[Federal Register Volume 77, Number 147 (Tuesday, July 31, 2012)]
[Rules and Regulations]
[Pages 45252-45262]
[FR Doc No: 2012-18091]

=======================================================================
-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 52 and 81

[EPA-R05-OAR-2009-0730; FRL-9702-9]

Approval and Promulgation of Implementation Plans and Designation
of Areas for Air Quality Planning Purposes; Wisconsin; Redesignation of
the Milwaukee-Racine Area to Attainment for 1997 8-Hour Ozone Standard

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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

SUMMARY: EPA is approving a request from the Wisconsin Department of
Natural Resources (WDNR) to redesignate the Milwaukee-Racine area to
attainment for the 1997 8-hour National Ambient Air Quality Standard
(NAAQS or standard). The Milwaukee-Racine area includes Milwaukee,
Ozaukee, Racine, Washington, Waukesha, and Kenosha Counties. WDNR
submitted this request on September 11, 2009, and supplemented the
submittal on November 16, 2011. These submittals also requested the
redesignation of the Sheboygan area (Sheboygan County) to attainment
for the 1997 8-hour ozone NAAQS. EPA proposed to approve the
redesignation of both areas on February 9, 2012, and provided a 30-day
review and comment period. EPA received comments submitted on behalf of
Sierra Club and Midwest Environmental Defense Center and from the
Wisconsin Manufacturers and Commerce. EPA is not taking final action on
the Sheboygan redesignation request at this time because preliminary
2012 ozone monitoring data indicate that the area has violated the 1997
standard. In addition to approving the redesignation of the Milwaukee-
Racine area, EPA is taking several other related actions. EPA is
approving, as a revision to the Wisconsin State Implementation Plan
(SIP), the State's plan for maintaining the 1997 8-hour ozone standard
through 2022 in the Milwaukee-Racine area. EPA is approving the 2005
emissions inventories for the Milwaukee-Racine and Sheboygan areas as
meeting the comprehensive emissions inventory requirement of the Clean
Air Act (CAA or Act). Finally, EPA finds adequate and is approving the
State's 2015 and 2022 Motor Vehicle Emission Budgets (MVEBs) for the
Milwaukee-Racine area.

DATES: Effective Date: This rule is effective on July 31, 2012.

ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-R05-OAR-2009-0730. All documents in the docket are listed on
the www.regulations.gov web site. Although listed in the index, some
information is not publicly available, i.e., Confidential Business
Information (CBI) or other information whose disclosure is restricted
by statute. Certain other material, such as copyrighted material, is
not placed on the Internet and will be publicly available only in hard
copy form. Publicly available docket materials are available either
electronically through www.regulations.gov or in hard copy at the
Environmental Protection Agency, Region 5, Air and Radiation Division,
77 West Jackson Boulevard, Chicago, Illinois 60604. This facility is
open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding
Federal holidays. We recommend that you telephone Kathleen D'Agostino,
Environmental Engineer, at<PHONE_NUMBER> before visiting the Region 5
office.

FOR FURTHER INFORMATION CONTACT: Kathleen D'Agostino, Environmental
Engineer, Attainment Planning and Maintenance Section, Air Programs
Branch (AR-18J), Environmental Protection Agency, Region 5, 77 West
Jackson Boulevard, Chicago, Illinois 60604,<PHONE_NUMBER>,
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Throughout this document whenever ``we,''
``us,'' or ``our'' is used, we mean EPA. This supplementary information
section is arranged as follows:

I. What is the background for this rule?
II. What comments did we receive on the proposed rule?
III. What actions is EPA taking?
IV. Statutory and Executive Order Reviews

I. What is the background for this rule?

    On July 18, 1997 (62 FR 38856), EPA promulgated an 8-hour ozone
standard of 0.08 parts per million (ppm). EPA published a final rule
designating and classifying areas under the 1997 8-hour ozone NAAQS on
April 30, 2004 (69 FR 23857). In that rulemaking, the Milwaukee-Racine
area was designated as nonattainment for the 1997 8-hour ozone standard
and classified as a moderate nonattainment area under subpart 2 of part
D of the CAA (69 FR 23857, 23947).
    On September 11, 2009, WDNR requested redesignation of the
Milwaukee-Racine and Sheboygan areas to attainment of the 1997 8-hour
ozone standard based on ozone data for the period of 2006-2008. On
November 16, 2011, WDNR supplemented the original ozone redesignation
requests, revising the mobile source emission estimates using EPA's on-
road mobile source emissions model, MOVES, and extending the
demonstration of maintenance of the ozone standard through 2022, with
new MVEBs, but without relying on emission reductions resulting from
implementation of EPA's Clean Air Interstate Rule (CAIR) or Cross-State
Air Pollution Rule (CSAPR).
    On March 1, 2011 (76 FR 11080), EPA issued a final rulemaking
determining that the Milwaukee-Racine and Sheboygan areas had attained
the 1997 8-hour ozone NAAQS based on three years of complete, quality-
assured ozone data for the 2006-2008, 2007-2009, and 2008-2010 time
periods.\1\
---------------------------------------------------------------------------

    \1\ Certified ozone data for 2011 demonstrates that the areas
continued to attain the 1997 8-hour ozone standard in 2011. EPA
recognizes that the ozone data for 2007-2009 as well as the data for
2010 and 2011 are impacted by emission reductions associated with
the CAIR, which was promulgated in 2005, but remanded to EPA in
2008. The fact that the data reflect some reductions associated with
the remanded and therefore not permanent CAIR, however, is not an
impediment to redesignation in the circumstances presented here
where WDNR's demonstration and EPA's own modeling demonstrates that
the areas do not need reductions associated with the CAIR to attain
the 1997 ozone NAAQS.
---------------------------------------------------------------------------

