of time the Act provides between 
promulgation of rules and compliance. Some commenters stated that 
section 507(l) of the Act (42 U.S.C. 13257(l)), which

[[Page 10625]]
includes lead time requirements among various factors DOE shall take 
into consideration in carrying out section 507, constitutes express 
authority for DOE to delay the vehicle acquisition requirements for 
State fleets and covered fuel providers.
    One commenter also argued that DOE can and should grant fuel 
providers a general exemption from the MY 1996 requirements, under 
section 501(a)(5) of the Act, because alternative fueled vehicles 
meeting the normal requirements and practices of covered entities will 
not be reasonably available by MY 1996. In essence, this commenter 
argued that because limited types or models of alternative fueled 
vehicles will be available to satisfy fleet needs, all covered persons 
should be relieved of the MY 1996 acquisition requirements.
    Most of the comments favoring delay of the acquisition mandates 
contained only general statements about the need for lead time. 
However, commenters stated that many State government fleets and 
covered persons cannot acquire alternative fueled vehicles in MY 1996 
because their vehicle acquisition processes are too far advanced. 
Commenters also stated that lead time was needed to discuss costs and 
options with affected fleet managers, obtain vehicle and fueling 
facility cost estimates, prepare budgets, identify funding mechanisms, 
obtain approval of budgets, prepare specifications for vehicles and 
fueling facilities, issue solicitations for bids, and provide training 
for persons engaged in the fueling, operation, and repair of the 
alternative fueled vehicles.
3. DOE Response to Public Comments on Lead Time
    DOE does not agree with comments stating that DOE is not required 
to, and should not, provide any lead time to allow States and covered 
fuel providers to prepare to comply with the vehicle acquisition 
mandates. Although regulated entities have had notice of the Act's 
basic requirements since enactment in 1992, the Act provides for DOE to 
promulgate rules filling in essential substantive, procedural, and 
interpretive details before the statutory vehicle acquisition 
requirements take effect. It is true that there is no express link in 
the Act between the deadline dates for promulgation of rules and the 
dates that the vehicle acquisition schedules take effect. Nevertheless, 
the structure of the Act, including a hiatus between these dates, 
indicates Congress's intent that regulated entities would have some 
lead time between promulgation of final regulations and the effective 
date of the vehicle acquisition requirements to comprehend the 
programmatic requirements as fully defined by DOE, to apply for 
applicable exemptions if appropriate, and otherwise plan and execute 
pre-compliance activities.
    DOE recognizes that section 501(b), which allows DOE to reduce or 
delay the acquisition requirements for fuel providers (but not States) 
in MY 1997 and thereafter, can be read as an implicit limitation on DOE 
discretion to modify the statutory acquisition schedule for alternative 
fuel providers because it is silent with respect to MY 1996. Similarly, 
DOE recognizes that the silence in section 507(o) with regard to 
modifying the schedule for State fleets can be interpreted as a lack of 
authority to provide relief for MY 1996 or to provide limited exemption 
to accommodate the right of a State to apply for approval of an 
alternative compliance plan. However, both section 501 and 507(o) are 
premised upon timely promulgation of regulations, and neither of these 
provisions address what DOE should do in the event that it proved 
impossible to promulgate on time. In order to make the necessary 
adjustments, DOE is choosing to read section 501 and 507(o) without 
drawing negative implications of lack of authority to deal with 
problems caused by late promulgation that Congress could have 
anticipated but omitted to address.1

    \1\ At the same time, it is noted that DOE does not interpret 
section 507(1), 42 U.S.C. 13257(1), as express authority to delay 
the acquisition requirements for States and covered fuel providers. 
Section 507(1), which applies only to decisions under that section, 
has no applicability to the fuel provider mandate in section 501 of 
the Act. As applied to the State program, section 507(1) directs DOE 
to consider a variety of factors when it has discretion to consider 
them. DOE has heeded this provision in preparing this final rule.
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    DOE is not persuaded by the comments that it is required by the Act 
to provide lead time to States and covered fuel providers in the amount 
of the exact number of months in the Act between the deadline for 
promulgation of final regulations and the date the statutory 
acquisition schedules take effect. As pointed out above, the text of 
the Act does not expressly link these dates. Moreover, the statutory 
provisions making up the structure of the Act indicate that Congress 
was not wedded to any fixed period of lead time. For example, the Act 
provides different amounts of lead time for States (16 months) and 
covered fuel providers (20 months). It also allows States to submit 
alternative compliance plans at the end of the 12 month period provided 
for submitting such a plan. In such a case, a State would only have a 
few months lead time at most between DOE approval of plans and 
compliance with the MY 1996 acquisition requirements (beginning 
September 1, 1995). It is unlikely that the drafters of the Act thought 
that States, some of which have biennial budgets, would need 
significantly less time than fuel providers to prepare to comply with 
the MY 1996 vehicle acquisition requirements. Moreover, the small 
amount of lead time that a State with an alternative compliance plan 
might have suggests that Congress did not think that 16 months, let 
alone 20 months, of lead time is a necessity. It also is significant 
that the statutory provision on alternative compliance plans for 
States, section 507(o)(2), expressly provides for a 12 month period 
beginning on the date of the promulgation of final regulations under 
section 507(o). That language shows that Congress used very precise 
words when it wanted to create a fixed lead time period. The omission 
of similar expressed language in section 501 and 507(o)(2) implies that 
Congress did not intend to establish an absolute amount of lead time 
prior to State and fuel provider compliance with the vehicle 
acquisition requirements.
    Because MY 1996 has already begun, it is not possible for DOE to 
both provide adequate lead time and require compliance with the 
statutory MY 1996 acquisition requirements. DOE must, as a matter of 
administrative necessity, relieve regulated entities from the MY 1996 
requirements and determine a lead time period that is appropriate in 
this situation. For the reasons stated hereafter, DOE has concluded 
that it will best effectuate the Act's vehicle acquisition mandates 
with an unconditional one-model year delay, combined with an automatic 
exemption to allow a State to apply for and obtain approval of an 
alternative compliance plan, and the case-by-case provision of lead 
time through the exemption processes in the rule.
    With some exemptions, such as States opting to develop alternative 
compliance plans, States and fuel providers should be able to acquire 
alternative fueled vehicles through their normal procurement processes. 
States with annual budgets commonly will approve their fiscal year 1997 
budgets in the summer of 1996. Model year 1997 begins on September 1, 
1996, and States have until August 31, 1997 to meet their MY 1997 
vehicle acquisition requirements. Assuming that State contracts for new 
vehicles are awarded by the end of 1996, State agencies will have 
several months to select and place orders for new vehicles in MY 1997. 
As

[[Page 10626]]
explained in the discussion of Sec. 490.204, States that have biennial 
budget cycles and cannot comply using their normal procurement 
procedures will be granted exemptions from the requirements.
    The record shows that covered fuel providers have a shorter and 
more flexible procurement process than States.2 The record is 
devoid of specific information showing that fuel providers generally 
cannot comply by the end of MY 1997 through their normal procurement 
processes. The commenters' desire for more time than most fuel 
providers are likely to need is more than outweighed by the potential 
damage to the interests of automakers and others who in reliance on the 
Act have invested in alternative fueled vehicle production capacity or 
other aspects of alternative fuel infrastructure, and who commented 
critically on the policy options for providing lead time.

    \2\ The Western States Petroleum Association, referring to a 
National Association of Fleet Administrators study, stated that most 
fleets make acquisition plans in July and August for October 
delivery. (Comment No. 35, p. 9). The American Petroleum Institute 
indicated that typically orders must be placed in August or early 
September to obtain delivery in October. (Comment No. 147, p. 26).
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    The rulemaking record also shows that alternative fueled vehicles 
and alternative fuels will be widely available in MY 1997. 
Manufacturers of alternative fueled vehicles and conversion kits and 
alternative fuel equipment manufacturers and suppliers stated in their 
comments that they have been preparing to meet the increased demand for 
their products and services flowing from the vehicle acquisition 
mandates. Although limited types of OEM vehicles will be available in 
MY 1996, information supplied by automobile manufacturers shows a 
growing capacity and a desire to meet demand for alternative fueled 
vehicles in MY 1997. See, e.g., production plans described in the 
second notice of limited reopening, 60 FR 38974, at 38977. DOE also 
received comments from companies in the after-market conversion 
business which stated that they are anticipating demand for their 
products and services.
    Although alternative fuels and alternative fueled vehicles will be 
widely available in MY 1997, comprehensive information does not exist 
on the precise quantities that will be available and whether they will 
match fleets' needs. Undoubtedly, some fleets will not be able to 
acquire alternative fueled vehicles in MY 1997 that meet their normal 
requirements and practices. For example, the record shows that 
currently few Original Equipment Manufacturer (OEM) alternative fueled 
vehicles are offered in the compact size range. In addition, most OEM 
alternative fueled vehicles are only available in one alternative fuel 
configuration. Similarly, although alternative fueling sites exist and 
are growing in number in many urban markets, alternative fueling 
infrastructure is lacking in other areas.
    However, the fact that some covered persons and fleets will not be 
able to acquire alternative fueled vehicles or alternative fuels that 
meet their needs in MY 1997 does not justify a longer unconditional 
delay of the vehicle acquisition requirements. Congress was aware that, 
initially, alternative fueled vehicles and alternative fuels would not 
be available in sufficient amounts and types to satisfy the needs of 
every covered person and fleet. Anticipating the possibility of uneven 
availability of vehicles and fuel, Congress provided that exemptions 
must be granted to both covered fuel providers (section 501(a)(5)) and 
State fleets (section 507(i)) if alternative fuels or alternative 
fueled vehicles that meet their normal requirements and practices are 
not available. States also are eligible for an exemption if compliance 
would produce an unreasonable financial hardship. DOE will use these 
exemption processes, included as Sec. 490.204 and Sec. 490.308, to 
provide additional lead time to covered fuel providers and States that 
are unable to comply with the acquisition requirements in MY 1997 
because of DOE's delay in promulgating a final rule.
    DOE expects the criteria for granting exemptions will be flexible 
enough to respond to exemption requests received in MY 1997 based on 
inadequate lead time. For example, DOE would likely find unreasonable 
financial hardship justifying an exemption for any State that cannot 
meet the MY 1997 requirements by following its regular budget and 
procurement processes (e.g., a State with a biennial budget). A whole 
or partial exemption also would likely be granted under Sec. 490.204 
if, despite a good faith effort, a State was unable to complete an 
alternative compliance plan in time to comply in MY 1997. DOE also will 
apply the criteria and documentation requirements in Sec. 490.308 
flexibly in reviewing requests by covered fuel providers who show they 
need additional lead time to comply.

C. Discussion of Adjustments to Vehicle Acquisition Levels

    DOE invited public comment on the question of whether, at the end 
of the lead time period, States and covered persons should be required 
to acquire vehicles at the percentage levels set forth in the statutory 
schedules for MY 1997 and after, or whether DOE should defer each step 
of the statutory schedules by the lead time period.
1. Comments
    Most commenters favoring a delay of the acquisition requirements 
also favored lowering the acquisition percentages at the end of the 
lead time period, with the effect of deferring each step of the 
acquisition schedule by the period of the postponement of the initial 
requirement. These commenters argued that if DOE required compliance 
with the applicable statutory model year percentage at the end of the 
lead time period, it would upset the Act's scheme for the gradual 
``ramping up'' of alternative fueled vehicle purchases and the orderly 
development of the alternative fuel infrastructure.
    Many of the commenters opposing delay urged DOE to require 
compliance with the MY 1997 statutory percentage in MY 1997. These 
commenters also argued that if DOE delayed compliance for one year, it 
should require States and covered fuel providers to make up the MY 1996 
requirements in subsequent years. In this way, they argued, DOE could 
satisfy the congressional intent that there be some lead time for 
covered persons, while at the same time keeping the programs on track 
with respect to overall vehicle acquisitions.
2. Response to Comments
    DOE agrees with the commenters who argued that the Act's gradual 
``ramping up'' scheme would be upset if DOE enforced the statutory MY 
1997 vehicle acquisition percentages in MY 1997, after having delayed 
the start of compliance by one year in order to provide lead time to 
covered fuel providers and States. The statutory percentages for the 
first year of compliance, MY 1996, are 10 percent for States and 30 
percent for covered fuel providers. The MY 1997 alternative fueled 
vehicle acquisition percentages are 15 percent for States and 50 
percent for covered fuel providers.
    DOE believes that the difference between the first and second year 
requirements under the statutory schedules is significant and that it 
would be inconsistent with the statutory framework to require covered 
fuel providers and States to comply with the MY 1997 acquisition 
levels, which Congress established for the second year of the 
acquisition mandates, in what has become the first year of the program. 
Further, having decided to require

[[Page 10627]]
compliance in MY 1997 at the MY 1996 statutory percentages, DOE 
concludes that it is necessary to reduce future year percentages by one 
model year in order to preserve the statutory scheme of gradually 
increasing the acquisition requirements over a period of years.
    Some comments pointed out that although section 501(b) permits DOE 
to reduce the acquisition percentage requirements for covered fuel 
providers for MY 1997 and thereafter, there is no comparable provision 
in section 507(o) that permits DOE to lower the percentages for State 
government fleets. There is no legislative history that explains the 
different treatment of fuel providers and States, but some commenters 
speculated that Congress did not include a provision permitting DOE to 
lower the percentages for State fleets because the percentages in 
section 507(o) are much lower than for fuel providers in the early 
years of the program. In any event, DOE does not interpret the Act's 
provisions to prevent it from making adjustments that are consistent 
with Congress' evident intent to provide lead time to covered fuel 
providers and States before requiring compliance with the mandates.

D. Discussion of Giving Credits for Alternative Fueled Vehicle 
Acquisitions in MY 1996.

    Several commenters stated that covered persons and fleets that have 
made plans to comply with the acquisition requirements in MY 1996 would 
be penalized if DOE delayed the compliance schedule and did not award 
them credits for alternative fueled vehicle acquisitions in MY 1996. 
DOE agrees. The final rule provides that the acquisition of alternative 
fueled vehicles by covered persons and State fleets will be treated as 
early-acquired vehicles, which are eligible for one credit for each 
year they are acquired before they are required to be acquired. 
Awarding credits for MY 1996 vehicle acquisitions will avoid any 
disadvantage that otherwise would be experienced by State government 
fleets and covered persons. It also creates an incentive for covered 
persons and fleets to acquire alternative fueled vehicles in MY 1996, 
which will further the petroleum displacement and air quality goals of 
the Act.

III. Section-By-Section Discussion of Comments and Rule Provisions

    This section of the Supplementary Information responds to 
significant comments on specific rule provisions. It also contains 
explanatory material for some rule provisions that were not the subject 
of public comment in order to provide interpretive guidance (mostly 
drawn from the preamble to the notice of proposed rulemaking) to States 
and persons that must comply with this part. Most changes from the 
notice of proposed rulemaking are explained in this section. However, 
some nonsubstantive changes, such as the renumbering of paragraphs and 
changes to clarify the meaning of rule provisions, are not discussed.

A. Subpart A--General Subpart

Definition of ``Fleet,'' ``Centrally Fueled,'' and ``Capable of Being 
Centrally Fueled''

    To promote easier understanding, DOE has divided the statutory 
definition of ``fleet'' into two parts. The main paragraph in the 
statutory definition appears in Sec. 490.2 under the word ``fleet.'' 
This regulatory definition of ``fleet'' cross references Sec. 490.3, 
which describes the categories of vehicles excluded by statute from the 
definition.
    Section 301(9) of the Act limits the term ``fleet'' to vehicles 
used primarily in a metropolitan statistical area (MSA) or consolidated 
metropolitan statistical area (CMSA) with a 1980 population of more 
than 250,000. Consistent with the Act, the definition of ``fleet'' in 
Sec. 490.2 cross references Appendix A to subpart A, which sets forth a 
list of MSAs and CMSAs with 1980 Bureau of the Census population of 
250,000 or more. Appendix A was generated from information in ``The 
Statistical Abstract of the United States, 1993,'' which lists all of 
the MSAs and CMSAs, as defined by the Office of Management and Budget 
(OMB) as of December 31, 1992, with a Bureau of Census population of 
250,000 or more as of 1991. This document also gives the 1980 Census 
populations for these areas. The MSAs and CMSAs included in Appendix A 
are those statistical areas, as defined by OMB at the end of 1992, that 
have 1980 Census populations of 250,000 or more.
    One commenter objected to the inclusion of a city in Appendix A 
because its 1980 population was less than 250,000. The city and 
surrounding area were subsequently classified as an MSA, prior to 
October 24, 1992, based on census data. DOE has not removed the MSA 
from the list because, as shown in the Bureau of the Census' 1993 
statistical abstract, the area now classified as an MSA had a 1980 
population greater than 250,000.
    The statutory definition of ``fleet'' does not specify whether the 
list must be updated in light of changes in the geographic areas 
designated by the Bureau of the Census as MSAs and CMSAs which meet the 
1980 population requirement of the Act. Comments were received as to 
whether DOE should update the Appendix A list to add new MSAs/CMSAs 
that had a 1980 population of 250,000. The majority of these comments 
were against adding areas to the list because of the uncertainty that 
updating might cause. DOE does not interpret section 301(9) of the Act 
to require it to update the list of MSA/CMSAs, and in light of these 
comments, has decided not to update the Appendix A list in the future.
    A few comments urged DOE to remove areas from the list in Appendix 
A if their populations have fallen below 250,000 since 1980. DOE has 
not adopted this recommendation because the language of section 301(9) 
of the Act, 42 U.S.C. 13211(9), is unambiguous in including all areas 
having a 1980 population of 250,000, as determined by the Bureau of the 
Census, in the definition of ``fleet.''
    Consistent with the statutory language, the definition of ``fleet'' 
requires that there be a minimum of 20 light duty motor vehicles ``used 
primarily'' in a relevant statistical area. As discussed below under 
``Other Definitions,'' DOE interprets ``used primarily'' to mean that 
the majority (i.e., over 50 percent) of each vehicle's total annual 
miles are accumulated within a covered statistical area.
    The statutory and regulatory definitions of ``fleet'' also provide 
that the vehicles be ``centrally fueled or capable of being centrally 
fueled.'' As discussed more fully below, Sec. 490.2 defines the term 
``centrally fueled'' to mean that a vehicle is fueled at least 75 
percent of the time at a location that is owned, operated, or 
controlled by a fleet or covered person, or is under contract with the 
fleet or covered person for refueling purposes. Vehicles that do not 
meet the 75% centrally fueled criterion are excluded from the vehicles 
counted to determine whether a ``fleet'' exists, and they are excluded 
from the base used to calculate a covered fuel provider's or State 
fleet's alternative fueled vehicle acquisition requirements. The Act 
does not make the centrally fueled criterion applicable to the actual 
operation of fleet vehicles. As explained elsewhere in this 
Supplementary Information, section 501(a)(4) of the Act requires 
alternative fueled vehicles acquired by covered fuel providers to be 
operated solely on alternative fuels, except when operating in areas 
where alternative fuel is not available. The Act does not establish 
operational requirements for State government fleets subject to the 
acquisition requirements.
    It should be noted that the statutory requirement covers those 
vehicles that

[[Page 10628]]
are centrally fueled or are capable of being centrally fueled. It is 
possible that a vehicle that is not currently centrally fueled could be 
centrally fueled. Therefore, an organization which has determined that 
its vehicles are not centrally fueled must still determine if the 
vehicles are capable of being centrally fueled. If the vehicles are so 
capable, then the total vehicles either centrally fueled or capable of 
being centrally fueled may result in a ``fleet'' or ``covered person'' 
that is subject to the acquisition requirements of the Act.
    In determining whether 20 or more light duty motor vehicles within 
a MSA or CMSA are centrally fueled or capable of being centrally 
fueled, the organization must also consider situations where vehicles 
that are centrally fueled or capable of being centrally fueled are 
present in more than one location within the MSA or CMSA. The number of 
vehicles at all locations that are centrally fueled or capable of being 
centrally fueled must be totaled. For example, if a fleet or covered 
person has 12 vehicles at location A that are centrally fueled or 
capable of being centrally fueled and 10 vehicles at location B that 
are also centrally fueled or capable of being centrally fueled, the 
organization has 22 vehicles in a MSA or CMSA that are centrally fueled 
or capable of being centrally fueled.
    Relying upon EPA's determination that ``contract fueling'' is one 
method of establishing whether fleet vehicles are centrally fueled, DOE 
noted in the notice of proposed rulemaking that retail credit card 
purchases by themselves are not considered to be a contractual 
refueling agreement. However, the notice concluded, as did EPA, that 
commercial fleet credit cards are considered to be a contractual 
refueling agreement, since they are intended as a special fuel 
arrangement for fleet purchases alone. The intent of DOE's proposed 
definition was to ensure that only those fleet-based agreements which 
provide special fleet refueling benefits at a particular facility or 
group of facilities would qualify as central fueling.
    Several commenters brought to DOE's attention that EPA had modified 
its determination regarding the role that fleet payment methods play in 
establishing whether fleet vehicles are centrally fueled or capable of 
being centrally fueled. In a September 30, 1994, Federal Register 
notice (59 FR 50068), EPA states that it ``will no longer recommend 
that States look to the payment method as a key indicator of the 
presence or absence of central fueling.'' In its place EPA recommends 
that ``States look at the actual refueling patterns used by fleet 
operators.'' DOE has deleted the reference to credit card agreements 
from its definitions of ``centrally fueled'' and ``capable of being 
centrally fueled'' to be consistent with EPA.
    Section 490.2 defines the terms ``centrally fueled'' and ``capable 
of being centrally fueled'' to mean a vehicle is or can be refueled at 
least 75 percent of its time at a location, that is owned, operated, or 
controlled by the fleet or covered person, or is under contract with 
the fleet or covered person for refueling purposes. The method that DOE 
is requiring for determining central fueling capability is whether 75 
percent of a vehicle's total annual miles traveled are derived from 
trips that are less than the operational range of the vehicle. As 
defined by EPA, in its December 9, 1993, Federal Register notice (58 FR 
64684) on the final rule for the definitions and general provisions for 
the Clean Fuel Fleet Program, the operational range is the distance a 
vehicle is able to travel on a round trip with a single refueling.
    The DOE definitions differ from the EPA definitions of ``centrally 
fueled'' and ``capable of being centrally fueled,'' at 40 CFR 88.302-
94, because the DOE definitions do not require that vehicles covered 
must be capable of being centrally fueled 100 percent of the time. DOE 
received comments, principally from representatives of natural gas and 
propane producers and marketers that supported the 75 percent central 
fueling standard in DOE's proposed definitions of ``centrally fueled'' 
and ``capable of being centrally fueled.'' Some of these commenters 
stated that a 100 percent standard would allow fleets to easily avoid 
the requirements by redefining vehicle missions and operating zones. 
Other commenters, principally representatives of covered fuel providers 
and fleet administrators, recommended that DOE adopt a 100 percent 
central fueling definition. Most of these commenters argued that DOE 
should adopt the EPA definition to minimize confusion and regulatory 
burdens on fleets required to comply with both programs.
    After considering the comments, DOE decided to retain the 75 
percent central fueling standard in the final rule. DOE's decision to 
not adopt EPA's definition of ``centrally fueled'' is rooted in 
statutory differences between the Clean Fuel Fleet Program, 
administered by EPA, and the Department's Alternative Fuel 
Transportation Program.
    EPA's program applies in certain non-attainment areas with the goal 
of improving the air quality in those areas. EPA's explanation of its 
final rule shows that EPA did not look favorably on the inclusion of 
dual-fueled vehicles in the Clean Fuel Fleet Program. EPA concluded 
that the purchase of flexible-fuel or dual-fueled vehicles would 
achieve significantly less emissions reduction than dedicated 
alternative fueled vehicles, which operate on a single type of fuel. 60 
FR 64681. EPA expressly acknowledged that, by adopting a 100 percent 
refueling standard, fewer vehicles would be covered by its program.
    By contrast, DOE's Alternative Fuel Transportation Program applies 
throughout the Nation, and its primary goal is to reduce the nation's 
dependence on petroleum as a transportation fuel. DOE's program, as it 
applies to covered fuel providers, is not limited to fleets operating 
in large metropolitan statistical areas. ``Alternative fueled vehicle'' 
is defined in section 301(2) of the Act to include a dual fueled 
vehicle. This shows that Congress anticipated that alternative fuels 
would not be available to all covered vehicles all of the time. This is 
also reflected in section 501(a)(4), which requires alternative fueled 
vehicles acquired by covered fuel providers to operate solely on 
alternative fuels except when operating in an area where the 
appropriate alternative fuel is unavailable. 42 U.S.C. 
Sec. 13251(a)(4).
    DOE believes that allowing the use of all types of alternative 
fueled vehicles, not just dedicated vehicles, provides flexibility to 
fleet operators in acquiring vehicles that meet their normal 
requirements and practices. This is especially important during the 
initial years of the program, when the fueling infrastructure for 
alternative fueled vehicles will not be fully developed.
    In addition, vehicles acquired under DOE's program are required to 
operate on fuels that are ``substantially not petroleum.'' See section 
301(2) of the Act (definition of ``alternative fuel''). By contrast, 
EPA's Clean Fuel Fleet Program may include vehicles that use 
reformulated gasoline and clean diesel fuel. The greater availability 
of reformulated gasoline and clean diesel makes the 100 percent 
refueling standard more reasonable in the EPA program.
    In summary, DOE believes a 100 percent standard for the definition 
of ``centrally fueled'' and ``capable of being centrally fueled'' would 
unduly compromise the Energy Policy Act's goals of displacing petroleum 
and fostering development of an alternative fuels infrastructure.
    The statutory definition of ``fleet'' requires that a minimum of 20 
vehicles

[[Page 10629]]
be ``owned, operated, leased, or otherwise controlled by a governmental 
entity or other person.'' 42 U.S.C. 13211(9). Section 490.2 contains a 
definition of ``lease'' that excludes vehicles under rental agreements 
of less than 120 days. This provision is consistent with the EPA 
regulations. As EPA explained, a person does not have the same level of 
control over a vehicle lease for a short period of time, and the 120-
day period takes into account short term variations in fleet operations 
and the number of fleet vehicles that ought not to trigger the vehicle 
acquisition mandates. 58 FR at 64687.
    The statutory definition of ``fleet'' uses the concept of 
``control'' to establish the guidelines for attributing vehicles to a 
fleet for the purposes of determining whether the 50-vehicle minimum is 
satisfied. There is similar language in the definition of ``covered 
fleet'' which applies to the EPA fleet program requirement. EPA has 
promulgated a definition of ``control'' (40 CFR Sec. 88.302-94), which 
DOE has adopted with slight modifications to omit language not relevant 
to DOE's program.

