[Federal Register Volume 63, Number 148 (Monday, August 3, 1998)]
[Proposed Rules]
[Pages 41358-41367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20605]



[[Page 41357]]

_______________________________________________________________________

Part III





Environmental Protection Agency





_______________________________________________________________________



40 CFR Parts 72 and 73



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

  Federal Register / Vol. 63, No. 148 / Monday, August 3, 1998 / 
Proposed Rules  

[[Page 41358]]



ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 72 and 73

[FRL-6134-2]
RIN 2060-AH60


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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: Title IV of the Clean Air Act (the Act), as amended by the 
Clean Air Act Amendments of 1990, authorizes the Environmental 
Protection Agency (EPA or Agency) to establish the Acid Rain Program. 
The program sets emissions limitations to reduce acidic particles and 
deposition and their serious, adverse effects on natural resources, 
ecosystems, materials, visibility, and public health.
    The allowance trading component of the Acid Rain Program allows 
utilities to achieve sulfur dioxide emissions reductions in the most 
cost-effective way. Allowances are traded among utilities and recorded 
in EPA's Allowance Tracking System for use in determining compliance at 
the end of each year. The Acid Rain Program's permitting, allowance 
trading, and emissions monitoring requirements are set forth in the 
``core rules'' promulgated on January 11, 1993. This proposal would 
amend certain provisions in the permitting and Allowance Tracking 
System rules for the purpose of improving the operation of the 
Allowance Tracking System and the allowance market, while still 
preserving the Act's environmental goals.

DATES: Comments. Comments on this action must be received on or before 
September 2, 1998, unless a hearing is requested by August 13, 1998. If 
a hearing is requested, written comments must be received by September 
17, 1998.
    Public Hearing. Anyone requesting a public hearing must contact the 
EPA no later than August 13, 1998. If a hearing is held it will be held 
on August 14, 1998, beginning at 8:30 am.

ADDRESSES: Comments. Comments should be submitted in duplicate, to: EPA 
Air Docket, Attention, Docket No. A-98-15, U.S. Environmental 
Protection Agency, 401 M Street, S.W., Washington, DC 20460.
    Public Hearing. If a hearing is held it will take place at the EPA 
Auditorium at 401 M St., S.W., Washington DC.
    Docket. Docket No. A-98-15, containing supporting information used 
in developing the proposed rule, is available for public inspection and 
copying between 8:30 a.m. and 3:30 p.m., Monday through Friday, at 
EPA's Air Docket Section, Waterside Mall, room 1500, 1st Floor, 401 M 
Street, S.W., Washington, DC 20460. A reasonable fee may be charged for 
copying.

FOR FURTHER INFORMATION CONTACT: Donna Deneen, Permits and Allowance 
Market Branch, Acid Rain Division (6204J), U.S. Environmental 
Protection Agency, 401 M Street S.W., Washington, DC 20460 (202-564-
9089).

SUPPLEMENTARY INFORMATION: The information in this preamble is 
organized as follows:

I. Affected Entities
II. Background
III. Revisions
    A. Allowance Transfer Deadline
    B. Compliance Determination
    C. Signature Requirement for Transfer Requests
    D. Impacts of Revisions on Acid Rain Permits
IV. Administrative Requirements
    A. Executive Order 12866
    B. Paperwork Reduction Act
    C. Unfunded Mandates Act
    D. Regulatory Flexibility
    E. Applicability of Executive Order 13045: Children's Health 
Protection

I. Affected Entities

    Entities potentially regulated by this action are fossil-fuel fired 
boilers or turbines that serve generators producing electricity, 
generate steam, or cogenerate electricity and steam. Regulated 
categories and entities include:

------------------------------------------------------------------------
                                                Examples of regulated   
                 Category                             entities          
------------------------------------------------------------------------
Industry..................................  Electric service providers, 
                                             boilers from a wide range  
                                             of industries.             
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    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your facility is regulated by this action, you should carefully examine 
the applicability criteria in Sec. 72.6 and Sec. 74.2 and the 
exemptions in Secs. 72.7, 72.8, and 72.14 of title 40 of the Code of 
Federal Regulations. If you have questions regarding the applicability 
of this action to a particular entity, consult the persons listed in 
the preceding FOR FURTHER INFORMATION CONTACT section.

II. Background

    On January 11, 1993, EPA promulgated the ``core'' regulations that 
implemented the major provisions of title IV of the Clean Air Act (CAA 
or the Act), as amended on November 15, 1990, including the Permits 
rule (40 CFR part 72) and the Sulfur Dioxide Allowance System rule (40 
CFR part 73). Since promulgation, these rules have been applied to 
three compliance years, 1995, 1996, and 1997 for which affected units 
were required to meet the annual allowance holding requirements 
established by the rules. During this time, the Agency has gained 
experience in implementing these requirements and believes that certain 
provisions in the rules should be revised to improve the operation of 
the Allowance Tracking System and the allowance market. This proposal 
contains changes to the allowance transfer deadline and compliance 
determinations and clarifies the signature requirements for allowance 
transfer requests.1 These revisions and the reasons for 
their proposal are summarized below.
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    \1\ In addition, Sec. 73.34(c)(4) is revised to eliminate the 
reference to the direct sales provisions, which were previously 
removed from part 73. 61 FR 28761, 28762 (1996).
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III. Revisions

A. Allowance Transfer Deadline

    The ``allowance transfer deadline'' is the last day on which 
allowance transfers may be submitted to EPA for recordation in a 
compliance subaccount for use in meeting a unit's sulfur dioxide 
(SO2) emissions limitation requirements for the year. 40 CFR 
72.2 (definition of ``allowance transfer deadline''). EPA is proposing 
to extend the allowance transfer deadline from the current date of 
January 30 to March 1 (or February 29 in any leap year). As explained 
below, this proposed change reflects the Agency's experience in 
operating the Allowance Tracking System, particularly following the 
1995, 1996, and 1997 compliance years, and the technological advances 
that have been made regarding the submission of continuous emissions 
monitoring system (CEMS) data.
    EPA's reasoning for selecting the current date of January 30 for 
the allowance transfer deadline is laid out in the preamble to the 
January 11, 1993 core rules. 50 FR 3590, 3617 (1993). As the Agency 
explained, it was anticipated that this date would provide utilities 
with ample time to transact and submit allowance transfers at the end 
of