    On February 9, 2012 (77 FR 6727), EPA issued a rulemaking action
proposing to approve Wisconsin's requests to redesignate the Milwaukee-
Racine and Sheboygan areas to attainment of the 1997 8-hour ozone
standard, as well as proposing to approve Wisconsin's maintenance plans
for the areas, volatile organic compound (VOC) and nitrogen oxides
(NOX) MVEBs, and VOC and NOX emissions
inventories. This proposed rulemaking sets forth the basis for
determining that Wisconsin's redesignation request meets the CAA
requirements for redesignation of the Milwaukee-Racine area to
attainment for the 1997 8-hour ozone NAAQS. Air quality monitoring data
in the Milwaukee-Racine and Sheboygan areas for 2007-2009, 2008-2010,
and 2009-2011 show attainment of the 1997 8-hour ozone NAAQS.
Preliminary data available for the Milwaukee area for 2012 are
consistent with continued attainment. Preliminary 2012 data for the
Sheboygan area, however, indicate that the area is currently violating
the 1997 8-hour ozone standard. For this reason, EPA is not finalizing
action on the State's request to redesignate the Sheboygan area at this
time. The primary background for today's action is contained in EPA's
February 9, 2012, proposal to approve Wisconsin's redesignation
requests, and in EPA's March 1, 2011, final rulemaking determining that
the areas have attained the 1997 8-hour ozone NAAQS, based on complete,
quality-assured monitoring

data for 2006-2008, 2007-2009, and 2008-2010 time periods. In these
rulemakings, we noted that under EPA regulations at 40 CFR 50.10 and 40
CFR part 50 appendix I, the 1997 8-hour ozone standard is attained when
the 3-year average of the annual fourth highest daily maximum 8-hour
average ozone concentrations is less than or equal to 0.08 ppm at all
ozone monitoring sites in the area. See 69 FR 23857 (April 30, 2004)
for further information. To support the redesignation of an area to
attainment of the NAAQS, the ozone data must be complete for the three
attainment years. The data completeness requirement is met when the 3-
year average of days with valid ambient monitoring data is greater than
90 percent, and no single year has less than 75 percent data
completeness, as determined in accordance with appendix I of 40 CFR
part 50. Under the CAA, EPA may redesignate a nonattainment area to
attainment if sufficient, complete, quality-assured data are available
demonstrating that the area has attained the standard and if the state
meets the other CAA redesignation requirements specified in section
107(d)(3)(E) and section 175A.
    The February 9, 2012, proposed redesignation rulemaking provides a
detailed discussion of how Wisconsin's ozone redesignation request for
the Milwaukee-Racine area meets the CAA requirements for redesignation
to attainment. With the final approval of its VOC and NOX
emissions inventories, and its VOC Reasonably Available Control
Technology (RACT) regulations, Wisconsin has met all applicable CAA
requirements for redesignation to attainment of the area for the 1997
8-hour ozone NAAQS. Complete, quality-assured, and certified air
quality monitoring data in the Milwaukee-Racine area for 2009-2011, and
preliminary data for 2012, show that this area continues to attain the
1997 8-hour ozone NAAQS. In the maintenance plan it submitted for this
area, Wisconsin has demonstrated that attainment of the 1997 8-hour
ozone NAAQS will be maintained in the Milwaukee-Racine area through
2022, with or without the implementation of CAIR or CSAPR. In addition,
modeling conducted by EPA during the CSAPR rulemaking demonstrates that
in both 2012 and 2014, even without taking into account reductions
associated solely with CAIR or CSAPR, the counties in the Milwaukee-
Racine nonattainment area will have air quality that attains the 1997
ozone NAAQS. Finally, Wisconsin has adopted 2015 and 2022 MVEBs that
are supported by Wisconsin's ozone maintenance demonstrations and
Wisconsin has adopted an ozone maintenance plan.

II. What comments did we receive on the proposed rule?

    EPA provided a 30-day comment period for the February 9, 2012,
proposed rule. During the comment period, Wisconsin Manufacturers and
Commerce submitted comments in support of the actions and we received
one set of comments objecting to the redesignation of the Milwaukee-
Racine area submitted on behalf of the Sierra Club and the Midwest
Environmental Defense Center. The adverse comments are summarized and
addressed below.
    Comment 1: The commenter asserts that the redesignation of the
Milwaukee-Racine area to attainment of the 1997 8-hour ozone standard
would violate the CAA because the State of Wisconsin and EPA have not
ensured that nonattainment area New Source Review (NSR) would apply
after redesignation. The commenter contends that such a situation
conflicts with the language of section 107(d)(3)(E)(v) of the CAA,
which requires the State to have met all requirements of part D of the
CAA, since part D includes requirements for NSR. The commenter argues
that the requirements of section 107(d)(3)(E)(v) make no sense if the
State's NSR program is not required to apply in the area after
redesignation. The commenter further argues that, at a minimum, a
requirement for NSR should be included in the State's ozone maintenance
plan as a contingency measure to be implemented if the area
subsequently violates the 1997 8-hour ozone standard. The commenter
contends that EPA cannot rely on certain policy memoranda to support
its approval of the State's ozone redesignation request and ozone
maintenance plan without the requirement for the implementation of the
NSR program in the Milwaukee-Racine area after redesignation.
    Response 1: As clearly stated in EPA's October 14, 1994, policy
memorandum from Mary D. Nichols entitled ``Part D New Source Review
(part D NSR) Requirements for Areas Requesting Redesignation to
Attainment,'' ``EPA believes it is reasonable to interpret `measure,'
as used in section 175A(d), not to include part D NSR.'' Congress used
the undefined term ``measure'' differently in different provisions of
the Act, which indicates that the term is susceptible to more than one
interpretation and that EPA has the discretion to interpret it in a
reasonable manner in the context of section 175A. See Greenbaum v. EPA,
370 F.3d 527, 535-38 (6th Cir. 2004). (Court ``find[s] persuasive the
EPA's argument that the very nature of the NSR permit program supports
its interpretation that it is not intended to be a contingency measure
pursuant to section 175A(d).'') It is reasonable to interpret
``measure'' to exclude part D NSR in this context because Prevention of
Significant Deterioration (PSD), a program that is the corollary of
part D NSR for attainment areas, goes into effect in lieu of part D NSR
upon redesignation. PSD requires that new sources demonstrate that
emissions from their construction and operation will not cause or
contribute to a violation of any NAAQS or PSD increment. The State has
demonstrated that the areas will be able to maintain the standard
without Part D NSR in effect, and the State's PSD program will become
effective in the areas upon redesignation to attainment. See the
rationale set forth at length in the Nichols Memorandum. See also the
discussions of why full approval and retention of NSR is not required
in redesignation actions in the following redesignation rulemakings: 60
FR 12459, 12467-12468 (March 7, 1995) (Detroit, MI); 61 FR 20458,
20469-20470 (May 7, 1996) (Cleveland-Akron-Lorrain, OH); 66 FR 53665,
53669 (October 23, 2001) (Louisville, KY); 61 FR 31831, 31836-31837
(June 21, 1996) (Grand Rapids, MI); 73 FR 29436, 29440-29441 (May 21,
2008) (Kewaunee County, WI); 77 FR 34819, 34826-34827 (June 12, 2012)
(Illinois portion of St. Louis, MO-IL).
    Comment 2: The commenter contends that the State of Wisconsin does
not have a complete PSD program. Therefore, the commenter argues that
EPA cannot rely on Wisconsin's PSD program being effective and
immediately applicable upon redesignation of the Milwaukee-Racine area.
For this reason, and the argument set forth in comment 1 above, the
commenter contends that Wisconsin's ozone redesignation request and
ozone maintenance plan do not meet the requirements of section
107(d)(3)(E) of the CAA.
    The commenter gives the following reasons (see Comments 2(a)-2(c))
for its assertion that Wisconsin's PSD and NSR programs are inadequate
for purposes of redesignation to attainment.
    Comment 2(a): The commenter contends that Wisconsin's PSD program
does not comply with the requirement in EPA's 1997 8-hour ozone
implementation phase 2 rule that NOX be considered as an
ozone precursor under PSD. The commenter argues that the definition in
Wisconsin's NSR and PSD regulations specifies only VOC to

