[Federal Register Volume 68, Number 88 (Wednesday, May 7, 2003)]
[Rules and Regulations]
[Pages 24596-24603]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11359]



[[Page 24595]]

-----------------------------------------------------------------------

Part III





Department of Agriculture





-----------------------------------------------------------------------



Commodity Credit Corporation



-----------------------------------------------------------------------



7 CFR Part 1424



Bioenergy Program; Final Rule

  Federal Register / Vol. 68, No. 88 / Wednesday, May 7, 2003 / Rules 
and Regulations  

[[Page 24596]]


-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1424

RIN 0560-AG84


Bioenergy Program

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This rule finalizes a proposed rule to amend the existing 
regulations of the Commodity Credit Corporation (CCC) Bioenergy Program 
(program) in order to implement section 9010 of the Farm Security and 
Rural Investment Act of 2002 (the 2002 Act). These changes include: 
modifying the definitions for biodiesel, eligible commodities, and 
ethanol; extending the program beyond Fiscal Year (FY) 2002; and 
allowing producers to enter into multi-year agreements for program 
payments. Additional changes, based on comments received on the 
proposed rule, include: modifying the conversion factor provisions, 
making biodiesel payments on a soybean basis, making biodiesel payments 
on all biodiesel production, basing program payments on market prices 
as of the 10th business day before the production quarter, and 
establishing a target notification period for changes to conversion 
factors. Under the rule, CCC will pay incentives to ethanol producers 
to increase their use of eligible agricultural commodities in an FY as 
compared to the corresponding period in the prior FY. For biodiesel, 
CCC will pay incentives to biodiesel producers for FY 2003 through FY 
2005 on all biodiesel production from eligible agricultural 
commodities. For FY 2006, CCC will pay biodiesel producers incentives 
only on their increased biodiesel production.

DATES: Effective October 1, 2002. The FY 2003 and beyond sign-up period 
will end June 6, 2003.

FOR FURTHER INFORMATION CONTACT: Jim Goff, Warehouse and Inventory 
Division, Farm Service Agency (FSA), United States Department of 
Agriculture (USDA), STOP 0553, 1400 Independence Avenue, SW., 
Washington, D.C. 20250-0553, telephone (202) 720-5396 or e-mail 
address: [email protected]. Persons with disabilities 
who require alternative means of communication (braille, large print, 
audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 
(voice and TDD).

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be significant for the purposes of 
Executive Order 12866 and therefore has been reviewed by the Office of 
Management and Budget (OMB). A summary of the cost-benefit assessment 
is included in the Background section explaining the 2002 Actions this 
rule will take.

Small Business Regulatory Enforcement Fairness Act

    This rule will be submitted to Congress as required by the Small 
Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 (5 U.S.C. 
801 et seq.) The rule has been determined not to be a major regulatory 
action. Thus, the 60-day delay required by section 801 of SBREFA for 
Congressional review is not applicable.

Regulatory Flexibility Act

    The Regulatory Flexibility Act is not applicable to this rule 
because CCC is not required by 5 U.S.C. 553 or any other law to publish 
a notice of proposed rule making for the subject matter of this rule.

Executive Order 12372

    This program is not subject to Executive Order 12372, which 
requires intergovernmental consultation with State and local officials. 
See the notice related to 7 CFR part 3015, subpart V, published at 48 
FR 29115 (June 24, 1983).

Environmental Assessment

    The environmental impacts of this rule have been considered in 
accordance with the provisions of the National Environmental Policy Act 
of 1969 (NEPA), 42 U.S.C. 4321 et seq.; the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508); and FSA's 
regulations for compliance with NEPA, 7 CFR part 799. FSA has concluded 
that the rule will not have any significant impacts upon the human 
environment as documented through the completion of a final 
environmental assessment (FEW) that is on file and available to the 
public in the Administrative Record at the address specified above by 
contacting the official named above. The FEW is also available 
electronically at http://www.fsa.usda.gov/dafp/cepd/epb/nepa.htm.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, Civil Justice Reform. The rule specifies that production will be 
eligible retroactively beginning October 1, 2002. The administrative 
appeal provisions published at 7 CFR parts 11 and 780 must be exhausted 
before bringing any action for judicial review.

Executive Order 12612

    The Federalism implications of this rule are not sufficient to 
warrant preparation of a Federalism Assessment. This rule will not have 
a substantial direct effect on States or their political subdivisions 
or on the distribution of power and responsibilities among the various 
levels of Government.

Unfunded Mandates Reform Act of 1995

    This Rule contains no Federal mandates as defined in Title II of 
the Unfunded Mandates Reform Act of 1995 (UMRA) for State, local, and 
tribal governments or the private sector. Therefore, this rule is not 
subject to sections 202 and 205 of UMRA.

Paperwork Reduction Act

    The information collection reporting and recordkeeping requirements 
associated with this rulemaking have been approved by OMB and assigned 
control number 0560-0207. The proposed rule contained a notice for this 
information collection (67 FR 61565, October 1, 2002) as required by 5 
CFR 1320.8 (d) (1). Two comments were received supporting the FY 2002 
recordkeeping burden.

Discussion of the Final Rule

    In November of 2000, USDA implemented a Bioenergy Program. The 2002 
Act extended the program through FY 2006 and made several changes to 
the program. A proposed rule addressing these changes was published in 
the Federal Register on October 1, 2002 (67 FR 61565). Comments were 
accepted on the proposed rule until October 31, 2002.

Comments on the Proposed Rule

    Responses to the proposed rule were received from 1,994 interested 
parties representing five different sectors as follows: 1,521 from 
individuals; 194 comments from 137 companies; 186 comments from 119 
cooperatives; 48 comments from 44 trade organizations and special 
interest groups--mainly representing the American Soybean Association 
and the National Renderers Association; and 45 from State and local 
Governments. Most respondents made multiple comments.