[[Page 41359]]

the year, while giving EPA adequate time to complete its administrative 
duties before the date (60 days after the end of the year) that excess 
emissions offset plans were due. EPA's administrative duties involve 
reviewing, recording, and notifying the authorized account 
representatives of any transfers, and, if the authorized account 
representatives review the notifications and submit error claims, 
reviewing and resolving each error claim. The Agency noted that 
extending the allowance transfer deadline to March 1 would leave no 
time for these activities and was therefore not a viable option. 
Id.2
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    \2\ EPA also expressed concern that designated representatives 
might need time between the allowance transfer deadline and March 1 
to complete and submit excess emission offset plans. 56 63002, 63050 
(1991). However, no utility has yet had to submit an offset plan. 
Further, under part 77, as amended, any offset plan would simply 
state that allowances are to be immediately deducted, except in an 
extraordinary case when it could be shown that immediate deduction 
would interfere with electric reliability. See 61 FR 68340, 68363 
(1996).
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    Now, based on nearly four years of experience with the Allowance 
Tracking System, EPA believes that changing the allowance transfer 
deadline to March 1 is a viable option. The allowance transfer 
processing activities cited in the January 11, 1993 preamble as an 
obstacle to changing the deadline have turned out to have little or no 
impact on the designated representative's ability to submit or the 
Agency's ability to review excess emissions offset plans or compliance 
certifications, which are also due on March 1 (or February 29 in any 
leap year).3 The primary reason EPA sends out transfer 
notifications to authorized account representatives is so they can 
check whether EPA made an error in processing transfer requests. EPA 
notes that although it has processed over 2500 private transfers of 
allowances since the Allowance Tracking System first opened for 
business, only one claim of error by EPA has been submitted. Moreover, 
if EPA makes an error, EPA is obligated to correct the error and make 
the change effective as of the date the authorized account 
representative originally submitted the transfer form. This makes it 
unnecessary for the notification and error claim process to take place 
prior to the excess emissions offset plan and compliance certification 
deadline. Once authorized account representatives have sent to EPA 
their final allowance transfer requests, they have all the information 
they need to determine whether their units are in compliance and 
whether an excess emissions offset plan is needed. Of course, a 
transfer notification from EPA could be used as a check on those 
determinations; however, that is not the only way authorized account 
representatives can ensure their determinations are correct. For 
example, they can set up internal procedures in their companies to 
ensure accurate allowance accounting and can access the Agency web site 
via the internet for current allowance account balances in the 
Allowance Tracking System. Moreover, authorized account representatives 
that find the transfer notification useful for cross-checking allowance 
balances can still submit their last transfer requests ahead of March 1 
so they can use the notifications to make this check.
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    \3\ Under Sec. 72.90, the annual compliance certification report 
is required to be submitted within 60 days after the end of the 
calendar year.
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    EPA considered extending the allowance transfer deadline by two 
weeks, rather than a month. However, EPA believes that making the 
deadline coincide with the deadline for other acid rain submissions 
(i.e., the compliance certification report and any excess emissions 
offset plan) would reduce potential confusion because persons 
responsible for complying with the requirements could focus on one 
deadline for all of their end-of-year allowance-related submissions.
    The 1 month extension also provides companies with additional time 
to make last minute adjustments to allowance holdings in order to 
reflect the actual level of emissions during the prior calendar year. 
Under the current rule, the allowance transfer deadline coincides with 
the fourth-quarter monitoring report deadline, leaving little or no 
time for such adjustments. This makes it difficult for utilities to 
cross-check what they believe to be the final emissions results with 
feedback from EPA on the fourth-quarter report and then make allowance 
adjustments, as necessary. The additional time will be particularly 
useful because designated representatives who submit their emissions 
reports electronically now receive immediate electronic feedback on the 
substantive portion of their submissions. (In the past, designated 
representatives did not receive this feedback, on fourth quarter 
reports submitted around the report deadline, until April because the 
Agency performed this review manually.) This feedback will identify 
problems with submitted data, which could affect how the utility should 
allocate its allowances among its units' accounts. The extension will 
help to ensure utilities have the time they need to resolve any 
emissions data problems and transfer allowances among their units' 
accounts as needed.
    The extension also helps utilities that are contemplating changes 
to their monitoring systems that could temporarily affect their 
reported emissions rate. For example, while correcting a problem (e.g., 
with monitor data availability), a utility or its software vendor may 
take corrective actions that cause a different problem (e.g., actions 
that fail to account for missing data in the hourly record data base) 
and result in the unit's emissions being under-reported. Under the 
current rule, such an oversight could have a significant effect on 
reported emissions, especially if a company takes corrective actions in 
the last quarter of the year. The fourth-quarter monitoring report is 
due January 30 and any feedback from a report submitted on that date 
would provide the company with little or no time to make the necessary 
adjustments among its accounts for the reporting year. With the 
proposed extension of the allowance transfer deadline, companies that 
take corrective actions at the end of the year would have an 
opportunity to make any necessary allowance adjustments after receiving 
EPA feedback on their monitoring reports, and companies that might 
normally delay making such changes until after the end of the year 
would no longer need to do so. In addition, the extension would provide 
some additional time for correcting any inadvertent errors (whether or 
not associated with corrective monitoring actions) concerning allowance 
holdings, e.g., in how allowances were distributed by a utility among 
its units' accounts.
    In sum, EPA believes the allowance transfer deadline should be 
extended to March 1 because this would: reduce potential confusion over 
end-of-year submission deadlines; allow authorized account 
representatives to make final transfer decisions after receiving 
feedback on their fourth-quarter monitoring reports; and give utilities 
additional time to avoid inadvertent errors. Moreover, EPA believes 
that it can successfully administer the Allowance Tracking System and 
carry out its other end-of-year administrative duties without any delay 
between the allowance transfer deadline and the March 1 deadline for 
utilities' submissions of compliance certifications. EPA requests 
comment on the proposed allowance transfer deadline and, specifically, 
whether the allowance transfer deadline should be extended from January 
30 to March 1 (or February 29 in any leap year).

B. Compliance Determination

    Today's proposed revisions also change how excess emissions are 
determined at a unit at the end of a

[[Page 41360]]

