[Federal Register Volume 62, Number 93 (Wednesday, May 14, 1997)]
[Rules and Regulations]
[Pages 26724-26728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12641]



[[Page 26723]]

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Part V





Department of Energy





_______________________________________________________________________



Office of Energy Efficiency and Renewable Energy



_______________________________________________________________________



10 CFR Parts 420 and 450



State Energy Program; Rule

  Federal Register / Vol. 62, No. 93 / Wednesday, May 14, 1997 / Rules 
and Regulations  

[[Page 26724]]


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DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Parts 420 and 450

[Docket No. EE-RM-96-402]
RIN 1904-AA81


State Energy Program

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

ACTION: Final rule.

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SUMMARY: Today the Department of Energy is publishing a final rule 
revising the regulations for its State Energy Program in response to 
comments received after the publication of the program's interim final 
rule on July 8, 1996. With the exception of the revisions to the 
interim final rule discussed herein, the interim final rule is being 
adopted as it was printed on July 8, 1996.

EFFECTIVE DATE: June 13, 1997.

FOR FURTHER INFORMATION CONTACT: Thomas P. Stapp, Office of Building 
Technology, State and Community Programs, Department of Energy, Mail 
Stop 5G-063, EE-44, Forrestal Building, 1000 Independence Avenue, S.W., 
Washington, DC 20585, (202) 586-2096.

SUPPLEMENTARY INFORMATION:

I. Introduction and Description of the Program
II. The Revisions to the Interim Rule
III. Review Under Executive Order 12612
IV. Review Under Executive Order 12866
V. Review Under Executive Order 12988
VI. Review Under the Paperwork Reduction Act
VII. Review Under the National Environmental Policy Act
VIII. Review Under the Small Business Regulatory Enforcement 
Fairness Act of 1996
IX. Review Under the Unfunded Mandates Reform Act of 1995
X. The Catalog of Federal Domestic Assistance

I. Introduction and Description of the Program

    On July 8, 1996, the Department of Energy (Department or DOE) 
published in the Federal Register an interim final rule consolidating 
the State Energy Conservation Program (SECP) and the Institutional 
Conservation Program (ICP) under the name ``State Energy Program'' (SEP 
or program). 61 FR 35890 The program provides formula grants to States 
for a wide variety of energy efficiency and renewable energy 
initiatives, and, in years when funding is available, may also offer 
financial assistance for a number of State-oriented competitively 
awarded special project activities.
    The Department also included in its July 8, 1996 rulemaking the 
removal of 10 CFR part 450, which constituted prescriptive energy audit 
procedures that are no longer needed.
    Six comment letters were received regarding the changes made under 
10 CFR part 420, which are discussed herein. No comments were received 
regarding the removal of 10 CFR part 450, and its removal is herein 
made final.

II. The Revisions to the Rule

    With the exception of the revisions made and discussed below, this 
rule is adopted as it was published in the program's interim rule on 
July 8, 1996 (61 FR 35890). The major issues raised in the comments are 
discussed below.