How Payments Are Determined

Soybean or Soybean Oil Basis
    CCC received 2,131 comments expressing concern about how CCC 
proposed to base program payments on

[[Page 24597]]

biodiesel production on soybean oil prices instead of on a raw soybean 
basis. A large majority, 1,635 respondents, wanted the program to 
increase rather than decrease payments; 296 opposed lowering the 
payment; 60 supported the proposed change; one stated payments should 
not be changed until after FY 2003; one supported higher overall 
payments for all biodiesel payments; and one suggested equal payment 
for all commodities based on soy oil. Related to the soybean payment 
issue, 197 respondents wanted increased program payments on animal fats 
and oils. The majority of respondents opposed proposed changes that 
revised biodiesel payment calculations, resulting in lower subsidy 
payments. Many respondents argued that the reduced biodiesel payments 
would not provide sufficient support to ensure biodiesel's 
affordability and maintain industry growth. Some also argued that CCC's 
Bioenergy Program was the primary federal program providing support to 
the biodiesel industry and was largely responsible for biodiesel 
becoming one of the fastest growing alternative energy sources. A 
number of respondents argued that changes in the proposed rule 
contradicted the intent of Congress and the stated goal of increasing 
bioenergy production.
    CCC agrees with many of the respondents' comments on several 
factors: Program biodiesel payments should be increased not reduced; 
payments on production from animal fats and oils should be increased; 
and all biodiesel payments should be based on the FY 2002 soybean 
payment formula. Therefore, in the final rule, 7 CFR 1424.3 has been 
adjusted. Also, the proposed language in 7 CFR 1424.8(e) related to 
gross payable units has been moved to 7 CFR 1424.7. CCC will base all 
biodiesel payments on a soybean conversion and price, adjusted further 
by comparing the applicable oil or grease (animal fats and oils) price 
to the soy oil price. These changes will provide additional support to 
the biodiesel industry, maintain former payment levels for production 
from soybeans, and raise payments on production from animal fats and 
oils. This will reduce disparities between commodities in program 
payments for biodiesel production. The following table demonstrates how 
biodiesel payments will be determined taking into account the size-
adjustment factor for large and small plants (which is statutory) and 
accounting for differences in feedstock to produce the eligible 
biodiesel.
    Example:

----------------------------------------------------------------------------------------------------------------
                                                                                      Animal fats
                                 Item                                    Soybeans      and oils     Mustard seed
----------------------------------------------------------------------------------------------------------------
Gross Payable Units (Bushels)........................................       714.30  ..............
Size Factor (2.5 if under 65 million gallons per year total capacity          2.50  ..............  ............
 or 3.5).............................................................
Adjusted Bushels (Gross Bushels/Size Factor).........................       285.7   ..............  ............
Soybean PCP, Macon County, Illinois \1\..............................        $5.59  ..............  ............
Soybean Gross Payment (Soybean PCP x Adjusted Bushels)...............    $1,597         $1,597         $1,597
Soy Oil Price, Cents per pound \1\...................................  ...........          22.59          22.59
Feedstock Price, Cents per pound \1\.................................  ...........          10.00          12.30
Feedstock Factor (Feedstock Price/Soy Oil Price).....................  ...........           0.44           0.54
Gross Program Payment (Soybean Gross Payment x Feedstock Factor).....    $1,597           $707          $869
----------------------------------------------------------------------------------------------------------------
\1\ Price on November 1, 2002.

    No change is being made to the proposed rule's ethanol provisions 
in this area because there does not appear to be a similar need for 
adjustment.
Volume Basis for Payments
    Forty-six respondents suggested program payments be made on all 
biodiesel production--base production (the previous FY volume) plus 
increased production this FY. One respondent suggested a two-tier 
payment with different payment rates used for base and increased 
biodiesel production, and another suggested a higher payment 
specifically for biodiesel. Respondents indicated that the biodiesel 
industry needs higher levels of support to maintain or increase 
industry growth.
    CCC agrees with respondents that the biodiesel industry needs 
additional program support through higher payments. Consistent with the 
previous program, the 2002 Act requires the Secretary to make payments 
on the quantity of bioenergy produced during an FY that exceeds the 
quantity of bioenergy produced in the prior FY to date. Payment on 
increased production within a given FY may not provide sufficient 
incentives for long-term investments in the biodiesel industry. 
Currently, biodiesel is not cost-competitive with conventional diesel. 
The payment on FY to FY increases therefore implicitly subsidizes base 
production of biodiesel, making it cost-competitive. As a result, each 
successive FY that a producer participates in the program, the level of 
implicit support for biodiesel production declines as the base 
production grows larger relative to the yearly increase in production. 
Furthermore, this may create a potential inequity in the market as 
newer producers may receive implicitly higher subsidies and, as a 
result, be more cost-competitive than established producers. This 
suggests that previous provisions carried forward by reference, 
arguably, in the new legislation may, if continued without amendment, 
promote instability, which would impede the goal of fostering growth in 
the industry. This situation does not apply to the ethanol industry 
with its more mature market and other Federal and State support 
programs. In addition, basing a payment only on increased year-to-year 
biodiesel production may encourage participants to frustrate the goals 
of the program by increasing production one year, dropping it the next, 
then increasing it the following year in order to qualify for higher 
program payments. To avoid that result, CCC will use its original and 
continuing authority under section 5 of the CCC Charter Act, 15 U.S.C. 
714c, as needed, and the program funding provided by the 2002 Act to 
make biodiesel production eligible for the program that would not be 
eligible solely under the bioenergy provisions of the 2002 Act by 
allowing payments on all of a producer's production and not just the 
increase in one year as compared with the preceding year. This support 
will be reduced each FY of the program to encourage industry 
independence from program payments. In no event will program funding 
exceed the $150 million per FY funding provided by the 2002 Act. 
Accordingly, among other changes, 7 CFR 1424.7 as added in the final 
rule provides that biodiesel may receive payments in the normal manner 
on production eligible under the 2002 Act (year-to-year increases) plus 
a payment on the remaining production at 50 percent of that rate in FY 
2003, 30 percent in FY

[[Page 24598]]

2004, 15 percent in FY 2005, and 0 percent in FY 2006. No change is 
being made to the rules for ethanol in this regard because there is not 
the same need.