be regulated as an ozone precursor. The commenter claims that this
allows new or modified sources to add or increase NOX
emissions without analyzing their impacts on ozone levels. The
commenter contends that EPA has recently found similar SIPs to be
deficient on this basis, and cites EPA's rulemaking at 75 FR 79300
(December 20, 2010, Mississippi PSD rules).
    Response 2(a): EPA believes that the commenter is mistaken in its
view, and that in fact Wisconsin interprets and implements its NSR and
PSD regulations to include NOX as a precursor for ozone.
Wisconsin has an approved PSD program that includes ozone as a
regulated NSR pollutant. See NR 405.02(25i), Wisconsin Administrative
Code. While the commenter is correct in stating that Wisconsin's rule
does not specifically list NOX as a precursor for ozone, the
rule does define ``regulated NSR air contaminant'' to include ``any air
contaminant for which a national ambient air quality standard has been
promulgated and any constituents or precursors for the air contaminants
identified by the administrator * * *.'' See NR 405.02(25i)(a). EPA has
identified both VOCs and NOX as precursors to ozone in the
definition of ``Regulated NSR Pollutant.'' See 40 CFR
51.166(b)(49)(i)(a), 52.21(b)(50)(i)(a).
    Wisconsin also sets a table of significant emissions rates for
individual pollutants in the definition of significant at NR
405.02(27)(a). This table sets the significant emissions rate for ozone
at 40 tons per year (tpy) of VOCs and separately sets the significant
emissions rate for NOx at 40 tpy. Wisconsin interprets its 40 tpy
significant emissions rate for nitrogen oxides contained in NR
405.02(27)(a) to apply to require both NO2 and ozone air
quality analyses when emissions meet or exceed that emissions rate.
Therefore, an increase in NOX emissions of 40 tpy or more
will trigger the requirements to: (1) Obtain a PSD permit for ozone;
(2) to perform an air quality analysis that demonstrates that the
proposed source or modification will not cause or contribute to a
violation of the ozone NAAQS; and (3) to apply best available control
technology (BACT) for NOX. Wisconsin has confirmed this
interpretation in a May 18, 2012, letter (hereafter, ``Sponseller
letter'') and a June 6, 2012, email from Bart Sponseller, Director of
the Bureau of Air Management, WDNR to Douglas Aburano, Chief of the
Attainment Planning and Maintenance Section, Air Programs Branch, EPA
Region 5. Although EPA is requiring Wisconsin to make revisions to its
PSD regulations to specifically address NOX as a precursor
to ozone for infrastructure SIP purposes, this interpretation means
that Wisconsin is, in practice, requiring air quality analyses for
ozone under its state PSD regulations consistent with Federal PSD
regulations.
    Accordingly, the fact that Wisconsin's approved PSD SIP does not
yet explicitly identify NOX as a precursor to ozone as
required by EPA's Phase 2 ozone implementation rule does not prevent
the program from addressing and helping to assure maintenance of the
ozone standard in accordance with CAA section 175A.
    EPA notes that Wisconsin is currently in the process of adopting
permanent rules for submission to EPA to add NOX as an
explicit precursor to ozone consistent with the Federal regulations.
Irrespective of the State's ongoing regulatory actions, EPA concludes
that the features of Wisconsin's currently approved PSD program cited
by the commenter do not detract from the program's adequacy for
purposes of maintenance of the standard and redesignation of the area.
In light of the assurances provided to EPA in the Sponseller letter and
email, Wisconsin's currently approved PSD program is adequate for
purposes of assuring maintenance of the 1997 8-hour ozone standard as
required by section 175A.
    Comment 2(b): The commenter asserts that the State of Wisconsin
does not conduct ambient air quality analyses for ozone standard
compliance when issuing PSD permits, and that WDNR does not model ozone
impacts, nor does it conduct other analyses of ozone impacts when
issuing permits. The commenter therefore argues that Wisconsin's PSD
program does not ensure that new and modified sources will not cause
additional ozone standard violations.
    Response 2(b): As discussed in response 2(a), Wisconsin has
communicated to EPA that the State is implementing its existing
regulations consistent with the requirements of the Federal PSD
regulations that require an air quality analysis for ozone if a
significant emissions rate of 40 tpy for VOC and/or NOX is
reached or exceeded.
    Furthermore, Federal PSD regulations at 40 CFR 51.166(k), (l) and
(m) and 40 CFR 52.21(k), (l) and (m) contain requirements for ambient
impact analyses for proposed major stationary sources and major
modifications to obtain a PSD permit. These requirements apply for
ozone when such sources or modifications trigger PSD review for ozone,
but do not necessarily require quantitative modeling for ozone in all
cases.\2\ See Letter from Gina McCarthy, EPA Assistant Administrator,
Office of Air and Radiation, to Robert Ukeiley (Jan. 4, 2012) at 2; In
Re CF&I Steel, L.P. dba EVRAZ Rocky Mountain Steel, Petition Number
VIII-2011-01 (Order on Petition) (May 31, 2012) at 21-22. The
regulations at 40 CFR 51.166(l) state that for air quality models the
SIP shall provide for procedures which specify that all applications of
air quality modeling involved in this subpart shall be based on the
applicable models, data bases, and other requirements specified in
appendix W of part 51 (Guideline on Air Quality Models). Where an air
quality model specified in appendix W of part 51 (Guideline on Air
Quality Models) is inappropriate, the model may be modified or another
model substituted. Such a modification or substitution of a model may
be made on a case-by-case basis or, where appropriate, on a generic
basis for a specific State program. Written approval of the
Administrator must be obtained for any modification or substitution. In
addition, use of a modified or substituted model must be subject to
notice and opportunity for public comment under procedures set forth in
Sec.  51.102. See also 40 CFR 52.21(l).
---------------------------------------------------------------------------