Other Definitions

    Acquire. The Department was asked to define the term ``acquire'' by 
a few commenters. They were uncertain as to whether the term referred 
to ordering a vehicle, paying for a vehicle, or taking possession of a 
vehicle. In Sec. 490.2, the Department defines ``acquire'' to mean 
taking into possession or control, which is a dictionary definition. 
Thus, a vehicle is acquired when it is taken into possession or 
control.
    After-Market Converted Vehicle. Section 490.2 defines the term 
``after-market converted vehicle'' as a new or used conventional fuel 
Original Equipment Manufacturer vehicle that has been converted to 
operate on alternative fuel by an after-market converter. This 
converter must be in compliance with all Federal, State, and local laws 
at the time of conversion. After-market converted vehicles differ from 
Original Equipment Manufacturer converted vehicles with respect to 
which company warrants the conversion and its components. In the case 
of an Original Equipment Manufacturer converted vehicle, the vehicle is 
converted prior to first sale by a manufacturer or conversion company 
under contract to the manufacturer to convert Original Equipment 
Manufacturer vehicles, and is then offered by the Original Equipment 
Manufacturer, with warranty coverage through the Original Equipment 
Manufacturer, for sale to the general public. In the case of an after-
market converted vehicle, the conversion is performed by an after-
market converter, who provides the warranty for the vehicle conversion 
and the conversion kit.
    Alternative Fuel. Section 490.2 defines the term ``alternative 
fuel'' consistent with the definition of that term in section 301 of 
the Act.
    Several commenters requested that propane (liquefied petroleum gas) 
be removed from the list of fuels in the definition of ``alternative 
fuel'' in Sec. 490.2. The definition of this term tracks section 301(2) 
of the Act, which lists fuels that are alternative fuels and grants the 
Secretary the authority to add fuels to the definition of ``alternative 
fuel'', by rule, if they meet certain conditions. However, section 
301(2) does not authorize the Secretary to delete any fuel listed in 
the statutory definition. Thus, the Department has not removed 
liquefied petroleum gas (or propane) from the definition of 
``alternative fuel.''
    Many commenters requested that biodiesel, and biodiesel blends, be 
included in the Department's regulatory definition of ``alternative 
fuel'' because biodiesel is a fuel ``(other than alcohol) derived from 
biological materials.'' As described in the comments, biodiesel is 
produced from vegetable oils, such as soybean oil, which are biological 
materials. The commenters also stated that biodiesel offers significant 
reduction in harmful tailpipe emissions of hydrocarbons, carbon 
monoxide and particulate matter; is essentially free of sulfur and 
harmful aromatics; and is non-toxic and biodegradable. These commenters 
also submitted information to show that biodiesel can be made wholly 
from domestic products, and that it has a positive energy balance in 
its production process.
    After carefully reviewing all of the comments on this issue, the 
Department included in its July 31, 1995 Federal Register notice its 
tentative conclusion that neat (or 100 percent) biodiesel meets the 
criteria in section 301(2) for an alternative fuel; namely, that it is 
a fuel, other than alcohol, that is derived from biological materials. 
Several comments were received in support of this designation. No 
comments were received in opposition to this position. For the reasons 
set forth in the July 31 notice, the Department has revised the 
definition of ``alternative fuel'' in section 490.2 to include neat 
biodiesel. It is noted, however, that a DOE interpretation of 
``alternative fuel'' to include neat biodiesel does not relieve 
biodiesel manufacturers from any Federal, State, local government, or 
automobile manufacturer requirements that may apply to the production 
and use of biodiesel for motor fuel.
    In its July 31, 1995 notice, DOE stated that it did not intend to 
include mixtures or blends of biodiesel in the definition of 
``alternative fuel'' in this rulemaking. DOE stated that more study is 
required before a determination on biodiesel blends can be made. After 
reviewing all of the comments on this issue, DOE has concluded than an 
additional rulemaking proceeding is required to develop the information 
needed to reach a conclusion on which, if any, mixtures or blends of 
biodiesel should be included in the definition of ``alternative fuel.''
    One commenter stated that neat biodiesel may not be the only 
biologically derived fuel that can be classified as an ``alternative 
fuel,'' and requested clarification that the inclusion of neat 
biodiesel in the definition would not preclude other biologically 
derived fuels from receiving this designation. The Department is not 
currently aware of any other biologically derived fuels that are not 
already included in the definition of ``alternative fuel.'' However, if 
DOE were asked to designate another biologically derived fuel as an 
alternative fuel, the fuel would be evaluated on its merits to 
determine if it meets the criteria for an alternative fuel.
    In its July 31, 1995, Federal Register notice, the Department 
invited interested persons to submit data, reports and analyses in 
support of previous requests that DOE revise the definition of 
``alternative fuel'' to include alcohol blends containing no less than 
70 percent alcohol by volume. In response, the Department received two 
submissions containing information relevant to this issue. These 
submissions show that decreasing the level of alcohol can improve the 
cold start ability of alcohol fueled vehicles. The data shows that by 
decreasing the level of alcohol to 70%, some vehicles are able to start 
in weather 11 degrees F colder than they were previously able. But the 
data and reports of field operation of these vehicles also show that 
vehicles operating on 85% blends of ethanol or methanol can start in 
winter conditions if certain procedures are followed and certain 
precautions taken. These precautions and procedures are recommended for 
cold-start of vehicles irrespective of what fuels they operate on. In 
addition, it appears that several different combinations of non-alcohol 
components with varying Reid Vapor Pressures are capable of providing 
cold

[[Page 10630]]
start performance at the automakers' target temperature.
    After carefully analyzing the information that has been submitted, 
the Department has concluded that it needs additional information 
before it can determine that 70 percent alcohol blends are required for 
the cold-start of alcohol fueled vehicles. Therefore, the definition of 
``alternative fuel'' in this rule retains the statutory 85 percent 
standard for alcohol fuels. A separate rulemaking, initiated by DOE or 
following a petition filed pursuant to Sec. 490.6 of this part, will 
permit the issues related to lowering the alcohol percentage to be 
fully explored.
    DOE received many comments arguing that reformulated gasoline 
should be added to the list of fuels included in the definition of `` 
alternative fuel'' in Sec. 490.2. Commenters stated that use of 
reformulated gasoline contributes to reduction of air pollutants and, 
because of its increased oxygen content, displaces petroleum. Some of 
these commenters argued that reformulated gasoline meets the statutory 
test of being ``substantially not petroleum.'' Some commenters argued 
that including reformulated gasoline in the definition of ``alternative 
fuel'' would be consistent with Congress' allowance of reformulated 
gasoline under EPA's clean fuel fleet program. One commenter argued 
that use of reformulated gasoline should be permitted in air quality 
non-attainment areas, but not elsewhere, in order to reduce the 
regulatory burden on fleets in those areas. Other commenters stated 
that allowing reformulated gasoline in the DOE program would help 
industry recoup its investment in the production and marketing of 
reformulated gasoline to meet air quality goals. Some commenters 
recommended that DOE should seek amendment of the Energy Policy Act to 
correct the omission of reformulated gasoline from the list of fuels 
included in the statutory definition of ``alternative fuel.''
    DOE also received many comments opposed to including reformulated 
gasoline in the definition of ``alternative fuel'' in Sec. 490.2. These 
commenters argued that reformulated gasoline is substantially petroleum 
in composition, and that recognizing it as an alternative fuel would 
not contribute to development of non-petroleum fueling and vehicle 
technologies. Commenters stated that although reformulated gasoline is 
a low-cost way to reduce hydrocarbon emissions, its use will not 
significantly further the Act's petroleum displacement goals.
    The Department adheres to its view that reformulated gasoline does 
not meet the Act's criteria for designation as an ``alternative fuel.'' 
The percentage of petroleum in reformulated gasoline is too large to 
warrant finding that it is ``substantially not petroleum,'' which is 
required for classifying a fuel as an ``alternative fuel'' under 
section 301(2) of the Act. The notice of proposed rulemaking stated 
that reformulated gasoline is comprised of over 90 percent petroleum. A 
commenter who represents the petroleum industry disputed this figure, 
and stated that reformulated gasoline only contains 83 percent 
petroleum. Even assuming that the commenter's figure of 83 percent is 
correct, that percent petroleum volume is still too large to warrant a 
determination that reformulated gasoline is ``substantially not 
petroleum.''
    Several comments were received requesting that low-sulphur diesel 
and clean diesel be included as alternative fuels. The Department has 
not adopted these recommendations because low-sulphur diesel and clean 
diesel are fuels comprised almost totally of petroleum, and thus, 
cannot be considered to be substantially not petroleum.
    Covered Person. Section 490.2 defines the term ``covered person'' 
consistent with the definition of that term in section 301 of the Act.
    Dealer Demonstration Vehicles. No comments were received on the 
definition of ``dealer demonstration vehicle.'' Section 490.2 follows 
the EPA definition of the term ``dealer demonstration vehicle'' found 
at 40 CFR Sec. 88.302-94. EPA defines ``dealer demonstration vehicle'' 
as any vehicle that is operated by a motor vehicle dealer solely for 
the purpose of promoting motor vehicle sales, either on the sales lot 
or through other marketing or sales promotions, or for permitting 
potential purchasers to drive the vehicle for pre-purchase or pre-lease 
evaluation. Vehicles held by dealers for their own business purposes, 
such as shuttle buses, loaner vehicles, or other repair or business-
related vehicles are not exempt, unless they are also offered for 
retail sale as part of the dealer stock or are rotated through the 
fleet back to the dealer stock.
    Dedicated Vehicle. The notice of proposed rulemaking included the 
statutory definition of ``dedicated vehicle'' in section 301(6) of the 
Act, 42 U.S.C. 13211(6). Section 301(6) provides that a dedicated 
vehicle is either: (i) a ``dedicated automobile'' as defined in section 
513(h)(1)(C) of the Motor Vehicle Information and Cost Savings Act, 
codified at 49 U.S.C. 32901(a)(7), or (ii) a motor vehicle, other than 
an automobile, that operates solely on alternative fuel.
    DOE received no public comments on the proposed definition of 
``dedicated vehicle.'' Nevertheless, in the final rule DOE has revised 
the portion of the definition relating to a ``dedicated automobile'' to 
include the language of the cross-referenced statute, as a convenience 
for regulated entities. As defined in the Motor Vehicle Information and 
Cost Savings Act, a ``dedicated automobile'' means ``an automobile that 
operates only on alternative fuel.'' 49 U.S.C. 32901(a)(7) (emphasis 
added). DOE interprets the word ``automobile,'' as used in the 
definition of ``dedicated automobile'' and incorporated by reference in 
section 301(6), to mean an ``automobile,'' as that term is defined in 
section 501(1) of the Motor Vehicle Information and Cost Savings Act, 
codified at 49 U.S.C. 32901(a)(3). DOE has added a definition of 
``automobile'' to Sec. 490.2, which is adapted from and is intended to 
have the same meaning as ``automobile'' defined in section 501(1) of 
the Motor Vehicle Information and Cost Savings Act.
     Dual Fueled Vehicle. Section 301(8) of the Act, 42 U.S.C. 13211(8) 
defines ``dual fueled vehicle'' as: (i) a dual fueled automobile, as 
such term is defined in section 513(h)(1)(D) of the Motor Vehicle 
Information and Cost Savings Act, or (ii) a motor vehicle, other than 
an automobile, that is capable of operating on alternative fuel and is 
capable of operating on gasoline or diesel fuel. DOE included the 
statutory definition in the proposed rule, with slight modifications to 
make clear that term includes all vehicles that are capable of 
operating on an alternative fuel and on gasoline or diesel fuel, 
including those commonly referred to as ``bi-fuel,'' flexible fuel,'' 
and ``dual fuel'' vehicles.
    DOE received public comment on the proposed definition of ``dual 
fueled'' vehicle. One commenter urged DOE to adopt definitions of 
``dual fuel vehicle'' and ``flexible fuel vehicle'' in regulations 
published by EPA for its Clean Fuel Fleet Program (59 FR 50042, Sept. 
30, 1994). DOE cannot adopt this recommendation in its entirety because 
of differences in the underlying statutes. The Clean Air Act 
establishes clean alternative fuel standards for flexible fuel vehicles 
and dual fuel vehicles, 42 U.S.C. 7581. EPA has, in implementing 
regulations, defined the term ``dual fuel vehicle'' to mean a ``bi-fuel 
vehicle'' (i.e., one that is engineered and designed to be operated on 
two fuels, but not a mixture of two or more different fuels) and the 
term ``flexible

[[Page 10631]]
fuel vehicle'' to mean a vehicle that is engineered and designed to be 
operated on any mixture of two or more different fuels. 59 FR 50045. By 
contrast, section 301(3) of the Act defines an ``alternative fueled 
vehicle'' to mean a ``dedicated vehicle'' or a ``dual fueled vehicle.'' 
Thus, if DOE were to adopt EPA's definition of ``dual fuel vehicle,'' 
flexible fuel vehicles would be excluded from the definition of 
``alternative fueled vehicle,'' and the acquisition of such vehicles 
would not count for compliance purposes under the Act. There is nothing 
in the text of the Act or its legislative history that indicates an 
intent to exclude flexible fuel vehicles from DOE's Alternative Fuel 
Transportation Program. A flexible fuel vehicle, authorized by the 
manufacturer to operate on an alternative fuel and on gasoline or 
diesel, clearly fits within the definition of ``dual fueled vehicle'' 
in section 301(8).
    In response to the comments, DOE has made several changes in the 
regulatory text to clarify that the statutory term ``dual fueled 
vehicle'' includes flexible fuel vehicles. The definition of ``dual 
fueled vehicle'' in Sec. 490.2 has been revised to expressly include 
flexible fuel vehicles. A definition of ``flexible fuel vehicle'' has 
been added to Sec. 490.2. The term is defined as ``any motor vehicle 
engineered and designed to operate on any mixture of two or more 
different fuels.'' This definition is taken from EPA's regulation on 
clean-fuel vehicles, 40 CFR 88.102-94. The definition of ``alternative 
fueled vehicle'' in Sec. 490.2 also has been revised to clarify that 
flexible fuel vehicles are included.
    Several commenters asked the Department to clarify whether vehicles 
that are capable of operating on neat biodiesel and diesel can be 
considered dual-fueled vehicles. A bi-fuel vehicle that is authorized 
by the vehicle manufacturer to be operated on neat biodiesel or diesel 
would meet the definition of a dual-fueled vehicle. A flexible fuel 
vehicle that is authorized by the vehicle manufacturer to be operated 
on neat biodiesel or diesel also would meet the definition of a dual-
fueled vehicle. These vehicles would meet this definition principally 
because they are capable of operating on an ``alternative fuel'' as 
defined by section 301(2) of the Act, in addition to being operated on 
a petroleum-based fuel. As explained earlier in the discussion of the 
definition of ``alternative fuel,'' DOE has concluded that an 
additional rulemaking is needed to reach a conclusion on which, if any, 
mixtures of biodiesel should be included in the definition of 
``alternative fuel.'' Consequently, until such a rulemaking designates 
a mixture of biodiesel and diesel as an alternative fuel, a vehicle 
powered by such a mixture or conventional diesel would not qualify as a 
``dual fueled vehicle.''
    Emergency Motor Vehicles. Section 490.2 adopts EPA's definition for 
the term ``emergency vehicle'' in 40 CFR Sec. 88.302-94. EPA defines 
``emergency vehicle'' to mean any vehicle that is legally authorized by 
a governmental authority to exceed the speed limit to transport people 
and equipment to and from situations in which speed is required to save 
lives or property, such as a rescue vehicle, fire truck or ambulance. 
These vehicles normally have red and/or blue flashing lights and 
sirens. DOE is relying on the speed limit criterion because this is the 
way that many States define ``emergency vehicles.''
    The Department received comments from utilities asking DOE to 
determine that vehicles used for emergency restoration of utility 
service are covered by the definition of ``emergency motor vehicles.'' 
These vehicles are not normally considered emergency motor vehicles 
because their primary function does not include exceeding the speed 
limit to transport people and equipment to and from situations in which 
speed is required to save lives or property. For this reason, they are 
not usually equipped with red and/or blue flashing lights and sirens. 
Emergency power restoration vehicles are not excluded from the 
definition of ``fleet'' unless, on a vehicle-by-vehicle basis, they are 
specifically and legally authorized by a governmental authority to 
exceed speed limits when responding to emergencies.
    Law Enforcement Motor Vehicles. Section 490.2 adopts EPA's 
definition of the term ``law enforcement vehicle'' found at 40 CFR 
Sec. 88.302-94. EPA defines ``law enforcement vehicle'' to mean any 
vehicle which is primarily operated by a civilian or military police 
officer or sheriff, or by personnel of the Federal Bureau of 
Investigation, the Drug Enforcement Administration, or other law 
enforcement agencies of the Federal Government, or by State highway 
patrols, municipal law enforcement, or other similar law enforcement 
agencies, and which is used for the purpose of law enforcement 
activities including, but not limited to, chase, apprehension, 
surveillance, or patrol of people engaged in or potentially engaged in 
unlawful activities.
    This definition is intended to clarify the difference between law 
enforcement motor vehicles and vehicles used for other security 
purposes. Under this definition, a vehicle is considered to be a law 
enforcement motor vehicle by virtue of its use for official law 
enforcement purposes, as authorized by local, State or Federal 
government authority. Private security vehicles are not excluded from 
the definition of ``fleet'' unless, through a contract or other 
arrangement, they are used by a law enforcement agency for the purposes 
described above.
    One commenter inquired whether vehicles operated by a State 
corrections department and used for transport of prisoners or for 
administrative duties would be considered a ``law enforcement motor 
vehicle.'' DOE concludes that these vehicles are law enforcement motor 
vehicles because State corrections departments are engaged in law 
enforcement activities.
    Lease. No comments critical of the definition of ``lease'' were 
received. Section 490.2 defines the term ``lease'' to mean use of a 
vehicle for transportation purposes pursuant to a rental contract or 
similar arrangement, and the term of such contract or similar 
arrangement is for a period of 120 days or more. This definition 
closely tracks EPA's definition of ``owned or operated, leased or 
otherwise controlled by such person,'' found at 40 CFR Sec. 88.302-94.
    Light Duty Vehicle. One commenter inquired whether a vehicle's 
gross vehicle weight rating is to be determined before or after 
conversion to operate on alternative fuel. DOE has determined that the 
gross vehicle weight rating applies to newly acquired vehicles prior to 
conversion and has amended the definition of the term ``light duty 
motor vehicle'' to reflect this determination.
    Model Year. No comments critical of the definition of ``model 
year'' were received. Section 490.2 defines the term ``model year'' for 
the purposes of vehicle acquisition requirements as September 1 of the 
previous calendar year through August 31. This definition closely 
tracks EPA's definition of ``model year,'' found at 40 CFR Sec. 88.302-
94. The model year, thus defined, coincides with the period in which 
most automobile manufacturers introduce their new annual models, which 
should facilitate compliance since covered persons and State fleets can 
make their acquisition plans regarding alternative fueled vehicles when 
they make plans for acquiring new model year vehicles. For compliance 
purposes, the definition of model year is important to ensure that all 
fleets and covered persons acquire vehicles based on the same annual 
period. Thus, any new vehicles that are acquired by a fleet or covered 
person between September 1 and August 31 of

[[Page 10632]]
the next year are counted and used as the basis for determining the 
acquisition requirement of the same year.
    Motor Vehicle. The notice of proposed rulemaking included the 
definition of ``motor vehicle'' in section 301(13) of the Act, 42 
U.S.C. 13211(13), which incorporates the definition of ``motor 
vehicle'' in section 216(2) of the Clean Air Act, 42 U.S.C. 7550(2). In 
this rule, DOE has included the text of section 216(2) so that 
regulated entities will not have to consult another source for the 
meaning of this term. A comment was received that requested that non-
road vehicles be expressly excluded from the definition of ``motor 
vehicle.'' The Department has amended the definition of ``motor 
vehicle'' to make clear that non-road vehicles are excluded. A 
definition of ``non-road vehicle,'' which is drawn from section 412(b) 
of the Act, has been added to this section.
    Non-road Vehicle. This term is defined to mean a vehicle not 
licensed for on-road use, including vehicles used principally for 
industrial, farming or commercial use, for rail transportation, at an 
airport, for marine purposes and other vehicles.
    Original Equipment Manufacturer Vehicle. Section 490.2 defines the 
term ``Original Equipment Manufacturer Vehicle'' to mean a vehicle 
engineered, designed, produced and warranted by an Original Equipment 
Manufacturer. This term applies to conventionally fueled Original 
Equipment Manufacturer vehicles as well as to alternative fueled 
vehicles. Included in this definition are vehicles that were 
conventionally fueled Original Equipment Manufacturer vehicles, but 
were converted prior to sale by the Original Equipment Manufacturer, 
through a contract with a conversion company, to operate on an 
alternative fuel and which are covered under the Original Equipment 
Manufacturer warranty. The proposed definition did not reference 
Original Equipment Manufacturer warranties. This omission was pointed 
out by a commenter, and it is corrected in this rule.
    Used Primarily. The definitions of the terms ``fleet'' and 
``covered person'' include the requirement that a vehicle must be 
``used primarily'' within a metropolitan statistical area to be 
included in a ``fleet.'' In response to comments requesting 
clarification the Department has defined ``used primarily'' to mean 
that a majority (i.e., over 50 percent) of a vehicle's total annual 
miles are accumulated within a covered metropolitan statistical or 
consolidated metropolitan statistical area.

Section 490.3  Excluded Vehicles

    Section 490.3 sets forth the categories of vehicles that are not 
counted in determining the existence of a ``fleet'' as defined in 
Sec. 490.2. Some of the exclusions are discrete categories defined in 
Sec. 490.2, including ``dealer demonstration vehicle,'' ``emergency 
vehicle,'' and ``law enforcement vehicle.''
    The statutory definition of ``fleet'' also excludes motor vehicles 
held for lease or rental to the general public; motor vehicles used for 
motor vehicle manufacturer product evaluations or tests; motor vehicles 
which under normal operations are garaged at personal residences at 
night; and motor vehicles that the Secretary of Defense certifies must 
be exempt for national security reasons. This latter category was not 
subject to public comment and is self-explanatory. The other 
categories, however, either were subject to comment or require some 
explanation.
    DOE has adopted EPA's interpretation of ``motor vehicles held for 
lease or rental to the general public.'' EPA interprets the phrase to 
mean a vehicle that is owned or controlled primarily for the purpose of 
short-term rental or extended-term leasing, without a driver, pursuant 
to a contract. 40 CFR Sec. 88.302-94. Under this definition, a firm 
will not be found to ``lease'' its vehicles to its employees unless the 
vehicles are owned primarily for leasing them to the general public and 
they are leased pursuant to formal contracts which give control of the 
vehicle to the lessee. No critical comments were received on this 
interpretation.
    DOE also has adopted EPA's interpretation of ``motor vehicles used 
for motor vehicle manufacturer product evaluations and tests,'' which 
are excluded from the definition of ``fleet.'' Section 490.3 follows 
EPA's definition of the phrase ``vehicle used for motor vehicle 
manufacturer product evaluations and tests'' at 40 CFR Sec. 88.302-94. 
It is the intent of this provision to exclude vehicles which are used 
by an Original Equipment Manufacturer for production control or quality 
control reasons. No critical comments were received on this 
interpretation.
    DOE has only partially adopted EPA's definition of ``motor vehicles 
which under normal operations are garaged at personal residences at 
night.'' The notice of proposed rulemaking included this statutory 
language in Sec. 490.2. A number of commenters criticized DOE for not 
adopting all of EPA's definitions, and one commenter specifically urged 
DOE to adopt EPA's definition of this phrase. EPA defined the nearly 
identical statutory language to mean ``a vehicle that, when it is not 
in use, is normally parked at the personal residence of the individual 
who usually operates it, rather than at a central refueling, 
maintenance, and/or business location.'' 40 CFR Sec. 88.302-94. EPA 
concluded that the words ``at night'' in section 241(6) of the Clean 
Air Act did not preclude extending the exclusion to persons who work at 
night. 58 FR 64679, 64690. DOE believes that this is a reasonable 
interpretation of the statutory phrase and, in light of the comments 
urging consistency in definitions, has decided to adopt the EPA 
language in Sec. 490.2.
    A few commenters also pointed out that some vehicles that are 
garaged at personal residences of employees overnight are in fact 
centrally fueled, and they urged DOE not to exclude such vehicles from 
a ``fleet.'' EPA, in its definition, did not exclude a vehicle that was 
in fact centrally fueled, because the relevant Clean Air Act provision 
refers only to a vehicle which ``is capable of being centrally 
fueled.'' 58 FR 64679, 64690. By contrast, the definition of ``fleet'' 
in section 301(9) of the Act excludes a vehicle garaged at a personal 
residence from the definition, regardless of whether it is centrally 
fueled or capable of being centrally fueled. Therefore, DOE has not 
adopted that portion of EPA's definition.
    Fleet operators and covered persons should subtract vehicles in 
these excluded categories from the total number of new light duty 
vehicles to be acquired in a model year to determine the basis for 
calculating the number of alternative fueled vehicles they are required 
to acquire in the model year.

    Example: A covered person is going to acquire 105 new light duty 
vehicles in model year 1997. Of these 105 vehicles, five are 
vehicles in excluded categories. To determine how many alternative 
fueled vehicles must be acquired the covered person shall make the 
following calculation: [(Number of new light duty vehicles to be 
acquired)--(Number of new light duty vehicles in excluded 
categories)]  x  (Acquisition percentage for that model year). In 
this example, the covered person is required to acquire 30 
alternative fueled vehicles in model year 1997 {[(105)-(5)]  x  
(.30) = 30}.

Section 490.5  Requests for an Interpretive Ruling

    Section 490.5 establishes a process for States and covered persons 
to obtain DOE interpretive rulings as to how the Department intends to 
construe and apply its regulations to particular factual situations, 
and for whom other procedures such as petitions for

[[Page 10633]]
exemption are irrelevant. One commenter objected to this provision, 
stating that it will lead to inconsistencies in implementation. DOE 
does not agree with this comment. Publicly available interpretive 
rulings should promote uniformity in implementation, even though any 
interpretive ruling that the Department issues would apply only to the 
person who requested it.

Section 490.7  Relationship to Other Law

    Section 490.7 makes a declaratory statement to avoid arguments that 
provisions of part 490, by implication, authorize acquisition of 
vehicles, conversion of vehicles, or use of fuels as motor fuel in a 
manner that does not comply with other Federal, State, or local laws.

B. Subpart B--[Reserved]

C. Subpart C--Mandatory State Fleet Program

Section 490.201  Alternative Fueled Vehicle Acquisition Mandate 
Schedule

    Section 490.201 sets forth the requirements, subject to some 
exemptions, for the percentage of new light duty motor vehicles that 
must be alternative fueled vehicles when acquired for State fleets 
under the Mandatory State Fleet Program.
    In response to comments that inquired about what would happen if a 
State agency grew in size or moved its vehicle operations to one of the 
MSAs listed in Appendix A to subpart A, the Department has added 
paragraph (d). Paragraph (d) states that if, in the future, a State 
agency becomes subject to this subpart because it owns, operates or 
controls a fleet, the State agency shall start acquiring alternative 
fueled vehicles according to the schedule percentage in effect for the 
next model year. For example, if a State agency first owns, operates or 
controls a fleet in model year 1998, then for model year 1999, 25 
percent of the State agency's new light duty motor vehicles acquired 
for its fleet should be alternative fueled vehicles. However, paragraph 
(d) also recognizes that, in some cases, State agencies that are newly 
required to acquire alternative fueled vehicles may qualify under 
section 490.204 for an exemption or reduction of the acquisition 
percentage. One commenter questioned the rounding convention in the 
proposed rule for calculating acquisition requirements. After 
reconsidering this issue, DOE has revised paragraph (c) to provide for 
rounding up or down to the next whole number, depending on whether the 
fraction is equal to or greater than one half or is less than one half.