Definition of Biodiesel

    CCC received 194 comments that supported the proposed change in the 
biodiesel definition and supported additional feedstocks being eligible 
for biodiesel production. Three respondents suggested adding an 
American Society for Testing and Materials standard as a requirement to 
the biodiesel definition. Four comments supported eligibility for all 
biodiesel uses, whether for fuel or not, and expansion of the biodiesel 
definition to include other bio-oil/solvent products. Finally, two 
respondents suggested the program make payments on lower grades of bio 
fuels that are used for industrial uses.
    Section 9010(b)(3)(A) of the 2002 Act specifically defines 
biodiesel as ``a monoalkyl ester that meets the requirements of an 
appropriate American Society for Testing and Materials standard.'' The 
language of the 2002 Act indicates that the intent of Congress was that 
eligible biodiesel be that used for fuel use only. Therefore, no change 
is made to the biodiesel definition.

Plant Capacity Conversion Factor

    Two respondents suggested that the program change from using 2.5 to 
1.1 as a divisor for producers with total plant capacity of under 65 
million gallons per year and from using 3.5 to 2.1 for producers with 
total plant capacity of 65 million gallons or more per year. However, 
sections 9010(b)(3)(B)(i) and (ii) of the 2002 Act specifically provide 
for use of the 2.5 and 3.5 factors, respectively. The regulations 
follow the statute.

Refunds of Overpayments

    One respondent, in addressing the program's requirement for refunds 
when increased production is not maintained for the entire FY, 
suggested that the program should ``not force production of baseline if 
market cannot support the demand.''
    Section 9010(b)(5) of the 2002 Act specifically states, ``If the 
total amount of payments that an eligible producer receives for an FY 
under this section exceeds the amount that the eligible producer should 
have received under this subsection, the eligible producer shall repay 
the amount of the overpayment to the Secretary, with interest (as 
determined by the Secretary).'' Accordingly, no change is made in this 
area. However, the change made with regard to basing program payments 
on all biodiesel production should minimize the impact of this 
requirement on program biodiesel participants.

Determining Commodity Market Price

    One respondent suggested that the program, when making payment 
calculations, use the average commodity price for the production 
quarter rather than the price as of the last business day of the 
quarter in which production occurred. This issue, although it was the 
subject of one comment on this rule, has been an issue in program 
administration in both FY 2001 and FY 2002. Program participants in 
those years complained that their actual feedstock costs were 
established before production, not after, and that knowing the program 
payment rate earlier would help them price their contracts. To address 
this concern, without compromising the purpose of the program to try to 
approximate actual conditions, 7 CFR 1424.8(d)(2) has been changed to 
adopt for use the price of the commodity on the 10th business day 
before the start of the production quarter to establish program 
payments.

Conversion Factors

    The rule resulted in 3,471 comments being received concerning 
conversion factors for eligible commodities. Of those, 1,829 
respondents requested conversion factors be issued more timely, more 
predictably, and with more sensitivity toward the potential impact of 
changes after they are announced. An additional 1,640 respondents 
suggested that conversion factors be more predictable, not be subject 
to annual change, and codified in the regulations. One respondent 
recommended the conversion factor for all eligible commodities be 
codified in the regulations, and one respondent generally opposed 
removing conversion factors from the regulations.
    These comments may have resulted from the proposed rule's suggested 
adoption of a new biodiesel soybean conversion factor. With the 
exception of the disparity in program payments for biodiesel made from 
soybeans and soy oil versus animal fats and oils, no complaints had 
been received in FY 2001 or FY 2002 on the program's conversion factors 
and no general discontent was expressed by participants about the 
factors used in those years. The broad list of potential program 
eligible commodities, many currently not used in bioenergy production, 
makes publication of a conversion factor for every eligible commodity 
unrealistic. In addition, as manufacturing processes improve and 
industry conversion factors improve, CCC needs to be able to reflect 
the bioenergy producer's true costs of production in a more timely 
fashion than that allowed by notice and comment rulemaking. From a 
review of the comments, it appears the real goal is for producers to be 
able to accurately estimate program payments when they contract future 
sales prices. To address that, 7 CFR 1424.8(e) has been changed to 
state, ``After FY 2003, changes to established conversion factors shall 
be announced in a press release issued by CCC 90 calendar days before 
the applicable FY's sign-up, to the extent practicable.'' This should 
give program participants a 120-day notification (90 days before sign-
up plus 30-day sign-up period) before applicable production is 
produced. Conversion factors, as they are established, will also be 
posted to the program's Internet website.