    \2\ Wisconsin's rules at NR 405.09, NR 405.10 and NR 405.11 meet
the requirements of 40 CFR 51.166(k), (l), and (m), respectively.
---------------------------------------------------------------------------

    The above-referenced parts of 40 CFR part 51 and 52 contain the
umbrella components for ambient air quality and source impact analyses
for PSD permitting. PSD requirements for SIPs are found in 40 CFR
51.166. As discussed above, sections 51.166(l) and 52.21(l), and
Wisconsin rule NR 405.10, refer to 40 CFR part 51, appendix W for the
appropriate method to utilize for the ambient impact assessment. 40 CFR
part 51, appendix W is the Guideline on Air Quality Models and Section
1.0.a. states that the Guideline recommends air quality modeling
techniques that should be applied to State Implementation Plan (SIP)
revisions for existing sources and to new source review (NSR),
including prevention of significant deterioration (PSD). {footnotes not
included{time}  Applicable only to criteria air pollutants, it is
intended for use by EPA Regional Offices in judging the adequacy of
modeling analyses performed by EPA, State and local agencies, and by
industry. The Guideline is not intended to be a compendium of modeling
techniques. Rather, it should serve as a common measure of acceptable
technical analysis when support by sound scientific judgment.

    Appendix W, section 5.2.1 includes the Guideline recommendations
for models to be utilized in assessing ambient air quality impacts for
ozone. Specifically, Section 5.2.1.c states that choice of methods used
to assess the impact of an individual source depends on the nature of
the source and its emissions. Thus, model users should consult with the
Regional Office to determine the most suitable approach on a case-by-
case basis (subsection 3.2.2).
    Appendix W, section 5.2.1.c provides that the state and local
permitting authorities and permitting applicants should work with the
appropriate EPA Regional Office on a case-by-case basis to determine an
adequate method for performing an air quality analysis for assessing
ozone impacts. Due to the complexity of modeling ozone and the
dependency on the regional characteristics of atmospheric conditions,
EPA believes this is an appropriate approach, rather than specifying a
method for assessing single source ozone impacts, which may not be
appropriate in all circumstances.\3\ Instead, the choice of method
``depends on the nature of the source and its emissions. Thus, model
users should consult with the Regional Office to determine the most
suitable approach on a case-by-case basis'' appendix W, section
5.2.1.c. Thus, appendix W allows flexibility through the consultation
process to determine either modeling based or other analysis techniques
may be acceptable. Based on an evaluation of the source, its emissions
and background ozone concentrations, an ozone impact analysis other
than modeling may be required. Therefore, permitting authorities should
consult and work with EPA Regional Offices as described in appendix W,
including section 3.0.b and c, 3.2.2, and 3.3, to determine the
appropriate approach to assess ozone impacts for each PSD required
evaluation. Although EPA has not selected one particular preferred
model in appendix A of appendix W (Summaries of Preferred Air Quality
Models) for conducting ozone impact analyses for individual sources,
permitting authorities in Wisconsin must comply with the appropriate
PSD SIP requirements with respect to ozone.
---------------------------------------------------------------------------

    \3\ EPA has explained that given the complexities of ozone
formation, its judgment has been that it was not technically sound
to designate with particularity specific models that must be used to
assess the impacts of a single source on ozone concentrations, but
rather has provided a consultation process in appendix W for
determining particular models or other analytical techniques that
should be used on a case-by-case basis. See Letter from Gina
McCarthy, EPA Assistant Administrator, Office of Air and Radiation
to Robert Ukeiley (Jan. 4, 2012) at 2. However, EPA granted a
petition for rulemaking on January 4, 2012, stating that it would
engage in a rulemaking process to consider whether updates to EPA's
Guideline on Air Quality Models as published in appendix W are
warranted, and, as appropriate, to incorporate new analytical
techniques or models for ozone. Id at 1.
---------------------------------------------------------------------------

    EPA has previously approved the State's PSD program.\4\ EPA expects
Wisconsin to consult with staff in the Region 5 Office on a case-by-
case basis for permitting purposes to determine appropriate methods for
assessing the impacts from specific sources on ozone concentrations. An
example of such consultation is the permitting action for Aarrowcast,
Inc. in Shawano, Wisconsin.
---------------------------------------------------------------------------

    \4\ See, ``Approval and Promulgation of Implementation Plans;
Wisconsin,'' 64 FR 28745 (May 27, 1999). While the Phase 2 Rule
obligates states to make explicit regulatory changes in order to
clarify and remove any ambiguity concerning the requirement that
NOX be treated as a precursor to ozone in permitting
contexts, the State has authority in its PSD SIP to treat
NOX as a precursor to ozone in permitting decisions, and
the State is correctly interpreting its PSD and NSR regulations with
regard to inclusion of NOX as a precursor to ozone as
discussed in Response 2(a).
---------------------------------------------------------------------------

    Comment 2(c): The commenter contends that the Wisconsin SIP is
deficient because it contains an unacceptable definition of ``major
modification'' for purposes of NSR and PSD for sources involving fuel
change. The commenter cites a June 17, 2009, letter from EPA to WDNR
noting this definition problem in the Wisconsin SIP. The commenter
asserts that because of this problem, emissions can increase as a
result of non-exempt fuel changes without going through a PSD analysis,
meaning that PSD provides no protection for the ozone NAAQS in some
situations.
    Response 2(c): ``Major modification'' as it relates to PSD is
generally defined in NR 405.02(21) of Wisconsin's SIP. The exemptions
to ``physical change'' or ``change in the method of operation'' are
contained at NR 405.02(21)(b). One exemption is the ability of a source
capable of accommodating different types of fuels before 1975 to switch
the type of fuel burned, unless prohibited by a restriction in a permit
established after 1975.
    EPA regulations contained at 40 CFR 51.166(b)(2)(iii)(e)(1) and (2)
specifically prescribe when use of an alternative fuel is not
considered a physical change for purposes of defining a ``major
modification.'' These regulations require that a physical change or
change in the method shall not include use of an alternative fuel or
raw material by a stationary source which the source was capable of
accommodating before January 6, 1975, unless such change would be
prohibited under any Federally enforceable permit condition which was
established after January 6, 1975 pursuant to 40 CFR 52.21 or under
regulations approved pursuant to 40 CFR part 51, subpart I, or 40 CFR
51.166; or the source is approved to use the fuel under any permit
issued under 40 CFR 52.21 or under regulations approved pursuant to 40
CFR 51.166.
    The Wisconsin regulations set out the conditions for the fuel
change exemption as follows:

    The source was capable of accommodating the alternative fuel or
raw material before January 6, 1975, unless the change would be
prohibited under any federally enforceable permit condition which
was established after January 6, 1975 pursuant to this chapter or
ch. NR 406 or 408 or under an operation permit issued pursuant to
ch. NR 407.
    [Or, t]he source is approved to use the alternative fuel or raw
material under any permit issued under this chapter or ch. NR 406,
407, or 408. See NR 405.02(21)(b)(5).

    The Wisconsin rule is similar to the Federal rule, but differs by
substituting references to Wisconsin Administrative Code sections, and
omitting reference to permits issued under the Federal program at 40
CFR 52.21.
    The commenter raised concerns that failure to cite Federal
regulations results in the loss of prohibitions on fuel use exemptions
that may have been contained in Federally-issued PSD permits, issued
prior to EPA's approval of Wisconsin's PSD SIP, resulting in more
exemptions to the definition of ``major modification'' than allowed by
the Federal rules.
    WDNR states that under its title V operating permit program, all
applicable requirements to a source are included in its operation
permit. As a result, WDNR states that it clearly recognizes that
requirements contained in a Federally-issued PSD permit would be
applicable requirements to the source and that they would be included
in the source's title V operating permit, therefore making the
requirements fully enforceable under State and Federal law. WDNR has
taken the position that this is a very narrow issue and has asserted
that ``to its knowledge it is not aware of a single situation where an
omission has occurred in practice.'' See Sponseller letter. While the
commenter contends that emissions can ``increase from non-exempt fuel
changes without going through a PSD analysis,'' the commenter has not
provided information to support this assertion nor has he identified
any instance where any such emissions increase has actually occurred.
    Although EPA is requiring Wisconsin to revise its PSD regulations
to specifically address this issue for

infrastructure SIP purposes, EPA agrees with WDNR that this issue is a
very narrow one, and that an omission in practice is perhaps
nonexistent. EPA recognizes that in practice, WDNR has the authority
and means to ensure adherence to the prohibitions on fuel use
exemptions in certain instances, consistent with our own definition of
``major modification.'' Therefore, EPA concludes that the features of
Wisconsin's current PSD program cited by the commenter do not detract
from the program's adequacy for purposes of maintenance of the standard
and redesignation of the area.
    Comment 3: The commenter asserts that, besides PSD and NSR
deficiencies, the Wisconsin SIP contains several other deficiencies
that are contrary to the requirements of section 110 of the CAA.
    The commenter claims that the Wisconsin SIP contains a source
startup and shutdown excess emissions exemption that EPA has found to
be not approvable and in conflict with section 110 of the CAA. The
commenter also asserts that the Wisconsin SIP contains ``illegal''
Director's Discretion provisions and that EPA has interpreted section
110 as prohibiting such SIP provisions. The commenter claims that the
Wisconsin Administrative Code contains such provisions at NR 436.03(2),
NR 436.04, and NR 436.06. The commenter asserts that, historically, EPA
has determined that it cannot approve SIPs as being adequate when they
contain such Director's Discretion provisions that have the potential
to change the stringency of the SIP.
    Response 3: The issue before EPA in the current rulemaking action
is a redesignation for the Milwaukee-Racine area for the 1997 8-hour
ozone standard, including the maintenance plan, and comprehensive
emissions inventories. The SIP provisions identified by the commenter
are not currently being proposed for revision as part of the
redesignation submittals. Because the rules cited by the commenter are
not pending before EPA and/or are not the subject of this rulemaking
action, EPA did not undertake a full SIP review of the individual
provisions. It has long been established that EPA may rely on prior SIP
approvals in approving a redesignation request plus any additional
measures it may approve in conjunction with a redesignation action. See
e.g., page 3 of the September 4, 1992, memorandum from John Calcagni
entitled ``Procedures for Processing Requests to Redesignate Areas to
Attainment'' (Calcagni Memorandum); Wall v. EPA, 265 F.3d 426 (6th Cir.
2001); Southwestern Pennsylvania Growth Alliance v. Browner, 144 F.3d
984 (6th Cir. 1998); 68 FR 25413, 25426 (May 12, 2003) (St. Louis
redesignation). The CAA does not require EPA in the context of a
redesignation to attainment to revisit and address existing SIP
provisions, and envisions that EPA may address such issues separately
and outside the context of action on a redesignation request.
    The CAA provides other avenues and mechanisms to address specific
substantive deficiencies in existing SIPs. These statutory tools allow
EPA to take appropriate tailored action, depending upon the nature and
severity of the alleged SIP deficiency. Section 110(k)(5) authorizes
EPA to issue a ``SIP call'' whenever the Agency determines that a
state's SIP is substantially inadequate to attain or maintain the
NAAQS, to mitigate interstate transport, or otherwise to comply with
the CAA.\5\ Section 110(k)(6) authorizes EPA to correct errors in past
actions, such as past approvals of SIP submissions.\6\
---------------------------------------------------------------------------