Section 490.202  Acquisitions Satisfying the Mandate

    Section 490.202 provides in substance that an acquisition of an 
alternative fueled vehicle, regardless of the year of manufacture, 
counts toward satisfaction of the vehicle acquisition mandate. Such a 
vehicle would be new to the fleet operator. Credits acquired under 
subpart F also count toward satisfaction of the mandate.
    DOE received many comments opposed to the proposed rule's 
requirement that new vehicles must be converted before they are placed 
into service in a fleet. The Department has revised Sec. 490.202(a) to 
allow States and State agencies to convert newly acquired Original 
Equipment Manufacturer vehicles within four months after vehicle 
acquisition. The basis for the 4-month period for conversion of newly 
acquired vehicles is explained in the discussion of Sec. 490.305 in 
this Supplementary Information section. Section 490.305 applies to 
covered fuel providers, but its provisions are the same as those in 
Sec. 490.202. Many fuel providers also objected to the proposal to 
require vehicles to be converted prior to being placed into service in 
a fleet and, to avoid redundancy, DOE addresses all of the comments on 
this issue in the discussion of Sec. 490.305.
    The Department would prefer that these vehicles be converted in the 
same model year that they are acquired, but realizes that this is not 
always possible. Thus, a vehicle acquired in MY 1997 could be converted 
during MY 1998 (beginning on September 1, 1997), and count towards 
compliance in MY 1997, if the conversion occurred within four months of 
the vehicle's acquisition. However, those conversions could not be 
counted for compliance with the MY 1998 requirements.
    A few comments pointed out that the proposed rule did not include 
any statement about a State not being required to acquire converted 
vehicles, as provided in section 507(j) of the Act. The Department has 
not revised the rule in response to these comments because it sees no 
need to restate the statutory provision in this final rule.
    Many commenters requested that the Department allow the conversion 
of vehicles already in service in a fleet to count towards compliance 
once the rule goes into effect. The proposed rule would not have 
allowed the conversion of existing fleet vehicles to count. Upon 
further analysis, the Department has decided that is was correct in not 
allowing these vehicles to count towards compliance. Section 507(o) 
specifically refers to ``* * * percentages of new light duty motor 
vehicles acquired annually * * *'' 42 U.S.C. 13257(o) (emphasis added). 
The Act's focus on vehicles new to the regulated entity indicates a 
congressional intent to regulate inventory turnover and stimulate 
production of new alternative fueled vehicles. Conversion of existing 
fleet vehicles could seriously undermine those goals.
    Although conversion of an existing fleet vehicle does not qualify 
as an acquisition under the Act, DOE (as explained in the discussion of 
Sec. 490.502 in Subpart F) will allocate credits for motor vehicles 
that were purchased or leased by regulated entities on or after October 
24, 1992, and converted to alternative fueled vehicles before the 
effective date of the applicable acquisition requirements. For purposes 
of calculating credits, DOE will not apply the four-month time limit to 
conversions that occurred before the effective date of this rule.

Section 490.203  Light Duty Alternative Fueled Vehicle Plan

    The Act provides an alternative means of compliance for States. In 
lieu of a State meeting the acquisition requirements of Sec. 490.201 
solely through State acquisitions, a State may comply with a Light Duty 
Alternative Fueled Vehicle Plan submitted by the State and approved by 
DOE. Under such an alternative compliance plan, a State may satisfy its 
acquisition requirements with the voluntary participation of non-
covered State, municipal, and private fleets. However, section 
507(o)(2)(A) of the Act states that any State plan must provide for the 
acquisition of light duty motor vehicles by State, local and private 
fleets, which in aggregate meet or exceed the applicable vehicle 
percentage for any given model year.
    Section 490.203(3) provides that any acquisition of light duty 
alternative fueled vehicles for a State may be part of the Plan, 
irrespective of whether the vehicles are in the categories of vehicles 
excluded from the definition of ``fleet,'' as enumerated in Sec. 490.3. 
This allows for law enforcement vehicles, or other vehicles excluded 
from the definition of ``fleet'' to be part of a Light Duty Alternative 
Fueled Vehicle Plan.
    Unless covered by an exemption, a State is subject to the 
requirements in Sec. 490.201. A State also may be required to comply 
with the requirements of Sec. 490.201 if a State plan participant (such 
as a municipality) fails to fulfill its commitments under the Plan. 
However, if the State is able to find a

[[Page 10634]]
substitute participant, then the State may submit to DOE for approval 
an amendment to the Plan.
    Paragraph (b) of this section requires States to monitor and verify 
on an ongoing basis the implementation of its Plan. This is to ensure 
that all participants in the Plan are indeed in compliance, and that at 
the end of the model year, all requirements will have been met. If for 
whatever reasons a participant is unable to fulfill its commitments, 
the State is obligated to find a substitute participant before the end 
of the year.
    Paragraph (c) establishes a general requirement that a State must 
submit to DOE, for approval, its Light Duty Alternative Fueled Vehicle 
Plan no later than the June 1 prior to the model year(s) covered by the 
Plan. However, because section 507(o)(2)(A) of the Act specifies that 
States may submit their Plan to the Department within 12 months after 
final rule promulgation, DOE will not require States to submit a Plan 
for model year 1996, and a plan for model year 1997 may be submitted by 
March 14, 1997. After MY 1997, the Department believes that a State 
should know by June 1 the number and type of light duty motor vehicles 
it plans to acquire during the upcoming model year and should have 
begun the procurement process for these vehicles.
    A few commenters requested that States opting to comply through 
these alternative compliance plans be allowed to use gallons of 
petroleum displaced, instead of alternative fueled vehicles acquired, 
as the measure of compliance. DOE has not adopted this recommendation 
because section 507(o)(2)(A) requires each State alternative compliance 
plan to provide for the acquisition of light duty motor vehicles ``in 
numbers greater than or equal to the number of State alternative fueled 
vehicles required pursuant to [the acquisition schedule in section 
507(o)(1)].'' Thus, DOE may not adopt a petroleum displacement 
standard, in lieu of requiring alternative fueled vehicle acquisitions, 
for compliance under State alternative compliance plans.
    Other comments asked DOE to clarify the meaning of ``voluntary'' 
acquisition. DOE has determined that ``voluntary'' acquisition occurs 
when an entity, that is not required by the Act to acquire alternative 
fueled vehicles, acquires alternative fueled vehicles. Because 
municipalities and private companies, other than those determined to be 
covered persons subject to the requirements under section 501, are not 
currently required to acquire alternative fueled vehicles, any 
acquisition of alternative fueled vehicles by these entities would be 
voluntary. In addition, the acquisition of alternative fueled vehicles 
by a State agency that is not an operator of a ``fleet,'' because it 
does not operate at least 20 vehicles in any of the MSAs/CMSAs found in 
Appendix A to subpart A, would be voluntary. The acquisition of 
vehicles in categories of excluded vehicles under Sec. 490.3 also would 
be voluntary.
    A few comments raised the possibility of double counting of 
vehicles by private and local government fleets, when and if they are 
required to acquire alternative fueled vehicles under a future 
rulemaking under section 507 (b) or (g) of the Act. The possibility of 
the future allocation of credits for acquisitions by municipal and 
private fleets depends upon a DOE finding, by rule, that a municipal or 
private fleet program is necessary to meet the Act's fuel replacement 
goals. 42 U.S.C. 13257 (b), (e), (f). DOE has not begun a rulemaking to 
determine whether to make such a finding. Initiation of such a program 
is not a foregone conclusion. Therefore, participation in a State 
alternative compliance plan will not conflict with any present, and 
possibly future, compliance obligations under the Act.

Section 490.204  Process for Granting Exemptions

    Section 507(i)(1) of the Act provides that a State may seek 
exemptions in whole or in part from the annual acquisition percentages 
in three situations. As interpreted in this final rule, a State may 
seek exemption if it can demonstrate that--
    (1) Alternative fuels that meet the normal requirements and 
practices of the principal business of the State fleet are not 
available from fueling sites that will allow the fleet to be centrally 
fueled in the area where the vehicles are to be operated; or
    (2) Alternative fueled vehicles that meet the normal requirements 
and practices of the principal business of the State fleet are not 
available for sale or lease commercially on reasonable terms and 
conditions within the State; or
    (3) The application of such requirements would pose an unreasonable 
financial hardship.
    Categories 1 and 2 basically track section 507(i)(1) (A) and (B) of 
the Act. DOE is aware that all domestic Original Equipment 
Manufacturers sell or lease vehicles to fleets exclusively through 
their dealerships, the only exception being fleet sales to the Federal 
government. Other Original Equipment Manufacturers, such as vehicle 
manufacturers that do not belong to the American Automobile 
Manufacturers Association, sell or lease their vehicles directly to the 
customer without the benefit of a motor vehicle dealer network.
    Thus, to receive an exemption based on vehicle unavailability, a 
State must show that no Original Equipment Manufacturer can deliver 
alternative fueled vehicles to a State fleet on reasonable terms and 
conditions that meet the normal requirements and practices of the 
principal business of the fleet. An applicant for an exemption must 
establish vehicle unavailability by submitting documentation from 
vehicle manufacturers or from motor vehicle dealers, as appropriate to 
its situation. Documentation requirements are explained in the 
discussion of Sec. 490.308 in this Supplementary Information section.
    Comments received from State and local governments and fleet 
managers regarding the process for granting exemptions because of the 
unavailability of alternative fueled vehicles or alternative fuels are 
addressed in the discussion of Sec. 490.308, which deals with 
exemptions for covered alternative fuel providers. The same statutory 
criteria apply to granting exemptions to State government fleets (under 
Sec. 490.204) and to covered fuel providers (under Sec. 490.308) when 
alternative fueled vehicles or alternative fuels are not available. 
Therefore, there is no need to duplicate the discussion of the comments 
and the approach that DOE will take in granting exemptions in these 
situations.
    Regarding category 3, section 507(i)(1)(C) allows States to request 
an exemption based on unreasonable financial hardship. Some commenters 
requested clarification as to what qualifies as unreasonable financial 
hardship. Many of these same commenters suggested the circumstances 
that should qualify as a financial hardship. Some commenters 
recommended using a life-cycle cost analysis to determine financial 
hardship and provided the cost premium and payback period that should 
be used. One State provided a formula and specific examples of how to 
use the formula in different circumstances. Some commenters recommended 
that a financial hardship exemption be granted if an alternative fueled 
vehicle's initial cost was some factor greater than the cost of a 
conventionally fueled vehicle. A commenter recommended tying a 
financial hardship exemption to the national inflation rate. Other 
commenters suggested that financial hardship should be recognized if 
the

[[Page 10635]]
requirements cause more than a specified percentage increase in the 
total fleet's annual budget. Another commenter suggested that if a 
State is required to build a fueling facility, a financial hardship 
exemption should be granted.
    The Department has carefully reviewed all of the comments on this 
issue and has concluded that ``unreasonable financial hardship,'' as 
used in section 507(i)(1)(C) of the Act, must be determined on a case-
by-case basis. The relevant conditions in States, such as the 
availability and cost of alternative fuel, will vary at any point in 
time. Therefore, it is not possible to determine now, by rule, that all 
States will experience unreasonable financial hardship at some time in 
the future if, for example, the cost of alternative fueled vehicles is 
a certain percentage or amount above the cost of conventionally-fueled 
vehicles.
    DOE will evaluate financial hardship exemption requests in light of 
the budget constraints in the applicant State. For example, some States 
have multi-year budgets, and funding for the acquisition of alternative 
fueled vehicles may be insufficient in some model year. That is a 
situation in which DOE would likely grant at least a partial exemption 
from the requirements based on financial hardship.
    DOE received comments requesting confirmation that partial 
exemptions may be granted and how they might affect future vehicle 
purchases. In response, the Department added paragraph (d) which states 
that exemptions may be granted in whole or in part to a State. When 
granting an exemption in part, DOE may, depending upon the 
circumstances, completely relieve a State from a portion of the vehicle 
acquisition requirements for a model year or require a State to acquire 
all or some of the exempted vehicles in future years.
    Paragraph (g) provides that the Assistant Secretary for Energy 
Efficiency and Renewable Energy shall grant or deny a request for 
exemption within 45 days. In order to keep the procedures simple, the 
Assistant Secretary may act finally for the Department, and there is no 
requirement to obtain the specific approval of the Secretary. If the 
Assistant Secretary denies the request for exemption, paragraph (h) 
further provides that a State may appeal to the Department's Office of 
Hearings and Appeals, whose decision would be final for the purpose of 
judicial review. Further discussion on the exemption process is found 
in section-by-section analysis for the Alternative Fuel Provider 
Vehicle Acquisition Mandate.

Section 490.205  Reporting Requirements

    Section 490.205 requires each State that is subject to the vehicle 
acquisition mandate to submit an annual report to DOE. This report will 
assist DOE to determine if a State has met the requirements of this 
subpart as well as how successfully the goals and requirements of this 
subpart are being met. One commenter suggested that DOE should require 
States and fuel providers to report whether a vehicle is dedicated or 
dual-fueled and the type of fuel the vehicle is capable of operating 
on. The Department has adopted this recommendation, in new 
subparagraphs (b)(5) (iv) and (v), because it agrees that this 
information is needed to assist DOE in carrying out its 
responsibilities under title V.
    DOE received several comments regarding the definition of a State 
fleet. Some of these comments suggested specific agencies' fleets that 
should be included in a State fleet. The most common suggestion was 
that State university and college fleets should be included. Other 
comments suggested characteristics of agencies for the purpose of 
determining whether the fleets of these agencies should be classified 
as a State fleet. A few of the comments suggested that the 
determination of which agencies are to be included in a State fleet be 
left up to each individual State.
    Based on these comments, DOE has decided to allow each State to 
determine for itself which agencies operate or control a State fleet 
for reporting purposes. However, DOE will expect States to follow the 
common understanding of what constitutes a ``State agency.'' State 
agencies are usually authorized and funded by the State legislature, 
receive funding from the State budget, or are situated on State 
property. Examples of agencies that DOE expects to be classified as 
State agencies are departments, offices and divisions of State 
government, State colleges and universities, port authorities, and 
other State entities.
    In addition to allowing States to determine initially which 
agencies are State agencies, DOE is giving States some leeway in how 
they report the alternative fueled vehicle acquisitions of the State 
agencies. Although DOE would prefer one report from each State that 
aggregates the State's alternative fueled vehicle acquisitions, it is 
aware that some States may have difficulty aggregating these numbers 
due to the unique structure of each State. In place of one aggregate 
report for a State, a State may assign a limited number of State 
agencies the task of preparing the individual reports for many other 
State agencies. For example, a State division of general services might 
prepare and submit the report for its fleet along with reports from the 
State universities and the State port authority. The State would then 
submit these separate reports to DOE as its annual report. DOE believes 
these reporting options will lessen the burden on the States.
    For further discussion on reporting requirements, see section 
490.309.

D. Subpart D--Alternative Fuel Provider Vehicle Acquisition Mandate

1. Which Alternative Fuel Providers Must Comply With the Alternative 
Fueled Vehicle Acquisition Mandate
    The Energy Policy Act of 1992 defines the class of alternative fuel 
providers potentially subject to the alternative fueled vehicle 
acquisition requirements to include persons who qualify as a ``covered 
person'' under section 301(5) of the Act, 42 U.S.C. 13211(5), and fall 
within one of the categories of covered alternative fuel providers in 
section 501(a)(2). 42 U.S.C. 13251(a)(2). The term ``covered person'' 
is defined in section 301(5) to mean a person that owns, operates, 
leases, or otherwise controls a ``fleet'' (defined at Sec. 490.2) and a 
total of at least 50 motor vehicles within the United States. Paragraph 
(a)(2) of section 501 describes the categories of covered persons 
subject to the requirements as follows:
    (A) A covered person, whose principal business is producing, 
storing, refining, processing, transporting, distributing, importing, 
or selling at wholesale or retail any alternative fuel other than 
electricity;
    (B) A non-Federal covered person whose principal business is 
generating, transmitting, importing, or selling at wholesale or retail 
electricity; or
    (C) A covered person--
    (i) Who produces, imports, or produces and imports in combination, 
an average of 50,000 barrels per day or more of petroleum; and
    (ii) A substantial portion of whose business is producing 
alternative fuels.

42 U.S.C. 13251(a)(2). The final rule interprets the phrase ``principal 
business'' at Sec. 490.301.
    As illustrated in the Appendix to this Supplementary Information, 
even if an entity meets all of the qualifications for a covered 
alternative fuel provider under section 501(a)(2), it nevertheless may 
be excepted from the vehicle acquisition requirements under section 
501(a)(3) or exempted by DOE under section 501(a)(5). Under section 
501(a)(3)(A), the vehicle acquisition

[[Page 10636]]
requirements only apply to an affiliate, division or business unit of a 
covered person that is substantially engaged in the alternative fuels 
business. See Sec. 490.304 (see also Sec. 490.301 for definition of 
``substantially engaged''). Moreover, under section 501(a)(3)(B), the 
vehicle acquisition requirements do not apply to any entity whose 
principal business is transforming alternative fuel into a product 
other than alternative fuel or consuming such fuel to manufacture a 
product that is not an alternative fuel. Under section 501(a)(5), DOE 
may exempt alternative fuel providers from the vehicle acquisition 
requirements if they can show either that (1) alternative fuels that 
meet their normal business requirements and practices are not 
available; or (2) that alternative fueled vehicles that meet their 
normal business requirements and practices are not offered for purchase 
or lease on reasonable terms and conditions. See Sec. 490.308.
    The term ``substantial portion'' in section 501(a)(2)(C) is a key 
statutory determinant of whether a covered person that produces or 
imports petroleum is an alternative fuel provider required to acquire 
alternative fueled vehicles. Section 490.301 defines the term 
``substantial portion'' to mean that at least 30 percent of a covered 
person's annual gross revenue is derived from the sale of alternative 
fuels. This definition is different from the one included in DOE's 
notice of proposed rulemaking.
    In its notice of proposed rulemaking, DOE defined the term 
``substantial portion'' to mean that at least two percent of a covered 
person's refinery yield of petroleum products is composed of 
alternative fuels. DOE explained that it chose the two percent of 
refinery yield threshold because it represented the average yield for 
the production of alternative fuels by petroleum refiners, as reported 
by the Energy Information Administration. 60 FR 10978. DOE received 
many comments that criticized the proposed definition of ``substantial 
portion.'' They argued that the two percent of refinery yield was too 
low a threshold for classifying an entity as a ``covered person.'' Some 
commenters stated that the two percent refinery yield of petroleum 
products would impose vehicle acquisition requirements on many 
refineries that only produce alternative fuels as incidental by-
products of the refining process, and that the alternative fuel so 
produced is not sold as motor fuel. A few of the comments recommended 
that DOE adopt a percentage of gross revenue derived from the sale of 
alternative fuels as the basis for the definition of ``substantial 
portion.'' They pointed out that gross revenue is the measure used for 
determining whether other alternative fuel providers are ``covered 
persons'' because their principal business is in alternative fuels. In 
their view, if gross revenue is used to determine whether an entity's 
principal business involves alternative fuels, it also should be used 
for determining whether a petroleum producer or importer has a 
substantial portion of its business in the production of alternative 
fuels.
    After reviewing these comments, DOE published a notice on July 31, 
1995, reopening the comment period to receive public comments on 
alternative definitions of the term ``substantial portion.'' 60 F.R. 
38974 (corrected 60 FR 40539, Aug. 9, 1995). DOE stated that it was 
persuaded by the comments that a percentage of gross revenue derived 
from the sale of alternative fuels may be a better measure of an 
entity's involvement in the alternative fuels business than is a 
percentage of refinery yield of petroleum products. As pointed out by 
some commenters, a gross revenue measure can be applied to all 
producers and importers of petroleum, unlike the percent of refinery 
yield measure which focuses solely on refining operations.
    DOE also invited public comment specifically on the alternative of 
defining ``substantial portion'' to mean that at least 30 percent of 
the annual gross revenue of a covered person is derived from the sale 
of alternative fuels. DOE stated that this percentage of gross revenue 
appeared to be an appropriate gross revenue threshold for two reasons. 
First, available information shows that major U.S. energy producing 
companies historically derive at least 30 percent of their annual gross 
revenue from the sale of alternative fuels. Major energy producers are 
typically consolidated or integrated companies that are involved in oil 
and gas exploration, oil and gas production or importing, petroleum 
refining and marketing, transportation of products, other energy 
operations (coal, nuclear and other energy) and non-energy businesses 
(primarily chemicals). Second, this definition would exclude from the 
class of covered persons subject to the vehicle acquisition 
requirements those refiners involved only in petroleum refining and 
marketing operations and that produce alternative fuels as an 
incidental by-product of the refining process. DOE specifically 
requested interested persons to submit data or analysis relevant to 
this issue.
    DOE received approximately 20 comments on the notice inviting 
comment on possible alternative definitions of ``substantial portion.'' 
Two commenters argued strenuously that DOE should adhere to the 2% of 
refinery yield threshold for determining which companies are covered 
persons. In their view, the 30% gross revenue threshold will exempt too 
many refineries and, thus, compromise the Act's goal of reducing the 
nation's dependency on foreign oil. Several petroleum refiners and 
marketers expressed support for the 30% gross revenue threshold. They 
stated that the 30% gross revenue test properly describes the class of 
producers and importers of petroleum that Congress intended to be 
covered alternative fuel providers.
    Several other commenters stated that a 30% of gross revenue 
threshold is still too expansive. Their principal argument is that 
Congress intended the alternative fueled vehicle mandates to apply only 
to entities that deal directly in alternative fuels that are intended 
for use as motor fuel. One commenter, for example, argued that any 
definition of ``substantial portion'' must exclude materials that are 
not sold directly as transportation fuel, such as non-compressed 
natural gas or other materials that must be chemically or physically 
altered to be used as transportation fuel. Another commenter stated 
that the sale of a commodity such as natural gas does not constitute 
the sale of an ``alternative fuel'' for transportation purposes. This 
commenter further stated that because even compressed natural gas has 
several uses, only the sale of compressed natural gas for use in the 
storage compartment of a motor vehicle would constitute the sale of 
``alternative fuel'' under the Act.
    After reviewing the comments on this issue and having analyzed the 
statutory text and its legislative history, DOE has concluded for a 
variety of reasons that the Act may not be interpreted to limit the 
alternative fueled vehicle acquisition mandate to entities that deal 
directly in alternative fuel which is intended for use as motor fuel. 
First, section 301 defines ``alternative fuel'' to include various 
materials, including natural gas and electricity, but it does not limit 
the term to fuel produced or handled for transportation purposes. In 
this regard, it is significant that ``natural gas,'' rather than 
``compressed natural gas'' is included in the definition of 
``alternative fuel.'' Second, section 501(a), which imposes the 
alternative fueled vehicle acquisition requirements on fuel providers, 
does not expressly

[[Page 10637]]
limit coverage to entities that deal in alternative fuel for 
transportation purposes. Third, the exemptions provided in section 
501(a)(3)(B) necessarily imply that Congress did not intend to limit 
the vehicle acquisition requirements to entities that directly deal in 
motor fuels. That section exempts entities whose principal business is 
``transforming alternative fuels into a product that is not an 
alternative fuel'' or ``consuming alternative fuels as a feedstock or 
fuel in the manufacture of a product that is not an alternative fuel.'' 
These exemptions show that Congress expressly addressed the question of 
whether there should be an exemption based upon the use of an 
``alternative fuel.'' The specification of the two particular 
exemptions based upon use in a section that elaborately details 
exceptions implies that Congress did not intend to create, or authorize 
DOE to create, an exception for all uses of alternative fuels other 
than transportation purposes.
    In addition, the legislative history of the Act is contrary to the 
interpretation recommended by the petroleum company commenters. The 
most authoritative source regarding Congress' intent in enacting 
section 501 is the Conference Report on the Act. That report's only 
discussion of title V of the Act, the alternative fuels title, deals 
with precisely this issue:
    ``The intent of section 501(a)(1) is not to cover all affiliates or 
divisions of the many large energy companies which have some, but not 
all, of their corporate units engaged in alternative fuels operations.
    ``For example, the oil and gas production affiliate or division of 
a major energy company described in 501(a)(1)(C) would be covered; so 
might a propane pipeline unit or a natural gas processing division, if 
the 'substantially engaged' test is met.
    ``But an oil tanker division, a gasoline marketing affiliate, or a 
petrochemical unit whose major operations are the production of 
plastics, for example, would not be covered.
    ``The Secretary has broad discretion to define the coverage of this 
provision. For example, he may in his discretion exempt some crude oil-
related operations of an oil and gas production affiliate (but not the 
gas-related operations), or the petrochemical operations of a covered 
methanol unit (but not the methanol-related business).''
    H.R. Rep. 102-1018, 102d Cong., 2d Sess. 387 (1992).
    There is no relevant Senate report language. However, the House 
report on H.R. 776 contains the following explanation of the fuel 
provider alternative fueled vehicle acquisition mandate, which sheds 
additional light on the question of whether Congress intended to limit 
the terms ``substantial portion'' and ``alternative fuel'' to fuels 
only used for transportation purposes:
    ``The program applies to firms owning, for example, natural gas 
pipelines or methanol plants. Their ready access to alternative fuel 
supplies and their profit motive for developing a growing AFV market 
makes them an excellent starting point for a successful transition to 
alternative fuels.''
    H.R. Rep. 102-474, 102d Cong., 2d Sess. 187 (1992).
    Thus, the relevant conference and committee reports clearly show 
that Congress foresaw coverage of some oil and gas production 
affiliates, propane pipeline units, and natural gas processing 
divisions.
    The commenters arguing for a limiting interpretation of 
``substantial portion'' or ``alternative fuel'' neither relied on any 
phrase in the statutory text, nor cited any parts of the above-
referenced legislative reports, to support their narrow interpretation 
of these terms. They relied almost entirely upon floor statements of 
individual Members of Congress, quoted out of context, which only show 
that those Members expected the Act to stimulate the development of an 
alternative fueled vehicle market by various incentives and mandates 
designed to encourage the replacement of gasoline with alternative 
transportation fuels. None of the floor statements show an intent to 
limit the term ``alternative fuel'' to transportation fuel, or 
``substantial portion'' to fuel providers exclusively in the 
alternative transportation fuel business. In comparison to the above-
discussed statutory text and report language, the relevance of these 
floor statements to this question is marginal at best.
    A few commenters argued that besides limiting ``covered persons'' 
to entities that directly deal in motor fuel, DOE should adopt a 
percentage of gross revenue that is higher than 30 percent. One 
commenter argued that if 30 percent of gross revenue represents the 
lowest expected alternative fuel activity of major energy producers, 
then the gross revenue percentage included in the definition of 
``substantial portion'' should be raised to exceed the average of all 
major energy producers. However, none of the comments provided 
information that contradicts DOE's conclusion that major energy 
companies historically derive at least 30 percent of their gross 
revenue from the sale of alternative fuels. For the reasons given in 
its July 31, 1995 notice (60 FR 38974), DOE concludes that 30 percent 
of annual gross revenue derived from the sale of alternative fuels 
satisfies the ``substantial portion'' test contained in section 
501(a)(2)(C)(ii) of the Act.
    A few commenters objected to a percentage of gross revenue measure 
to determine ``substantial portion'' on the ground that it would be 
more complicated to implement than other measures. One of their main 
concerns was that DOE may require covered companies to disclose 
confidential information or institute new accounting systems. DOE does 
not foresee such a result; instead, it believes coverage can be 
determined from existing public documents. As several commenters 
requested, this determination will normally be made using information 
found in an annual report or an annual Form 10-K report filed with the 
Securities and Exchange Commission by covered persons.
2. Section-by-Section Discussion
    This section discusses comments on specific provisions of subpart 
D. DOE has also included explanations of some provisions that were not 
the subject of comment where it believes explanations will assist 
regulated entities to comply with this subpart. Some nonsubstantive 
changes from the notice of proposed rulemaking, such as renumbering of 
rule provisions and nonsubstantive language changes, are not discussed.