Source Used for Fats and Oil Market Prices

    Fifty-one respondents commented on this aspect of the program. 
Fifty suggested that CCC use the ``Jacobsen Fats and Oils Bulletin'' 
for oil feedstock prices without applicable Posted County Prices; one 
suggested CCC use the Chicago Board of Trade for all virgin crude oil 
prices with 5-year trade adjustments from that for cottonseed oil, corn 
oil, and canola oil prices. Respondents expressed the belief that the 
``Jacobsen Fats and Oils Bulletin'' provided a more accurate market 
price for animal fats and oils than the USDA's ``Weekly National Carlot 
Meat Report,'' which was used by the program in FY 2002.
    The program's regulations do not specify the source CCC will use 
for feedstock prices for eligible commodities without a Posted County 
Price--only that the market price will be ``as determined by CCC.'' For 
FY 2002, CCC used the U.S. Department of Agriculture's Agricultural 
Marketing Service's ``Springfield Report'' for corn oil prices and the 
USDA's ``Weekly National Carlot Meat Report'' for animal fats and oils 
prices. However, based on comments received, CCC has reviewed the data 
provided by the ``Jacobsen Fats and Oils Bulletin'' and has determined 
it does provide an accurate regional price for animal fats and oils. 
Therefore, CCC will use the ``Jacobsen Fats and Oils Bulletin'' to the 
extent possible for oil feedstock prices without a Posted County Price. 
This policy will also be announced in the FY 2003 sign-up press release 
announcement. 7 CFR 1424.8(d)(2)(ii) is changed to indicate that as a 
step in the final calculation of payments the biodiesel gross payment

[[Page 24599]]

will be determined for biodiesel made from eligible commodities that 
have a corresponding oil or grease market price, using the Posted 
County Price for soybeans for the county where the plant is located. If 
the biodiesel is made from soybeans or soy oil, this is the gross 
payment without a further feedstock adjustment (but subject to other 
possible adjustments). For biodiesel made from other than soy oil or 
soybeans, the applicable feedstock's oil or yellow grease (for animal 
fats and oils) market price, as determined by CCC, will be divided by 
the soy oil price published in the Agricultural Marketing Service's 
weekly ``Soybean Crush Report (Central Illinois (Decatur, Macon County, 
Illinois))'' for the applicable date. The resulting percentage will be 
multiplied by the soybean gross payment to determine the producer's 
gross payment eligibility subject to such other adjustments as provided 
in the regulations.

Eligible Commodities and Fuels

    The proposed rule elicited 53 comments in this area. Of these, 50 
supported the addition of animal fats and oils as program eligible 
commodities. Also, three suggested that CCC allow producers to use 
different eligible commodities during the same FY and not make 
producers commit at sign-up to which feedstocks will be used in 
bioenergy production.
    CCC recognizes the difficulty producers have in forecasting which 
feedstocks will be used a year ahead of actual production. However, 
potential program payments must be estimated after that FY's sign-up is 
concluded to determine if a payment factor will be required to keep 
program expenditures within budgetary authority during the FY. CCC also 
recognizes that program projections for FY 2001 and FY 2002 were 
excessive compared to actual production. To address this, the bioenergy 
agreements will continue to request the maximum possible production by 
eligible commodity but will separately request the maximum total 
production increase. Producers will separately list the estimated 
production by eligible commodity and the total maximum increase from 
all eligible commodities. The total maximum increase reported will no 
longer be tied to the estimated production by eligible commodity. When 
added, the estimated production by commodity may now exceed the total 
maximum increase reported. This will allow producers to switch 
production between eligible commodities while still providing CCC the 
data necessary to project program costs based on eligible commodities 
being used.

Producer Eligibility

    Fifty-four respondents felt that program payments should only be 
made to bona fide producers--not marketers. FSA reviews each applicant 
thoroughly for eligibility before they are approved for the program. To 
be eligible, a producer must have, among other requirements, risk of 
loss during the production process. A producer need not own the 
facility producing the fuel. All program payments are monitored and 
thorough, on-site examinations are conducted of all program 
participants' operations to verify program compliance. If noncompliance 
or over payments are discovered, repayments are required. In addition, 
program provisions are only applicable to a producer's bioenergy 
production activities--not to other business activities that producer 
may be involved in. However, to address this issue and also the issue 
of producers moving production between different plants between FY's to 
gain larger program payments, 7 CFR 1424.7(c) has been updated to state 
that there can only be one producer per plant and that when producers 
transfer all of their operations to a different plant, their prior FY's 
production will be the greater of the production at the plants they 
operated in the prior FY or the prior FY production at plants they are 
taking over in the next FY. Also, to help insure that the program 
accomplishes its goals, the rule provides that ``Otherwise, for 
purposes of computing whether a producer has increased production in 
the current year from the previous year, the determination will be made 
by comparing for the current year the producer's production figures 
from all locations in which the producer has an interest with, for the 
previous year the sum of (i) production at those locations by any 
person including, but not limited to, the producer, and (ii) additional 
production by the producer at any other location in that year. Also, as 
needed to avoid frustrating the goals of the program, the Executive 
Vice President of CCC may treat producers with common interests, common 
ownership, or common facilities or arrangements as the same producer. 
These provisions mirror provisions in the current rule and are provided 
for additional clarity.
    Although FY 2003 sign-up will be held after October 1, 2002, FY 
2003 bioenergy production beginning October 1, 2002 will be eligible 
for FY 2003 program payments.

Miscellaneous Comments

    Twelve miscellaneous comments were received, with nine of those 
stating general support for the program. However, responses to the 
biodiesel issue also seem to indicate that those respondents would 
support the program even if biodiesel payments are reduced by the final 
rule. Another two respondents supported the program's current 
recordkeeping or paperwork burden. One respondent urged CCC to remove 
all support for continuance of current bioenergy programs and instead 
provide greater attention to supporting on farm fuel production for use 
in food production crops. The 2002 Act requires CCC to continue the 
program through FY 2006.