Section 420.2  Definitions

    Several commenters argued that the revised definition for 
``building'' was too restrictive, with some suggesting that the 
definition be reduced to ``any structure.'' DOE is not making that 
change because it would disregard the statutory definition of 
``building'' requiring provision for a ``heating or cooling system, or 
both, or for a hot water system''. 42 U.S.C. 6326. However, DOE has 
revised the definition by limiting it to the wording in the statutory 
definition.
    Four exceptions included in the interim definition of ``building'' 
have been removed from the new definition and, as appropriate, moved to 
the specific sections of the rule where they apply, as follows:
    (1) The exception regarding buildings for which the peak design 
rate of energy usage for all purposes is less than one watt (3.4 Btu's 
per hour) per square foot of floor area has been moved to 
Sec. 420.15(d)(1), which covers mandatory thermal efficiency standards 
for new and renovated buildings. States are not required to implement 
thermal efficiency standards for buildings that are covered by this 
exception.
    (2) The exception regarding buildings with neither a heating nor a 
cooling system or a hot water sytem is incorporated into the definition 
of ``building'' and does not need to be repeated, as a commenter 
pointed out. Such buildings are not eligible for any type of assistance 
under SEP.
    (3) The exception regarding mobile homes has been revised to cover 
``manufactured homes,'' which is the current term of art, and has been 
moved to Sec. 420.15(d)(1), which covers mandatory thermal efficiency 
standards for new and renovated buildings. States are not required to 
implement thermal efficiency standards for ``manufactured homes'' 
because that is already done by the U. S. Department of Housing and 
Urban Development. (A definition for ``manufactured home'' has also 
been added, as discussed under that term.) Buildings meeting the 
definition of ``manufactured home'' are eligible for appropriate 
assistance under SEP other than their exclusion from the SEP mandatory 
thermal efficiency standards.
    (4) The exception regarding buildings owned or leased by the United 
States has been moved to Sec. 420.15(a)(2), which covers mandatory 
lighting efficiency standards, and Sec. 420.15(d)(1), which covers 
mandatory thermal efficiency standards. States are not required to 
implement either of those types of standards for buildings owned or 
leased by the United States. The exception for such buildings has also 
been added as a new Sec. 420.18(e)(3) under expenditure prohibitions 
and limitations. Buildings owned or leased by the United States are not 
eligible under SEP for funding the purchase and installation of 
equipment and materials for energy efficiency and renewable energy 
measures.
    A number of commenters stated that the definition of ``energy 
audit'' was limiting due to its being confined to buildings and being 
overly specific. DOE has therefore replaced that definition with a new 
one suggested by two of the commenters (based on the definition in the 
Act), which has broader application to all capital investments that are 
eligible for funding under SEP. DOE will be providing energy audit 
guidance for consideration by the States.
    Several commenters expressed concern that the definition for 
``energy conservation measure'' was too restrictive. DOE has changed 
the term defined to ``energy efficiency measure'' to reflect the 
broader current concerns of SEP, removing the restriction to buildings, 
and providing for a wide range of cost-effective improvements.
    DOE has added a definition for ``manufactured home'' in conjunction 
with moving some of the exceptions to eligible buildings to 
Sec. 420.15, as previously discussed. The term formerly used was 
``mobile homes'' which was not defined.
    A few commenters complained that the definition of ``renewable 
energy measure'' was too restrictive, and DOE has revised this 
definition to provide for a wider range of activities.
    One commenter claimed that the definition of ``variable working 
schedule'' should include, as an example, telecommuting. DOE has

[[Page 26725]]

revised that definition to provide for examples of allowable activities 
including the activities formerly part of the definition plus 
telecommuting.

Section 420.5  Reports.

    Some commenters advocated that DOE require semiannual rather than 
quarterly reports, and that the reports be simplified. DOE has 
determined that quarterly reports are needed to adequately track the 
progress of the program, but will work with the States to streamline 
the reports and to expedite the quantification of results.

Section 420.11  Allocation of funds among the States.

    A few commenters argued that two of the data elements in the base 
allocation (population and SECP savings data) should be updated 
annually. DOE has not made this change because it believes the base 
allocation needs to remain constant to reflect and incorporate the 
historical distribution of funding for SEP's component programs, SECP 
and ICP, that formerly used different funding formulas.
    One commenter recommended that DOE use only one approach for the 
entire allocation, either the base allocation approach or the new 
formula. For the reason stated in the previous paragraph, DOE believes 
the base allocation should remain constant, with the new formula 
applying only to available funding above $25.5 million, so DOE is not 
making this change.
    One commenter wanted DOE to use the most recent population and 
energy consumption data for the new formula. DOE intends to do this, as 
stated under Sec. 420.11(b)(4)(iii).

Section 420.12  State matching contribution.

    One commenter asked if petroleum violation escrow (PVE) funds could 
be used to meet the requirement for a State matching contribution. 
Under SEP, PVE funds that are considered as ``Federally appropriated'' 
funds (such as Warner Amendment and Exxon funds) may not be used to 
meet a State's matching contribution. However, PVE funds that are 
considered as ``non-Federally appropriated'' (such as Stripper Well and 
Diamond Shamrock funds) may be used to meet a State's matching 
contribution.