Section 490.301  Definitions

    Affiliate, Business Unit, and Division. Section 490.301 provides 
definitions for the terms ``affiliate,'' ``division,'' and ``business 
unit'' which are used in section 501 of the Act. The first two are 
dictionary definitions. ``Business unit'' is defined to make clear the 
grouping of business activities must be similar in autonomy to 
affiliates and divisions. Based on comments, language has been added to 
the definitions of ``business unit'' and ``division'' to include the 
concept of control. One commenter argued that ``affiliate'' should be 
defined as an entity below the covered person in a corporate structure. 
DOE has not changed the definition to adopt this narrow interpretation 
of the meaning of ``affiliate'' because there is no reason to believe 
that Congress intended DOE to define ``affiliate'' at variance with 
normal usage.
    Alternative Fuels Business. Section 490.301 contains a definition 
of the term ``alternative fuels business'' which tracks the language of 
section 501(a)(2). No comments specifically critical of this definition 
were received.
    Normal Requirements and Practices. Section 490.301 defines the term

[[Page 10638]]
``normal requirements and practices'' to mean the operating business 
practices and required conditions under which the principal business of 
the covered person operates. Several comments were received on this 
definition. They are addressed in the discussion of section 490.308, 
which deals with exemptions based on the unavailability of alternative 
fuel or alternative fueled vehicles.
    Principal Business. No comments specifically critical of this 
definition were received. Section 490.301 defines the term ``principal 
business'' to mean the largest sales-related gross revenue producing 
activity. If an organization derives a plurality of gross revenue from 
sales-related alternative fuels activity, then the organization's 
principal business is alternative fuels. Sales-related in this context 
means that the gross revenue does not come from investments such as 
corporate stocks. As it is used above, plurality does not require that 
over 50 percent of an organization's sales-related gross revenue be 
based on activities related to alternative fuels. For example, if an 
organization derives 35 percent of its sales-related gross revenue from 
alternative fuels and the next largest single source of sales-related 
gross revenue comprises 25 percent of the organization's gross revenue, 
the organization's principal business is alternative fuels.
    Substantially Engaged. Section 490.301 defines the term 
``substantially engaged'' to mean that a covered person, or affiliate, 
division, or other business unit thereof, regularly derives sales-
related gross revenue from an alternative fuels business. To determine 
whether a covered person or affiliate, division, or other business unit 
thereof is ``substantially engaged'' in the alternative fuels business, 
it is important to look at the involvement the covered person, 
affiliate, division, or other business unit has with the alternative 
fuels business. Thus, only that affiliate, division, or business unit 
that meets the substantially engaged criteria is subject to the 
acquisition requirements of this program. A comment was received that 
asked DOE not to include business units engaged in alternative fuel 
production activities that are incidental to a company's principal 
business in this definition. An example given was of a covered fuel 
provider whose principal business is manufacturing denatured ethanol, 
but which also operates a chain of camping stores that regularly sells 
one-liter bottles of propane for use with camping stoves. The 
Department would not consider that division to be substantially engaged 
in the alternative fuels business if the sale of propane contributes 
only an incidental or insignificant amount of the gross revenue of the 
chain of stores. DOE does not think this type of situation is likely to 
arise. Business units of covered persons that already have been 
determined to be in the alternative fuels business, and which regularly 
derive revenue from an alternative fuel business, will normally be 
substantially engaged in alternative fuels. If rare situations arise in 
which that is not the case, DOE can address them through case-by-case 
interpretations. Nonetheless, in light of the comment, DOE has revised 
the definition of ``substantially engaged'' to clarify that a business 
unit will not be subject to acquisition requirements if it only derives 
a negligible amount of revenue from alternative fuels.
    The covered person is responsible for clearly defining the specific 
affiliate, division, or other business unit that is substantially 
engaged and is therefore subject to the acquisition requirements of 
this rule. If this designation is not made or is not made clearly, DOE 
will assume that the entire organization is subject to the acquisition 
requirements of this rule and will enforce it as such.

Section 490.302  Vehicle Acquisition Mandate Schedule

    Section 490.302 sets forth the schedule for the acquisition of 
light duty motor vehicles which alternative fuel providers must comply 
with if they are classified as covered persons subject to the 
requirements.
    One commenter argued that calendar years should be used instead of 
model years in the schedule in paragraph (a). Section 501 specifically 
requires acquisition on a model year basis. The Department has not 
changed the time frame for vehicle acquisition.
    Paragraph (b) states that, except as provided by section 490.304, 
these requirements apply to all new light duty vehicles acquired by 
those business units of covered persons that are substantially engaged 
in the alternative fuels business, not just those vehicles acquired for 
the fleets which initially qualified the alternative fuel provider as a 
subject ``covered person.'' These requirements also apply regardless of 
where the new vehicles are to be located. For example, if an 
alternative fuel provider, that is a covered person, is acquiring new 
light duty motor vehicles for locations that are not within MSAs or 
CMSAs, these vehicles must be added to those to be acquired for the 
subject MSA/CMSAs before applying the applicable percentage in 
paragraph (a) to determine how many of these vehicles must be 
alternative fueled vehicles.
    DOE received many requests to narrow the acquisition requirements 
to only vehicles acquired for use by fleets in the MSA/CMSAs listed in 
Appendix A to subpart A. Some commenters stated that DOE has 
misinterpreted the Act's requirements for ``covered persons'' by 
concluding that all new light duty vehicles acquired by covered fuel 
providers must be included in the base for determining the number of 
alternative fueled vehicles to be acquired in a model year, regardless 
of whether the vehicles will be operated in fleets in MSAs/CMSAs. These 
commenters argued that because Congress defined ``covered person'' as a 
person that owns or otherwise controls a ``fleet,'' which in turn is 
defined to include only vehicles operated in an MSA or CMSA, Congress 
intended the MSA/CMSA to be the basic defining criteria for the 
acquisition requirements. These commenters also discerned no reason why 
Congress would impose a greater burden on fuel providers than on 
States. ``Covered person,'' in their view, is simply used in the Act as 
a convenient way of referring to covered fuel providers.
    Electric utilities argued that the acquisition requirements should 
be limited, as a matter of policy, to fleets operated in MSAs/CMSAs. 
These commenters stated that forcing covered utilities to purchase 
alternative fueled vehicles in rural areas, where the alternative fuels 
infrastructure does not exist, is impractical and likely to undermine 
development of alternative fueled fleets in urban areas. They stated 
that there are not likely to be enough electric vehicles to supply both 
areas, and electric vehicles are not suited for operation in many rural 
areas because of climate, terrain, and vehicle operational 
requirements.
    DOE does not agree with comments arguing that it has misconstrued 
the provisions of the Act. Section 501(a) states unambiguously that the 
acquisition schedules apply to ``the new light duty motor vehicles 
acquired by a covered person.'' By contrast, the phrase ``for a fleet'' 
is used throughout section 507 in reference to the vehicle acquisition 
mandates for State, local, and private fleets. The phrase ``for a 
fleet'' is not found in section 501. DOE also disagrees with commenters 
who stated that Congress could not have intended to impose different 
acquisition requirements on States and alternative fuel providers. The 
legislative history shows that Congress included a fuel provider 
mandate because of fuel

[[Page 10639]]
providers' ``ready access to alternative fuel supplies.'' See Report on 
H.R. 776, The Comprehensive National Energy Policy Act, H.R. Rep. 102-
474, 102 Cong. 2d Sess. 197 (1992).
    DOE has not, therefore, revised paragraph (b) of Sec. 490.302 as 
requested by these commenters. Nevertheless, DOE recognizes the 
legitimate concerns of covered persons about acquisition of alternative 
fueled vehicles in areas outside of the MSAs/CMSAs listed in Appendix A 
of subpart A. DOE believes the Act and the final rule provide adequate 
means of providing relief from the requirements when it is justified. 
As discussed in connection with Sec. 490.308, section 501(a)(5) of the 
Act prescribes a ``simple and reasonable'' process for granting an 
exemption from the acquisition requirements if either alternative 
fueled vehicles or alternative fuels that meet ``the normal 
requirements and practices of the principal business of [the covered 
person]'' are not available in the area in which the vehicles are to be 
operated. 42 U.S.C. 13251(a)(5). In revising Sec. 490.308, DOE has 
added a central fueling criterion and simplified the process for 
obtaining an exemption for any covered person whose vehicles are 
located outside of MSAs/CMSAs. An exemption will be granted if the 
covered person can show that central fueling does not meet the normal 
requirements and practices of that person's principal business. In 
areas outside of MSAs/CMSAs, the covered person is not required to map 
the location of vehicles operational areas and alternative fuel sites 
if facts can otherwise be presented to establish that central fueling 
is incompatible with its normal requirements and practices.
    One commenter questioned the rounding convention in the proposed 
rule for calculating acquisition requirements. After reconsidering this 
issue, DOE has revised paragraph (c) to provide for rounding up or down 
to the next whole number, depending on whether the fraction is greater 
or equal to one half or is less than one half.
    In response to comments that inquired about what would happen if an 
alternative fuel provider grew in size or moved its vehicle operations 
to one of the MSAs listed in Appendix A to subpart A, the Department 
has added paragraph (e). Paragraph (e) states that if, in the future, 
an alternative fuel provider first becomes a covered person subject to 
the requirements, the fuel provider shall start acquiring alternative 
fueled vehicles the next model year according to the schedule 
percentage in effect for that model year. If an alternative fuel 
provider is newly classified as a covered person in model year 1997, 
then for model year 1998, 50 percent of the covered person's new light 
duty motor vehicles must be alternative fueled vehicles. However, DOE 
expects that some newly classified covered persons will qualify for at 
least a partial exemption under Sec. 490.308 during the start-up 
period.

Section 490.303  Who Must Comply

    This section tracks section 501(a)(2) of the Act. The criteria for 
determining which fuel providers are ``covered persons'' subject to the 
vehicle acquisition mandate are discussed at the beginning of the 
discussion of subpart F in this Supplementary Information section.
    As stated in the notice of proposed rulemaking, municipal gas and 
electric utilities possessing the required fleet size, fueling 
characteristics, and located within the specified geographical areas 
are classified as covered persons under section 501(a)(2)(B). 
Therefore, they are expected to comply with the requirements of the 
mandate under Sec. 490.302; they will not be subject to any future 
municipal fleet mandate imposed by rule under section 507 of the Act. 
No public comments critical of this interpretation were received.
    The Department received comments seeking clarification regarding 
the coverage of holding companies and their subsidiaries and 
affiliates. For the purposes of compliance the Department considers the 
holding company to be the ``covered person'' and the individual 
companies that it owns to be its affiliates. However, once DOE 
determines that a holding company is a covered person subject to the 
vehicle acquisition mandate, DOE will permit the holding company to 
choose to comply with its acquisition requirements either: (1) By 
assuming sole responsibility for the holding company's compliance; or 
(2) by choosing to have its affiliates which are substantially engaged 
in the alternative fuels business assume the responsibility and report 
their alternative fueled vehicle acquisitions as separate ``covered 
persons.'' Holding companies may prefer one option over the other, and 
DOE does not want to inhibit these holding companies in choosing among 
options.
    Paragraph (b) of Sec. 490.303 describes those covered persons who 
are excluded by section 501(a)(3)(B) of the Act from having to comply 
with this subpart. Two categories of covered persons are excluded from 
the requirements of this regulation: (1) Those who transform 
alternative fuels into a product that is not an alternative fuel; and 
(2) those who consume alternative fuels as a feedstock or fuel in the 
manufacture of a product that is not an alternative fuel.
    An example of an excluded person described in paragraph (b)(1) 
would be a manufacturer of windshield washer fluid. The manufacturer 
would be classified as an excluded person because it blends an 
alternative fuel, methanol, in producing windshield washer fluid, which 
is not an alternative fuel. An example of an excluded person described 
in paragraph (b)(2) would be a company that burns natural gas to 
provide a heat source for a manufacturing operation. An example of an 
excluded person under both paragraphs (b)(1) and (b) (2) would be an 
entity whose principal business is the production of alcoholic 
beverages.

Section 490.304  Which New Light Duty Motor Vehicles Are Covered

    Under section 501(a)(3)(A) of the Act, if a covered person has more 
than one affiliate, division, or other business unit, only an 
affiliate, division, or business unit that is ``substantially engaged 
in the alternative fuels business'' is subject to the vehicle 
acquisition mandate. Section 490.304 reflects the provisions of section 
501(a)(3)(A), and should be read in conjunction with the definitions of 
``affiliate,'' ``division,'' and ``business unit'' in Sec. 490.301.
    Comments which opposed the application of the acquisition schedule 
to all new light duty motor vehicles acquired by a covered person are 
discussed in the analysis of section 490.302.

Section 490.305 Acquisitions Satisfying the Mandate

    Section 490.305 defines the four categories of alternative fueled 
vehicle acquisitions that will count toward compliance with section 
490.302, including the application of alternative fueled vehicle 
credits under Subpart F. These categories provide flexibility for 
organizations in acquiring vehicles to meet this regulation. An 
alternative fueled light duty motor vehicle shall be considered to be 
new, regardless of the model year it was manufactured, if:
    (1) The vehicle is an Original Equipment Manufacturer vehicle 
capable of operating on alternative fuels and was not previously under 
the control of the covered person; or
    (2) The vehicle is an after-market converted vehicle and was not 
previously under the control of the covered person; or
    (3) The vehicle is an Original Equipment Manufacturer vehicle that 
has been converted to operate on alternative fuels within four months

[[Page 10640]]
after it comes under the control of the covered person.
    A vehicle that meets the description of paragraph (1) is one that 
is manufactured by an Original Equipment Manufacturer to be capable of 
operating on alternative fuels. For example, if a covered person 
acquires a 1994 model year flex-fuel light duty motor vehicle during 
model year 1997, this vehicle is classified as being a new acquisition 
for that organization. A vehicle that meets the description of 
paragraph (2) is one that has been converted to be capable of operating 
on alternative fuels before it is acquired by a covered person.
    DOE received many comments, from both covered persons subject to 
this subpart and States, on its proposal that an Original Equipment 
Manufacturer vehicle must be converted prior to its first use in 
service in order to be counted for compliance. The majority of these 
commenters felt that this requirement was too burdensome on fleet 
owners and would result in many vehicles sitting idle while awaiting 
conversion. The comments also stated that because delivery schedules 
for both vehicles and conversion equipment are unpredictable, it may be 
difficult to schedule vehicle conversions to occur when the fleets 
would require them. Other comments stated that many fleet operators 
break-in a vehicle for up to 1,000 miles in order to determine whether 
the vehicle has reliability problems, and that they would engage in the 
same break-in period before converting a vehicle to alternative fuel 
use. It also was stated that some fleet managers take delivery of 
vehicles before deciding which specific vehicles to convert.
    Most of the comments received on this issue recommended a specific 
time-frame within which the vehicles should be allowed to be converted. 
The time-frames recommended ranged from 60 days to 2 years. Various 
reasons were provided in support of the specific time-frames, including 
that time was needed for conversion equipment to be certified, 
scheduling and completing vehicle conversion, and vehicle inspection. 
Various time-frames were attributed to each activity (1 to 2 months for 
some activities) as well as estimates of the compound effect a possible 
delay would have on the total time needed to convert a vehicle.
    After analyzing all these comments, DOE has determined that a four 
month time period after vehicle acquisition should provide sufficient 
time for a fleet to convert a vehicle to operate on alternative fuels. 
None of the comments contained information showing that four months is 
not an adequate time period for a general requirement. In addition, the 
Department's experience with Federal fleet vehicle conversions shows 
that a four month time period is more than sufficient to allow for the 
conversion of vehicles. All Federal vehicles that were converted in 
this program had their conversions completed within a three month time 
period.
    Many commenters requested the Department to allow the conversion of 
vehicles already in service in fleets to count towards compliance once 
the rule goes into effect. The notice of proposed rulemaking would not 
have allowed the conversion of existing vehicles to count and, after 
analyzing the comments, DOE has concluded that conversion of existing 
fleet vehicles is not permitted by the Act. Section 501 of the Act 
specifically refers to ``* * * new light duty motor vehicles acquired 
by a covered person * * *'' 42 U.S.C. 13254(a). As explained in the 
discussion of Sec. 490.202 of this Supplementary Information section, 
the Department has interpreted this section to mean that vehicles, 
regardless of the date of manufacture, must be newly acquired by the 
covered person or State in order to count as acquisitions.
    A few comments pointed out that the proposed rule did not include 
any statement about a fleet operator not being required to acquire 
converted vehicles, as provided in section 507(j) of the Act. The 
Department has not revised the rule in response to these comments 
because it sees no need to restate the statutory provision in this 
final rule.

Section 490.306  Vehicle Operation Requirements

    Section 490.306 tracks section 501(a)(4) of the Act, which requires 
that all alternative fueled vehicles acquired pursuant to section 501 
be operated solely on alternative fuels, except when these vehicles are 
operating in an area where alternative fuel is not available. DOE 
received several comments requesting clarification of whether electric-
hybrid vehicles would be considered to be operating solely on 
alternative fuels. In Sec. 490.2, an electric-hybrid vehicle is defined 
as ``a vehicle primarily powered by an electric motor that draws 
current from rechargeable storage batteries, fuel cells or other 
sources of electric current and also relies on a non-electric source of 
power.'' DOE also notes that the definition of an electric motor 
vehicle in section 601 of the Act may include an electric-hybrid 
vehicle. Thus, by definition, an electric-hybrid vehicle is considered 
to be an electric vehicle. Many electric-hybrid vehicles are designed 
with a non-electric power source which operates on an alternative fuel, 
such as a natural gas turbine or a hydrogen fuel cell. DOE recognizes 
that some electric-hybrid vehicles may be designed to operate on 
gasoline or diesel engines, but in almost all cases these engines 
provide supplementary power to the vehicle, while the electricity 
generator provides the vast majority of the power to the vehicle's 
electric drivetrain. Therefore, the use of these vehicles in a covered 
person's fleet meets the requirement for operating solely on 
alternative fuels.
    The Department also received comments seeking clarification as to 
whether fuel providers that operate dual-fueled vehicles will comply 
with this section. Inclusion of dual-fueled vehicles in the definition 
of ``alternative fueled vehicle'' in section 301 and the qualifying 
phrase in section 501(a)(4) of the Act, show that Congress recognized 
that some fuel providers may operate in areas where alternative fuels 
are not available and that if dual-fueled vehicles are used in these 
territories, they may have to refuel on a petroleum-based fuel. It is 
clear that, under the Act, the operation of a vehicle on petroleum-
based fuel is allowable as long as the dual-fueled vehicle refuels on 
alternative fuel when it travels in an area where alternative fuel is 
available.

Section 490.307  Option for Electric Utilities

    Section 490.307 deals with the statutory option available to 
electric utilities. Paragraph (a) tracks the provisions of section 
501(c) of the Act, which provides that a covered person whose principal 
business is generating, transmitting, importing, or selling, at 
wholesale or retail, electricity has the option of delaying the 
alternative fuel vehicle acquisition schedule in section 501(a) of the 
Act until January 1, 1998, if that covered person intends to comply 
with this regulation by acquiring electric motor vehicles.
    DOE received several inquiries as to whether a combination utility, 
i.e., a utility that provides both natural gas and electricity, would 
be allowed to comply as two separate entities, thereby allowing the 
electric side of the utility to apply for the electric utility option. 
These comments stated that many combination utilities support both 
electric vehicle and natural gas vehicle market development and wish to 
comply with the acquisition requirements by acquiring both kinds of 
vehicles. The comments stated that the proposed rule appeared to 
require combination utilities to choose one type of vehicle only to 
comply with their

[[Page 10641]]
acquisition requirements, even though it may be contrary to the 
strategic plans of that utility.
    The Department has decided to allow the electric affiliate, 
division or business unit of a combination utility to apply for a delay 
in the implementation of its vehicle acquisition schedule until January 
1, 1998. Section 490.307 has been revised to reflect this change by 
adding the words ``or its affiliate, division or business unit'' in 
paragraphs (a)-(c) and by including these words in new paragraph (d). 
In such circumstances, a schedule delay would be granted to that 
portion of the utility whose business is the production, generation, 
distribution or transmission of electricity.
    Paragraph (b) contains the acquisition schedule that an electric 
utility, or its affiliate, division or other business unit must comply 
with if the Secretary is notified by the required date.
    Many commenters argued that if an electric utility, having chosen 
the electric utility option, is unable despite a good faith effort to 
acquire suitable or sufficient numbers of electric vehicles to meet its 
requirements, DOE should grant that utility a full or partial exemption 
for the applicable model year. These commenters supported a case-by-
case exemption process that requires utilities to make a showing of 
``good faith'' efforts to comply. Some commenters stated that it would 
be appropriate to ``roll over'' compliance obligations to succeeding 
model years in certain situations (e.g., the inability of automobile 
manufacturers to produce sufficient numbers of electric vehicles.) 
However, they stated that rolling over requirements would not be 
appropriate in other situations (e.g., vehicles that meet the normal 
business requirements of the fleet operator are not available).
    DOE has added paragraph (c) to clarify that electric utilities that 
choose the electric utility option may apply for an exemption under 
Sec. 490.308 if alternative fueled vehicles or alternative fuels that 
meet their normal requirements and practices are not available.
    Many of the electric utility commenters also urged DOE to 
categorically provide that an electric utility that chooses to comply 
with electric vehicles will never be required to purchase another type 
of alternative fueled vehicle to satisfy the acquisition mandate. They 
argued that Congress intended that the fuel of choice for covered fuel 
providers should be the fuel that fuel provider deals in or sells. They 
stated that inclusion of the electric utility option shows that 
Congress intended to allow electric utilities to comply with electric 
vehicles only. They argued that if an electric utility is ultimately 
unable to meet the acquisition schedule, it would be inequitable and 
contrary to the Act for DOE to require the utility to acquire some 
other type of alternative fueled vehicle. Not only would this force 
electric utilities to create a market for a competitor's fuel, it would 
require them to divert investment capital away from development of an 
electric vehicle market.
    DOE is generally sympathetic to these arguments, but the utility 
commenters did not identify any statutory text or legislative history 
to support their suggestion for a categorical exemption. Nevertheless, 
in DOE's view, these arguments may be relevant to requests for 
exemptions under Sec. 490.308 from the acquisition requirements on the 
basis that non-electric alternative fueled vehicles do not meet the 
``normal requirements and practices'' of their principal business. If 
utilities can successfully argue that this is generally true, then DOE 
is prepared to issue an appropriate interpretive rule.
    Comment was received inquiring what would happen to the acquisition 
schedule of an electric utility, or its affiliate, division or other 
business unit if it chooses to rescind its election of the electric 
utility option. In response, DOE has added paragraph (d), which 
provides that an electric utility, or its affiliate, division or other 
business unit will have to comply with the acquisition schedule in 
Sec. 490.302, unless otherwise exempt, if it rescinds its election of 
the option.

Section 490.308  Process for Granting Exemptions

    Section 490.308 implements the requirements of section 501(a)(5) of 
the Act, which provides for a simple and reasonable exemption process 
for those covered persons seeking exemptions either because alternative 
fuel is not available or alternative fueled vehicles are not reasonably 
available. Paragraph (a) describes the procedure that a covered person 
needs to complete to receive an exemption.
    Paragraph (b) contains the criteria for exemption, as interpreted 
by DOE. The first category of exemption is if any covered person 
demonstrates to the satisfaction of DOE that alternative fuels that 
meet the normal requirements and practices of the principal business of 
the covered person's fleet are not available from fueling sites that 
will allow the fleet to maintain its centrally fueled character in the 
area where the vehicles are to be operated. The second category of 
exemption is if any covered person demonstrates to the satisfaction of 
DOE that alternative fueled vehicles that meet the normal requirements 
and practices of the principal business of that person are not 
available for sale or lease on reasonable terms and conditions in any 
State included in a MSA/CMSA in which the fleet operates.
    These exemptions would be granted for one model year only. To 
receive exemptions for additional model years, alternative fuel 
providers must reapply to the Department each year. Exemption decisions 
will be based on documentation that relates to the criteria for 
determining the availability of alternative fuels and alternative 
fueled vehicles.
    DOE received many comments on the process for obtaining an 
exemption when either alternative fuels or alternative fueled vehicles 
that meet the normal requirements and practices of the principal 
business are not available. Because the statutory criteria for granting 
exemptions on these grounds are identical for State government fleets 
and covered persons, DOE consolidates here its summary of the comments 
of both States and covered fuel providers.
    a. Discussion of alternative fuel availability. Most of the 
comments on unavailability of fuel focused on the explanation of 
Sec. 490.204(a)(1) and Sec. 490.308(a)(1) in the preamble of the notice 
of proposed rulemaking, rather than on the text of the proposed rule 
provisions. In the notice of proposed rulemaking, DOE explained the 
process for determining fuel availability as follows:

    [A]n alternative fuel provider must map out the operating area 
and base of operations for its fleet of vehicles. Next, it must 
locate on the map the alternative fueling facilities within its MSA 
or CMSA. Then, for each vehicle, it must determine whether any 
location providing alternative fuel is in the area in which the 
vehicle is operated. If there is any location providing alternative 
fuel within the vehicle's operating area, alternative fuel is 
available. If there are no locations providing alternative fuel, for 
any alternative fuel that meets the normal requirements and 
practices of the covered person's principal business, within the 
vehicle's operating area, then alternative fuel is ``not 
available.'' 60 F.R. 10980.