Cost-Benefit Assessment

    The 2002 Act authorizes bioenergy program funding of up to $150 
million per year for FY's 2003 through 2006. Section 743 of the 
Consolidated Appropriations Resolution, 2003, Public Law 108-7, limits 
FY 2003 payments to eligible bioenergy producers to 77 percent of the 
amount that those producers would otherwise earn under the program. The 
President's Budget for FY 2004 also proposes to limit the program to 
$100 million in FY 2004. The program was first implemented during FY 
2001 and funded for FY 2001 and FY 2002 at $150 million each year. 
Payments have been well under the annual funding levels--FY 2001 
payments totaled $40.7 million; FY 2002 payments totaled $78.7 million. 
The list of eligible commodities is expanded to include cottonseed and 
any animal byproduct (in addition to oils, fats, and greases) that may 
be used to produce bioenergy. However, because payments have been made 
only on corn, grain sorghum, wheat, soybeans, and animal fats and oils, 
it is difficult to forecast additional payments on the newly eligible 
commodities. Assuming that some of the new commodities do enter the 
program, the volume is likely to be small, and the outlay effects 
negligible. The number of participants receiving payments is expected 
to increase only slightly. Because of very strong incentives to 
increase ethanol production independent of the bioenergy program, FY 
2003-ethanol production and payments are projected to increase sharply 
from FY's 2001 and 2002. Program payments for ethanol are expected to 
be highest in FY 2003 and then decline, because the rate of increase in 
production is projected to slow as California completes the transition 
to ethanol. Thus, the cost of the program is expected to be higher

[[Page 24600]]

initially than in FY's 2001 and 2002. Soybeans have been the 
predominant commodity for biodiesel payments to date. This is not 
likely to change substantially due to the expansion in eligible 
commodities. However, revisions in payment calculations will raise 
payment rates for animal fats and oils. This will increase incentives 
to use these commodities for biodiesel production.

List of Subjects in 7 CFR Part 1424

    Administrative practice and procedure, Energy--bioenergy, Fuel 
additives, Gasohol, Oils and fats, Oilseeds, Reporting and 
recordkeeping requirements.

0
For the reasons set out in the preamble, 7 CFR part 1424 is amended as 
set forth below:

PART 1424--BIOENERGY PROGRAM

0
1. Part 1424 is revised to read as follows:

PART 1424--BIOENERGY PROGRAM

Sec.
1424.1 Applicability.
1424.2 Administration.
1424.3 Definitions.
1424.4 General eligibility rules.
1424.5 Agreement process.
1424.6 Payment application process.
1424.7 Gross payable units.
1424.8 Payment amounts.
1424.9 Reports required.
1424.10 Succession and control of facilities and production.
1424.11 Maintenance and inspection of records.
1424.12 Appeals.
1424.13 Misrepresentation and scheme or device.
1424.14 Offsets, assignments, interest and waivers.

    Authority: 7 U.S.C. 8108, 15 U.S.C. 714b and 714c.


Sec.  1424.1  Applicability.

    This part sets out regulations for the Bioenergy Program (program). 
It sets forth, subject to the availability of funds as provided herein, 
or as may be limited by law, the terms and conditions a bioenergy 
producer must meet to obtain payments under this program and part from 
the Commodity Credit Corporation (CCC) for eligible bioenergy 
production. Additional terms and conditions may be set forth in the 
document required to request program benefits and in the program 
contract or agreement prescribed by CCC. This program is effective 
October 1, 2002, through September 30, 2006.


Sec.  1424.2  Administration.

    This part shall be administered by the Executive Vice President, 
CCC, under the general direction and supervision of the Executive Vice 
President or designee. The Executive Vice President or a designee may 
authorize a waiver or modification of deadlines and other program 
requirements in cases where lateness or failure to meet such other 
requirements does not adversely affect the operation of the program, 
and may set such additional requirements as will facilitate the 
operation of the program. The funds available for the program shall be 
limited as set by this rule, otherwise announced by the Executive Vice 
President, CCC, or limited by law.


Sec.  1424.3  Definitions.

    The definitions set forth in this section shall be applicable for 
all purposes of program administration under this subpart.
    Agreement means the Bioenergy Program Agreement or other form 
prescribed by CCC that must be executed for participation in the 
program.
    Application means the application form prescribed by CCC or another 
form that contains the same terms, conditions, and information 
required.
    ATF means the Bureau of Alcohol, Tobacco, Firearms, and Explosives 
of the United States Department of Justice.
    Base production means a biodiesel producer's current FY's biodiesel 
production from eligible commodities that is not an increase over 
biodiesel production in the previous FY to date.
    Biodiesel means a mono alkyl ester manufactured in the United 
States and its territories that meets the requirements of an 
appropriate American Society for Testing and Materials Standard.
    Biodiesel producer means a producer that produces and sells 
biodiesel who is also registered and in compliance with section 211 (b) 
of the Environmental Protection Agency Clean Air Act Amendment of 1990.
    Bioenergy means ethanol and biodiesel produced from eligible 
commodities.
    Conversion factor means:
    (1) For ethanol production, a factor that converts the number of 
ethanol gallons back to commodity units as determined in the manner 
announced by CCC;
    (2) For biodiesel production, the factor that will treat 1.4 
gallons of biodiesel produced as having involved the consumption of one 
bushel of soybeans in any case when the feedstock was an eligible 
commodity that has a corresponding oil or grease market price; if there 
is none, then the factor shall be as determined and announced by CCC.
    Eligible commodity means barley; corn; grain sorghum; oats; rice; 
wheat; soybeans; cotton seed; sunflower seed; canola; crambe; rapeseed; 
safflower; sesame seed; flaxseed; mustard seed; cellulosic crops, such 
as switchgrass and hybrid poplars; fats, oils, and greases (including 
recycled fats, oils and greases) derived from an agricultural product; 
and any animal byproduct (in addition to oils, fats and greases) that 
may be used to produce bioenergy, as CCC determines, that is produced 
in the United States and its territories.
    Eligible producer means a bioenergy producer who meets all 
requirements for program payments.
    Ethanol means anhydrous ethyl alcohol manufactured in the United 
States and its territories and sold either:
    (1) For fuel use, rendered unfit for beverage use, produced at a 
facility and in a manner approved by ATF for the production of ethanol 
for fuel; or
    (2) As denatured ethanol used by blenders and refiners and rendered 
unfit for beverage use.
    Ethanol producer means a person authorized by ATF to produce 
ethanol.
    FSA means the Farm Service Agency, USDA.
    FY means the fiscal year beginning each October 1 and ending 
September 30 of the following calendar year.
    KCCO means the FSA, Kansas City Commodity Office.
    Posted County Price means the same Posted County Price for 
different locations as is used under other CCC commodity programs for 
marketing loan gains and other matters.
    Producer is a legal entity (individual, partnership, cooperative, 
or corporation, etc.) who is a commercial bioenergy producer making 
application or otherwise involved under this program.
    Quarter means the respective time periods of October 1 through 
December 31, January 1 through March 31, April 1 through June 30, and 
July 1 through September 30 of each FY, as applicable.
    Sign-up period means the time period announced by CCC during which 
CCC will accept program agreements.
    USDA means the United States Department of Agriculture.