compliance year. The proposed revisions would effectively reduce the 
number of tons of excess emissions a unit would otherwise have after 
deductions for compliance are made under Sec. 73.35(b)(2) by allowing 
up to a certain number of allowances for that unit to be deducted from 
the compliance subaccounts of other units at the same source that have 
unused allowances.
    EPA is proposing these revisions because of concern that (even with 
an extended allowance transfer deadline) inadvertent, minor accounting 
mistakes by utilities, which under the proposed revision would have no 
significant environmental impact, could lead to excessively high excess 
emissions penalty payments. Currently, the excess emissions penalty of 
$2000, adjusted for inflation since 1990 (i.e., over $2500), per ton is 
more than 10 times the current market value of an allowance and applies 
to all excess emissions at a unit even if they result from inadvertent, 
minor errors. As a result, companies have the potential of making 
enormous excess emissions penalty payments (i.e., the excess emissions 
penalty times excess emissions) for what may be unintentional, minor 
mistakes when performing their end-of-year accounting of emissions and 
allowances. Under the circumstances in which the proposed revisions 
would apply, imposition of such penalty payments does not seem 
necessary or desirable, given the nature of such potential mistakes. 
For example, a company may have acquired enough allowances to cover all 
the emissions at a source, but distributed them erroneously among the 
units at the source because of a mistake in determining how many 
allowances were needed in each unit's account or in designating the 
amounts transferred among the units' accounts. In light of the 
potential for such mistakes, especially in Phase II when the number of 
units subject to the allowance holding requirement will more than 
quadruple, the Agency believes that the proposed revisions offer a more 
reasonable approach than the existing rule for ensuring that allowance 
holding requirements under the Acid Rain Program are met.
    The major revisions for carrying out the proposed new approach are 
to the compliance provisions of Sec. 73.35. Among other things, the 
proposed revisions to Sec. 73.35 adjust the application of the ``Acid 
Rain emissions limitation for sulfur dioxide'' when used to determine a 
unit's excess emissions. The term ``excess emissions'' is defined in 
Sec. 72.2 as ``[a]ny tonnage of sulfur dioxide emitted by an affected 
unit during a calendar year that exceeds the Acid Rain emissions 
limitation for sulfur dioxide for the unit''. The adjustment in 
Sec. 73.35 of the application of the Acid Rain emissions limitation for 
sulfur dioxide has the effect of adjusting the definition of excess 
emissions.
    To make this adjustment, the key provision that has been added is 
proposed Sec. 73.35(b)(3).4 This new provision requires 
that, after completing the annual compliance deductions in 
Sec. 73.35(b)(2) for all affected units at the same source, the 
Administrator may deduct, for a unit that would otherwise have excess 
emissions, up to a certain amount of allowances from the compliance 
subaccounts of other units at the same source that would otherwise have 
unused allowances. This second deduction of allowances would reduce the 
number of excess emissions at the unit by an equivalent amount. The 
owners and operators of such unit would still be subject to the excess 
emissions penalty and offset requirements, but for only the excess 
emissions remaining for the unit after the second deduction.
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    \4\ In addition, the definitions of ``allowance transfer 
deadline,'' ``compliance subaccount,'' and ``current year 
subaccount'' are revised to be consistent with proposed 
Sec. 73.35(b)(3).
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    The Agency considered allowing a unit that would otherwise have 
excess emissions to use the unused allowances at other units at the 
same source to completely eliminate all excess emissions without any 
penalty. It rejected that approach, however, because of the Act's 
pervasive unit-by-unit orientation, particularly with regard to 
SO2 emissions. For example, under sections 402 (e.g., the 
definitions of ``existing unit'' and ``utility unit''), 403(b), 403(e), 
404(a), and 405, the applicability of title IV is determined on a unit-
by-unit basis. Further, section 403(a)(1) requires allocation of 
allowances to, and sections 403(e), 404, 405, 406, 409, and 410 set 
annual SO2 emission limitations for, individual units, and 
not sources. Under section 411(a), excess emissions and penalties are 
determined for each individual unit. Moreover, section 412(a) requires 
unit-by-unit monitoring of emissions. Allowing in all cases the use of 
allowances from other unit compliance subaccounts to completely 
eliminate a unit's excess emissions would effectively change the unit 
allowance holding requirement to a source allowance holding 
requirement. Therefore, balancing, on one hand, the goal of retaining 
in the regulations the general unit-by-unit orientation to compliance 
reflected in title IV and, on the other hand, the perceived need for 
some compliance flexibility to account for inadvertent, minor errors, 
EPA proposes to allow a large portion (but not all) of the allowances 
required to be deducted to come from subaccounts of other units at the 
source. This approach would provide some flexibility but also maintain 
a strong incentive for owners and operators to hold a sufficient number 
of allowances in each unit compliance subaccount. EPA is also open to 
comment on other ways of implementing this objective.
    The number of allowances that could be deducted under proposed 
Sec. 73.35(b)(3) would be related to the average price of an allowance. 
The average allowance price is defined in Sec. 73.35(b)(3) as the 
average price paid for a spot allowance at the auction held under 
Sec. 73.70 during the year for which compliance is being determined. 
The Agency proposes using the average price paid for a spot allowance 
at the auction to determine the average price of allowances at the time 
that compliance is being determined because a spot allowance is usable 
in the year it is auctioned and the auction is an annual event 
authorized under the Clean Air Act and results in allowance prices that 
are generally available to the public. Advance allowances, which are 
also auctioned, are not usable for 7 years. The Agency will publish the 
average price paid for a spot allowance (as defined in 
Sec. 73.35(b)(3)) in the Federal Register by October 15 of each 
compliance year.
    The formula for determining the number of allowances that can be 
deducted from other unit accounts is proposed in Sec. 73.35(b)(3) and 
incorporates the average price of an allowance as follows:

    Maximum deduction from other units = Excess emissions if no 
deduction from other units-[Excess emissions if no deduction from 
other units  x  3 (Average allowance price)/Excess emissions 
penalty] 5
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    \5\ ``Maximum deduction from other units'' is the maximum number 
of allowances that may be deducted for the year for which compliance 
is being established, for a unit otherwise having excess emissions 
from the compliance subaccounts of other units at the same source, 
rounded to the nearest allowance. ``Excess emissions if no deduction 
from other units'' is the tons of excess emissions that a unit would 
otherwise have if no allowances were deducted for the unit from 
other units under proposed Sec. 73.35(b)(3). ``Excess emissions 
penalty'' is the applicable dollar amount of the penalty for one ton 
of excess emissions of sulfur dioxide under Sec. 77.6(b). ``Average 
allowance price'' is a dollar amount (which the Administrator will 
publish in the Federal Register by October 15 of each year) equaling 
the total proceeds from the spot allowance auction (including EPA 
Reserve allowances and any privately offered allowances) held under 
Sec. 73.70 during the year divided by the number of allowances sold 
at such auction, rounded to the nearest dollar.

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[[Page 41361]]