    Many commenters argued that this explanation of the fuel 
availability exemption did not take into account other factors that 
must be considered in determining fuel availability. For example, 
commenters argued that alternative fuel should not be considered to be 
available if--
    (1) it is not readily deliverable to motor vehicles because it is 
not of the proper composition for motor fuel, or there are no 
dispensers of the fuel;

[[Page 10642]]

    (2) it is not available at convenient locations and times, or the 
fueling facility does not provide the same range of services; or
    (3) fueling at an alternative fueling facility significantly 
increases the fueling time.
    DOE believes these are factors that are properly considered in 
determining whether fuel is available that meets ``the normal 
requirements and practices'' of the principal business of the covered 
person or fleet. DOE will consider factors such as these when 
determining whether to grant or deny a request for an exemption because 
alternative fuel is not available.
    DOE will, to the extent consistent with its statutory 
responsibilities, defer to reasonable fleet operators' judgments about 
the alternative fueled vehicles and alternative fuels that best meet 
their needs. DOE offers the following example to illustrate this:

    A State government fleet operator reasonably determines that 
vans are the only available vehicles that meet its normal business 
requirements and practices. In searching for alternative fueled 
vans, the State fleet operator determines that only CNG-powered vans 
are available, but CNG is not available in the fleet's operating 
area. However, ethanol fueling facilities are available in the 
fleet's operating area. Because the State fleet operator has 
determined that no ethanol vans are available, it can apply for an 
exemption. DOE is likely to grant an exemption under paragraph 
(b)(1) for this situation.

    Numerous commenters, including many electric utilities, stated that 
the proposed exemption requirements would force them to operate 
alternative fueled vehicles in rural areas that lack the refueling 
infrastructure or are otherwise unsuited to alternative fueled vehicle 
use because of terrain, climate, and other factors. Some commenters 
argued that an alternative fuel site located near the far edge of a 
vehicle's operating range is not a suitable refueling location for the 
fleet. Several commenters stated that the requirement of mapping 
operating areas and fueling sites is burdensome and impractical. One 
commenter argued that if an alternative fuel facility is not available 
that allows the fleet to maintain its centrally fueled characteristics, 
an exemption should be granted. Other commenters recommended that DOE 
revise the rule to specify a distance in miles, beyond which 
alternative fuel would be deemed ``unavailable.''
    In response to these comments, DOE has revised Sec. 490.308 to 
state, in paragraph (b)(1), that alternative fuel is not available if 
it cannot be obtained from fueling sites that permit central fueling of 
the covered person's fleet. Paragraph (c)(2) provides that a covered 
person that operates light duty vehicles outside of the MSAs/CMSAs 
listed in Appendix A of Subpart A is not required to map the vehicle 
operation zones and alternative fuel site locations if it can otherwise 
show that central fueling does not meet the normal requirements and 
practices of its principal business.
    DOE notes that some of the comments which criticized the proposed 
exemption provision reflect a misunderstanding of Sec. 490.306, which 
incorporates the Act's requirement that alternative fueled vehicles 
owned or controlled by covered persons must operate solely on 
alternative fuels. As explained in the discussion of Sec. 490.306, that 
requirement does not apply when vehicles are operating in areas where 
the appropriate alternative fuel is not available.
    b. Discussion of alternative fueled vehicle availability. To 
receive an exemption based on the criteria in subparagraph (b)(2), the 
covered person (or State fleet operator under Sec. 490.204) must show 
that alternative fueled vehicles that meet the normal practices and 
requirements of its principal business are not available for commercial 
acquisition on reasonable terms and conditions for each MSA/CMSA that 
they operate a fleet in, within any of the States a MSA/CMSA comprises. 
For example, a covered person operating a fleet in the Louisville MSA 
(KY-IN) would have to show that no alternative fueled vehicle that 
meets the needs of its fleet are available in Kentucky or Indiana on 
reasonable terms and conditions.
    Covered fuel providers having vehicles outside of MSAs/CMSAs, which 
are centrally fueled or capable of central fueling, must show that 
alternative fueled vehicles that meet the normal requirements and 
practices of their principal business are not commercially available on 
reasonable terms within the States those vehicles operate in.
    Many commenters asked for clarification of the factors that DOE 
will take into account when determining whether vehicles are 
commercially available on reasonable terms and conditions. Some 
commenters pointed out that fleets procure vehicles in regular cycles, 
and in the case of States, sometimes multi-year cycles. In addition, 
the availability of alternative fueled vehicles produced by automobile 
manufacturers is limited, and delivery dates are sometimes uncertain. 
As a result, States and covered persons claim they may be unable to 
acquire alternative fueled vehicles during the model year in which they 
are required, even if they have acted in good faith and taken 
reasonable steps to meet their requirements. Many electric utilities 
submitted comments expressing concern about the consequences of being 
unable, despite a good faith effort, to obtain electric vehicles to 
satisfy their requirements. See discussion of Sec. 490.307.
    DOE will examine each request, and supporting documentation, to 
determine whether the State fleet or covered person has acted in good 
faith and taken reasonable steps to acquire vehicles for the model year 
in question. DOE will take into account the terms and conditions of any 
contracts or agreements a State fleet or covered person has entered 
into to obtain alternative fueled vehicles, as well as purchase orders 
placed by States and covered persons. For this determination, terms and 
conditions refer to stipulations, provisions, limitations, and 
prerequisites that are included in the contracts or agreements that 
enable the covered person to acquire motor vehicles.
    If a fleet operator has ordered alternative fueled vehicles during 
a model year with a reasonable expectation that they would be delivered 
by the end of the model year, DOE will grant an exemption for that 
model year if the vehicles are not delivered in time to satisfy the 
requirement. Those vehicles would not then count as acquisitions in the 
model year in which they were delivered. On the other hand, DOE may not 
grant an exemption if it determines that a fleet or covered person has 
not made a good faith effort to acquire alternative fueled vehicles for 
a model year.
    In the case of fuel providers, including utilities choosing the 
electric utility option under Sec. 490.307, DOE will take into account 
steps the covered person has taken to help develop a market for 
alternative fueled vehicles that use the fuel that they provide.
    Some commenters stated that requiring a State or covered person to 
inquire about alternative fueled vehicle availability from every dealer 
in a State is onerous. These commenters stated that the paperwork 
burden and the time involved in this process would be excessive. The 
Department does not wish to impose an undue paperwork burden on those 
States and fuel providers that are required to acquire alternative 
fueled vehicles under this program. To lessen the burden, DOE will only 
require a State or fuel provider to submit documentation from Original 
Equipment Manufacturers showing that

[[Page 10643]]
alternative fueled vehicles meeting its normal requirement and 
practices will not be available directly or through any dealer in a 
particular State. Returning to the above example of a covered person 
operating a fleet in the Louisville MSA, the covered person needs to 
provide documentation that shows that Original Equipment Manufacturers 
will not provide alternative fueled vehicles that meet its normal 
requirements and practices either directly or through a dealer in 
Kentucky or Indiana. Thus, the final rule only requires a covered 
person to submit documentation from a limited number of sources showing 
vehicle unavailability, as opposed to documentation from every dealer 
in a State. The Department believes that this will greatly simplify the 
process for States and covered persons in determining the availability 
of alternative fueled vehicles that meet their normal requirements and 
practices.
    DOE has added paragraph (e) to clarify that an exemption may be 
granted in whole or in part. One situation in which a partial waiver 
(e.g., exempting a fleet from model year requirements, but requiring 
some or all of the vehicles to be acquired in the next model year) may 
be appropriate is when a fleet or covered person cannot acquire 
vehicles in time to satisfy a model year's requirements.
    Some commenters sought clarification or offered recommendations 
concerning the meaning of ``normal requirements and practices'' when 
used in determining whether alternative fueled vehicles are available. 
Several commenters argued that the range, safety, performance 
characteristics, maintainability, cost, cargo capacity and passenger 
capacity should be factors included in making that determination. One 
commenter stated, for example, that a utility which normally purchases 
subcompact cars for reading meters should not be required to purchase 
luxury class vehicles if subcompacts are not available. DOE agrees that 
all of these factors may be considered in determining whether 
alternative fueled vehicles are available that meet the normal 
requirements and practices of a State fleet's or covered person's 
business.
    If a covered person normally acquires vehicles from one automobile 
dealer or from one automobile manufacturer, but is unable to acquire 
alternative fueled vehicles of the model type needed from these same 
sources, this is not sufficient to qualify for an exemption under 
subparagraph (b)(2), if appropriate alternative fueled vehicles are 
available from other dealers or manufacturers. Having to use another 
dealer or manufacturer will not be considered to be outside the normal 
requirements and practices of the covered person. The same procedures 
that are currently being employed by the covered person to obtain these 
vehicles can be used to obtain them from different sources.
    Paragraph (b) sets forth the types of documentation in support of 
exemption requests that should be provided to DOE.

Section 490.309  Annual Reporting Requirements

    Section 490.309 sets forth annual reporting requirements. An annual 
report to verify regulation compliance is required of all covered 
alternative fuel providers. Paragraph (a) sets forth where and by when 
annual reports should be sent.
    Paragraph (b) describes the information that must be included in 
this annual report. One commenter suggested that DOE should require 
States and fuel providers to report whether a vehicle is dedicated or 
dual-fueled and the type of fuel the vehicle is capable of operating 
on. The Department has determined that this information is necessary 
for administering title V of the Act, including monitoring compliance 
with the vehicle acquisition requirements. Thus, section 490.309(b)(5) 
(iv) and (v) have been added.
    Subparagraph (b)(2) requires covered persons to report the number 
of new light duty alternative fueled vehicles that they are required to 
acquire by section 490.302 or 490.307. To determine this number, a 
covered person would multiply the number entered for subparagraph 
(b)(1), by the acquisition percentage from section 490.302 or 490.307, 
whichever applies for that model year. For example, if the number of 
new light duty motor vehicles acquired by a covered person in MY 1998 
is 50, the number of new light duty vehicles that are required to be 
acquired is 50 percent of 50, or 25 (50 x .5=25). The number of new 
light duty alternative fueled vehicles acquired, added to the number of 
alternative fueled vehicle credits applied, from subparagraph (b)(4), 
should be equal to or greater than the number calculated for 
subparagraph (b)(2).
    Paragraph (c) sets forth the procedure that a covered person must 
follow if it is applying alternative fueled vehicle credits against its 
acquisition requirements.
    Consistent with the requirements of 5 CFR Part 1320.6(f), paragraph 
(d) would require that records related to this reporting requirement be 
maintained and retained for a period of three years.

E. Subpart E--Reserved

F. Subpart F--Alternative Fueled Vehicle Credit Program

Background

    Section 508 of the Act requires DOE to establish an alternative 
fueled vehicle credit program that will allocate alternative fueled 
vehicle credits to a fleet or covered person that is required to 
acquire alternative fueled vehicles under title V of the Act. Credits 
are to be given to a fleet or covered person that acquires alternative 
fueled vehicles in excess of the number that fleet or covered person is 
required to acquire, or that acquires alternative fueled vehicles prior 
to the date that fleet or covered person is required to acquire 
alternative fueled vehicles. An alternative fueled vehicle credit may 
be used to comply with alternative fuel provider or fleet program 
requirements in a later year, or it may be traded to another fleet or 
covered person who is required to acquire alternative fueled vehicles 
by Part 490.
    The purpose of establishing a credit program is to provide 
purchasing flexibility for the regulated fleet operators without 
sacrificing the program's energy security goals. The general concept is 
that some fleet operators may, at times, find it attractive to buy more 
alternative fueled vehicles than required, if in doing so they can get 
credit against future acquisition requirements, or can sell or transfer 
the credits to another party. If the credit program is properly 
implemented and managed, there will be no decrease in energy security 
compared to a program based strictly on compliance through 
acquisitions.
    Subject to a restriction on fuel use that must accompany a credit 
transferred to a covered fuel provider, alternative fueled vehicle 
credits can be traded freely among any of the organizations in the 
United States that are required to acquire alternative fueled vehicles. 
Because a major goal of the Act is the reduction of our Nation's 
dependency on foreign oil, it makes little difference where in the 
United States this reduction takes place. This distinguishes the DOE 
credit program from credit trading under EPA's Clean Fuel Vehicle 
program, which limits trading to transfers within the ``non-
attainment'' areas.
    The one restriction on trading is based upon the last sentence of 
section 508(d) of the Act, which provides that vehicles generating 
credits which are transferred to alternative fuel providers must

[[Page 10644]]
operate solely on alternative fuel, except when operating in an area 
where the appropriate alternative fuel is unavailable. 42 U.S.C. 
13258(d). This requirement is explained in the discussion of 
Sec. 490.506 in this Supplementary Information.

Section 490.502  Creditable Actions

    Section 490.502 describes the actions for which DOE will allocate 
alternative fueled vehicle credits pursuant to section 508 of the Act. 
Section 508(a) of the Act authorizes the allocation of credits to 
fleets or covered persons that acquire alternative fueled vehicles in 
excess of the number they are required to acquire, or that acquire 
alternative fueled vehicles in advance of the date they are required to 
be acquired. However, after the Act's alternative fueled vehicle 
acquisition requirements become effective under this part, the only way 
a fleet or covered person can generate credits is by acquiring 
alternative fueled vehicles exceeding the number of vehicles required 
to be acquired, calculated as applicable under Sec. 490.201 or 
Sec. 490.302. Credits can no longer be allocated for early 
acquisitions. For example, an alternative fueled vehicle acquired in 
excess of the number required in model year 1997 cannot be claimed to 
be an early acquired alternative fueled vehicle for model year 1999. 
The excess alternative fueled vehicle will generate 1 alternative 
fueled vehicle credit only, not 2 credits because it was acquired 2 
years in advance.
     Under this provision, the acquisition of alternative fueled 
vehicles excluded from acquisition determinations by Sec. 490.3, such 
as motor vehicles held for lease or rental to the general public, 
emergency vehicles and law enforcement vehicles, will generate credits 
that can be used to satisfy the State fleet and alternative fuel 
provider acquisition requirements. Similarly, acquisition of 
alternative fueled vehicles exceeding 8,500 pounds gross vehicle weight 
(i.e., medium and heavy duty vehicles) also will generate credits. 
Section 508(b) of the Act provides the statutory basis for this policy 
because it refers to the allocation of credits for the excess or early 
acquisition of alternative fueled vehicles in excess of the number of 
vehicles a fleet or covered person is required to acquire. Credits are 
not limited to alternative fueled vehicles that qualify as acquisitions 
under the vehicle acquisition mandates for States and fuel providers.
    The allowance of credits for the acquisition of medium and heavy 
duty alternative fueled vehicles reflects a change from the notice of 
proposed rulemaking. In the notice of proposed rulemaking, DOE 
discussed whether to allow the acquisition of medium duty and heavy 
duty alternative fueled vehicles to generate credits. DOE stated that 
many medium duty and heavy duty vehicles are predominantly urban use 
vehicles, such as transit buses and delivery trucks, and could take 
advantage of the anticipated fueling infrastructure within these urban 
areas. DOE also stated that these vehicles possess larger capacity 
engines, which consume significantly more fuel than light duty vehicles 
and result in increased displacement of petroleum-based fuel and 
greater energy security. However, while recognizing these potential 
benefits from giving credit for such acquisitions, DOE stated that the 
Act prevented allocating credits for the acquisition of medium and 
heavy duty vehicles because section 508(b) provides that a credit shall 
be allocated for the same ``type'' vehicle as the excess vehicle or 
earlier acquired vehicle. The term ``type'' is not defined in the Act, 
and nothing in the legislative history of the Act explains it. In the 
notice, DOE proposed the interpretation that because the only type of 
vehicles that are required to be acquired by title V are light duty 
vehicles, credits could not be given for the acquisition of medium and 
heavy duty alternative fueled vehicles. See 60 F.R. at 10982.
    a. Comments critical of the Department's proposed interpretation. 
The Department's proposed interpretation of section 508(b) of the Act, 
as applied to allocating credits for the acquisition of medium and 
heavy duty vehicles, was the subject of much criticism in public 
comments. Commenters argued that the proposed interpretation was not 
required by the text of the Act, and that other interpretations would 
better further the goals of the Act.
    Several commenters pointed out that ``alternative fueled vehicle,'' 
as defined in section 301(3) of the Act, is not limited to motor 
vehicles weighing 8,500 or fewer pounds gross vehicle weight. 
Commenters also stated that the term ``class,'' not ``type,'' is 
commonly used to distinguish vehicles by weight. Therefore, if Congress 
had intended to restrict credits to acquisition of light duty vehicles, 
it would not have used the term ``type'' to impose such a restriction. 
In support of this argument, commenters noted that the term ``type'' is 
used in section 302(a) of the Act to distinguish dedicated and dual 
fueled vehicles. Some commenters argued that the statutory language 
would have been a peculiarly indirect way for Congress to limit 
allocation of credits to acquisition of light duty vehicles. Congress 
could have provided that credits shall only be allocated for the 
acquisition of light duty alternative fueled vehicles. Or, as one 
commenter pointed out, Congress could simply have stated that DOE shall 
only allocate credits for early or excess acquisitions. Instead, 
section 508(b) states that ``credits shall be allocated for the same 
type vehicle as the excess vehicle or earlier acquired vehicle.''
    Commenters also argued that although Congress decided not to 
require the acquisition of medium and heavy duty vehicles as part of 
the mandates, the concerns that influenced that decision are not 
present when a State or covered person voluntarily acquires an 
alternative fueled medium or heavy duty vehicle. Engine manufacturers 
stated that medium and heavy duty vehicles were exempted from the Act's 
alternative fueled vehicle acquisition requirements because most heavy 
duty engines are not capable of operating on flexible fueling, and the 
alternative fueling infrastructure is not developed widely enough to 
meet the needs of such dedicated fuel vehicles. Another commenter 
suggested that the study of heavy duty vehicles acquired by Federal 
government fleets, mandated by section 302(a)(4) of the Act, indicates 
that Congress favored including heavy duty vehicles but thought that 
more information was needed before requiring States and covered persons 
to acquire heavy duty vehicles. Thus, in their view, there is no 
inconsistency in limiting the acquisition mandates to light duty 
vehicles and allocating credits for the voluntary acquisition of medium 
and heavy duty vehicles.
    Commenters also argued that interpreting the term ``type'' to 
foreclose allocation of credits to acquisition of medium and heavy duty 
vehicles would be contrary to the Act's petroleum displacement and air 
quality goals. Commenters supplied additional information and reasons 
to show that allocating credits for the acquisition of medium and heavy 
duty vehicles will promote the goals of the Act. These commenters 
stated that allowing credit for the acquisition of medium and heavy 
duty alternative fueled vehicles will increase the availability of 
alternative fueled vehicles, allow fleets increased flexibility in 
acquiring vehicles, and advance the state of alternative fueled vehicle 
technology. The California Energy Commission commented that its 
extensive experience in alternative fuel infrastructure development 
shows that it is critical to have a high volume of alternative fuel 
available immediately to achieve the economies of scale needed for 
alternative fuels to compete with

[[Page 10645]]
conventional fuels. Another commenter stated that high alternative fuel 
usage is needed to permit fleets to offset the higher initial cost of 
alternative fueled vehicles. It was argued that allowing credits for 
the acquisition of medium and heavy duty vehicles, which use much more 
fuel than light duty vehicles, will promote development of the fueling 
infrastructure that is essential for covered persons and fleets. Other 
commenters stated that the use of alternative fuels in medium and heavy 
duty vehicles will contribute to the air quality goals in section 502 
of the Act because heavy duty vehicles emit high levels of pollution 
when operating on petroleum-based fuels.
    b. Response to comments and explanation of the final rule. DOE 
agrees with the commenters who argued that interpreting the word 
``type'' to restrict allocation of credits to acquisition of light duty 
vehicles produces a result that does less to further the Acts's 
petroleum displacement and other goals than would allowing credits for 
the acquisition of medium and heavy duty vehicles. DOE also is 
persuaded that allocating credits for medium and heavy duty vehicle 
acquisitions would not be inconsistent with Congress' decision to 
exclude medium and heavy duty vehicles from the alternative fueled 
vehicle acquisition mandates.
    However, DOE is obligated to give effect to the statutory text, and 
section 508(b) states that a ``credit shall be allocated for the same 
type vehicle as the excess or earlier acquired vehicle.'' Although 
commenters suggested various alternative interpretations of this 
statutory language, DOE has concluded that none of the commenters' 
proposed interpretations is satisfactory. Some commenters suggested 
that ``type'' could refer to the Act's requirement that covered 
alternative fuel providers must operate vehicles solely on alternative 
fuel, except when operating in areas where such fuel is not available. 
They suggested that DOE could interpret the type of vehicle restriction 
to require that a vehicle which generated a credit must be operated 
solely on alternative fuel after the credit's transfer. This 
interpretation is unsatisfactory because section 508(d) already 
expressly attaches the alternative fuel operation requirement to 
credits generated by fuel provider acquisitions. Other commenters 
suggested that ``type'' could refer to the type of alternative fuel 
used by the vehicle. However, this distinction makes no sense in the 
context of the State and alternative fuel provider mandates because 
sections 501 and 507(o) are ``fuel neutral,'' i.e., they contain no 
distinctions based on type of alternative fuels. Some commenters argued 
that the type of vehicle restriction could be interpreted to permit 
allocating more credits for alternative fueled vehicles that consume a 
large amount of alternative fuel. However, section 508(b) expressly 
provides that one credit shall be allocated for the acquisition of 
alternative fueled vehicles; thus, multiple credits for vehicles that 
consume a large amount of alternative fuel is not permitted.
    The statutory text allows one plausible interpretation of the type 
of vehicle restriction, which could be applied to address a situation 
that might arise under title V of the Act. Unlike sections 501 and 
507(o) of the Act, which set forth light duty vehicle acquisition 
requirements for States and covered fuel providers, section 507(k)(2) 
of the Act authorizes DOE, by rule, to require inclusion of new urban 
buses in a private or municipal fleet vehicle acquisition program 
established under section established under section 507 (a) or (g). The 
type of vehicle restriction in section 508 could apply to prevent a 
covered private or municipal fleet operator from satisfying a 
requirement to acquire an urban bus with a credit that was generated by 
the acquisition of a light duty vehicle. The allocation of a credit for 
the acquisition of a light duty vehicle in that situation would 
undermine the petroleum displacement and air quality goals of the Act. 
If DOE proposes a private and municipal fleet program in the future, 
DOE may propose amendments to subpart F in order to reflect the 
``type'' of vehicle restriction. Experience under the Alternative Fuel 
Transportation Program may reveal other possible applications of the 
type of vehicle restriction in section 508(b). In that event, DOE will 
give effect to this language through case-by-case application of the 
statutory provision or by proposing an amendment of these regulations.
    In summary, it is not clear what Congress intended by including the 
type of vehicle restriction in section 508. However, after 
reconsidering this issue, DOE has concluded that whatever that 
statutory language means, it cannot be interpreted to mean that credits 
may not be allocated for the acquisition of medium and heavy duty 
vehicles under this part. Therefore, Sec. 490.502 has been revised to 
treat the acquisition of new medium and heavy duty vehicles the same as 
vehicles excluded under the section 490.3. Both involve the acquisition 
of an alternative fueled vehicle in addition to the number of 
alternative fueled vehicles that a fleet is required to acquire. Thus, 
both should generate credit.
    The Department received comments requesting that credits be 
allocated for conversions of fleet vehicles to alternative fueled 
vehicles before the effective date of the acquisition requirements. 
These commenters argued that they had been converting vehicles since 
1992, believing that they would receive credits for these conversions 
pursuant to section 508 of the Act.
    DOE can accommodate these comments to a limited extent because its 
discretion to allocate credits for conversions that occur prior to the 
effective date of the acquisition requirements is limited by the terms 
of the Act. Section 508(a) provides, in relevant part, that DOE shall 
allocate a credit to a fleet or covered person that ``acquires an 
alternative fueled vehicle * * * before the date that fleet or covered 
person is required to acquire an alternative fueled vehicle under 
[title V].'' 42 U.S.C. 13258(a). It is clear from this statutory text 
that an alternative fueled vehicle must be acquired by a fleet or 
covered person subject to the Act's acquisition requirements in order 
for a credit to be allocated for that vehicle. The conversion of a 
vehicle already in service in a fleet on October 24, 1992, the 
effective date of the Act, would not satisfy this acquisition 
requirement. In addition, there is no statutory provision authorizing 
DOE to allocate credits for the acquisition of alternative fueled 
vehicles prior to the effective date of the Act.
    Thus, DOE will allocate credits to a State fleet or covered person 
subject to the acquisition requirements only if it purchased or leased 
a motor vehicle on or after October 24, 1992, and converted it to an 
alternative fueled vehicle before the effective date of the applicable 
acquisition requirements. For purposes of calculating credits for early 
acquisition of these vehicles, DOE will consider the date of the 
conversion to be the acquisition date. Paragraph (c) of Sec. 490.502 
has been added to make clear that the four-month time limit on 
conversions, established by Sec. 490.202(a)(3) and Sec. 490.305(a)(3) 
of this rule, shall not be applied retroactively to any conversion that 
occurred before the date this rule takes effect.
    Some commenters recommended that DOE should award credits based on 
the amount of petroleum displaced, rather than for the early or excess 
acquisition of an alternative fueled vehicle. These commenters argued 
that awarding credits based on the amount of petroleum displaced will 
encourage the use of more alternative fuel than the

[[Page 10646]]
current proposal. Again, section 508 of the Act does not allow DOE to 
adopt this recommendation. Section 508 states that credits shall be 
awarded for the acquisition of alternative fueled vehicles by fleets 
and covered persons that are required to acquire alternative fueled 
vehicles. By implication, therefore, DOE may not award credits based on 
the amount of petroleum displaced.
    Several commenters requested that DOE award credits to fleets not 
currently subject to acquisition mandates, such as fuel provider, 
private, municipal and State agency fleets that, although not required 
to obtain vehicles, voluntarily have chosen to acquire alternative 
fueled vehicles. These commenters argue that awarding credits to these 
fleets would increase acquisitions of alternative fueled vehicles, 
which will boost petroleum displacement and aid in the development of a 
market for alternative fuels and alternative fueled vehicles. The 
Department agrees that the voluntary acquisition of alternative fueled 
vehicles by these fleets would result in increased petroleum 
displacement and bolster the alternative fuels market. However, section 
508(a) states unambiguously that ``the Secretary shall allocate a 
credit to a fleet or covered person that is required to acquire an 
alternative fueled vehicle * * *'' 42 U.S.C. 13258(a) (emphasis added). 
Thus, a fleet or covered person must be required by the Act to acquire 
alternative fueled vehicles before credits can be allocated to them. 
Non-mandated fleets are not eligible to earn credits.