Sec.  1424.4  General eligibility rules.

    (a) An applicant must be determined eligible by KCCO and be 
assigned an agreement number.
    (b) To be eligible for program payments, a producer must maintain 
records indicating for all relevant FY's and FY quarters:
    (1) The use of eligible commodities in bioenergy production;
    (2) The quantity of bioenergy produced from an eligible commodity 
by location;

[[Page 24601]]

    (3) The quantity of eligible commodity used by location to produce 
the bioenergy referred to in paragraph (b)(2) of this section; and
    (4) All other records, needed, or required by the agreement to 
establish program eligibility and compliance.
    (c) A producer must allow verification by CCC of all information 
provided. Refusal to allow CCC or any other agency of USDA to verify 
any information provided will result in a producer being determined not 
eligible.
    (d) For producers not purchasing raw commodity inputs, the 
production must equal or exceed that amount of production that would be 
calculated using the raw commodity inputs and the conversion factor set 
out in Sec.  1424.3. A producer that purchases soy oil from a soybean 
crushing plant for further refinement into biodiesel must be able to 
prove to CCC's satisfaction both soy oil purchases and biodiesel 
production for the applicable quarter. Any special conversion factors 
needed will be the province of CCC and CCC alone and CCC's decision 
will be final.
    (e) A producer must meet all other conditions set out in these 
regulations, in the agreement, or in other program documents.


Sec.  1424.5  Agreement process.

    (a) To participate, an eligible producer must submit a signed 
agreement during the FY sign-up period. Agreements may be for single or 
multiple FY's. However, multiple FY agreements require producers to 
submit annual production estimate reports during each applicable FY 
sign-up period. Such reports must comply with the terms of the 
agreement and this part. In all cases, the accounting for compliance 
will be made on a per FY basis.
    (b) Sign-up each FY will be held for 30 calendar days beginning 
for:
    (1) FY 2003 on the date of publication of this rule;
    (2) FY 2004 and beyond on August 1 of the FY before the applicable 
FY.
    (c) After agreements are submitted:
    (1) If determined eligible by KCCO, an agreement number will be 
assigned, and a notification will be mailed to the producer;
    (2) If additional information is needed for KCCO to determine 
eligibility, the producer will be contacted as soon as practicable and 
requested to provide additional supporting documentation;
    (3) If determined ineligible by KCCO, producers will be notified in 
writing that their agreement was rejected and the reason for the 
determination.


Sec.  1424.6  Payment application process.

    (a) To apply for payments under this program during an FY, an 
eligible producer must:
    (1) Submit an application or eligibility report for each quarter. 
Submit the last quarterly application or report of the FY within 30 
calendar days of the end of the FY for which payment is requested. If 
the actual deadline is a non-workday, the deadline will be the next 
business day;
    (2) Certify with respect to the accuracy and truthfulness of the 
information provided;
    (3) Furnish CCC such certification, and access to such records, as 
CCC considers necessary to verify compliance with program provisions; 
and
    (4) Provide documentation as requested by CCC of both the 
producer's net purchases of eligible commodities and net production of 
bioenergy compared to such production at all locations during the 
relevant periods. CCC may adjust the formulaic payments otherwise 
payable to the producer if there is a difference between the amount 
actually used and certified and the amount of increased commodity use 
calculated under the formula.
    (b) After applications or reports are submitted, eligible 
producers:
    (1) Shall submit such additional supporting documentation as 
requested by KCCO when additional information is needed to determine 
eligibility;
    (2) Will be notified in writing of their ineligibility and reason 
for the determination, when the application is determined ineligible by 
KCCO; and
    (3) Shall promptly refund payments when a refund to CCC is due. If 
a refund is not made promptly, CCC may establish a claim.


Sec.  1424.7  Gross payable units.