    \5\ For example, EPA has recently issued a SIP call in Utah to
rectify a specific SIP deficiency related to a startup, shutdown and
malfunction issue. See, ``Finding of Substantial Inadequacy of
Implementation Plan; Call for Utah State Implementation Plan
Revision,'' 74 FR 21639 (April 18, 2011).
    \6\ EPA has recently utilized this authority to correct errors
in past actions on SIP submissions related to PSD programs. See,
``Limitation of Approval of Prevention of Significant Deterioration
Provisions Concerning Greenhouse Gas Emitting-Sources in State
Implementation Plans; Final Rule,'' 75 FR 82,536 (December 30,
2010). EPA has previously used its authority under CAA 110(k)(6) to
remove numerous other SIP provisions that the Agency determined it
had approved in error. See, e.g., 61 FR 38664 (July 25, 1996) and 62
FR 34641 (June 27, 1997) (corrections to American Samoa, Arizona,
California, Hawaii, and Nevada SIPs); 69 FR 67062 (November 16,
2004) (corrections to California SIP); and 74 FR 57051 (November 3,
2009) (corrections to Arizona and Nevada SIPs).
---------------------------------------------------------------------------

    Comment 4: The commenter argues that EPA has not demonstrated that
the reduction in ozone pollution in the Milwaukee-Racine area is due to
permanent and enforceable emission reductions. The bases for the
commenter's assertion are set forth in comments 4(a) through (f).
    Comment 4a: The commenter asserts that comparing 2005 and 2008
emissions in the Milwaukee-Racine ozone nonattainment area is not an
adequate method to demonstrate that the ozone air quality improvement
in this area is due to the implementation of permanent and enforceable
emission control measures, in keeping with section 107(d)(3)(E)(iii) of
the CAA. The commenter contends that the calculated change in VOC and
NOX emissions between 2005 and 2008 does not show that the
emission changes were due to permanent and enforceable emission
reductions, as opposed to temporary emission reductions and/or emission
reductions due to factory output slowdowns (under utilization of
factory capacity) or recession-related output and transportation
declines.
    To support the commenter's assertion, the commenter compares 2008
permitted (allowable) NOX emissions for electric power
plants in the Milwaukee-Racine area with the total point source
NOX emissions documented by EPA for this area in EPA's
Milwaukee-Racine area ozone redesignation proposed rule. The commenter
shows that the permitted NOX emissions from only the
electric power plants in the Milwaukee-Racine area exceed the actual
2008 NOX emissions for all point sources in the Milwaukee-
Racine area reported by EPA in the proposed rule for the redesignation
of the Milwaukee-Racine area to attainment of the 1997 8-hour ozone
standard, 77 FR 6738. The commenter contends that the comparison of
permitted NOX emissions (electric generating plants) and
actual, reported NOX emissions (all point sources) shows
that facilities can lawfully emit at much higher rates. Therefore, the
commenter asserts that EPA has not properly considered permanent and
enforceable emission reductions.
    Response 4a: EPA's longstanding practice and policy \7\ provide for
states to demonstrate permanent and enforceable emissions reductions by
comparing nonattainment area emissions occurring during the
nonattainment period with emissions in the area during the attainment
period. Therefore, selecting 2008 as a representative attainment year,
and comparing emissions for this year to those of a representative year
during the nonattainment period, 2005, is an appropriate and long-
established approach to demonstrate that emission reductions occurred
in the area between the years of nonattainment and attainment. These
reductions, therefore, can be seen to account for the observed air
quality improvement.
---------------------------------------------------------------------------

    \7\ See Calcagni memorandum, pp. 4 and 8-9.
---------------------------------------------------------------------------

    As discussed in the proposed rule at 77 FR 6727, 6737-6738
(February 9, 2012), Wisconsin and upwind areas have implemented a
number of permanent and enforceable regulatory control measures which
have reduced emissions and resulted in a corresponding improvement in
air quality. These controls include regulations to control
NOX emissions at electric utilities and large industrial
combustion sources and establish NOX emissions standards for
new sources;

Tier 2 emission standards for vehicles; and the nonroad diesel rule. In
addition a broad range of emission sectors were required to reduce
ozone precursors as a result of being subject to Federal new source
performance standards, national emissions standards for hazardous air
pollutants, and maximum achievable control technology standards with
compliance requirements that take effect over the relevant time period.
Further, Federal control measures as well as the NOX SIP
Call have resulted in reduced ozone precursors being transported into
the area. While the commenter expressed concerns that the emissions
reductions may be temporary and/or due to factory output slowdowns
(underutilization of factory capacity) or recession-related output and
transportation declines, the commenter has made no demonstration that
this is the case.
    With regard to consideration of actual versus allowable/permitted
emission levels, longstanding practice and EPA policy support the use
of actual emissions when demonstrating permanent and enforceable
emission reductions.\8\ Changes in actual emissions are more reflective
of emission reductions that in reality contribute to improvements in
monitored ozone concentrations. Sources seldom, if ever, emit at
maximum allowable emission levels, and assuming that all sources
simultaneously operate at maximum capacity would result in a gross
overestimation of emission levels. For this reason, EPA believes actual
emissions are the appropriate emission levels to consider when
comparing nonattainment year emissions with attainment year emissions.
---------------------------------------------------------------------------

    \8\ See Calcagni Memorandum, pp. 4 and 8-9.
---------------------------------------------------------------------------

    Comment 4b: The commenter contends that neither EPA nor the State
of Wisconsin made any calculation of the amounts of emission reduction
that actually resulted from the implementation of permanent and
enforceable emission controls. The commenter asserts that there was no
connection between the reported change in actual emissions and the
enforceable emission reduction requirements implemented in the
Milwaukee-Racine area.
    The commenter objects to EPA's listing of implemented emission
control requirements as a demonstration that such emission control
requirements have resulted in the observed ozone air quality
improvement in the Milwaukee-Racine area. The commenter states that EPA
has not estimated the emission impacts of each of the implemented
emission control requirements and contends that EPA has not tied such
emissions impacts to the reported change in actual emissions between
2005 and 2008.
    Response 4b: EPA's conclusion here is fully supported by the facts
and applicable legal criteria. EPA's longstanding practice and policy
\9\ provides for states to demonstrate permanent and enforceable
emissions reductions by comparing nonattainment area emissions
occurring during the nonattainment period with emissions in the area
during the attainment period. See response 4a.
---------------------------------------------------------------------------

    \9\ See Calcagni memorandum, pp. 4 and 8-9.
---------------------------------------------------------------------------