Section 420.13  Annual State applications and amendments to State 
plans.

    A number of commenters requested that DOE simplify the information 
required in SEP grant applications, including the requirement that 
goals be specified and quantified each year under Sec. 420.13(b) (2) 
and (3). DOE believes a State's goals need to be articulated each year 
as part of making the program accountable, and therefore DOE is not 
making this change. However, as mentioned under Sec. 420.5, Reports, 
DOE will be working with the States to simplify and expedite the 
quantification of program goals and results.
    One commenter expressed the opinion that annual applications should 
be required, but not State plans. While DOE does not require complete 
State plans to be resubmitted each year, amendments to plans need to be 
submitted whenever the activities a State intends to undertake under 
SEP change. If an activity for which funds are sought is not in the 
State plan, then an amendment to that plan is necessary because the Act 
only authorizes DOE to provide financial assistance to execute State 
plans. The heading of this section and the wording of Sec. 420.13(a) 
have been revised to clarify this.
    One commenter suggested that States be allowed to submit an 
assurance that the required activities under Sec. 420.15 have been 
implemented. DOE was not persuaded by this comment, because these 
activities need to be accounted for annually, as specified under 
Sec. 420.13(b)(4)(v), which has been revised to make the requirement 
clearer.
    One commenter argued that States should only have to address the 
issues specified under Sec. 420.13 (b)(5) and (b)(6) in cases where a 
State is actually undertaking activities that apply to those 
situations. That is DOE's intent, and those paragraphs have been 
revised to clarfy that.

Section 420.14  Review and approval of annual State applications and 
amendments to State plans.

    One commenter suggested that ``plans'' be dropped from the heading 
and that only applications be required. As already discussed under 
Sec. 420.13, DOE is continuing to require amendments to plans to 
reflect changes, and DOE has revised this heading to provide for 
amendments to State plans. Unless the State elects to submit a complete 
plan each year with its application, DOE only requires appropriate plan 
amendments.

Section 420.15  Minimum criteria for required program activities for 
plans.

    One commenter wanted the references to ``plans'' in the heading and 
the text of the section deleted and replaced with ``applications.'' As 
with the discussions under Secs. 420.13 and 420.14, this commenter 
argued that only applications should be required each year, not plans. 
Since the statute requires that the State plan include the relevant 
activities a State is undertaking, DOE is not deleting the requirement 
for State plan amendments where warranted.

Section 420.17  Optional elements of State Energy Program plans.

    One commenter thought only applications should be required and 
wanted the reference to ``plans'' in the heading replaced with 
``applications.'' As already discussed under Secs. 420.13, 420.14, and 
420.15, DOE has not made this change because State plan amendments must 
continue to be submitted with applications when a State changes the SEP 
activities for which it is seeking financial assistance. Paragraphs 
(a)(3) and (a)(7) have been revised to replace the term ``energy 
conservation measure'' with ``energy efficiency measure'' to coincide 
with the change in terms defined, as discussed under Sec. 420.2, 
Definitions.

Section 420.18  Expenditure prohibitions and limitations.

    One commenter asked that design costs be allowable as part of 
energy efficiency and renewable energy measure costs, and DOE has 
revised Sec. 420.18(e) to provide for reasonable design costs to be 
allowable.
    Some commenters advocated that DOE drop the 50 percent limit on 
energy efficiency and renewable energy measure expenditures because it 
was unnecessary. DOE believes that it is reasonable to have this 50 
percent limitation in order to, in general, keep a balance between 
State activities relating to energy efficiency and renewable energy 
measures and the wide variety of other types of SEP activities that 
States may undertake. On the other hand, DOE also believes it is 
worthwhile to include the possibility of a waiver, provided for under 
Sec. 420.18(e)(2), for States that plan to use more than 50 percent of 
their SEP funds for energy efficiency and renewable energy measures. 
DOE will treat any waiver requests expeditiously; States simply need to 
explain how much funding they plan to devote to energy efficiency and 
renewable energy measures, and why they need to exceed the 50 percent 
limit. Therefore, DOE has not dropped the 50 percent limit.
    One commenter claimed the restriction on loan repayments and the 
prohibition on loan forgiveness specified under Sec. 420.18(e)(2) 
should not apply to non-Federal funds used under SEP. DOE is of the 
view that any funds used under SEP must be used in