    (a) For ethanol, producers will be eligible for payments on gross 
payable units for only their ethanol production from eligible inputs 
that exceeds, for the program year to date, their total comparable 
production at all locations as compared to the comparable portion of 
the previous year. Producers of ethanol are not eligible for base 
production payments. Producers shall not be paid twice for the same 
increase and any decline in relative production between quarters will 
require a comparable refund. For example, if at the end of the first 
quarter, a producer were to be paid for an increase of 500 gallons of 
ethanol, but at the end of the second quarter, that producer's year-to-
date production was down to a net increase for the year of 450 gallons, 
then a refund would be due for the loss of the corresponding 50 gallons 
of net extra production. Repayment rates shall be based on previous 
payment rates. Unless otherwise determined by CCC, the extra ethanol 
production from eligible inputs will be converted to gross payable 
units by dividing the gallons of increased ethanol by the applicable 
conversion factor.
    (b) Biodiesel producers will be eligible for payments on gross 
payable units for all biodiesel production from eligible inputs. For 
eligibility purposes there will be two kinds of payment: additional 
production payments (APP), and base production payments (BPP). 
Repayment rates shall be based on previous payment rates. Unless 
otherwise determined by CCC, gross payable units for biodiesel 
production from eligible inputs will be calculated as follows:
    (1) For APP, by dividing the gallons of increased biodiesel by the 
biodiesel conversion factor of 1.4. APP payments will be made on 
increases as compared with the previous FY. Producers will not be paid 
twice for the same production. Failure to maintain year to date 
biodiesel production increases between quarters will require a 
comparable APP refund as specified below. That is, for example, if a 
producer were to be paid, at the end of the first quarter, for 500 
gallons of increased biodiesel production, but by the end of the second 
quarter that producer's production, for the year to date, was only 450 
gallons, then a refund of the APP premium would be due for the loss of 
the corresponding 50 gallons of net production increase.
    (2) For BPP, which will be made on production not eligible for the 
APP, by dividing the base production by the biodiesel conversion factor 
of 1.4 and multiplying the result by 0.5 in FY 2003, 0.3 in FY 2004, 
0.15 in FY 2005, or 0.0 (zero) in FY 2006 to determine base biodiesel 
production gross payable units.
    (3) Adding the APP and BPP to determine biodiesel gross payable 
units.
    (c) There shall only be one eligible producer per plant location.
    (1) When producers move production from one plant to another 
between FY's, the prior FY's production for the producer for program 
payment calculations tied to increases in production shall be the 
greater of:
    (i) The production at the plant operated by the producer in the 
prior FY, or
    (ii) The production in the prior FY at the plant being taken over 
by the producer in the current FY.
    (2) New producers who are taking over a plant with prior bioenergy

[[Page 24602]]

production shall assume that production history for program purposes. 
For example: in FY 2002, Producer A produced 1,000 gallons of bioenergy 
in plant 1 and Producer B produced 500,000 of bioenergy in plant 2. In 
FY 2003, Producer A assumes operation of plant 2; Producer B moves to 
plant 3, which was not in the program in FY 2002, but with FY 2002 
production of 400,000 gallons from eligible commodities; and Producer C 
assumes operations of plant 1. In FY 2003, for program purposes solely 
based on these respective plants, Producer A would have a prior FY 
production of 500,000 gallons; Producer B would have a prior FY 
production of 500,000 gallons; and Producer C would have a prior FY 
production of 1,000 gallons. These examples would apply when a producer 
moves its entire operation from one plant to another. Otherwise, for 
purposes of computing whether a producer has increased production in 
the current year from the previous year, the determination will be made 
by comparing for the current year the producer's production figures 
from all locations in which the producer has an interest with, for the 
previous year, the sum of:
    (i) Production at those locations by any person including, but not 
limited to, the producer, and
    (ii) Additional production by the producer at any other location in 
that year.
    (3) Also, as needed to avoid frustrating the goals of the program, 
the Executive Vice President of CCC may treat producers with common 
interests, common ownership, or common facilities or arrangements as 
the same producer.


Sec.  1424.8  Payment amounts.

    (a) An eligible producer may be paid the amount specified in this 
section, subject to the availability of funds. Total available funds 
shall be as determined appropriate by CCC and shall not exceed $150 
million in any of FY's 2003 through 2006.
    (b) For agreements submitted during an FY sign-up, applicants must 
project increases in production. Based on expected commodity prices, 
using the formula set out in this section, submissions will be assigned 
an expected payment value. When the payment value of all timely 
submitted and validly executed agreements exceed available funding, CCC 
may, at its discretion, prorate payments to be made under such 
agreements based on total available funding.
    (c) When the payment value of all timely submitted applications 
exceed available funding, CCC will prorate payments based on total 
available funding.
    (d) Subject to this section and conditions in the agreement, a 
producer's payment eligibility shall be adjusted at the end of each 
quarter, and calculated as follows:
    (1) Gross payable units, calculated and determined in accordance 
with Sec.  1424.7, shall be converted to net payable units for 
producers whose annual bioenergy production is:
    (i) Less than 65 million gallons, by dividing by 2.5;
    (ii) Equal to or more than 65 million gallons, by dividing by 3.5;
    (2) Net payable units calculated under paragraph (d)(1) of this 
section shall then be converted to a gross payment by multiplying net 
payable units by the per-unit value of the commodity as of the 10th 
business day before the start of the production quarter, determined as 
follows:
    (i) For ethanol:
    (A) For those agricultural commodities with an established Posted 
County Price, CCC will use the Posted County Price that CCC announces 
daily for the county in which the plant is located and applicable 
quality factors as CCC may establish.
    (B) For agricultural commodities that CCC determines do not have 
Posted County Prices, CCC will use market data CCC determines to be 
appropriate for the applicable commodity.
    (ii) For biodiesel made from:
    (A) Soybeans or soy oil, CCC will use the Posted County Price for 
soybeans for the county where the plant is located.
    (B) Eligible commodities other than soybeans or soy oil that have a 
corresponding oil or grease market price, CCC will first use the 
soybeans Posted County Price for Macon County, Illinois. Then, the 
applicable feedstock's oil or yellow grease (for animal fats and oils) 
market price, as determined by CCC, will be divided by the soy oil 
price published in the Agricultural Marketing Service's weekly 
``Soybean Crush Report'' (Central Illinois (Decatur, Macon County, 
Illinois)) for the applicable date. The resulting percentage will be 
multiplied by the soybean gross payment to determine the producer's 
gross payment.
    (C) Eligible commodities that do not have a corresponding oil or 
grease market price, in a manner as determined by CCC.
    (3) The gross payment calculated under paragraph (d)(2) of this 
section shall be reduced to a net payment by multiplying the gross 
payment figure by the proration factor determined under paragraph (c) 
of this section.
    (4) Subject to other provisions of this section, producers shall be 
paid the net current payment, if positive, determined for the quarter, 
subject to the requirements and refund provisions of this part.
    (5) After the first quarter, adjustments shall be made based on 
changes in production. Refunds, when due, shall be due at the per unit 
values at which they were paid.
    (6) For an FY, no producer may receive more than 5 percent of the 
available funding for this program.
    (e) When the commodity's conversion factor has been established, 
that factor will, as practicable, be posted on the program's website.
    (1) If the commodity's conversion factor is not determined when the 
sign-up is announced, the conversion factor will be provided in a 
letter to producers with accepted agreements to the extent practicable.
    (2) After FY 2003, changes to established conversion factors shall 
be announced in a press release issued by CCC 90 calendar days before 
the applicable FY's sign-up, to the extent practicable.