    Therefore, selecting 2008 as a representative attainment year, and
comparing emissions for this year to those for a representative year
during the nonattainment period, 2005, is an appropriate and long-
established approach to establish that emission reductions occurred in
the area between the years of nonattainment and attainment. These
emission reductions, therefore, can be seen to account for the observed
air quality improvement.
    In developing the attainment year emissions inventory, the State
took into account permanent and enforceable emissions control programs
being implemented when estimating emissions. The change in emissions
from 2005 to 2008 is shown in Table 4 in the proposed rule (77 FR 6727,
6738).
    For point sources, the State's emissions estimates factored in
process information, operation information and control factors.
Wisconsin adopted NOX RACT regulations to control
NOX emissions at electric utilities and large industrial
combustion sources and established NOX emissions standards
for new sources. The regulation of existing sources was estimated to
achieve a 30 ton per day (tpd) reduction in NOX by 2003 and
a 55 tpd reduction by 2007, i.e., approximately a 25 tpd reduction
between 2003, a nonattainment year and 2007, an attainment year.
    For area sources, emissions are strongly associated with population
levels. Therefore, although controls were considered in area source
calculations, emissions grew slightly between 2005 and 2008 as a result
of population growth.
    Reductions in VOC and NOX emissions have occurred as a
result of Federal mobile source emission control measures, with
additional emission reductions expected to occur over the maintenance
period. These measures include Tier 2 Emission Standards for Vehicles
and Gasoline Sulfur Standards, the Heavy-Duty Diesel Engine Rule, and
the Nonroad Diesel Rule. Emissions reductions from these permanent and
enforceable programs were quantified by the State in its calculation of
the nonroad and onroad mobile sector emissions inventories.
    For nonroad mobile sources, it is standard and accepted practice
for states to estimate emissions using an EPA-approved emissions model.
Wisconsin ran EPA's approved emissions model, National Mobile Inventory
Model (NMIM), which estimates emissions while taking into account the
effect of Federal nonroad mobile control programs and fleet turnover.
The NMIM model showed that between 2005 and 2008, total nonroad VOC and
NOX emissions in the Milwaukee-Racine area were reduced by
approximately 17 percent and 10 percent, respectively. The emissions
estimates generated by NMIM quantify permanent and enforceable
emissions reductions from nonroad mobile control programs; it is not
necessary for the state to identify the portion of these reductions
attributable to each individual control measure.
    For onroad mobile sources, it is standard and accepted practice for
states to estimate emissions using an EPA-approved emissions model and
daily vehicle miles traveled data. Wisconsin ran EPA's approved onroad
mobile emissions model, MOVES2010a, which takes into account the effect
of Federal motor vehicle control programs and fleet turnover when
calculating emissions estimates. Between 2005 and 2008, onroad VOC and
NOX emissions in the Milwaukee-Racine area were reduced by
approximately 22 percent and 21 percent, respectively. The emissions
estimates generated by the MOVES model quantify permanent and
enforceable emissions reductions from all Federal motor vehicle control
programs; it is not necessary for the state to identify the portion of
these reductions attributable to each individual control measure.
    Permanent and enforceable emissions reductions in upwind areas also
contributed to attainment of the 1997 8-hour ozone standard in the
Milwaukee-Racine area. While Wisconsin did not quantify these upwind
emissions reductions by state, overall emissions reductions estimates,
by program, are available. Under the NOX SIP Call, ozone
season NOX emissions were reduced by approximately 68,000
\10\ tons between 2005 and 2008. In addition, permanent and enforceable
reductions in VOC and NOX emissions have

occurred in upwind areas from Federal motor vehicle control programs.
Overall emissions reductions from the implementation of these programs
have been estimated as follows: Tier 2 Emission Standards for Vehicles
and Gasoline Sulfur Standards, 69-95 percent reduction in
NOX and 12-18 percent reduction in VOCs, depending on
vehicle class; the Heavy-Duty Diesel Engine Rule, 95 percent reduction
in NOX; and the Nonroad Diesel Rule, 90 percent reduction in
NOX. Some of these emission reductions occurred by the
attainment period and additional emission reductions will occur during
the maintenance period as the fleet turns over.
---------------------------------------------------------------------------

    \10\ See 2008 NOx Budget Trading Program Progress Report, http://www.epa.gov/airmarkets/progress/NBP_4.html.
---------------------------------------------------------------------------