    The formula applies to any unit that would otherwise have excess 
emissions under the existing rule, with two exceptions. First, if the 
amount calculated is less than zero, the maximum allowance deduction 
from other units equals zero (i.e., a negative number of allowances 
cannot be deducted). Second, if the amount calculated results in less 
than 10 tons of excess emissions, the amount that can be deducted from 
other accounts must be adjusted so that 10 tons of excess emissions, or 
the tons of excess emissions that would result if no allowances could 
be deducted from other unit accounts, whichever is less, remain for the 
unit. This provision ensures that any unit that would have excess 
emissions under the existing rule would continue to have some excess 
emissions under the proposed rule.
    For all other cases, the formula in proposed Sec. 73.35(b)(3) would 
apply if a unit fails to hold enough allowances in its unit subaccount 
to cover its emissions. Using the formula, the number of allowances 
that could be deducted from other unit compliance subaccounts at the 
same source would equal the tons of excess emissions that a unit would 
otherwise have without applying Sec. 73.35(b)(3) minus a calculated 
value. The calculated value (i.e., the term after the ``-'' sign in the 
formula) represents 6 the number of tons emitted by a unit 
which cannot be offset by allowances from other unit 
accounts.7 This value also represents, assuming the maximum 
allowances under the formula are deducted from other units' accounts, 
the tons of excess emissions at the unit. These excess emissions would 
be subject to the excess emissions penalty ($2000 in 1990 dollars per 
ton of excess emissions, adjusted for inflation each year).8 
Because there are fewer tons subject to the penalty (i.e., because the 
tons for which allowances were deducted from other unit accounts are 
not subject to the penalty), the total penalty payment would be less 
than the total penalty payment under the existing rule. EPA proposes 
that the maximum allowance deduction be based on three times the 
allowance price (with a 10 ton minimum for excess emissions) because 
the Agency believes the resulting penalty would provide adequate 
incentive for compliance while reducing the penalty payment for 
inadvertent, minor errors.
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    \6\ When actually applying the formula, the term (without 
rounding to the nearest ton) is subtracted from the ``tons of excess 
emissions if no allowance deduction from other units'; rounding 
takes place afterwards.
    \7\ When this number is subtracted from the tons of excess 
emissions the unit would otherwise have if no allowances could be 
deducted from other units, the result is the maximum number of 
allowances that can be deducted from other units.
    \8\ For 1998, the inflation-adjusted penalty is $2,581 per ton 
of excess emissions.
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    In general, the extent to which the total penalty payment is 
reduced as a result of the revisions depends on the average market 
price of an allowance and the excess emissions per ton penalty. For 
instance, if three times the average market price of an allowance is 14 
percent of the per ton excess emissions penalty, then the total penalty 
payment for the unit would be about 9 14 percent of the 
payment that would have resulted without the revisions. An exception is 
where three times the average market price of an allowance is equal to 
or greater than the per ton excess emissions penalty, in which case no 
allowances would be deducted from other unit accounts and the total 
penalty payment would be the same as under the existing rule. A second 
exception is where three times the market price of an allowance, when 
used in the formula, results in less than 10 tons of excess emissions. 
In that case, the allowable allowance deduction from other unit 
accounts would be adjusted so that the lesser of 10 tons of excess 
emissions or the number of tons of excess emissions that would result 
if no allowances could be deducted from other units would remain for 
the unit.
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    \9\ The relationship is approximate because the formula requires 
rounding to the nearest allowance.
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    This approach would reduce the total excess emissions penalty 
payment owed for the unit while still ensuring, as intended by 
Congress, that compliance would be always cheaper than emitting more 
pollution than lawfully permitted.10 It would also encourage 
use of the proposed provisions only in extraordinary or extenuating 
circumstances and not as a matter of course. EPA is soliciting comment 
on the formula in proposed Sec. 73.35(b)(3) and on any alternative 
formulas that could be used to determine the number of allowances that 
could be deducted from other unit compliance subaccounts at the same 
source. Comment is specifically requested concerning: whether the limit 
(in the proposed formula) on the number of allowances used from other 
units should be based on three times the market price of an allowance 
(and incorporate a 10 ton minimum); whether the limit should be raised 
or lowered; and whether, with the limit, there would continue to be 
appropriate incentives for compliance.
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    \10\ See Senate Rep. No. 101-228 at 336, December 20, 1989, 
(explaining that ``[t]he [excess emissions] fee, adjusted annually 
to keep pace with inflation, is designed to be high enough that 
pollution control options [e.g., acquiring allowances] will always 
be cheaper than continuing to emit more pollution than lawfully 
permitted.''
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    The allowances deducted under proposed Sec. 73.35(b)(3) are limited 
to those that are in the compliance subaccounts of other units at the 
same source as the unit with excess emissions. This same-source 
limitation ensures that only one designated representative is involved 
in the deduction of allowances from other unit compliance subaccounts 
and that changes necessary to existing contracts involving allowance 
agreements among different owners of units are minimized. This approach 
also limits the extent of deviation from title IV's general unit-by-
unit orientation by allowing a unit to use only allowances held for 
other units that are at the same geographic location, i.e., at the same 
plant.
    In Sec. 73.35(b)(3)(i), EPA proposes two options for implementing 
the provisions allowing, for a unit with excess emissions, deductions 
of allowances from the compliance subaccounts of other units at the 
source. EPA would implement only one of the two options. The options 
are described below.
1. Option 1
    Under Option 1, deductions from other unit compliance subaccounts 
are automatic unless the authorized account representative requests 
that no such deductions be made. This would allow the Agency to make 
these deductions immediately after all other compliance deductions are 
made and would reduce the risk of delay of final compliance 
determinations. The proposed provision also specifies the order of unit 
compliance subaccounts for which allowances would be deducted from 
other unit compliance subaccounts and the order of the other unit 
compliance subaccounts from which the allowances would be deducted, 
allowing authorized account representatives to know in advance the 
sequence of deduction. The sequence is based on the Allowance Tracking 
System account numbers of the units involved. Allowances would be 
deducted first for the unit that has the lowest account number of the 
units at the source and then for each subsequent unit, in order of 
increasing account number and ending with the unit with the highest 
account number at the source. Likewise, allowances would be deducted 
from the unit with unused allowances that has the lowest account number 
at the source and then for each unit that has unused allowances, in

[[Page 41362]]