Sec.  1424.9  Reports required.

    Once an eligible producer has submitted a payment application, that 
producer shall file cumulative and per-plant information for each 
relevant bioenergy producing facility quarterly through the end of the 
applicable FY as specified by CCC or as otherwise needed to establish 
compliance with this part.


Sec.  1424.10  Succession and control of facilities and production.

    A person who obtains a facility that is under contract under this 
part may request permission to succeed to the program agreement and CCC 
may grant such request if it is determined that permitting such 
succession would serve the purposes of the program. If appropriate, CCC 
may require the consent of the original party to such succession. Also, 
CCC may terminate a contract and demand full refund of payments made if 
a contracting party loses control of a facility whose increased 
production is the basis of a program payment or otherwise fails to 
retain the ability to assure that all program obligations and 
requirements will be met.


Sec.  1424.11  Maintenance and inspection of records.

    For the purpose of verifying compliance with the requirements of 
this part, each eligible producer shall make available at one place at 
all reasonable times for examination by

[[Page 24603]]

representatives of USDA, all books, papers, records, contracts, scale 
tickets, settlement sheets, invoices, written price quotations, or 
other documents related to the program that is within the control of 
such entity for not less than three years from the payment date.


Sec.  1424.12  Appeals.

    (a) A participant subject to an adverse determination under this 
part may appeal by submitting a written request to: Deputy 
Administrator, Commodity Operations, Farm Service Agency, United States 
Department of Agriculture, STOP 0550, 1400 Independence Avenue, SW., 
Washington, D.C. 20250-0550. The appeal must be delivered in writing to 
the Deputy Administrator or postmarked within 30 days after the date 
the Agency decision is mailed or otherwise provided to the participant. 
The Deputy Administrator may consider a late appeal if determined 
warranted by the circumstances.
    (b) The regulations at 7 CFR part 11 apply to decisions made under 
this part.
    (c) Producers who believe they have been adversely affected by a 
determination by the Agency must seek review with the Deputy 
Administrator before any other review may be requested within the 
Agency.


Sec.  1424.13  Misrepresentation and scheme or device.

    (a) A producer shall be ineligible to receive payments under this 
program if CCC determines the producer:
    (1) Adopted any scheme or device that tends to defeat the purpose 
of the program in this part;
    (2) Made any fraudulent representation; or
    (3) Misrepresented any fact affecting a program determination.
    (b) Any funds disbursed pursuant to this part to a producer engaged 
in a misrepresentation, scheme, or device, or to any other person as a 
result of the bioenergy producer's actions, shall be refunded with 
interest together with such other sums as may become due, plus damages 
as may be determined by CCC.
    (c) Any producer or person engaged in an act prohibited by this 
section and any producer or person receiving payment under this part 
shall be jointly and severally liable for any refund due under this 
part and for related charges.
    (d) The remedies provided in this part shall be in addition to 
other civil, criminal, or administrative remedies that may apply.
    (e) Late payment interest shall be assessed on all refunds in 
accordance with the provisions and rates prescribed in part 1403 of 
this chapter.


Sec.  1424.14  Offsets, assignments, interestand waivers.

    (a) Any payment or portion thereof to any person shall be made 
without regard to questions of title under State law and without regard 
to any claim or lien against the bioenergy, or proceeds thereof, in 
favor of the owner or any other creditor except agencies of the U.S. 
Government. The regulations governing offsets and withholdings found in 
part 1403 of this chapter shall be applicable to agreement payments.
    (b) Any producer entitled to any payment may assign any payments in 
accordance with regulations governing the assignment of payments found 
at part 1404 of this chapter.
    (c) Interest charged by CCC under this part shall be at the rate of 
interest that the United States Treasury charges CCC for funds, as of 
the date CCC made such funds available. Such interest shall accrue from 
the date such payments were made available to the date of repayment or 
the date interest increases as determined in accordance with applicable 
regulations.
    (d) CCC may waive the accrual of interest and/or damages if CCC 
determines that the cause of the erroneous determination was not due to 
any action of the bioenergy producer.

    Signed in Washington, DC, on May 1, 2003.
James R. Little,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. 03-11359 Filed 5-5-03; 1:43 pm]
BILLING CODE 3410-01-P