Section 490.503  Credit Allocation

    Section 490.503 deals with alternative fueled vehicle credit 
allocation. Paragraphs (a) and (b) are consistent with the language of 
section 508(a) of the Act, which describes how credits are to be 
allocated. Before alternative fueled vehicle credits are allocated a 
covered person or fleet must apply for them using the procedure 
described in Sec. 490.507.
    Paragraph (a) provides for the allocation of one credit for each 
alternative fueled vehicle a fleet or covered person acquires that 
exceeds the number of light duty alternative fueled vehicles that fleet 
or person is required to acquire. Thus, if a fleet or covered person is 
required to acquire 10 light duty alternative fueled vehicles in a 
model year and it acquires 15 alternative fueled vehicles, it can apply 
for allocation of five alternative fueled vehicle credits.
    Paragraph (b) provides for the allocation of one credit for each 
year an alternative fueled vehicle is acquired in advance of the date 
the fleet or covered person is required to acquire alternative fueled 
vehicles. For State fleets and covered persons, excluding States that 
elect to submit an alternative plan under Sec. 490.203 and those 
covered persons that choose the electric utility option provided by 
Sec. 490.307, the requirements shall take effect on September 1, 1996, 
the beginning of MY 1997. States that comply through alternative plans 
approved by DOE may be exempt from MY 1997 requirements, in which case 
the acquisition requirements will take effect for them on September 1, 
1997, the beginning of MY 1998. For those covered persons that have 
taken the electric utility option provided by Sec. 490.307, the 
effective date is January 1, 1998. Credits will be awarded for the 
acquisition of light, medium, and heavy duty alternative fueled 
vehicles, and for alternative fueled vehicles excluded by Sec. 490.3, 
prior to these dates.
     Private and municipal fleets are not required by this rule to 
acquire alternative fueled vehicles. If DOE later establishes a private 
and municipal fleet program through rulemaking under section 507 (b) or 
(g) of the Act, all alternative fueled motor vehicles newly acquired 
between October 24, 1992 and the start date of the private and local 
fleet mandate would be eligible for credit allocation at the rate of 
one credit for each year an alternative fueled vehicle is acquired in 
advance of the effective dates of those mandates.
    Several commenters suggested that dedicated vehicles should receive 
double the credits of dual-fuel or flexible-fuel vehicles. DOE does not 
have the statutory authority to allocate credits in this manner. 
Section 508(b) of the Act provides for the allocation of credits for 
``alternative fueled vehicles'' acquired by fleets and covered persons 
subject to the Act's requirements, and it does not differentiate 
between dedicated and dual-fuel vehicles. This is consistent with the 
definition of ``alternative fueled vehicle'' in section 301(3), which 
includes both dedicated and dual-fuel vehicles.
    Credit allocation is best explained by the following examples.

    Example 1. A covered person acquires 10 alternative fueled 
vehicles in MY 1994 and 15 alternative fueled vehicles in MY 1995. 
The covered person acquires no alternative fueled vehicles in MY 
1996. Because the covered person is not required to acquire 
alternative fueled vehicles until MY 1997, each alternative fueled 
vehicle acquired in MY 1994 will generate 3 credits and each 
alternative fueled vehicle acquired in MY 1995 will generate 2 
credits. Thus, the covered person generates 60 credits 
[(10 x 3)+(15 x 2)=60], which can be used against that person's 
future alternative fueled vehicle acquisition requirements or can be 
traded to other covered persons or fleets.
    Example 2. An electric utility that has chosen the option 
provided by Sec. 490.507 acquires 10 electric vehicles in each of 
calendar years 1993 through 1997. Since the electric utility is not 
required to acquire alternative fueled vehicles until January 1, 
1998, credits are generated on a calendar year basis for the early 
acquisition of alternative fueled vehicles. Thus each electric 
vehicle acquired in calendar year 1993 will earn 5 credits because 
it was acquired 5 years early. Similar logic ensues for acquisitions 
in subsequent years. Thus, the electric utility generates 150 
credits [(10 x 5)+(10 x 4)+(10 x 3)+(10 x 2)+(10 x 1)=150] for the 
acquisition of 50 electric vehicles from 1993 to 1997. These credits 
can be used against the utility's future alternative fueled vehicle 
acquisition requirements or can be traded.
    Example 3. A State fleet acquires 20 alternative fueled vehicles 
in model years 1995 and 1996. Thus, the State has earned 60 credits 
prior to the start of the program [(20 x 2)+(20 x 1)]=60. The State 
fleet also plans to acquire 20 alternative fueled vehicles in model 
years 1997 and 1998. The State fleet regularly acquires 100 new 
light duty vehicles each year. For model years 1997 and 1998 the 
State fleet's acquisition requirements are 10 and 15 alternative 
fueled vehicles, respectively. If the State actually acquires 20 
alternative fueled vehicles in model years 1997 and 1998, it will 
have acquired 10 vehicles in excess of its requirement for model 
year 1997 and 5 vehicles in excess of its requirement for model year 
1998. These excess acquisitions would earn the State fleet 10 and 5 
credits, respectively. Thus, the State fleet has earned credits for 
both early and excess acquisitions of alternative fueled vehicles. 
The total number of credits the State fleet will have earned for 
model years 1995 through 1998 is 75 (60+10+5)=75. These credits can 
be used against the State fleet's future alternative fueled vehicle 
acquisition requirements or can be traded.

    DOE will establish a computer database that will serve as a record 
of credit allocations, trades and credit balances.

Section 490.504  Use of Alternative Fueled Vehicle Credit

    No comments specifically critical of this section were received. 
However, the Office of Management and Budget requested that 
Sec. 490.504 be revised to clarify that one credit represents the 
acquisition of one alternative fueled vehicle in a model year for which 
a fleet or covered person is required to acquire alternative fueled 
vehicles. Each alternative fueled vehicle credit will represent one 
alternative fueled vehicle and can be applied against the alternative 
fueled vehicle acquisition requirements for one model year only, as 
designated by the fleet or covered person. Section 490.504 has been 
revised accordingly.

[[Page 10647]]


Section 490.505  Credit Accounts

    Section 490.505 deals with Alternative Fueled Vehicle Credit 
accounts. Paragraph (a) states that DOE will establish a credit account 
for each fleet or covered person who obtains an alternative fueled 
vehicle credit. Paragraph (b) states that each fleet or covered person 
will receive an annual credit account balance statement after the 
receipt and recording of its annual activity report.
    In the proposed rule, DOE indicated that it was considering 
providing updated credit account balance statements to fleets and 
covered persons upon request during the year. These updated credit 
account balance statements would constitute proof of a fleet or covered 
person's credit account balance as of the date they were printed. These 
statements may be required of a credit seller by a credit purchaser 
before proceeding with the credit transfer. DOE asked for comment on 
whether credit account balance statements should be provided for a 
charge. Several comments were received on this issue, all opposing a 
fee for these statements. DOE has decided to provide these statements 
at no cost to the requestor, but it may in the future decide to limit 
the number of reports that will be provided free of charge. DOE will 
provide notice, by publication in the Federal Register, and directly to 
affected State fleets and covered persons, if it later finds that it is 
necessary to limit the number of statements that it will provide free 
of charge.

Section 490.506  Alternative Fuel Vehicle Credit Transfers

    No comments specifically critical of this section were received. 
Section 490.506 deals with the transfer of alternative fueled vehicle 
credits. Paragraph (a) states that any fleet or covered person may 
transfer an alternative fueled vehicle credit to any fleet required to 
acquire alternative fueled vehicles, or to a covered person if the 
transferor certifies to the covered person that the vehicle which 
generated the credit will operate solely on alternative fuel, except 
when the vehicle is operated in an area where the appropriate 
alternative fuel is unavailable. This restriction on the transfer of 
credits to a covered person is required by section 508(d) of the Act. 
42 U.S.C. 13258(d).
    Paragraph (b) states that proof of credit transfer should be 
provided to DOE within thirty days of the transfer date, and provides 
for the use of a DOE form, or other written documentation containing 
the dated signatures of the transferor and transferee. This is a change 
from a proposed requirement to report credit transfers within seven 
days. Seven days was criticized as being insufficient time by 
commenters.

Section 490.507  Credit Activity Reporting Requirements

    Section 490.507 describes the credit program's activity reporting 
requirements. An annual report is required of all fleets or covered 
persons who have generated or traded alternative fueled vehicle credits 
to record and track their credit activity. One commenter urged DOE to 
drop the reporting requirement, and only require the retention of 
credit activity records. DOE has not adopted this recommendation 
because the credit reports are essential for monitoring compliance with 
the vehicle acquisition requirements. Reporting will also aid the 
development of an alternative fueled vehicle credit market.
    Paragraph (a) sets forth where and by when annual reports should be 
sent. Paragraph (b) describes the required information that would be 
included in this annual report. Subparagraph (b)(1) allows a fleet or 
covered person to report either the number of alternative fueled 
vehicles acquired in excess of acquisition requirements for the model 
year or the number of alternative fueled vehicles acquired in advance 
of the start date of the acquisition requirements. Except for covered 
persons that choose that electric utility option or States that elect 
to submit an alternative compliance plan, States and covered persons 
subject to section 501 of the Act can no longer earn credits for early 
acquisition of alternative fueled vehicles after September 1, 1996, the 
beginning of model year 1997.

G. Subpart G--Investigations and Enforcement

    This subpart elicited few public comments. The only specific 
recommendation received was a request that DOE add a provision that 
would give States 90 days advance notice of its intent to bring an 
action to enforce compliance with the Act's alternative fueled vehicle 
acquisition requirements. DOE agrees that such advance notice would 
generally be desirable for both States and covered persons. However, 
there may be some situations where it would not be appropriate, such as 
the repeated, willful refusal to comply with the acquisition 
requirements. Thus, DOE has added a sentence to Sec. 490.605, Statement 
of Enforcement Policy, which states that DOE normally will not commence 
an enforcement action against a person subject to the acquisition 
requirements without giving that person notice of its intent 90 days 
before the beginning of an enforcement proceeding.

IV. Review Under Executive Order 12612

    Executive Order 12612, 52 FR 41685 (October 30, 1987), requires 
that regulations, rules, legislation, and any other policy actions be 
reviewed for any substantial direct effect on States, on the 
relationship between the National Government and the States, or in the 
distribution of power and responsibilities among various levels of 
government. If there are substantial effects, then the Executive Order 
requires a preparation of a Federalism assessment to be used in all 
decisions involved in promulgating and implementing policy action.
    This rule implements the alternative fueled vehicle acquisition 
requirements in section 507(o) of the Act, which apply to State 
government fleets. It also establishes an Alternative Fueled Vehicle 
Credit Program under which States may generate credits if they obtain 
alternative fueled vehicles in excess of their required quantity or if 
they obtain alternative fueled vehicles prior to the date when they are 
required to acquire alternative fueled vehicles. The allocation of 
credits is based on the measurable actions of obtaining alternative 
fueled vehicles and is available to fleets, that meet the requirements, 
throughout the United States.
    The granting of credits to States will be handled in the same 
manner as the granting of credits to any other covered fleet operator. 
The enforcement of the State fleet mandate will be handled in the same 
manner as other mandate programs. States can also apply for a hardship 
exemption which would exempt them from acquiring alternative fueled 
vehicles in any given year.
    The Department has determined that since States are treated the 
same as any other fleet operator in the allocation of credits and in 
the administration and enforcement of the fleet mandate, the final rule 
will not have a substantial direct effect on the institutional 
interests or traditional functions of States. In addition, the 
provision for hardship exemptions included in the State fleet mandate 
precludes any impermissible expansion of the authority that the Federal 
government has over States.
    Section X of this Supplementary Information addresses the potential 
costs to States of this final rule.

[[Page 10648]]


V. Review Under Executive Order 12778

    Section 2 of Executive Order 12778 instructs each agency to adhere 
to certain requirements in promulgating new regulations. These 
requirements, set forth in sections 2(a) and (b)(2), include 
eliminating drafting errors and needless ambiguity, drafting the 
regulations to minimize litigation by providing clear and certain legal 
standards for affected legal conduct, and promoting simplification and 
burden reduction. Agencies are also instructed to make every reasonable 
effort to ensure that the regulation describes any administrative 
proceeding to be available prior to judicial review and any provisions 
for the exhaustion of administrative remedies. DOE certifies that this 
rule meets the requirements of sections 2(a) and (b)(2) of Executive 
Order 12778.

VI. Review Under Executive Order 12866

    Today's regulatory action was subject to review under Executive 
Order 12866, Regulatory Planning and Review (October 4, 1993) by the 
Office of Information and Regulatory Affairs (OIRA). Although DOE 
concluded that the final rule would not result in (1) an annual effect 
on the economy of $100 million or more or (2) have significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of the United States-based enterprises to 
compete in domestic export markets, OIRA nevertheless determined this 
rulemaking to be a significant regulatory action under the Executive 
Order and requested that DOE prepare a cost analysis. A copy of that 
cost analysis is in the administrative record on file in DOE's Freedom 
of Information Reading Room.
    The cost analysis that was performed for the proposed rule spans, 
the 25-year time frame from 1995 to 2020 , and it includes the 
incremental vehicle purchase cost and the cost differential between 
alternative fuels and gasoline under five different scenarios. The 
analysis examines the effects the rule will have on the acquisition of 
alternative fueled vehicles by fuel providers and State fleets, 
exclusive of the effects of non-mandated acquisition of vehicles by 
these and other fleets. In doing so it assumes that no alternative 
fueled vehicles will be acquired by these fleets prior to model year 
1996. In actuality, these fleets currently are acquiring alternative 
fueled vehicles--either because of economics, State laws or business 
strategies--and will probably continue to do so in the future. 
Assumptions about the number of vehicles acquired, the operating 
characteristics of those vehicles, fleet vehicle replacement rates, 
current and future alternative fueled vehicle incremental costs, and 
current and future retail fuel costs were based on previous analyses 
undertaken by the Department. The analysis did not include estimates of 
the effects of any Federal and State tax incentives for the acquisition 
of alternative fueled vehicles.
    The cost analysis of the proposed rule shows that the costs to fuel 
providers and State fleets in complying with the rule varies depending 
upon vehicle type, fuel type and fuel consumption, but in no case would 
the estimated annual costs exceed $61 million per year. More typically, 
under the various scenarios, the estimated annual costs are 
approximately $25 million, decreasing to $10 million per year in later 
years.
    The Department sought comments on all aspects of its analysis. In 
particular, the Department requested comment on the following elements 
of the analysis: the retail and net-of-excise-tax future price 
projections for gasoline and alternative fuels; the assumption that 
alternative fueled vehicle purchases, that would result in apparent 
life-cycle cost savings, would not occur in the absence of this rule; 
and the assumption that the cost per gallon of gasoline displaced falls 
as the amount of gasoline displaced increases and data that would aid 
in estimating the extra refueling costs for covered persons whose 
fleets use fuels other than the one they themselves provide.
    Several comments were received on the Department's cost analysis. 
The comments were centered on the estimated fuel and vehicle costs that 
were included in the analysis. Commenters claimed that the estimated 
prices for gasoline were high while the estimated prices for 
alternative fuel were low. These commenters also stated that the 
incremental alternative fueled vehicle prices included in the cost 
analysis were low. Another commenter stated that the projected cost of 
gasoline was understated in DOE's cost analysis because it did not 
include energy security and environmental costs. A few commenters 
stated that DOE did not consider the additional costs of operating 
alternative fueled vehicles, such as the time and labor required for 
travel to refueling sites and the extra cost of more frequent 
refueling.
    One commenter submitted an especially detailed critique of the 
Department's cost analysis. This commenter's main criticism was that 
DOE did not conduct a sensitivity analysis using a range of plausible 
fuel and vehicle cost assumptions. This commenter performed a 
sensitivity analysis of DOE's ``gaseous fuel vehicle dominant 
scenario'' by analyzing additional cases that used increased fuel and 
vehicle cost assumptions. This analysis utilized EIA fuel cost data for 
some of these cases. Based on the sensitivity analysis, this commenter 
argued that the net present value of the overall costs of the proposed 
rule is likely to exceed $100 million annually, for a few years, using 
moderate price assumptions. Thus, the commenter concluded that DOE is 
required to perform a full-scale economic impact analysis under 
Executive Order 12866.
    DOE found this comment to be generally helpful for evaluating the 
costs of the proposed rule, although it disagrees that compliance with 
the rule will impose costs on States and fuel providers that exceed 
$100 million annually. First, the comment that the rule requires a full 
assessment of costs and benefits was based on calculations of cost 
using undiscounted values. Applying a discount rate is a standard 
aspect of commonly accepted cost impact analyses. Had this commenter 
used any reasonable discount rate, its cost analysis would have shown 
the costs to be less than $100 million dollars in any one year. Second, 
this commenter also calculated the costs for one of the most costly 
scenarios included in the DOE cost analysis, the gaseous fueled vehicle 
dominant scenario. This scenario assumes that natural gas vehicles will 
represent 75 percent of the new alternative fueled vehicles, LPG 
(propane) will represent 15 percent, and methanol flexible fuel 
vehicles will represent 10 percent of vehicles required to be acquired 
annually under the rule. Scenarios included in DOE's analysis that 
project dominant use of flexible fueled vehicles, which are believed 
more likely for State government fleets, result in much lower costs.
    While plausible estimates of the future costs of fuel and 
alternative fueled vehicles may differ, the greatest uncertainty about 
the future costs of the rule stems from the difficulty of predicting 
the choices of vehicles and fuels that will be made by covered States 
and fuel providers. In reconsidering the cost analysis in light of the 
comments, DOE has conducted (and placed in the record of the 
rulemaking) a supplemental cost analysis that estimates the costs that 
would result if fleets chose to meet their requirements by acquiring 
vehicles that operate exclusively one fuel. Although

[[Page 10649]]
some fleets are not expected to acquire vehicles that operate 
exclusively on one fuel, the analysis is useful for estimating the 
range of possible costs. Analyses were performed for acquisitions 
comprised exclusively of methanol, ethanol, natural gas or propane 
vehicles. The supplemental cost analysis uses EIA fuel cost estimates 
and current wholesale fuel prices, together with the most current 
information in DOE's possession on fleet size, incremental vehicle 
cost, vehicle turnover and fuel consumption. In conducting the 
supplemental analysis, DOE did not consider the additional costs of 
operating alternative fueled vehicles (e.g., the time and labor 
required for travel to refueling sites and the extra cost of more 
frequent refueling). DOE acknowledges that there may be additional 
operational costs associated with the operation of some types of 
alternative fueled vehicles. However, it is not feasible, at a 
reasonable cost, to quantify such costs because of the uniqueness of 
each fleet's operational characteristics (e.g., geographic location, 
fuel cost, labor rate, etc.)
    The results of DOE's supplemental analysis show that over the first 
5 years of the program, the costs to State and fuel provider fleets 
together could range from a low of $5 million per year if alcohol 
fueled AFVs are acquired, up to a maximum total cost of $75 million per 
year if AFVs using gaseous fuels are acquired (occurring during the 
fifth year of the program when acquisition requirements reach their 
highest level). After the first five years of the program, DOE expects 
that economies of scale will result in steadily decreasing alternative 
fueled vehicle incremental costs.

VII. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, was 
enacted by Congress to ensure that small entities do not face 
significant negative economic impact as a result of Government 
regulations. In instances where significant impacts are possible on a 
substantial number of entities, agencies are required to perform a 
regulatory flexibility analysis.
    DOE has determined that this rule will not have a significant 
negative impact on a substantial number of small entities. To be 
covered by this rulemaking, an organization must own, operate or 
control at least 50 light duty motor vehicles, of which at least 20 
light duty motor vehicles used primarily within a single MSA or CMSA 
must be capable of being centrally fueled. An organization that fits 
this description is usually not a small organization.

VIII. Review Under the Paperwork Reduction Act

    New information collection requirements subject to the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq., and recordkeeping requirements 
are included by this rulemaking. Accordingly, this notice has been 
submitted to the Office of Management and Budget for review and 
approval of paperwork requirements. The information DOE will collect 
through the reporting requirements in the rule is necessary to 
determine whether an organization is in compliance with the regulation 
and whether they are eligible for the allocation of alternative fueled 
vehicle credits. The frequency of the information collection is 
annually and is due four months after the end of the compliance period 
(the model year). It is estimated the number of organizations 
submitting reports will be approximately 1000 for the years 1997 
through 1999. The estimated number of organizations who will be 
submitting reports after that date has not been determined.
    The public reporting burden is estimated to average 12 hours per 
response, including time for reviewing instructions, searching existing 
data sources, gathering and maintaining the data needed, and completing 
and retrieving the collection of information. The collection of 
information contained in this rule is considered the least burdensome 
for the Department of Energy functions to comply with the legal 
requirements and achieve program objectives.

IX. Review Under the National Environmental Policy Act

    This rule establishes procedures for the implementation of an 
Alternative Fuel Transportation Program, which are required to assist 
in and monitor the progress of State fleet and certain alternative fuel 
providers compliance activity. The rule provides for reporting 
procedures to demonstrate compliance with the alternative fueled 
vehicle acquisition mandates as specified by title V of the Energy 
Policy Act of 1992, and it includes procedures for interpretive 
rulings, exemption, appeals, and the approval process for State plans.
    The rule also establishes and defines the parameters for who must 
comply, the parts of a vehicle inventory which are affected by the 
acquisition mandates, the allocation of credits for voluntary 
acquisitions, the investigation and enforcement in the assessment of 
civil penalties, and the contents of a State's light duty alternative 
fueled vehicle plan. Because of the foregoing non-procedural parts of 
the rule, the Department has prepared an Environmental Assessment (EA).
    The EA assesses the environmental effects of the alternative fueled 
vehicle acquisitions required by this rule and compares these effects 
to that of a no action alternative, whereby fleets would continue to 
purchase conventionally fueled vehicles. The EA finds that the 
alternative fueled vehicle acquisitions required by the rule would 
decrease State and alternative fuel provider fleet emissions of non-
methane organic gases, carbon monoxide, nitrogen oxides, particulate 
matter and carbon dioxide for all scenarios examined. The reduction of 
these pollutants on a vehicle-by-vehicle comparison is sizeable. 
However, because the number of alternative fueled vehicles compared to 
the country's total population is small, the magnitude of these 
beneficial environmental effects are small. A less than 3% decrease in 
cumulative emissions from all highway vehicles in the U.S. is estimated 
at the end of the 25-year study period in 2020. However, the vehicles 
acquired due to this program and the associated emissions improvements 
would be concentrated in metropolitan areas.
    For each of the pollutant-scenario combinations, the results show a 
reduction in the emission levels. When the emissions from year 2020 are 
compared with 1993 National Mobile Source Emissions, the reductions 
range from 0.001% for NOX in the Gaseous Fuel Dominant Scenario to 
0.15% for CO in the Gaseous Fuel Dominant with EVs Scenario and the New 
Technology Dominant Scenario. When the emissions from the entire 25-
year study period are compared with 1993 National Mobile Source 
Emissions, the reductions range from 0.02% for NOX in the Gaseous 
Fuel Dominant Scenario to 2.53% for CO in the Gaseous Fuel Dominant 
with EVs Scenario.
    Based on the analysis in the Environmental Assessment, the 
Department has determined that the implementation of the Alternative 
Transportation Program does not constitute a major Federal action 
significantly affecting the quality of the human environment, within 
the meaning of the NEPA. Therefore, the preparation of an Environmental 
Impact Statement is not required and the Department today is publishing 
a Finding of No Significant Impact elsewhere in this issue.

[[Page 10650]]


X. Impact on State Governments

    Section 1(b)(9) of Executive Order 12866 (``Regulatory Planning and 
Review''), 58 FR 51735 (September 30, 1993) established the following 
principle for agencies to follow in rulemakings: ``Wherever feasible, 
agencies shall seek views of appropriate State, local, and tribal 
officials before imposing regulatory requirements that might 
significantly or uniquely affect those governmental entities. Each 
agency shall assess the effects of Federal regulations on State, local, 
and tribal governments, including specifically the availability of 
resources to carry out those mandates, and seek to minimize those 
burdens that uniquely or significantly affect such governmental 
entities, consistent with achieving regulatory objectives. In addition, 
agencies shall seek to harmonize Federal regulatory actions with 
regulated State, local and tribal regulatory and other governmental 
functions.'' Executive Order 12875 (``Enhancing Intergovernmental 
Partnership''), 58 FR 58093 (October 26, 1993) provides for reduction 
or mitigation, to the extent allowed by law, of the burden on State, 
local, and tribal governments of unfunded Federal mandates not required 
by statute.
    Title II of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-
4, requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local, and tribal governments and the 
private sector, other than to the extent such actions merely 
incorporate requirements specifically set forth in a statute. Section 
202 of that title requires a Federal agency to perform a detailed 
assessment of the anticipated costs and benefits of any rule that 
includes a Federal mandate which may result in costs to State, local, 
or tribal governments, or to the private sector, of $100 million or 
more. Section 204 of that title requires each agency that proposes a 
rule containing a significant Federal intergovernmental mandate to 
develop an effective process for obtaining meaningful and timely input 
from elected officers of State, local, and tribal governments. The 
Department estimates that, in the aggregate, the costs to States in 
model year 1997 will be between $3.3 million and $7.4 million. The 
annual aggregate costs to the States should never exceed $13 million in 
FY 1995 dollars. The annual aggregate costs to State, local, and tribal 
governments and the private sector should never exceed $100 million in 
FY 1995 dollars. Therefore, preparation of a formal unfunded mandate 
analysis is not required. Because the rule does not contain a 
significant intergovernmental mandate, the procedural requirements in 
section 204 also do not apply to this rulemaking. However, DOE invited 
written comments and held three public hearings on the proposed rule. 
DOE received numerous comments and oral testimony from State elected 
officials and representatives of State executive offices and agencies 
with an interest in the subject of this rulemaking.
    Section 507(o) of the Act explicitly prescribes the alternative 
fueled vehicle acquisition mandate for States which is reflected in 
subpart C of the regulation. Although the Act does not specifically 
authorize appropriation of funds to fully defray the costs of 
compliance, the costs and impact of the mandate are mitigated in a 
number of respects.
    First, section 507(o) authorizes approval of acceptable alternative 
State plans to comply with the acquisition mandate by enlisting 
voluntary commitments from other fleet operators with fleets that are 
not subject to vehicle acquisition requirements under the Energy Policy 
Act of 1992. This gives States flexibility in developing a strategy for 
meeting the Act's vehicle acquisition percentages.
    Second, section 507(i) authorizes the Department to grant 
exemptions from vehicle acquisition requirements for States in cases of 
financial hardship, in addition to exemptions when alternative fuel and 
alternative fueled vehicles are not available.
    Third, Congress has authorized DOE to provide financial assistance 
to States for alternative fuel transportation programs. Section 409 of 
the Act specifically authorizes DOE to provide technical and financial 
assistance to States for this purpose. No funds have been appropriated 
yet for the section 409 program. However, DOE is currently developing a 
program to provide funds to States, some of which could be used to 
offset the incremental cost of obtaining alternative fueled vehicles 
required by this rule.
    In developing this rule, the Department consulted with a focus 
group of State officials from the National Association of State Energy 
Officials which represents energy offices in 53 States, territories and 
the District of Columbia. The principal concern expressed by some of 
these officials was the potential for conflict between the DOE program 
and similar programs operating under EPA or State regulations. With 
respect to EPA, DOE has attempted to avoid unnecessary differences 
between its regulations and those already promulgated by EPA.
    It is important that the overlap between the regulations and the 
EPA regulations is limited because the DOE program would apply in MSAs 
and CMSAs with a 1980 Bureau of Census population of 250,000 or more, 
and the EPA program applies only in non-attainment areas. Of the 22 
non-attainment areas identified by EPA (59 FR 50043), nine areas in 
California and Texas are included in applications those States have 
filed with EPA to opt out of the EPA Clean Fuel Fleet Program. Those 
applications were pending as of the date of publication of this notice. 
In addition, DOE has been advised that EPA expects those areas within 
the Ozone Transport Commission (located in the Eastern United States) 
to be included in State requests to opt out of the program upon 
inception of the 49-State Low Emission Vehicle Program.