[[Page 26726]]

compliance with the SEP rule, and is not changing those restrictions.
    One commenter wanted the wording under Sec. 420.18(e)(3) revised to 
provide for public buildings, not just State and local government 
buildings. DOE believes this entire paragraph should be deleted; the 
section applies to all eligible buildings and the range of eligible 
buildings has already been specified under Sec. 420.17(a)(3). DOE is 
replacing that paragraph with one excluding from eligibility for energy 
efficiency and renewable energy measures buildings owned or leased by 
the United States as was discussed earlier under the definition of 
``building.''
    Former Sec. 420.18 (e)(6), (e)(6)(i), and (e)(6)(ii) have been 
redesignated Sec. 420.18 (f), (f)(1), and (f)(2), respectively, because 
they are more logically separate paragraphs rather than continuations 
of the limitations specified under paragraph (e).
    One commenter wondered if the 50 percent limit on rebates specified 
under new Sec. 420.18(f)(1) (former Sec. 420.18(e)(6)(i)) applied to 
grants. This limit does not apply to grants, which may be for up to 100 
percent of the cost of measures under SEP.

III. Review Under Executive Order 12612

    Executive Order 12612, 52 FR 41685 (October 30, 1987) requires that 
regulations, legislation and any other policy action be reviewed for 
any substantial direct effects on States, on the relationship between 
the National Government and the States, or on the distribution of power 
among various levels of government. If there are sufficient substantial 
direct effects, the Executive Order requires preparation of a 
federalism assessment to be used in decisions by senior policy-makers 
in promulgating or implementing the regulation.
    Today's regulatory amendments will not have a substantial direct 
effect on the traditional rights and prerogatives of States in 
relationship to the Federal Government. Preparation of a federalism 
assessment is therefore unnecessary.

IV. Review Under Executive Order 12866

    Today's regulatory action has been determined not to be a 
significant regulatory action under Executive Order 12866, Regulatory 
Planning and Review, October 4, 1993. Accordingly, this action was not 
subject to review under the Executive Order by the Office of 
Information and Regulatory Affairs (OIRA).

V. Review Under Executive Order 12988

    Section 3 of Executive Order 12988, 61 FR 4729 (February 7, 1996), 
instructs each agency to adhere to certain requirements in promulgating 
new regulations. These requirements, set forth in Section 3 (a) and 
(b), include eliminating drafting errors and needless ambiguity, 
drafting the regulations to minimize litigation, providing clear and 
certain legal standards for affected legal conduct, and promoting 
simplification and burden reduction. Agencies are also instructed to 
make every reasonable effort to ensure that the regulation describes 
any administrative proceeding to be available prior to judicial review 
and any provisions for the exhaustion of administrative remedies. The 
Department has determined that today's regulatory action meets the 
requirements of Section 3 (a) and (b) of Executive Order 12988.

VI. Review Under the Paperwork Reduction Act

    No new information collection or recordkeeping requirements are 
imposed on the public by today's rules.

VII. Review Under the National Environmental Policy Act

    A programmatic environmental assessment has been prepared covering 
the grant program under the final regulations published today which was 
sent to the States for comment on March 27, 1996. No comments were 
received by the end of the 14-day comment period. This programmatic 
environmental assessment resulted in a finding of no significant impact 
(FONSI). A FONSI was issued on June 7, 1996. The documents relating to 
this programmatic environmental assessment are available in the DOE 
Freedom of Information Reading Room, United States Department of 
Energy, Room 1E-190, Forrestal Building, 1000 Independence Avenue, SW., 
Washington, DC 20585, (202) 586-6020.

VIII. Congressional Notification

    The final regulations published today are subject to the 
Congressional notification requirements of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (Act), 5 U.S.C. 801. OMB 
has determined that the final regulations do not constitute a ``major 
rule'' under the Act, 5 U.S.C. 804. DOE will report to Congress on the 
promulgation of the final regulations prior to the effective date set 
forth at the beginning of this notice.