order of increasing account numbers at that source. Under this ordering 
scheme, alphabetical characters would have values increasing in 
alphabetical order and lower values than all numeric characters, and 
the sort would begin on the left-most character and end on the right-
most character of each 12 character account number. This order is 
consistent with how alphabetical and numeric characters are internally 
represented and sorted in the Agency's mainframe computer that runs the 
Allowance Tracking System, making this a cost effective approach for 
handling the deductions. An example of the order of unit compliance 
subaccounts from which (or for which) allowances would be deducted is 
as follows: 00038700PFLG, 00038700PFL4, 000387004GT2. Within a 
compliance subaccount, allowances would be deducted under 
Sec. 73.35(b)(3) on a first-in, first-out (FIFO) accounting basis.
    EPA considered that, under this approach in Option 1, authorized 
account representatives would not have the discretion to choose the 
order of the compliance subaccounts for which and from which allowances 
are to be deducted. This may be a concern especially where the owners 
or their ownership shares are different for different units at a 
source. If, however, an authorized account representative objects to 
the order described above (which is set forth in proposed 
Sec. 73.35(b)(3)), a notification may be submitted at any time by the 
allowance transfer deadline that identifies the units for which 
Sec. 73.35(b)(3) is not to be applied. If such notification is 
submitted for a unit and the unit fails to meet the unit allowance 
holding requirement reflected in Sec. 73.35(b)(1) and (2), none of the 
allowances from other unit compliance subaccounts would be used to 
reduce the total amount of excess emissions at the unit. If no 
notification is submitted, the Agency would automatically make the 
deductions from the other units at the source, and the tons of excess 
emissions would be reduced.
2. Option 2
    EPA is also proposing a second option for deducting allowances from 
other units at the sources. Under Option 2, the authorized account 
representative would be allowed to submit for a unit, within 15 days of 
receiving notice from the Agency of a unit's failure to hold sufficient 
allowances in its unit account, the identification of the serial 
numbers of the allowances (held in compliance subaccounts of other 
units at the source) that are to be deducted under Sec. 73.35(b)(3) and 
the compliance subaccounts from which those allowances would be 
deducted. Like the first alternative, the authorized account 
representative could choose not to have allowances deducted from other 
compliance subaccounts. A disadvantage of this alternative is that it 
would likely delay the Agency's end of year compliance determination 
and extend the allowance freeze by at least two weeks because of the 
time it would take to mail notification and wait for a response. The 
Agency is soliciting comment on both Option 1 and Option 2.
    The changes in today's proposal allowing allowances to be deducted 
for a unit from other unit accounts are consistent with the provisions 
in title IV governing excess emissions, i.e., sections 403(g), 411(a) 
and (b), and 414 of the Act. Section 403(g) is a general prohibition 
barring an affected unit from emitting sulfur dioxide in excess of the 
number of allowances ``held for that unit for that year by the owner or 
operator of the unit'' (42 U.S.C. 7651b(g)), section 411(a) establishes 
the owner or operator's liability for an excess emissions penalty and 
offset if sulfur dioxide is emitted at a unit in excess of the 
allowances ``the owner or operator holds for use for the unit for that 
calendar year'' (42 U.S.C. 7651j(a)), and section 414 states that the 
operation of an affected unit to emit sulfur dioxide in excess of 
allowances ``held for the unit'' is deemed a violation of the Act and 
that each ton emitted in excess of allowances held constitutes a 
separate violation (42 U.S.C. 7651m). In all three provisions, the Act 
refers to holding allowances ``for'' a unit but does not specifically 
dictate the account in which those allowances must be held. See also 42 
U.S.C. 7651b(f) and 7651j(b).
    Under the January 11, 1993 Acid Rain core rules, these statutory 
provisions were generally interpreted to mean allowances for a unit 
could be held only in the compliance subaccount of the unit for which 
allowances were being deducted. The Agency, however, believes this 
interpretation should be reconsidered and revised to provide some 
compliance flexibility while balancing the need for compliance 
flexibility with the general unit-by-unit orientation of title IV. 
Because of the multiple references to allowances held ``for'' a unit, 
the Agency believes the language is broad enough to support today's 
proposed interpretation, which allows most (but not all) of the 
allowances to be deducted from the compliance subaccount of other units 
at the same source and thus establishes a limited departure from the 
general unit-by-unit orientation for compliance.
    Allowing a unit to use allowances from the compliance subaccounts 
of other units at the same source is consistent with the limited 
exception to unit-by-unit compliance currently allowed for units 
sharing a common stack but not individually monitoring emissions under 
part 75. Under existing Sec. 73.35(e), the authorized account 
representative for affected units that share a common stack and lack 
individual-unit monitoring may arbitrarily assign a percentage of 
allowances to be deducted from the compliance subaccount for each unit. 
This assignment, which can be submitted as late as 60 days after the 
end of the year when the annual compliance report is due, can result in 
100 percent of the required allowance deduction coming from the 
compliance subaccount of only one of the units sharing the common 
stack. Such a single deduction would not necessarily represent the 
emissions from each unit, because each unit sharing the common stack 
may have discharged some portion of the emissions measured. Thus, under 
the existing regulations, allowances already can be deducted, under 
limited circumstances, from the compliance subaccounts of other units 
at the same source. This limited exception to unit-by-unit compliance 
is allowed in order to avoid requiring monitoring of the ducts of each 
common stack unit, which may not be physically possible, and to 
minimize the need for redesigning stack and duct configurations to make 
individual-unit monitoring possible. See, e.g., Docket # A-90-51, 
Response to Public Comment on the Core Rules of the Acid Rain Program, 
Volume III at p. M-393 (October 1992). Although there are a number of 
affected units under the Acid Rain Program that are subject to the 
common stack provision (i.e., 23 percent of the affected units 
operating in 1996 reported SO2 or NOX data that 
included the emissions from two or more units), EPA has seen no adverse 
effects on the functioning of the Acid Rain Program during the first 
three years of compliance determinations.
    Like the common stack provisions, today's revisions would permit 
allowances to be deducted for a unit that would otherwise have excess 
emissions from the compliance subaccounts of other units at the same 
source even though the emissions involved did not come from those other 
units. However, unlike the common stack provision, the proposed 
revisions would limit the number of allowances that could be deducted 
from the compliance subaccounts of other units. The reason for this 
difference is that the

[[Page 41363]]

common stack provisions address primarily situations where it may not 
be feasible to monitor the emissions from individual units sharing a 
common stack. In contrast, today's revisions would address primarily 
cases where feasibility of monitoring is not at issue, but because of 
inadvertent, minor errors in accounting for emissions or in handling 
allowances, a unit fails to hold enough allowances in its compliance 
subaccount at the end of the year. Because today's revisions apply to 
units that, absent inadvertent, minor errors, could have complied with 
the individual unit allowance holding requirement, the Agency believes 
it is appropriate to strike a balance between, on one hand, compliance 
flexibility to reduce total excess emission penalty payments for 
failing to hold enough allowances because of inadvertent, minor errors 
and, on the other hand, maintenance of the general unit-by-unit 
orientation of title IV. Today's proposed revision reflects this 
balancing of objectives by allowing deductions of allowances from other 
units but limiting the extent of such deductions so that significant 
excess emissions penalty payments would still result from failing to 
hold sufficient allowances in the unit's own compliance subaccount. 
This approach would ensure that utilities would continue to strive to 
meet the unit allowance holding requirement.
    Today's proposed changes, while designed primarily to address the 
consequences of making inadvertent, minor errors, would apply to all 
allowance holding violations and would not require a demonstration 
concerning the nature of the error. The Agency maintains that it would 
be difficult, and costly in terms of time and resources, to investigate 
and determine why a unit compliance subaccount failed to hold 
sufficient allowances and to distinguish between unintentional, minor 
errors and other errors. Since the proposed allowance deduction 
flexibility is not limited to inadvertent, minor errors, that is an 
additional reason for limiting that flexibility, i.e., by limiting the 
number of allowances that can be deducted from other units at a source. 
This limitation would provide an incentive to avoid any errors and 
would minimize any abuse of this flexibility. EPA believes that 
generally the total amount of excess emissions penalty payment (i.e., 
which, at the 1997 auction price of an allowance, would be about 14 
percent of the penalty payments under the existing rule) that would 
remain even if unused allowances were available from other units at the 
source would deter companies from using this provision except in 
extraordinary situations.
    In sum, the adjustment to the allowance holding requirement in 
today's proposal addresses the potential for inadvertent, minor errors 
by utilities regulated under the Acid Rain Program and provides a 
reasonable approach for addressing such errors. EPA requests comment on 
all aspects of this proposed revision, including the options presented 
concerning notification by the authorized account representative and 
the effect, if any, of the revision on the auction or market price of 
allowances traded during the year or on trading behavior. EPA also 
requests comment on how Option 1 and Option 2 would apply to a source 
that has two authorized account representatives under Sec. 74.4(c) 
(i.e., one for the utility units, and one for the opt-in units, at the 
same source).

C. Signature Requirement for Transfer Requests

    Under the current rule, Sec. 73.50(b)(1) requires authorized 
account representatives seeking recordation of an allowance transfer to 
submit a request for the transfer that contains, among other things, 
signatures of the authorized account representatives for both the 
transferor and the transferee accounts. The Agency proposes to add 
Sec. 73.50(b)(2) to clarify that the authorized account representative 
for a transferee account can meet the signature requirement by 
submitting, along with or in advance of a transfer request from the 
authorized account representative for any transferor account, a signed 
statement identifying the accounts into which any transfer of 
allowances, on or after the date of EPA's receipt of the statement, is 
authorized. The signed statement would state that, upon receipt by the 
Administrator, the authorization is binding on the authorized account 
representative and on any new authorized account representative 
11 for all such allowance transfers into the specified 
accounts until such time as EPA receives a signed statement from the 
authorized account representative retracting the authorization. 
Proposed Sec. 73.50(b)(2) sets forth the specific language that would 
be included in the statement. Under existing Secs. 72.23 (a) and (b), 
any new authorized account representative would, in fact, be bound by 
such a statement. Once the statement is received and an allowance 
transfer request is received and processed, EPA would still send both 
authorized account representatives transfer confirmation reports of any 
recorded transfer so that the authorized account representatives of 
both accounts have the opportunity to review the transfer after it has 
been recorded.
---------------------------------------------------------------------------