List of Subjects in 10 CFR Part 490

    Appeal procedures, Energy, Energy conservation, Fuel, Gasoline, 
Motor vehicles, Oil imports, Petroleum, Recordkeeping and Reporting 
requirements, and Utilities.

    Issued in Washington, DC on March 5, 1996.
Brian T. Castelli,
Chief-of-Staff, Energy Efficiency and Renewable Energy.

BILLING CODE 6450-01-P

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BILLING CODE 6450-01-C

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    For the reasons set forth in the Preamble, Title 10, Chapter II, 
Subchapter D, of the Code of Federal Regulations is amended by adding a 
new Part 490 as set forth below:

PART 490--ALTERNATIVE FUEL TRANSPORTATION PROGRAM

Subpart A--General Provisions

Sec.
490.1  Purpose and scope.
490.2  Definitions.
490.3  Excluded vehicles.
490.4  General information inquiries.
490.5  Requests for an interpretive ruling.
490.6  Petitions for generally applicable rulemaking.
490.7  Relationship to other law.

Appendix A to Subpart A of Part 490--Metropolitan Statistical Areas/
Consolidated Metropolitan Statistical Areas with 1980 Populations of 
250,000 or More

Subpart B--[Reserved]

Subpart C--Mandatory State Fleet Program

490.200  Purpose and scope.
490.201  Alternative fueled vehicle acquisition mandate schedule.
490.202  Acquisitions satisfying the mandate.
490.203  Light Duty Alternative Fueled Vehicle plan.
490.204  Process for granting exemptions.
490.205  Reporting requirements.
490.206  Violations.

Subpart D--Alternative Fuel Provider Vehicle Acquisition Mandate

490.300  Purpose and scope.
490.301  Definitions.
490.302  Vehicle acquisition mandate schedule.
490.303  Who must comply.
490.304  Which new light duty motor vehicles are covered.
490.305  Acquisitions satisfying the mandate.
490.306  Vehicle operation requirements.
490.307  Option for electric utilities.
490.308  Process for granting exemptions.
490.309  Annual reporting requirements.
490.310  Violations.

Subpart E--[Reserved]

Subpart F--Alternative Fueled Vehicle Credit Program

490.500  Purpose and scope.
490.501  Applicability.
490.502  Creditable actions.
490.503  Credit allocation.
490.504  Use of alternative fueled vehicle credits.
490.505  Credit accounts.
490.506  Alternative fueled vehicle credit transfers.
490.507  Credit activity reporting requirements.

Subpart G--Investigations and Enforcement

490.600  Purpose and scope.
490.601  Powers of the Secretary.
490.602  Special orders.
490.603  Prohibited acts.
490.604  Penalties and fines.
490.605  Statement of enforcement policy.
490.606  Proposed assessments and orders.
490.607  Appeals.

    Authority: 42 U.S.C. 7191, 13211, 13235, 13251, 13257, 13258, 
13260-3.

Subpart A--General Provisions


Sec. 490.1  Purpose and Scope.

    (a) The provisions of this part implement the alternative fuel 
transportation program under titles III, IV, V, and VI of the Energy 
Policy Act of 1992. (Pub. L. 102-486)
    (b) The provisions of this subpart cover the definitions applicable 
throughout this part and procedures to obtain an interpretive ruling 
and to petition for a generally applicable rule to amend this part.


Sec. 490.2  Definitions.

    The following definitions apply to this part--
    Acquire means to take into possession or control.
    Act means the Energy Policy Act of 1992 (Pub. L. 102-486) and any 
amendments thereof.
    After-Market Converted Vehicle means an Original Equipment 
Manufacturer vehicle that is reconfigured by a conversion company, 
which is not under contract to the Original Equipment Manufacturer, to 
operate on an alternative fuel and whose conversion kit components are 
under warranty of the conversion company.
    Alternative Fuel means methanol, denatured ethanol, and other 
alcohols; mixtures containing 85 percent or more by volume of methanol, 
denatured ethanol, and other alcohols with gasoline or other fuels; 
natural gas; liquefied petroleum gas; hydrogen; coal-derived liquid 
fuels; fuels (other than alcohol) derived from biological materials 
(including neat biodiesel); and electricity (including electricity from 
solar energy).
    Alternative Fueled Vehicle means a dedicated vehicle or a dual 
fueled vehicle (including a flexible fuel vehicle as defined by this 
section).
    Assistant Secretary means the Assistant Secretary for Energy 
Efficiency and Renewable Energy or any other DOE official to whom the 
Assistant Secretary's duties under this part may be redelegated by the 
Secretary.
    Automobile means a 4-wheeled vehicle propelled by conventional 
fuel, or by alternative fuel, manufactured primarily for use on public 
streets, roads, and highways (except a vehicle operated only on a rail 
line), and rated at
    (1) Not more than 6,000 pounds gross vehicle weight; or
    (2) More than 6,000, but less than 10,000 pounds gross vehicle 
weight, if the Secretary of Transportation has decided, by rule, that 
the vehicle meets the criteria in section 501(1) of the Motor Vehicle 
Information and Cost Savings Act, as amended, 49 U.S.C. 32901(a)(3).
    Capable of Being Centrally Fueled means a vehicle can be refueled 
at least 75 percent of its time at the location that is owned, 
operated, or controlled by the fleet or covered person, or is under 
contract with the fleet or covered person for refueling purposes.
    Centrally Fueled means that a vehicle is fueled at least 75 percent 
of the time at a location that is owned, operated, or controlled by the 
fleet or covered person, or is under contract with the fleet or covered 
person for refueling purposes.
    Control--
    (1) When it is used to determine whether one person controls 
another or whether two persons are under common control, means any one 
or a combination of the following:
    (i) A third person or firm has equity ownership of 51 percent or 
more in each of two firms; or
    (ii) Two or more firms have common corporate officers, in whole or 
in substantial part, who are responsible for the day-to-day operation 
of the companies; or
    (iii) One person or firm leases, operates, or supervises 51 percent 
or more of the equipment and/or facilities of another person or firm; 
owns 51 percent or more of the equipment and/or facilities of another 
person or firm; or has equity ownership of 51 percent or more of 
another person or firm.
    (2) When it is used to refer to the management of vehicles, means a 
person has the authority to decide who can operate a particular 
vehicle, and the purposes for which the vehicle can be operated.
    Covered Person means a person that owns, operates, leases, or 
otherwise controls--
    (1) A fleet, as defined by this section, that contains at least 20 
light duty motor vehicles that are centrally fueled or capable of being 
centrally fueled, and are used primarily within a metropolitan 
statistical area or a consolidated metropolitan statistical area, as 
established by the Bureau of the Census, with a 1980 population of 
250,000 or more (as set forth in Appendix A to this subpart) or in a 
Federal Register notice; and
    (2) at least 50 light duty motor vehicles within the United States.
    Dealer Demonstration Vehicle means any vehicle that is operated by 
a motor

[[Page 10654]]
vehicle dealer solely for the purpose of promoting motor vehicle sales, 
either on the sales lot or through other marketing or sales promotions, 
or for permitting potential purchasers to drive the vehicle for pre-
purchase or pre-lease evaluation.
    Dedicated Vehicle means--
    (1) An automobile that operates solely on alternative fuel; or
    (2) A motor vehicle, other than an automobile, that operates solely 
on alternative fuel.
    DOE means the Department of Energy.
    Dual Fueled Vehicle means--
    (1) An automobile that meets the criteria for a dual fueled 
automobile as that term is defined in section 513(h)(1)(C) of the Motor 
Vehicle Information and Cost Savings Act, 49 U.S.C. 32901(a)(8); or
    (2) A motor vehicle, other than an automobile, that is capable of 
operating on alternative fuel and on gasoline or diesel fuel; or
    (3) A flexible fuel vehicle.
    Electric-hybrid Vehicle means a vehicle primarily powered by an 
electric motor that draws current from rechargeable storage batteries, 
fuel cells or other sources of electric current and also relies on a 
non-electric source of power.
    Electric Motor Vehicle means a motor vehicle primarily powered by 
an electric motor that draws current from rechargeable storage 
batteries, fuel cells, photovoltaic arrays, or other sources of 
electric current and may include an electric-hybrid vehicle.
    Emergency Motor Vehicle means any vehicle that is legally 
authorized by a government authority to exceed the speed limit to 
transport people and equipment to and from situations in which speed is 
required to save lives or property, such as a rescue vehicle, fire 
truck or ambulance.
    Fleet means a group of 20 or more light duty motor vehicles, 
excluding certain categories of vehicles as provided by section 490.3, 
used primarily in a metropolitan statistical area or consolidated 
metropolitan statistical area, as established by the Bureau of the 
Census as of December 31, 1992, with a 1980 Census population of more 
than 250,000 (listed in Appendix A to this Subpart), that are centrally 
fueled or capable of being centrally fueled, and are owned, operated, 
leased, or otherwise controlled--
    (1) By a person who owns, operates, leases, or otherwise controls 
50 or more light duty motor vehicles within the United States and its 
possessions and territories;
    (2) By any person who controls such person;
    (3) By any person controlled by such person; and
    (4) By any person under common control with such person.
    Flexible Fuel Vehicle means any motor vehicle engineered and 
designed to be operated on any mixture of two or more different fuels.
    Law Enforcement Motor Vehicle means any vehicle which is primarily 
operated by a civilian or military police officer or sheriff, or by 
personnel of the Federal Bureau of Investigation, the Drug Enforcement 
Administration, or other enforcement agencies of the Federal 
government, or by State highway patrols, municipal law enforcement, or 
other similar enforcement agencies, and which is used for the purpose 
of law enforcement activities including, but not limited to, chase, 
apprehension, and surveillance of people engaged in or potentially 
engaged in unlawful activities.
    Lease means the use and control of a motor vehicle for 
transportation purposes pursuant to a rental contract or similar 
arrangement with a term of 120 days or more.
    Light Duty Motor Vehicle means a light duty truck or light duty 
vehicle, as such terms are defined under section 216(7) of the Clean 
Air Act (42 U.S.C. Sec. 7550(7)), having a gross vehicle weight rating 
of 8,500 pounds or less, before any after-market conversion to 
alternative fuel operation.
    Model Year means the period from September 1 of the previous 
calendar year through August 31.
    Motor Vehicle means a self-propelled vehicle, other than a non-road 
vehicle, designed for transporting persons or property on a street or 
highway.
    Non-road Vehicle means a vehicle not licensed for on-road use, 
including such vehicles used principally for industrial, farming or 
commercial use, for rail transportation, at an airport, or for marine 
purposes.
    Original Equipment Manufacturer means a manufacturer that provides 
the original design and materials for assembly and manufacture of its 
product.
    Original Equipment Manufacturer Vehicle means a vehicle engineered, 
designed, produced and warranted by an Original Equipment Manufacturer.
    Person means any individual, partnership, corporation, voluntary 
association, joint stock company, business trust, Governmental entity, 
or other legal entity in the United States except United States 
Government entities.
    State means any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, and any other territory or possession of 
the United States.
    Used Primarily, as utilized in the definition of ``fleet,'' means 
that a majority of a vehicle's total annual miles are accumulated 
within a covered metropolitan or consolidated metropolitan statistical 
area.


Sec. 490.3  Excluded vehicles.

    When counting light duty motor vehicles to determine under this 
part whether a person has a fleet or to calculate alternative fueled 
vehicle acquisition requirements, the following vehicles are excluded--
    (a) Motor vehicles held for lease or rental to the general public, 
including vehicles that are owned or controlled primarily for the 
purpose of short-term rental or extended-term leasing, without a 
driver, pursuant to a contract;
    (b) Motor vehicles held for sale by motor vehicle dealers, 
including demonstration motor vehicles;
    (c) Motor vehicles used for motor vehicle manufacturer product 
evaluations or tests, including but not limited to, light duty motor 
vehicles owned or held by a university research department, independent 
testing laboratory, or other such evaluation facility, solely for the 
purpose of evaluating the performance of such vehicle for engineering, 
research and development or quality control reasons;
    (d) Law enforcement vehicles;
    (e) Emergency motor vehicles;
    (f) Motor vehicles acquired and used for purposes that the 
Secretary of Defense has certified to DOE must be exempt for national 
security reasons;
    (g) Nonroad vehicles; and
    (h) Motor vehicles which, when not in use, are normally parked at 
the personal residences of the individuals that usually operate them, 
rather than at a central refueling, maintenance, or business location.


Sec. 490.4  General information inquiries.

    DOE responses to inquiries with regard to the provisions of this 
part that are not filed in compliance with Secs. 490.5 or 490.6 of this 
part constitute general information and the responses provided shall 
not be binding on DOE.


Sec. 490.5  Requests for an interpretive ruling.

    (a) Right to file. Any person who is or may be subject to this part 
shall have the right to file a request for an interpretive ruling on a 
question with regard to how the regulations apply to particular facts 
and circumstances.
    (b) How to file. A request for an interpretive ruling shall be 
filed--
    (1) With the Assistant Secretary;
    
[[Page 10655]]

    (2) In an envelope labeled ``Request for Interpretive Ruling under 
10 CFR Part 490;'' and
    (3) By messenger or mail at the Office of Energy Efficiency and 
Renewable Energy, EE-33, U.S. Department of Energy, 1000 Independence 
Avenue, S.W., Washington, D.C. 20585 or at such other address as DOE 
may provide by notice in the Federal Register.
    (c) Content of request for interpretive ruling. At a minimum, a 
request under this section shall--
    (1) Be in writing;
    (2) Be labeled ``Request for Interpretive Ruling Under 10 CFR Part 
490;''
    (3) Identify the name, address, telephone number, and any 
designated representative of the person requesting the interpretive 
ruling;
    (4) State the facts and circumstances relevant to the request;
    (5) Be accompanied by copies of relevant supporting documents, if 
any;
    (6) Specifically identify the pertinent regulations and the related 
question on which an interpretive ruling is sought with regard to the 
relevant facts and circumstances; and
    (7) Contain any arguments in support of the terms of an 
interpretation the requester is seeking.
    (d) Public comment. DOE may give public notice of any request for 
an interpretive ruling and invite public comment.
    (e) Opportunity to respond to public comment. DOE may provide an 
opportunity for any person who requested an interpretive ruling to 
respond to public comments.
    (f) Other sources of information. DOE may--
    (1) Conduct an investigation of any statement in a request;
    (2) Consider any other source of information in evaluating a 
request for an interpretive ruling; and
    (3) Rely on previously issued interpretive rulings dealing with the 
same or a related issue.
    (g) Informal conference. DOE, on its own initiative, may convene an 
informal conference with the person requesting an interpretive ruling.
    (h) Effect of an interpretive ruling. The authority of an 
interpretive ruling shall be limited to the person requesting such 
ruling and shall depend on the accuracy and completeness of the facts 
and circumstances on which the interpretive ruling is based. An 
interpretive ruling by the Assistant Secretary shall be final for DOE.
    (i) Reliance on an interpretive ruling. No person who obtains an 
interpretive ruling under this section shall be subject to an 
enforcement action for civil penalties or criminal fines for actions 
reasonably taken in reliance thereon, but a person may not act in 
reliance on an interpretive ruling that is administratively rescinded 
or modified, judicially invalidated, or its prospective effect is 
overruled by statute or regulation.
    (j) Denials of requests for an interpretive ruling. DOE shall deny 
a request for an interpretive ruling if DOE determines that--
    (1) There is insufficient information upon which to base an 
interpretive ruling;
    (2) The questions posed should be treated in a general notice of 
proposed rulemaking under 42 U.S.C. 7191 and 5 U.S.C. 553;
    (3) There is an adequate procedure elsewhere in this part for 
addressing the question posed such as a petition for exemption; or
    (4) For other good cause.
    (k) Public file. DOE may file a copy of an interpretive ruling in a 
public file labeled ``Interpretive Rulings Under 10 CFR Part 490'' 
which shall be available during normal business hours for public 
inspection at the DOE Freedom of Information Reading Room at 1000 
Independence Avenue, SW, Washington, DC 20585, or at such other 
addresses as DOE may announce in a Federal Register notice.


Sec. 490.6  Petitions for generally applicable rulemaking.

    (a) Right to file. Pursuant to 42 U.S.C. 7191 and 5 U.S.C. 553(e), 
any person may file a petition for generally applicable rulemaking 
under titles III, IV, and V of the Act with the DOE General Counsel.
    (b) How to file. A petition for generally applicable rulemaking 
under this section shall be filed by mail or messenger in an envelope 
addressed to the Office of General Counsel, GC-1, U.S. Department of 
Energy, 1000 Independence Avenue, S.W., Washington, D.C. 20585.
    (c) Content of rulemaking petitions. A petition under this section 
must--
    (1) Be labeled ``Petition for Rulemaking Under 10 CFR Part 490'';
    (2) Describe with particularity the terms of the rule being sought;
    (3) Identify the provisions of law that direct, authorize, or 
affect the issuance of the rules being sought; and
    (4) Explain why DOE should not choose to make policy by precedent 
through interpretive rulings, petitions for exemption, or other 
adjudications.
    (d) Determination upon rulemaking petitions. After considering the 
petition and other information deemed to be appropriate, DOE may grant 
the petition and issue an appropriate rulemaking notice, or deny the 
petition because the rule being sought--
    (1) Would be inconsistent with statutory law;
    (2) Would establish a generally applicable policy in an area that 
should be left to case-by-case determinations;
    (3) Would establish a policy inconsistent with the underlying 
statutory purposes; or
    (4) For other good cause.


Sec. 490.7  Relationship to other law.

    (a) Nothing in this part shall be construed to require or authorize 
sale of, or conversion to, light duty alternative fueled motor vehicles 
in violation of applicable regulations of any Federal, State or local 
government agency.
    (b) Nothing in this part shall be construed to require or authorize 
the use of a motor fuel in violation of applicable regulations of any 
Federal, State, or local government agency.

Appendix A To Subpart A of Part 490

    Metropolitan Statistical Areas/Consolidated Metropolitan 
Statistical Areas With 1980 Populations of 250,000 or more

Albany-Schenectady-Troy MSA NY
Albuquerque MSA NM
Allentown-Bethlehem-Easton MSA PA
Appleton-Oshkosh-Neenah MSA WI
Atlanta MSA GA
Augusta-Aiken MSA GA-SC
Austin-San Marcos MSA TX
Bakersfield MSA CA
Baton Rouge MSA LA
Beaumont-Port Arthur MSA TX
Binghamton MSA NY
Birmingham MSA AL
Boise City MSA ID
Boston-Worcester-Lawrence CMSA MA-NH-ME-CT
Buffalo-Niagara Falls MSA NY
Canton-Massillon MSA OH
Charleston MSA SC
Charleston MSA WV
Charlotte-Gastonia-Rock Hill MSA NC-SC
Chattanooga MSA TN-GA
Chicago-Gary-Kenosha CMSA IL-IN-WI
Cincinnati-Hamilton CMSA OH-KY-IN
Cleveland-Akron CMSA OH
Colorado Springs MSA CO
Columbia MSA SC
Columbus MSA OH
Columbus MSA GA-AL
Corpus Christi MSA TX
Dallas-Fort Worth CMSA TX
Davenport-Moline-Rock Island MSA IA-IL
Dayton-Springfield MSA OH
Daytona Beach MSA FL
Denver-Boulder-Greeley CMSA CO
Des Moines MSA IA
Detroit-Ann Arbor-Flint CMSA MI
Duluth MSA MN-WI
El Paso MSA TX
Erie MSA PA
Eugene-Springfield MSA OR
Evansville-Henderson MSA IN-KY
Fort Wayne MSA IN
Fresno MSA CA

[[Page 10656]]

Grand Rapids-Muskegon-Holland MSA MI
Greensboro-Winston Salem-High Point MSA NC
Greenville-Spartanburg-Anderson MSA SC
Harrisburg-Lebanon-Carlisle MSA PA
Hartford MSA CT
Hickory-Morganton MSA NC
Honolulu MSA HI
Houston-Galveston-Brazoria CMSA TX
Huntington-Ashland MSA WV-KY-OH
Indianapolis MSA IN
Jackson MSA MS
Jacksonville MSA FL
Johnson City-Kingsport-Bristol MSA TN-VA
Johnstown MSA PA
Kalamazoo-Battle Creek MSA MI
Kansas City MSA MO-KS
Knoxville MSA TN
Lakeland-Winter Haven MSA FL
Lancaster MSA PA
Lansing-East Lansing MSA MI
Las Vegas MSA NV-AZ
Lexington MSA KY
Little Rock-N. Little Rock MSA AR
Los Angeles-Riverside-Orange County CMSA CA
Louisville MSA KY-IN
Macon MSA GA
Madison MSA WI
McAllen-Edinburg-Mission MSA TX
Melbourne-Titusville-Palm Bay MSA FL
Memphis MSA TN-AR-MS
Miami-Fort Lauderdale CMSA FL
Milwaukee-Racine CMSA WI
Minneapolis-St. Paul MSA MN-WI
Mobile MSA AL
Modesto MSA CA
Montgomery MSA AL
Nashville MSA TN
New London-Norwich MSA CT-RI
New Orleans MSA LA
New York-N. New Jersey-Long Island CMSA NY-NJ-CT-PA
Norfolk-Virginia Beach-Newport News MSA VA-NC
Oklahoma City MSA OK
Omaha MSA NE-IA
Orlando MSA FL
Pensacola MSA FL
Peoria-Pekin MSA IL
Philadelphia-Wilmington-Atlantic City CMSA PA-NJ DE-MD
Phoenix-Mesa MSA AZ
Pittsburgh MSA PA
Portland-Salem CMSA OR-WA
Providence-Fall River-Warwick MSA RI-MA
Raleigh-Durham-Chapel Hill MSA NC
Reading MSA PA
Richmond-Petersburg MSA VA
Rochester MSA NY
Rockford MSA IL
Sacramento-Yolo CMSA CA
Saginaw-Bay City-Midland MSA MI
St. Louis MSA MO-IL
Salinas MSA CA
Salt Lake City-Ogden MSA UT
San Antonio MSA TX
San Diego MSA CA
San Francisco-Oakland-San Jose CMSA CA
San Juan MSA PR
Santa Barbara-Santa Maria-Lompoc MSA CA
Scranton-Wilkes Barre-Hazleton MSA PA
Seattle-Tacoma-Bremerton CMSA WA
Shreveport-Bossier City MSA LA
Spokane MSA WA
Springfield MSA MA
Stockton-Lodi MSA CA
Syracuse MSA NY
Tampa-St. Petersburg-Clearwater MSA FL
Toledo MSA OH
Tucson MSA AZ
Tulsa MSA OK
Utica-Rome MSA NY
Washington-Baltimore CMSA DC-MD-VA-WV
West Palm Beach-Boca Raton MSA FL
Wichita MSA KS
York MSA PA
Youngstown-Warren MSA OH

Subpart B--[Reserved]

Subpart C--Mandatory State Fleet Program


Sec. 490.200  Purpose and scope.

    This subpart sets forth rules implementing the provisions of 
Section 507(o) of the Act which requires, subject to some exemptions, 
that certain percentages of new light duty motor vehicles acquired for 
State fleets be alternative fueled vehicles.


Sec. 490.201  Alternative fueled vehicle acquisition mandate schedule.

    (a) Except as otherwise provided in this part, of the new light 
duty motor vehicles acquired annually for State government fleets, 
including agencies thereof but excluding municipal fleets, the 
following percentages shall be alternative fueled vehicles for the 
following model years;
    (1) 10 percent for model year 1997;
    (2) 15 percent for model year 1998;
    (3) 25 percent for model year 1999;
    (4) 50 percent for model year 2000; and
    (5) 75 percent for model year 2001 and thereafter.
    (b) Each State shall calculate its alternative fueled vehicle 
acquisition requirements for the State government fleets, including 
agencies thereof, by applying the alternative fueled vehicle 
acquisition percentages for each model year to the total number of new 
light duty motor vehicles to be acquired during that model year for 
those fleets.
    (c) If the calculation performed under paragraph (b) of this 
section produces a number that requires the acquisition of a partial 
vehicle, an adjustment to the acquisition number will be made by 
rounding the number of vehicles down the next whole number if the 
fraction is less than one half and by rounding the number of vehicles 
up to the next whole number if the fraction is equal to or greater than 
one half.
    (d) A State fleet that first becomes subject to this part after 
model year 1997 shall acquire alternative fueled vehicles in the next 
model year at the percentage applicable to that model year according to 
the schedule in paragraph (a) of this section, unless the State is 
granted an exemption or reduction of the acquisition percentage 
pursuant to the procedures and criteria in section 490.204.


Sec. 490.202  Acquisitions satisfying the mandate.

    The following actions within a model year qualify as acquisitions 
for the purpose of compliance with the requirements of section 490.201 
of this part:
    (a) The purchase or lease of an Original Equipment Manufacturer 
light duty vehicle (regardless of the model year of manufacture), 
capable of operating on alternative fuels that was not previously under 
control of the State or State agency;
    (b) The purchase or lease of an after-market converted light duty 
vehicle (regardless of model year of manufacture), that was not 
previously under control of the State or State agency;
    (c) The conversion of a newly purchased or leased light duty 
vehicle to operate on alternative fuels within four months after the 
vehicle is acquired for a State fleet; and
    (d) The application of alternative fueled vehicle credits allocated 
under subpart F of this part.


Sec. 490.203  Light Duty Alternative Fueled Vehicle Plan.