IX. Review Under the Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 imposes a 
variety of procedural requirements on agencies proposing or finalizing 
a ``Federal mandate'' on State, local, and tribal governments. 2 U.S.C. 
1531-1535. None of these requirements apply to this rulemaking because, 
by definition, enforceable duties that are a condition of Federal 
financial asistance do not constitute a ``Federal mandate.'' 2 U.S.C. 
658 (5)(A)(i)(I), (6).

X. The Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number for the State 
Energy Program is 81.041.

List of Subjects in 10 CFR Part 420

    Energy conservation, Grant programs--energy, Reporting and 
recordkeeping requirements, Technical Assistance, Incorporation by 
reference.

    Issued in Washington, DC, on April 11, 1997.
Christine A. Ervin,
Assistant Secretary, Energy Efficiency and Renewable Energy.

    Accordingly, the interim rule revising 10 CFR part 420 and removing 
10 CFR part 450 which was published at 61 FR 35890 on July 8, 1996, is 
adopted as a final rule with the following changes to part 420:

PART 420--STATE ENERGY PROGRAM

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

    Authority: Title III, part D, as amended, of the Energy Policy 
and Conservation Act (42 U.S.C. 6321 et seq.); Department of Energy 
Organization Act (42 U.S.C. 7101 et seq.)


Sec. 420.2  [Amended]

    2. Section 420.2 is amended by (a) Revising the definitions for 
``Building,'' ``Energy audit,'' ``Renewable energy measure,'' and 
``Variable working schedule;'' by (b) adding, in alphabetical order, 
the definitions of ``Energy efficiency measure,'' and ``Manufactured 
home;'' and by (c) removing the definition of ``Energy conservation 
measure,'' to read as follows:


Sec. 420.2  Definitions.

* * * * *
    Building means any structure which includes provision for a heating 
or cooling system, or both, or for a hot water system.
* * * * *

[[Page 26727]]

    Energy audit means any process which identifies and specifies the 
energy and cost savings which are likely to be realized through the 
purchase and installation of particular energy efficiency measures or 
renewable energy measures.
    Energy efficiency measure means any capital investment that reduces 
energy costs in an amount sufficient to recover the total cost of 
purchasing and installing such measure over an appropriate period of 
time and maintains or reduces non-renewable energy consumption.
* * * * *
    Manufactured home means any dwelling covered by the Federal 
Manufactured Home Construction and Safety Standards, 24 CFR part 3280.
* * * * *
    Renewable energy measure means any capital investment that reduces 
energy costs in an amount sufficient to recover the total cost of 
purchasing and installing such measure over an appropriate period of 
time and that results in the use of renewable energy to replace the use 
of non-renewable energy.
* * * * *
    Variable working schedule means a flexible working schedule to 
facilitate activities such as carpools, vanpools, public transportation 
usage, and/or telecommuting.
* * * * *


Sec. 420.13  [Amended]

    3. Section 420.13 is amended by revising the heading, paragraph 
(a), paragraph (b)(4)(iii), paragraph (b)(4)(v), paragraph (b)(5), and 
paragraph (b)(6) to read as follows:


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

    (a) To be eligible for financial assistance under subpart B of this 
part, a State shall submit to the cognizant Regional Support Office 
Director an original and two copies of the annual application executed 
by the Governor, including an amended State plan or any amendments to 
the State plan needed to reflect changes in the activities the State is 
planning to undertake for the fiscal year concerned. The date for 
submission of the annual State application shall be set by DOE.
    (b) * * *
    (4) * * *
    (iii) A narrative statement detailing the nature of State plan 
amendments and of new program activities.
* * * * *
    (v) An explanation of how the minimum criteria for required program 
activities prescribed in Sec. 420.15 have been implemented and are 
being maintained.
    (5) If any of the activities being undertaken by the State in its 
plan have environmental impacts, a detailed description of the increase 
or decrease in environmental residuals expected from implementation of 
a plan defined insofar as possible through the use of information to be 
provided by DOE and an indication of how these environmental factors 
were considered in the selection of program activities.
    (6) If a State is undertaking program activities involving purchase 
or installation of materials or equipment for weatherization of low-
income housing, an explanation of how these activities would supplement 
and not supplant the existing DOE program under 10 CFR part 440.
* * * * *


Sec. 420.14  [Amended]

    4. Section 420.14 is amended by revising the heading and paragraph 
(a) to read as follows:


Sec. 420.14  Review and approval of annual State applications and 
amendments to State plans.