    \11\ Binding future authorized account representatives to the 
statement ensures that the reduced burden resulting from submitting 
a signature in advance is not lost automatically when an authorized 
account representative changes.
---------------------------------------------------------------------------

    The Agency believes the existing rules already allow for this 
approach. Existing Sec. 73.50(b)(1) allows the Administrator to specify 
a format for submitting a transfer request, which means the 
Administrator can already allow information from each authorized 
account representative to come in separately. Further, under existing 
Sec. 73.50(b)(1), the transferee authorized account representative 
certifies the transfer by attesting to the language in the allowance 
transfer form, which is also set forth in Sec. 72.21(b). This is the 
same language to which he or she would attest when authorizing 
transfers in advance. Moreover, existing Sec. 73.50(b)(1)(iii) through 
(v) specifies the information (i.e., the signatures and identification 
numbers of the authorized account representatives and the date of the 
signatures) that must be submitted by both authorized account 
representatives, but does not require the information from both 
individuals to come in simultaneously. Therefore, the Administrator is 
not precluded from accepting a signature from an authorized account 
representative for the transferee account that is submitted prior to 
the submission of the signature of the authorized account 
representative for the transferor account. In light of the minimal, if 
any, protection that simultaneously submitted signatures would provide 
to the parties,12 it is unnecessary for both signatures to 
come in at the same time. Hence, under the existing regulations, EPA 
can allow a signature of the transferee authorized account 
representative to be submitted prior to the signature of the transferor 
authorized account representative. Nevertheless, EPA believes that 
clarifying, through specific rule language, that this approach can be 
used would be helpful to authorized account representatives who wish to 
authorize, in advance, future transfers into an account and reduce 
their burden by eliminating the need for each party to the transfer to 
see and sign the allowance transfer form. Proposed

[[Page 41364]]

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

    \12\ The two-signature requirement, required in section 403(b) 
of the Act, was apparently intended to protect the transferor and 
transferee during the transfer process, but it is the parties' 
private agreement, not the allowance transfer form submitted to EPA, 
that protects the transferor and transferee.
---------------------------------------------------------------------------

    Today's clarification is spurred by a desire to put in place a 
system that allows for submitting transfer requests electronically to 
the Agency. According to comments received from both industry and 
environmental organizations, such a system would increase efficiency, 
reduce personnel requirements, reduce data entry errors and paperwork, 
make the Allowance Tracking System more attractive to users, and result 
in a more vibrant and active market. See, e.g., Docket # A-91-43, 
Response to Public Comment on the Core Rules of the Acid Rain Program, 
Volume I at p. A-27. In response, the Agency has been working with 
utility representatives in an effort to put in place Electronic Data 
Interchange (EDI) technology, a uniform standard set by the American 
National Standards Institute for electronic interchange of business 
transactions, to address this issue. Comments by experts familiar with 
established protocols for EDI have indicated that requiring two 
signatures on the same submission makes implementation of the EDI 
technology much more difficult. Proposed Sec. 73.50(b)(2) would make it 
clear to utilities that they have the option of submitting a signature 
in advance, which would remove this obstacle and make it easier to use 
EDI.13 In the meantime, in light of the Agency's existing 
authority to do so, the Agency has begun to accept signature statements 
from authorized account representatives who want to take advantage of 
this option immediately for transfer requests submitted either in hard 
copy or electronically.
---------------------------------------------------------------------------

    \13\ EPA considered completely eliminating the signature 
requirement for the authorized account representative for the 
transferee account; however, the Agency is constrained from doing so 
by statutory language in section 403(b) of the Act, which states 
that ``[t]ransfers of allowances shall not be effective until 
written certification of the transfer, signed by a responsible 
official of each party to the transfer, is received and recorded by 
the Administrator.'' 42 U.S.C. 7651b(b).
---------------------------------------------------------------------------

    The streamlining benefit of having the signature of the authorized 
account representative for the transferee account submitted prior to 
any specific transfer request is consistent with the general purposes 
of section 403(d) of the statute. This provision requires that the 
Administrator specify ``all necessary procedures and requirements for 
an orderly and competitive functioning of the allowance system.'' 42 
U.S.C. 7651b(d). Because an advance signature authorization from the 
authorized account representative for the transferee account would make 
subsequent allowance transfers less burdensome (both EDI-initiated and 
hard copy-initiated transfers), it would enhance the operation of the 
Allowance Tracking System and the allowance market as a whole.
    For the above reasons, the Agency has added Sec. 73.50(b)(2) to 
clarify that a signature statement from the authorized account 
representative for the transferee account can be submitted prior to the 
signature of the authorized account representative for the transferor 
account.

D. Impacts of Revisions on Acid Rain Permits

    Today's proposed revisions are designed so that the contents of 
existing acid rain permits and the State regulations required to issue 
acid rain permits would not have to be changed in order for the 
revisions to become effective. With the exception of changes in the 
definitions of ``allowance transfer deadline,'' ``compliance 
subaccount,'' and ``current year subaccount,'' all of today's revisions 
are made in 40 CFR part 73. Forty CFR part 73 governs EPA's operation 
of the Allowance Tracking System and does not contain any requirements 
for permitting or any other activities for which State permitting 
authorities are responsible. For this reason, 40 CFR part 73 has not 
been, and is not required to be, adopted by State permitting 
authorities under Sec. 72.72. Thus, it would be unnecessary for State 
permitting authorities to revise the acid rain permits they have issued 
or regulations they have adopted to reflect today's proposed changes to 
40 CFR part 73.
    Similarly, the proposed changes could go into effect without State 
permitting authorities revising acid rain permits or regulations to 
reflect the two revised definitions in 40 CFR part 72. Under existing 
Sec. 72.50(b), each Acid Rain permit is deemed to incorporate the 
definitions in Sec. 72.2. Consequently, even if an acid rain permit 
would be issued before the proposed changes to the Sec. 72.2 
definitions would be adopted and become effective, the Agency would 
propose to apply the final revised definitions to the units covered by 
the permit in determining end-of-year compliance for all calendar years 
for which the existing allowance transfer deadline (January 30) is on 
or after the effective date of the revised definitions. Moreover, the 
revised definitions would not affect the permitting activities of State 
permitting authorities under 40 CFR part 72 and would be adopted in the 
federal rules to implement changes made in EPA's operation of the 
Allowance Tracking System under 40 CFR part 73.
    While the final revised definitions in Sec. 72.2 would be applied 
for any calendar year ending on or after the effective date of the 
federal rule revision, State permitting authorities should revise their 
own regulations to reflect such new definitions after they are 
finalized. This would avoid any potential confusion on the part of 
regulated entities and the public as to how end-of-year compliance 
would be determined.

IV. Administrative Requirements

A. Executive Order 12866

    Under Executive Order 12866 (58 FR 51735 (October 4, 1993)), the 
Agency must determine whether the regulatory action is ``significant'' 
and therefore subject to Office of Management and Budget (OMB) review 
and the requirements of the Executive Order. The Order defines 
``significant regulatory action'' as one that is likely to result in a 
rule that may:

    (1) Have an annual effect on the economy of $100 million or more 
or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with 
an action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.