    (a) General Provisions. (1) In lieu of meeting its requirements 
under section 490.201 exclusively with acquisitions for State fleets, a 
State may follow a Light Duty Alternative Fueled Vehicle Plan that has 
been approved by DOE under this section.
    (2) Any Light Duty Alternative Fueled Vehicle Plan must provide for 
voluntary acquisitions or conversions, or combinations thereof, by 
State, local, and private fleets that equal or exceed the State's 
alternative fuel vehicle acquisition requirement under section 490.201.
    (3) Any acquisitions of light duty alternative fueled vehicles by 
participants in the State plan may be included for purposes of 
compliance, irrespective of whether the vehicles are in excluded 
categories set forth in section 490.3 of this part.
    (4) Except as provided in paragraph (h) of this section or except 
for a fleet exempt under section 490.204, a State that does not have an 
approved plan in effect under this section is subject to the State 
fleet acquisition percentage requirements of section 490.201.
    (5) If a significant commitment under an approved plan is not met 
by a participant of a plan, the State shall

[[Page 10657]]
meet its percentage requirements under section 490.201 or submit to DOE 
an amendment to the plan for DOE approval.
    (b) Required elements of a plan. Each plan must include the 
following elements:
    (1) Certification by the Governor, or the Governor's designee, that 
the plan meets the requirements of this subpart;
    (2) Identification of State, local and private fleets that will 
participate in the plan;
    (3) Number of new alternative fueled vehicles to be acquired by 
each plan participant;
    (4) A written statement from each plan participant to assure 
commitment;
    (5) A statement of contingency measures by the State to offset any 
failure to fulfill significant commitments by plan participants, in 
order to meet the requirements of section 490.201;
    (6) A provision by the State to monitor and verify implementation 
of the plan;
    (7) A provision certifying that all acquisitions and conversions 
under the plan are voluntary and will meet the requirements of Sec. 247 
of the Clean Air Act, as amended (42 U.S.C. 7587) and all applicable 
safety requirements.
    (c) When to submit plan. (1) For model year 1997, a State shall 
submit its plan on or before March 14, 1997.
    (2) Beginning with model year 1998, a State shall submit its plan 
to DOE no later than June 1 prior to the first model year covered by 
such plan.
    (d) Review and approval. DOE shall review and approve a plan which 
meets the requirements of this subpart within 60 days of the date of 
receipt of the plan by DOE at the address in paragraph (g)(1) of this 
section.
    (e) Disapproval of plans. If DOE disapproves or requests a State to 
submit additional information, the State may revise and resubmit the 
plan to DOE within a reasonable time.
    (f) How a State may modify an approved plan. If a State determines 
that it cannot successfully implement its plan, it may submit to DOE 
for approval, at any time, the proposed modifications with adequate 
justifications.
    (g) Where to submit plans. (1) A State shall submit to DOE an 
original and two copies of the plan and shall be addressed to the U.S. 
Department of Energy, Office of Energy Efficiency and Renewable Energy, 
EE-33, 1000 Independence Ave., SW., Washington, DC 20585, or to such 
other address as DOE may announce in a Federal Register notice.
    (2) Any requests for modifications shall also be sent to the 
address in paragraph (g)(1) of this section.
    (h) MY 1997 Exemption. (1) On or after September 1, 1996, a State 
shall be deemed automatically exempt from section 490.201 (a)(1) until 
DOE makes a final determination on a timely application to approve a 
plan for model year 1997 under this section if the State:
    (i) Has submitted the application; or
    (ii) Has sent a written notice to the Assistant Secretary, at the 
address under paragraph (g)(1) of this section, that it will file such 
an application on or before March 14, 1997.
    (2) During the period of an automatic exemption under this 
paragraph, a State may procure light duty motor vehicles in accordance 
with its normal procurement policies.


Sec. 490.204  Process for granting exemptions.

    (a) To obtain an exemption, in whole or in part, from the vehicle 
acquisition mandate in section 490.201 of this part, a State shall 
submit to DOE a written request for exemption, along with supporting 
documentation which must demonstrate that--
    (1) Alternative fuels that meet the normal requirements and 
practices of the principal business of the State fleet are not 
available from fueling sites that would permit central fueling of fleet 
vehicles in the area in which the vehicles are to be operated; or
    (2) Alternative fueled vehicles that meet the normal requirements 
and practices of the principal business of the State fleet are not 
available for purchase or lease commercially on reasonable terms and 
conditions in the State; or
    (3) The application of such requirements would pose an unreasonable 
financial hardship.
    (b) Requests for exemption may be submitted at any time and must be 
accompanied with supporting documentation.
    (c) Exemptions are granted for one model year only, and they may be 
renewed annually, if supporting documentation is provided.
    (d) Exemptions may be granted in whole or in part. When granting an 
exemption in part, DOE may, depending upon the circumstances, 
completely relieve a State from complying with a portion of the vehicle 
acquisition requirements for a model year, or it may require a State to 
acquire all or some of the exempted vehicles in future model years.
    (e) If a State is seeking an exemption under--
    (1) Paragraph (a)(1) of this section, the types of documentation 
that are to accompany the request must include, but are not limited to, 
maps of vehicle operation zones and maps of locations providing 
alternative fuel; or
    (2) Paragraph (a)(2) of this section, the types of documentation 
that are to accompany the request must include, but are not limited to, 
alternative fueled vehicle purchase or lease requests, a listing of 
vehicles that meet the normal practices and requirements of the State 
fleet, and any other documentation that exhibits good faith efforts to 
acquire alternative fueled vehicles; or
    (3) Paragraph (a)(3) of this section, it must submit a statement 
identifying what portion of the alternative fueled vehicle acquisition 
requirement should be subject to the exemption and describing the 
specific nature of the financial hardship that precludes compliance.
    (f) Requests for exemption shall be addressed to the U.S. 
Department of Energy, Office of Energy Efficiency and Renewable Energy, 
EE-33, 1000 Independence Ave., SW., Washington, DC 20585, or to such 
other address as DOE may announce in a Federal Register notice.
    (g) The Assistant Secretary shall provide to the State, within 45 
days of receipt of a request that complies with this section, a written 
determination as to whether the State's request has been granted or 
denied.
    (h) If the Assistant Secretary denies an exemption, in whole or in 
part, and the State wishes to exhaust administrative remedies, the 
State must appeal within 30 days of the date of the determination, 
pursuant to 10 CFR part 1003, subpart C, to the Office of Hearings and 
Appeals, U.S. Department of Energy, 1000 Independence Ave., SW., 
Washington, DC 20585. The Assistant Secretary's determination shall be 
stayed during the pendency of an appeal under this paragraph.


Sec. 490.205  Reporting requirements.

    (a) Any State subject to the requirements of this subpart must file 
an annual report for each State fleet on or before the December 31 
after the close of the model year, beginning with model year 1997. The 
State annual report may consist of a single State report or separately 
prepared State agency reports.
    (b) The report shall include the following information:
    (1) Number of new light duty motor vehicles acquired for the fleet 
by a State during the model year;
    (2) Number of new light duty alternative fueled vehicles that are 
required to be acquired during the model year;

[[Page 10658]]

    (3) Number of new light duty alternative fueled vehicle 
acquisitions by the State during the model year;
    (4) Number of alternative fueled vehicle credits applied against 
acquisition requirements;
    (5) For each new light duty alternative fueled vehicle 
acquisition--
    (i) Vehicle make and model;
    (ii) Model year;
    (iii) Vehicle identification number;
    (iv) Dedicated or dual-fueled (including flexible fuel); and
    (v) Type of alternative fuel the vehicle is capable of operating 
on; and
    (6) Number of light duty alternative fueled vehicles acquired by 
municipal and private fleets during the model year under an approved 
Light Duty Alternative Fueled Vehicle Plan (if applicable).
    (c) If credits are applied against vehicle acquisition 
requirements, then a credit activity report, as described in subpart F 
of this part, must be submitted with the report under this section to 
DOE.
    (d) Records shall be maintained and retained for a period of three 
years.
    (e) All reports, marked ``Annual Report,'' shall be sent to the 
Office of Energy Efficiency and Renewable Energy, U.S. Department of 
Energy, EE-33, 1000 Independence Ave., SW, Washington, DC, 20585, or 
such other address as DOE may provide by notice in the Federal 
Register.


Sec. 490.206  Violations.

    Violations of this subpart are subject to investigation and 
enforcement under subpart G of this part.

Subpart D--Alternative Fuel Provider Vehicle Acquisition Mandate


Sec. 490.300  Purpose and Scope.

    This subpart implements section 501 of the Act, which requires, 
subject to some exemptions, that certain annual percentages of new 
light duty motor vehicles acquired by alternative fuel providers must 
be alternative fueled vehicles.


Sec. 490.301  Definitions.

    In addition to the definitions found in section 490.2, the 
following definitions apply to this subpart--
    Affiliate means a person that, directly or indirectly, controls, is 
controlled by, or is under common ownership or control of a person 
subject to vehicle acquisition requirements in this part.
    Alternative Fuels Business means activities undertaken to derive 
revenue from--
    (1) Producing, storing, refining, processing, transporting, 
distributing, importing, or selling at wholesale or retail any 
alternative fuel other than electricity; or
    (2) Generating, transmitting, importing, or selling at wholesale or 
retail electricity.
    Business Unit means a semi-autonomous major grouping of activities 
for administrative purposes and organizational structure within a 
business entity and that is controlled by or under control of a person 
subject to vehicle acquisition requirements in this part.
    Division means a major administrative unit of an enterprise 
comprising at least several enterprise units or constituting a complete 
integrated unit for a specific purpose and that is controlled by or 
under control of a person subject to vehicle acquisition requirements 
in this part.
    Normal Requirements and Practices means the operating business 
practices and required conditions under which the principal business of 
a person subject to vehicle acquisition requirements in this part 
operates.
    Principal Business means the sales-related activity that produces 
the greatest gross revenue.
    Substantial Portion means that at least 30 percent of the annual 
gross revenue of a covered person is derived from the sale of 
alternative fuels.
    Substantially Engaged means that a covered person, or affiliate, 
division, or other business unit thereof, regularly derives more than a 
negligible amount of sales-related gross revenue from an alternative 
fuels business.


Sec. 490.302  Vehicle acquisition mandate schedule.

    (a) Except as provided in section 490.304 of this part, of the 
light duty motor vehicles newly acquired by a covered person described 
in section 490.303 of this part, the following percentages shall be 
alternative fueled vehicles for the following model years:
    (1) 30 percent for model year 1997.
    (2) 50 percent for model year 1998.
    (3) 70 percent for model year 1999.
    (4) 90 percent for model year 2000 and thereafter.
    (b) Except as provided in section 490.304 of this part, this 
acquisition schedule applies to all light duty motor vehicles that a 
covered person newly acquires for use within the United States.
    (c) If, when the mandated acquisition percentage of alternative 
fuel vehicles is applied to the number of new light duty motor vehicles 
to be acquired by a covered person subject to this subpart, a number 
results that requires the acquisition of a partial vehicle, an 
adjustment will be made to the required acquisition number by rounding 
down to the next whole number if the fraction is less than one half and 
by rounding up the number of vehicles to the next whole number if the 
fraction is equal to or greater than one half.
    (d) Only acquisitions satisfying the mandate, as defined by section 
490.305, count toward compliance with the acquisition schedule in 
paragraph (a) of this section.
    (e) A covered person that is first subject to the acquisition 
requirements of this part after model year 1997 shall acquire 
alternative fueled vehicles in the next model year at the percentage 
applicable to that model year, according to the schedule in paragraph 
(a) of this section, unless the covered person is granted an exemption 
or reduction of the acquisition percentage pursuant to the procedures 
and criteria in section 490.308.


Sec. 490.303  Who must comply.

    (a) Except as provided by paragraph (b) of this section, a covered 
person must comply with the requirements of this subpart if that person 
is--
    (1) A covered person whose principal business is producing, 
storing, refining, processing, transporting, distributing, importing or 
selling at wholesale or retail any alternative fuel other than 
electricity; or
    (2) A covered person whose principal business is generating, 
transmitting, importing, or selling, at wholesale or retail, 
electricity; or
    (3) A covered person--
    (i) Who produces, imports, or produces and imports in combination, 
an average of 50,000 barrels per day or more of petroleum; and
    (ii) A substantial portion of whose business is producing 
alternative fuels.
    (b) This subpart does not apply to a covered person or affiliate, 
division, or other business unit of such person whose principal 
business is--
    (1) transforming alternative fuels into a product that is not an 
alternative fuel; or
    (2) consuming alternative fuels as a feedstock or fuel in the 
manufacture of a product that is not an alternative fuel.


Sec. 490.304  Which new light duty motor vehicles are covered.

    (a) General rule. Except as provided in paragraph (b) of this 
section, the vehicle acquisition mandate schedule in section 490.302 of 
this part applies to all light duty motor vehicles newly acquired for 
use within the United States by a covered person described in section 
490.303 of this part.
    (b) Exception. If a covered person has more than one affiliate, 
division, or

[[Page 10659]]
other business unit, then section 490.302 of this part only applies to 
light duty motor vehicles newly acquired by an affiliate, division, or 
other such business unit which is substantially engaged in the 
alternative fuels business.


Sec. 490.305  Acquisitions satisfying the mandate.

    The following actions within the model year qualify as acquisitions 
for the purpose of compliance with the requirements of section 490.302 
of this part--
    (a) The purchase or lease of an Original Equipment Manufacturer 
light duty vehicle (regardless of the model year of manufacture), 
capable of operating on alternative fuels that was not previously under 
the control of the covered person;
    (b) The purchase or lease of an after-market converted light duty 
vehicle (regardless of the model year of manufacture), that was not 
previously under the control of the covered person; and
    (c) The conversion of a newly purchased or leased light duty 
vehicle to operate on alternative fuels within four months after the 
vehicle is acquired by a covered person; and
    (d) The application of alternative fueled vehicle credits allocated 
under subpart F of this part.


Sec. 490.306  Vehicle operation requirements.

    The alternative fueled vehicles acquired pursuant to section 
490.302 of this part shall be operated solely on alternative fuels, 
except when these vehicles are operating in an area where the 
appropriate alternative fuel is unavailable.


Sec. 490.307  Option for Electric Utilities.

    (a) A covered person or its affiliate, division, or business unit, 
whose principal business is generating, transmitting, importing, or 
selling, at wholesale or retail, electricity has the option of delaying 
the vehicle acquisition mandate schedule in section 490.302 until 
January 1, 1998, if the covered person intends to comply with this 
regulation by acquiring electric motor vehicles.
    (b) If a covered person or its affiliate, division, or business 
unit, whose principal business is generating, transmitting, importing, 
or selling at wholesale or retail electricity has notified the 
Department as required by the Act, of its intent to acquire electric 
motor vehicles, the following percentages of new light duty motor 
vehicles acquired shall be alternative fueled vehicles for the 
following time periods:
    (1) 30 percent from January 1, 1998 to August 31, 1998.
    (2) 50 percent for model year 1999.
    (3) 70 percent for model year 2000.
    (4) 90 percent for model year 2001 and thereafter.
    (c) Any covered person or its affiliate, division, or business 
unit, that chooses the option provided by this section may apply for an 
exemption from the vehicle acquisition mandate in accordance with 
section 490.308 of this regulation.
    (d) Any covered person or its affiliate, division, or business 
unit, that chooses to rescind its election of the option provided in 
this section shall be required, unless otherwise exempt, to acquire 
alternative fueled vehicles in accordance with the vehicle acquisition 
schedule in section 490.302.


Sec. 490.308  Process for granting exemptions.

    (a) To obtain an exemption from the vehicle acquisition mandate in 
this subpart, a covered person, or its affiliate, division, or business 
unit which is subject to section 490.302 of this part, shall submit a 
written request for exemption to the Office of Energy Efficiency and 
Renewable Energy, U.S. Department of Energy, EE-33, 1000 Independence 
Ave., SW., Washington, DC 20585, or such other address as DOE may 
publish in the Federal Register, along with the supporting 
documentation required by this section.
    (b) A covered person requesting an exemption must demonstrate 
that--
    (1) Alternative fuels that meet the normal requirements and 
practices of the principal business of the covered person are not 
available from fueling sites that would permit central fueling of that 
person's vehicles in the area in which the vehicles are to be operated; 
or
    (2) Alternative fueled vehicles that meet the normal requirements 
and practices of the principal business of the covered person are not 
available for purchase or lease commercially on reasonable terms and 
conditions in any State included in a MSA/CMSA that the vehicles are 
operated in.
    (c) Documentation. (1) Except as provided in paragraph (c) (2) of 
this section, if a covered person is seeking an exemption under 
paragraph (b)(1) of this section, the types of documentation that are 
to accompany the request include, but are not limited to, maps of 
vehicle operation zones and maps of locations providing alternative 
fuel.
    (2) If a covered person seeking an exemption under paragraph (b)(1) 
of this section operates light duty vehicles outside of the areas 
listed in Appendix A of subpart A, and central fueling of those 
vehicles does not meet the normal requirements and practices of that 
person's business, then that covered person shall only be required to 
justify in a written request why central fueling is incompatible with 
its business.
    (3) If a covered person is seeking an exemption under paragraph 
(b)(2) of this section, the types of documentation that are to 
accompany the request include, but are not limited to, alternative 
fueled vehicle purchase or lease requests, a listing of vehicles that 
meet the normal practices and requirements of the covered person and 
any other documentation that exhibits good faith efforts to acquire 
alternative fueled vehicles.
    (d) Exemptions are granted for one model year only and may be 
renewed annually, if supporting documentation is provided.
    (e) Exemptions may be granted in whole or in part. When granting an 
exemption in part, DOE may, depending upon the circumstances, 
completely relieve a covered person from complying with a portion of 
the vehicle acquisition requirements for a model year, or it may 
require a covered person to acquire all or some of the exempted 
vehicles in future model years.
    (f) The Assistant Secretary shall provide to the covered person 
within 45 days after receipt of a request that complies with this 
section, a written determination as to whether the State's request has 
been granted or denied.
    (g) If a covered person is denied an exemption, that covered person 
may file an appeal within 30 days of the date of determination, 
pursuant to 10 CFR part 1003, subpart C, with the Office of Hearings 
and Appeals, U.S. Department of Energy, 1000 Independence Ave, SW, 
Washington, DC 20585. The Assistant Secretary's determination shall be 
stayed during the pendency of an appeal under this paragraph.


Sec. 490.309  Annual reporting requirements.

    (a) If a person is required to comply with the vehicle acquisition 
schedule in section 490.302 or section 490.307, that person shall file 
an annual report under this section, on a form obtainable from DOE, 
with the Office of Energy Efficiency and Renewable Energy, U.S. 
Department of Energy, EE-33, 1000 Independence Ave., SW., Washington, 
DC 20585, or such other address as DOE may publish in the Federal 
Register, on or before the December 31 after the close of the 
applicable model year.
    (b) This report shall include the following information--
    (1) Number of new light duty motor vehicles acquired by the covered 
person

[[Page 10660]]
in the United States during the model year;
    (2) Number of new light duty alternative fueled vehicles that are 
required to be acquired during the model year;
    (3) Number of new light duty alternative fueled vehicle 
acquisitions in the United States during the model year;
    (4) Number of alternative fueled vehicle credits applied against 
acquisition requirements;
    (5) For each new light duty alternative fueled vehicle 
acquisition--
    (i) Vehicle make and model;
    (ii) Model year;
    (iii) Vehicle Identification Number;
    (iv) Dedicated or dual-fueled (including flexible fuel); and
    (v) Type of alternative fuel the vehicle is capable of operating 
on.
    (c) If credits are applied against alternative fueled vehicle 
acquisition requirements, then a credit activity report, as described 
in subpart F, must be submitted with the report under this section to 
DOE.
    (d) Records shall be maintained and retained for a period of three 
years.


Sec. 490.310  Violations.

    Violations of this subpart are subject to investigation and 
enforcement under subpart G of this part.

Subpart E--[Reserved]

Subpart F--Alternative Fueled Vehicle Credit Program


Sec. 490.500  Purpose and Scope.

    This subpart implements the statutory requirements of section 508 
of the Act, which provides for the allocation of credits to fleets or 
covered persons who acquire alternative fueled vehicles in excess of 
the number they are required or obtain alternative fueled vehicles 
before the model year when they are first required to do so under this 
part.


Sec. 490.501  Applicability.

    This subpart applies to all fleets and covered persons who are 
required to acquire alternative fueled vehicles by this part.


Sec. 490.502  Creditable actions.

    A fleet or covered person becomes entitled to alternative fueled 
vehicle credits by--
    (a) Acquiring alternative fueled vehicles, including those in 
excluded categories under section 490.3 of this part and those 
exceeding 8,500 gross vehicle weight rating, in excess of the number of 
alternative fueled vehicles that fleet or covered person is required to 
acquire in a model year when acquisition requirements apply; or
    (b) Acquiring alternative fueled vehicles, including those in 
excluded categories under section 490.3 of this part and those 
exceeding 8,500 gross vehicle weight rating, in model years before the 
model year when that fleet or covered person is first required to 
acquire alternative fueled vehicles.
    (c) For purposes of this subpart, a fleet or covered person that 
acquired a motor vehicle on or after October 24, 1992, and converted it 
to an alternative fueled vehicle before April 15, 1996, shall be 
entitled to a credit for that vehicle notwithstanding the time limit on 
conversions established by sections 490.202(a)(3) and 490.305(a)(3) of 
this part.


Sec. 490.503  Credit allocation.

    (a) Based on annual credit activity report information, as 
described in section 490.507 of this part, DOE shall allocate one 
credit for each alternative fueled vehicle a fleet or covered person 
acquires that exceeds the number of alternative fueled vehicles that 
fleet or person is required to acquire in a model year when acquisition 
requirements apply.
    (b) If an alternative fueled vehicle is acquired by a fleet or 
covered person in a model year before the first model year that fleet 
or person is required to acquire alternative fueled vehicles by this 
part, as reported in the annual credit activity report, DOE shall 
allocate one credit per alternative fueled vehicle for each year the 
alternative fueled vehicle is acquired before the model year when 
acquisition requirements apply.
    (c) DOE shall allocate credits to fleets and covered persons under 
paragraph (b) of this section only for alternative fueled vehicles 
acquired on or after October 24, 1992.


Sec. 490.504  Use of alternative fueled vehicle credits.

    At the request of a fleet or covered person in an annual report 
under this part, DOE shall treat each credit as the acquisition of an 
alternative fueled vehicle that the fleet or covered person is required 
to acquire under this part. Each credit shall count as the acquisition 
of one alternative fueled vehicle in the model year for which the fleet 
or covered person requests the credit to be applied.


Sec. 490.505  Credit accounts.

    (a) DOE shall establish a credit account for each fleet or covered 
person who obtains an alternative fueled vehicle credit.
    (b) DOE shall send to each fleet and covered person an annual 
credit account balance statement after the receipt of its credit 
activity report under section 490.507.


Sec. 490.506  Alternative fueled vehicle credit transfers.

    (a) Any fleet or covered person that is required to acquire 
alternative fueled vehicles may transfer an alternative fueled vehicle 
credit to--
    (1) A fleet that is required to acquire alternative fueled 
vehicles; or
    (2) A covered person subject to the requirements of this part, if 
the transferor provides certification to the covered person that the 
credit represents a vehicle that operates solely on alternative fuel.
    (b) Proof of credit transfer may be on a form provided by DOE, or 
otherwise in writing, and must include dated signatures of the 
transferor and transferee. The proof should be received by DOE within 
30 days of the transfer date to the Office of Energy Efficiency and 
Renewable Energy, U.S. Department of Energy, EE-33, 1000 Independence 
Ave., SW, Washington, DC 20585 or such other address as DOE publishes 
in the Federal Register.


Sec. 490.507  Credit activity reporting requirements.

    (a) A covered person or fleet applying for allocation of 
alternative fueled vehicle credits must submit a credit activity report 
by the December 31 after the close of a model year to the Office of 
Energy Efficiency and Renewable Energy, U.S. Department of Energy, EE-
33, 1000 Independence Ave, SW, Washington, DC 20585 or other such 
address as DOE may publish in the Federal Register.
    (b) This report must include the following information:
    (1) Number of alternative fueled vehicle credits requested for:
    (i) alternative fueled vehicles acquired in excess of required 
acquisition number; and
    (ii) alternative fueled vehicles acquired in model years before the 
first model year the fleet or covered person is required to acquire 
vehicles by this part.
    (2) Purchase of alternative fueled vehicle credits:
    (i) Credit source; and
    (ii) Date of purchase;
    (3) Sale of alternative fueled vehicle credits:
    (i) Credit purchaser; and
    (ii) Date of sale.

Subpart G--Investigations and Enforcement


Sec. 490.600  Purpose and scope.

    This subpart sets forth the rules applicable to investigations 
under titles

[[Page 10661]]
III, IV, V, and VI of the Act and to enforcement of section 501, 
503(b), 507 or 508 of the Act, or any regulation issued under such 
sections.


Sec. 490.601  Powers of the Secretary.

    For the purpose of carrying out titles III, IV, V, and VI of the 
Act, DOE may hold such hearings, take such testimony, sit and act at 
such times and places, administer such oaths, and require by subpena 
the attendance and testimony of such witnesses and the production of 
such books, papers, correspondence, memoranda, contracts, agreements, 
or other records as the Secretary of Transportation is authorized to do 
under section 505(b)(1) of the Motor Vehicle Information and Cost 
Savings Act (15 U.S.C. 2005(b)(1)).


Sec. 490.602  Special orders.

    (a) DOE may require by general or special orders that any person--
    (1) File, in such form as DOE may prescribe, reports or answers in 
writing to specific questions relating to any function of DOE under 
this part; and
    (2) Provide DOE access to (and for the purpose of examination, the 
right to copy) any documentary evidence of such person which is 
relevant to any function of DOE under this part.
    (b) File under oath any reports and answers provided under this 
section or as otherwise prescribed by DOE, and file such reports and 
answers with DOE within such reasonable time and at such place as DOE 
may prescribe.


Sec. 490.603  Prohibited acts.

    It is unlawful for any person to violate any provision of section 
501, 503(b), or 507 of the Act, or any regulations issued under such 
sections.


Sec. 490.604  Penalties and Fines.

    (a) Civil penalties. Whoever violates section 490.603 of this part 
shall be subject to a civil penalty of not more than $5,000 for each 
violation.
    (b) Willful violations. Whoever willfully violates section 490.603 
of this part shall pay a criminal fine of not more than $10,000 for 
each violation.
    (c) Repeated violations. Any person who knowingly and willfully 
violates section 490.603 of this part, after having been subjected to a 
civil penalty for a prior violation of section 490.603 shall pay a 
criminal fine of not more than $50,000 for each violation.


Sec. 490.605  Statement of enforcement policy.

    DOE may agree not to commence an enforcement proceeding, or may 
agree to settle an enforcement proceeding, if the person agrees to come 
into compliance in a manner satisfactory to DOE. DOE normally will not 
commence an enforcement action against a person subject to the 
acquisition requirements of this part without giving that person notice 
of its intent to enforce 90 days before the beginning of an enforcement 
proceeding.


Sec. 490.606  Proposed assessments and orders.

    DOE may issue a proposed assessment of, and order to pay, a civil 
penalty in a written statement setting forth supporting findings of 
violation of the Act or a relevant regulation of this part. The 
proposed assessment and order shall be served on the person named 
therein by certified mail, return-receipt requested, and shall become 
final for DOE if not timely appealed pursuant to section 490.607 of 
this part.


Sec. 490.607  Appeals.

    (a) In order to exhaust administrative remedies, on or before 30 
days from the date of issuance of a proposed assessment and order to 
pay, a person must appeal a proposed assessment and order to the Office 
of Hearings and Appeals, U.S. Department of Energy, 1000 Independence 
Avenue, SW., Washington, DC 20585.
    (b) Proceedings in the Office of Hearings and Appeals shall be 
subject to subpart F of 10 CFR part 1003 except that--
    (1) Appellant shall have the ultimate burden of persuasion;
    (2) Appellant shall have right to a trial-type hearing on contested 
issues of fact only if the hearing officer concludes that cross 
examination will materially assist in determining facts in addition to 
evidence available in documentary form; and
    (3) The Office of Hearings and Appeals may issue such orders as it 
may deem appropriate on all other procedural matters.
    (c) The determination of the Office of Hearings and Appeals shall 
be final for DOE.

[FR Doc. 96-5702 Filed 3-13-96; 8:45 am]
BILLING CODE 6450-01-P