    (a) After receipt of an application for financial assistance under 
subpart B of this part and for approval of an amendment, if any, to a 
State plan, the cognizant Regional Support Office Director may request 
the State to submit within a reasonable period of time any revisions 
necessary to make the application complete and to bring the application 
into compliance with the requirements of this part. The cognizant 
Regional Support Office Director shall attempt to resolve any dispute 
over the application informally and to seek voluntary compliance. If a 
State fails to submit timely appropriate revisions to complete an 
application or to bring it into compliance, the cognizant Regional 
Support Office Director may reject the application in a written 
decision, including a statement of reasons, which shall be subject to 
administrative review under Sec. 420.19 of this part.
* * * * *


Sec. 420.15  [Amended]

    5. Section 420.15 is amended by revising paragraphs (a)(2) and 
(d)(1) to read as follows:


Sec. 420.15  Minimum criteria for required program activities for 
plans.

* * * * *
    (a) * * *
    (2) Apply to all public buildings (except for public buildings 
owned or leased by the United States), above a certain size, as 
determined by the State;
* * * * *
    (d) * * *
    (1) Be implemented throughout the State, with respect to all 
buildings (other than buildings owned or leased by the United States, 
buildings whose peak design rate of energy usage for all purposes is 
less than one watt (3.4 Btu's per hour) per square foot of floor space 
for all purposes, or manufactured homes), except that the standards 
shall be adopted by the State as a model code for those local 
governments of the State for which the State's law reserves the 
exclusive authority to adopt and implement building standards within 
their jurisdictions;
* * * * *


Sec. 420.17  [Amended]

    6. Section 420.17 is amended by revising paragraph (a)(3) 
introductory text, paragraph (a)(3)(i), and paragraph (a)(7) to read as 
follows:


Sec. 420.17  Optional elements of State Energy Program plans.

    (a) * * *
    (3) Program activities for financing energy efficiency measures and 
renewable energy measures--
    (i) Which may include loan programs and performance contracting 
programs for leveraging of additional public and private sector funds 
and program activities which allow rebates, grants, or other incentives 
for the purchase of energy efficiency measures and renewable energy 
measures; or
* * * * *
    (7) Program activities to identify unfair or deceptive acts or 
practices which relate to the implementation of energy efficiency 
measures and renewable energy measures and to educate consumers 
concerning such acts or practices;
* * * * *


Sec. 420.18  [Amended]

    7. Section 420.18 is amended by revising the introductory text to 
paragraph (e), by revising paragraphs (e)(3) and (e)(5), and by 
redesignating paragraphs (e)(6) introductory text, (e)(6)(i), and 
(e)(6)(ii) as new paragraphs (f) introductory text, (f)(1), and (f)(2), 
respectively, to read as follows:


Sec. 420.18  Expenditure prohibitions and limitations.

* * * * *
    (e) A State may use funds under this part for the purchase and 
installation of equipment and materials for energy efficiency measures 
and renewable energy measures, including reasonable

[[Page 26728]]

design costs, subject to the following terms and conditions:
* * * * *
    (3) Buildings owned or leased by the United States are not eligible 
for energy efficiency measures or renewable energy measures under this 
paragraph;
* * * * *
    (5) Subject to paragraph (f) of this section, a State may use a 
variety of financial incentives to fund purchases and installation of 
materials and equipment under this paragraph including, but not limited 
to, regular loans, revolving loans, loan buy-downs, performance 
contracting, rebates and grants.
* * * * *

[FR Doc. 97-12641 Filed 5-13-97; 8:45 am]
BILLING CODE 6450-01-P