    Pursuant to the terms of Executive Order 12866, it has been 
determined that this rule is a ``significant regulatory action'' 
because the rule seems to raise novel legal or policy issues. As such, 
this action was submitted to OMB for review. Any written comments from 
OMB to EPA, any written EPA response to those comments, and any changes 
made in response to OMB suggestions or recommendations are included in 
the docket. The docket is available for public inspection at the EPA's 
Air Docket Section, which is listed in the ADDRESSES section of this 
preamble.

B. Unfunded Mandates Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L. 
104-4, establishes requirements for federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit

[[Page 41365]]

analysis, before promulgating a proposed or final rule that includes a 
federal mandate that may result in expenditure by State, local, and 
tribal governments, in aggregate, or by the private sector, of $100 
million or more in any one year. Section 205 generally requires that, 
before promulgating a rule for which a written statement must be 
prepared, EPA identify and consider a reasonable number of regulatory 
alternatives and adopt the least costly, most cost-effective, or least 
burdensome alternative that achieves the objectives of the rule. The 
provisions of section 205 do not apply when they are inconsistent with 
applicable law. Moreover, section 205 allows EPA to adopt an 
alternative other than the least costly, most cost-effective, or least 
burdensome alternative if the Administrator explains why that 
alternative was not adopted. Finally, section 203 requires that, before 
establishing any regulatory requirements that may significantly or 
uniquely affect small governments, EPA must have developed a small 
government agency plan. The plan must provide for notifying any 
potentially affected small governments to have meaningful and timely 
input in the development of EPA regulatory proposals with significant 
federal intergovernmental mandates, and informing, educating, and 
advising small governments on compliance with the regulatory 
requirements.
    Because the proposed rule is estimated to result in the expenditure 
by State, local, and tribal governments or the private sector of less 
than $100 million in any one year, the Agency has not prepared a 
budgetary impact statement or specifically addressed the selection of 
the least costly, most cost-effective, or least burdensome alternative. 
Because small governments will not be significantly or uniquely 
affected by this rule, the Agency is not required to develop a plan 
with regard to small governments.
    The proposed revisions to parts 72 and 73 will potentially reduce 
the burden on regulated entities by streamlining the allowance transfer 
process, extending the allowance transfer deadline, and providing more 
flexible allowance holding requirements. The revisions will not 
otherwise have any significant impact on State, local, and tribal 
governments.

C. Paperwork Reduction Act

    This action proposing revisions to parts 72 and 73 will not impose 
any new information collection burden subject to the Paperwork 
Reduction Act (44 U.S.C. 3501, et seq.). In fact, if anything, the 
revisions reduce burden by clarifying that the signature of the 
authorized account representative for a transferee account can be 
submitted in advance of an allowance transfer form, eliminating the 
need for that authorized account representative to see and sign future 
allowance transfer forms. To the extent any new information will be 
required by proposed revisions concerning the holding of allowances in 
other units' compliance subaccounts, the Agency projects that less than 
ten companies per year will be affected by those revisions. Overall, 
the revisions will result in no material change in the type or amount 
of information collected under the existing ICR. OMB has previously 
approved the relevant information collection requirements contained in 
parts 72 and 73 under the provisions of the Paperwork Reduction Act and 
has assigned OMB control number 2060-0258. 58 FR 3590, 3650 (1993).
    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose or 
provide information to or for a Federal agency. This includes the time 
needed to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.
    Copies of the ICR may be obtained from the Director, Regulatory 
Information Division; EPA; 401 M St. SW (mail code 2137); Washington, 
DC 20460 or by calling (202) 564-2740. Include the ICR and/or OMB 
number in any correspondence.

D. Regulatory Flexibility

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, et seq., 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
Small entities include small businesses, small not-for-profit 
enterprises, and small government jurisdictions.
    This proposed rule would not have a significant impact on a 
substantial number of small entities. As discussed above, the revisions 
would reduce the burden on regulated entities by streamlining and 
adding flexibility to the regulations. Therefore, I certify that this 
action will not have a significant economic impact on a substantial 
number of small entities.

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

    This proposed rule is not subject to Executive Order 13045, 
entitled Protection of Children from Environmental Health Risks and 
Safety Risks (62 FR 19885 (1997)), because it does not involve 
decisions on environmental health risks or safety risks that may 
disproportionately affect children.

List of Subjects in 40 CFR Parts 72 and 73

    Environmental protection, Acid rain, Administrative practice and 
procedure, Air pollution control, Compliance plans, Electric utilities, 
Penalties, Reporting and recordkeeping requirements, Sulfur dioxide.

    Dated: July 28, 1998.
Carol M. Browner,
Administrator, U.S. Environmental Protection Agency.

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

PART 72--[AMENDED]

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

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


Sec. 72.2  [Amended]

    2. Section 72.2 is amended by:
    i. Removing from the definition of ``Allowance transfer deadline'' 
the words ``January 30 or, if January 30'' and adding, in their place, 
the words ``March 1 (or February 29 in any leap year) or, if such 
day''; and removing the word ``unit's'', after the words ``meeting 
the'';
    ii. Removing from the definition of ``Compliance subaccount'' the 
word ``unit's'', after the words ``meeting the''; and
    iii. Adding to the definition of ``Current year subaccount'' the 
words ``, or any other affected unit at the same source to the extent 
provided under Sec. 73.35(b)(3),'' after the words ``for use by the 
unit'' and removing from the same definition the word ``its'' and 
adding, in its place, the word ``the''.
    3. Section 72.40 is amended by adding to paragraph (a)(1) the words 
``, or in the compliance subaccount of another affected unit at the 
same source

[[Page 41366]]

to the extent provided in Sec. 73.35(b)(3),'' after the words ``under 
Sec. 73.34(c) of this chapter)''.

PART 73--[AMENDED]

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

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


Sec. 73.34  [Amended]

    5. Section 73.34 is amended by removing from paragraph (c)(4) the 
words ``or direct sale pursuant to subpart E of this part''.
    6. Section 73.35 is amended by revising paragraph (a)(2) and adding 
paragraph (b)(3) to read as follows:


Sec. 73.35  Compliance.

    (a) * * *
    (2) Such allowance is:
    (i) Recorded in the unit's compliance subaccount; or
    (ii) Transferred to the unit's compliance subaccount, with the 
transfer submitted correctly pursuant to subpart D for recordation in 
the compliance subaccount for the unit by not later than the allowance 
transfer deadline of the calendar year following the year for which 
compliance is being established in accordance with subpart D of this 
part; or
    (iii) Held in the compliance subaccount of another affected unit at 
the same source in accordance with paragraph (b)(3) of this section.

Option 1

    (b) * * *
    (3)(i) If, after the Administrator completes the deductions under 
paragraph (b)(2) of this section for all affected units at the same 
source, a unit would otherwise have excess emissions and one or more 
other affected units at the source would otherwise have unused 
allowances in their compliance subaccounts and available for such other 
units under paragraphs (a)(1) and (a)(2)(i) and (ii) of this section 
for the year for which compliance is being established, the 
Administrator will deduct such allowances from the compliance 
subaccounts of the units otherwise having unused allowances, and reduce 
the tons of excess emissions otherwise at the unit by an equal amount, 
up to the amount calculated as follows:

    Maximum deduction from other units = Excess emissions if no 
deduction from other units-[Excess emissions if no deduction from 
other units  x  3 (Average allowance price) / Excess emissions 
penalty]
    Where:
    ``Maximum deduction from other units'' is the maximum number of 
allowances that may be deducted, for the year for which compliance 
is being established, for a unit otherwise having excess emissions 
from the compliance subaccounts of other units at the same source, 
rounded to the nearest allowance.
    ``Excess emissions if no deduction from other units'' is the 
tons of excess emissions that a unit would otherwise have if no 
allowances were deducted for the unit from other units under this 
paragraph (b)(3)(i) or paragraph (b)(3)(ii) of this section. 
``Excess emissions penalty'' is the applicable dollar amount of the 
penalty for one ton of excess emissions of sulfur dioxide for the 
year under Sec. 77.6(b) of this chapter.
    ``Average allowance price'' is a dollar amount (which the 
Administrator will publish in the Federal Register by October 15 of 
each year) equaling the total proceeds from the spot allowance 
auction (including EPA Reserve allowances and any privately offered 
allowances) held under Sec. 73.70 during the year divided by the 
number of allowances sold at such auction, rounded to the nearest 
dollar.

    (ii) Notwithstanding paragraph (b)(3)(i) of this section,
    (A) If the amount calculated is less than or equal to zero, the 
maximum allowance deduction from other units will equal zero; and
    (B) If the amount calculated is greater than zero and results in 
less than 10 tons of excess emissions, the maximum allowance deduction 
from other units shall be adjusted so that 10 tons of excess emissions, 
or the tons of excess emissions that would result if no allowances 
could be deducted from other units, whichever is less, remain for the 
unit.
    (iii) Beginning with the unit having the lowest Allowance Tracking 
System account number and ending with the unit having the highest 
account number (with account numbers sorted beginning on the left-most 
character and ending on the right-most character of each 12 character 
account number and with the letter characters assigned values in 
alphabetical order and less than all numeric characters), the 
Administrator will deduct allowances in accordance with paragraphs 
(b)(3)(i) and (ii) of this section:
    (A) For each unit, at the source, otherwise having excess 
emissions; and
    (B) From each unit, at the source, otherwise having unused 
allowances in its compliance subaccount.
    (iv) Allowances in a compliance subaccount will be deducted under 
paragraphs (b)(3)(i) and (ii) of this section on a first-in, first-out 
(FIFO) accounting basis in accordance with paragraph (c)(2) of this 
section.
    (v) Notwithstanding paragraphs (b)(3)(i) and (ii) of this section, 
if the Administrator receives a written notification by the authorized 
account representative for a source, on or before the allowance 
transfer deadline for the year for which compliance is being 
established, that the provisions in paragraphs (b)(3)(i) and (ii) of 
this section are not to be applied to specified units at the source, 
the Administrator will not make any deductions under paragraphs 
(b)(3)(i) and (ii) of this section for the specified units at the 
source.

Option 2

    (b) * * *
    (3)(i) If, after the Administrator completes the deductions under 
paragraph (b)(2) of this section for all affected units at the same 
source, a unit would otherwise have excess emissions and one or more 
other affected units at the source would otherwise have unused 
allowances in their compliance subaccounts and available for such other 
units under paragraph (a)(1) and (a)(2)(i) and (ii) of this section for 
the year for which compliance is being established, the Administrator 
will notify in writing the authorized account representative that he or 
she may specify which of such allowances are to be deducted from the 
compliance subaccounts of the units otherwise having unused allowances 
in order to reduce the tons of excess emissions otherwise at the unit 
by an equal amount, up to the amount calculated as follows:

    Maximum deduction from other units = Excess emissions if no 
deduction from other units-[Excess emissions if no deduction from 
other units  x  3 (Average allowance price) / Excess emissions 
penalty]
    Where:
    ``Maximum deduction from other units'' is the maximum number of 
allowances that may be deducted for the year for which compliance is 
being established, for a unit otherwise having excess emissions from 
the compliance subaccounts of other units at the same source, 
rounded to the nearest allowance.
    ``Excess emissions if no deduction from other units'' is the 
tons of excess emissions that a unit would otherwise have if no 
allowances were deducted for the unit from other units under this 
paragraph (b)(3)(i) or paragraph (b)(3)(ii) of this section. 
``Excess emissions penalty'' is the applicable dollar amount of the 
penalty for one ton of excess emissions of sulfur dioxide under 
Sec. 77.6(b) of this chapter.
    ``Average allowance price'' is a dollar amount (which the 
Administrator will publish in the Federal Register by October 15 of 
each year) equaling the total proceeds from the spot allowance 
auction (including EPA Reserve allowances and any privately offered 
allowances) held under Sec. 73.70 during the year divided by the 
number of allowances sold at such auction, rounded to the nearest 
dollar.

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

[[Page 41367]]

    (A) If the amount calculated is less than or equal to zero, the 
maximum allowance deduction from other units will equal zero; and
    (B) If the amount calculated is greater than zero and results in 
less than 10 tons of excess emissions, the maximum allowance deduction 
from other units shall be adjusted so that 10 tons of excess emissions, 
or the tons of excess emissions that would result if no allowances 
could be deducted from other units, whichever is less, remain for the 
unit.
    (iii) If the authorized account representative submits within 15 
days of receipt of a notification under paragraph (b)(3)(i) of this 
section a written request specifying allowances to be deducted in 
accordance with paragraph (b)(3)(i) of this section, the Administrator 
will deduct such allowances, and reduce the tons of excess emissions 
otherwise at the unit by an equal amount, up to the amount calculated 
under paragraph (b)(3)(i) of this section.
    7. Section 73.50 is amended by redesignating paragraph (b)(2) as 
(b)(3) and adding new paragraph (b)(2) as follows:


Sec. 73.50  Scope and submission of transfers.

* * * * *
    (b) * * *
    (2)(i) The authorized account representative for the transferee 
account can meet the requirements in paragraphs (b)(1)(ii) and (iii) of 
this section by submitting, in a format prescribed by the 
Administrator, a statement signed by the authorized account 
representative and identifying each account into which any transfer of 
allowances, submitted on or after the date on which the Administrator 
receives such statement, is authorized. Such authorization shall be 
binding on any authorized account representative for such account and 
shall apply to all transfers into the account that are submitted on or 
after such date of receipt, unless and until the Administrator receives 
a statement in a format prescribed by the Administrator and signed by 
the authorized account representative retracting the authorization for 
the account.
    (ii) The statement under paragraph (b)(2)(i) of this section shall 
include the following: ``By this signature, I authorize any transfer of 
allowances into each Allowance Tracking System account listed herein, 
except that I do not waive any remedies under 40 CFR part 73, or any 
other remedies under State or federal law, to obtain correction of any 
erroneous transfers into such accounts. This authorization shall be 
binding on any authorized account representative for such account 
unless and until a statement signed by the authorized account 
representative retracting this authorization for the account is 
received by the Administrator.''
* * * * *
[FR Doc. 98-20605 Filed 7-31-98; 8:45 am]
BILLING CODE 6560-50-U