    It is not necessary for every change in emissions between the
nonattainment year and the attainment year to be permanent and
enforceable. Rather, the improvement in air quality necessary for the
area to attain the relevant NAAQS must be reasonably attributable to
permanent and enforceable reductions in emissions. In summary, the
State has identified a number of permanent and enforceable regulatory
control measures which have been implemented in Wisconsin as well as in
upwind areas and has documented significant emissions reductions
resulting from these programs. These documented permanent and
enforceable emissions reductions in combination with four three-year
periods of monitoring data showing that the Milwaukee-Racine area is
attaining the 1997 8-hour ozone NAAQS (2006-2008, 2007-2009, 2008-2010,
and 2009-2011) represents an adequate demonstration that the
improvement in air quality can reasonably be attributed to the
significant reduction in emissions resulting from permanent and
enforceable emissions control programs.
    Comment 4c: The commenter objects to EPA's statement that emission
reductions resulted from Wisconsin's implementation of the Rate-Of-
Progress (ROP) plan under the previous 1-hour ozone standard. The
commenter claims that the ROP plan was implemented well before 2005,
the base year of EPA's emission comparison, and that implementation
preceded the years the area violated the 1997 8-hour ozone standard.
    Response 4c: The commenter's objection is unfounded. EPA mentioned
Wisconsin's ROP plan under the 1-hour ozone standard in the context of
its discussion of Wisconsin's stationary source NOX emission
control rules. See 77 FR 6737. Wisconsin estimated that the State's
stationary NOX emission control rules, which include
emission controls applied at electric utilities and large industrial
combustion sources, would produce NOX emission reductions
between 2005 and 2007. Wisconsin estimated that these emission controls
would achieve a 30 tpd reduction in NOX emissions by 2003
and a 55 tpd reduction by 2007, i.e., approximately a 25 tpd additional
reduction between 2003 and 2007.
    The fact that the State adopted the NOX control rules in
the State's ROP plan under the 1-hour ozone standard and that it began
implementing the ROP plan prior to 2005 does not preclude
NOX emission reductions from these NOX control
rules from occurring after 2005. The implementation of these rules was
phased in over time, resulting in additional emission reductions for a
number of years after the State's adoption of the NOX
emissions control regulations.
    Comment 4d: The commenter objects to EPA's citing of EPA's 2004
non-road diesel engine rule and 2000 and 2007 heavy duty diesel rules
without acknowledging that the emissions reduction estimates for these
rules are national calculations of the possible emission impacts once
the rules are fully implemented. The commenter argues that, since these
rules rely on fleet turnover, they did not result in major emission
reductions between 2005 and 2008. The commenter believes that EPA erred
in not making an emission reduction estimate for the local impacts of
these rules during the period of 2005-2008.
    Response 4d: There is no basis for EPA to conclude that the Federal
diesel emission controls cited by the commenter have had a smaller
impact, on a percentage emission reduction basis, in the Milwaukee-
Racine area than in other parts of the United States. EPA has cited
national emission reduction estimates on a percentage basis for these
controls, with the implication that similar emission reduction
percentages have occurred in the Milwaukee-Racine area. The commenter
has provided no independent emission reduction estimates localized to
the Milwaukee-Racine area to refute EPA's assumption that such emission
reductions have occurred in the Milwaukee-Racine area. Lacking such
estimates, EPA continues to believe that the Federal diesel emission
control requirements have resulted in reduced NOX and VOC
emissions in the Milwaukee-Racine area, resulting in lower peak ozone
concentrations in this area.
    Furthermore, for nonroad mobile sources, it is a standard and
accepted practice for states to estimate emissions using an EPA-
approved emissions model. Wisconsin ran EPA's approved emissions model,
NMIM, which takes into account the affect of Federal nonroad mobile
control programs and fleet turnover when calculating emissions
estimates. Between 2005 and 2008, total nonroad VOC and NOX
emissions in the Milwaukee-Racine area were reduced by approximately 17
percent and 10 percent, respectively.
    For onroad mobile sources, it is standard and accepted practice for
states to estimate emissions using an EPA-approved emissions model and
daily vehicle miles traveled data. Wisconsin ran EPA's approved onroad
mobile emissions model, MOVES2010a, which takes into account the affect
of Federal motor vehicle control programs and fleet turnover when
calculating emissions estimates. Between 2005 and 2008, onroad VOC and
NOX emissions in the Milwaukee-Racine area were reduced by
approximately 22 percent and 21 percent, respectively.
    Comment 4e: The commenter objects to EPA's reference to the
NOX SIP Call since EPA failed to mention that Wisconsin
sources were not included in this regulation. The commenter asserts
that the NOX emission reductions resulting for sources
upwind of the Milwaukee-Racine area are not permanent and enforceable
because the NOX SIP Call has been replaced and its
replacement has been stayed by the United States Court of Appeals for
the District of Columbia Circuit (D.C. Appeals Court). Finally, the
commenter argues that the NOX SIP Call cannot be relied on
to produce permanent and enforceable NOX emission reductions
because the NOX SIP Call provides for the use of a cap-and-
trade emission control program, which the D.C. Appeals Court has held
cannot satisfy area-specific statutory emission control requirements.
NRDC v. EPA, 571 F.3d 1245, 1257 (D.C. Cir. 2009).
    Response 4e: The commenter's assertion that EPA failed to mention
that Wisconsin sources were not covered by the NOX SIP Call
is incorrect. The proposal included a footnote explicitly noting that
the State of Wisconsin was not included in the NOX SIP Call
(77 FR 6732 n.3). EPA also did not propose to rely on and is not
relying on any reductions associated with the NOX SIP Call
in the State of Wisconsin or in the Milwaukee-Racine ozone
nonattainment area. With regard to NOX emission reductions
in the Milwaukee-Racine ozone nonattainment area, we note here that
Wisconsin has adopted and implemented NOX RACT rules for
major NOX sources in the Milwaukee-Racine ozone
nonattainment area. These NOX RACT rules were approved into
the

Wisconsin SIP by the EPA on October 19, 2010, 75 FR 64155. Wisconsin's
NOX RACT rules became effective on August 1, 2007, and
required source compliance with the rules by May 1, 2009. Although
sources had until May 1, 2009, to fully comply with the NOX
RACT rules, EPA believes that some sources began implementation of the
required NOX emission controls well ahead of this
implementation deadline, resulting in NOX emission
reductions in the Milwaukee-Racine ozone nonattainment area by 2008.
These NOX emission controls are permanent and enforceable.
    While the NOX SIP Call did not cover the State of
Wisconsin, it did require the District of Columbia and 22 states to
reduce emissions of NOX and, as EPA noted in the proposal,
these reductions resulted in lower concentrations of transported ozone
entering the Milwaukee-Racine area. 77 FR 6737. Because the area is
impacted by the transport of ozone and its precursors, upwind
reductions in NOX resulting from the NOX SIP Call
are relevant to these redesignation actions. EPA disagrees with the
commenter's position that NOX emission reductions in areas
upwind of the Milwaukee-Racine area and associated with the
NOX SIP Call cannot be considered to be permanent and
enforceable. The commenter's first argument--that the NOX
emission reductions are not permanent and enforceable because the
NOX SIP Call has been replaced--is based on a
misunderstanding of the relationship between CAIR and the
NOX SIP Call. While the CAIR ozone-season trading program
replaced the ozone-season NOX trading program developed in
the NOX SIP Call (70 FR 25290), nothing in the CAIR relieved
states of their NOX SIP Call obligations. In fact, in the
preamble to CAIR, EPA emphasized that the states and certain units
covered by the NOX SIP Call but not CAIR must still satisfy
the requirements of the NOX SIP Call. EPA provided guidance
regarding how such states could meet these obligations.\11\ EPA did not
suggest that states could disregard their NOX SIP Call
obligations. (70 FR 25290). For states covered by the NOX
SIP Call, the CAIR NOX ozone season program provides a way
to continue to meet the NOX SIP Call obligations for
electric generating units (EGUs) and large non-electric generating
units (nonEGUs). In addition, the anti-backsliding provisions of 40 CFR
51.905(f) specifically provide that the provisions of the
NOX SIP Call, including the statewide NOX
emission budgets, continue to apply.
---------------------------------------------------------------------------

    \11\ EPA guidance regarding the NOX SIP Call
transition to CAIR can be found at http://www.epa.gov/airmarkets/progsregs/cair/faq-10.html. EPA guidance regarding the
NOX SIP Call transition for the CSAPR can be found at
http://www.epa.gov/crossstaterule/faqs.html.
---------------------------------------------------------------------------

    In sum, the requirements of the NOX SIP Call remain in
force. They are permanent and enforceable as are state regulations
developed to implement the requirements of the NOX SIP Call.
Further, the fact that the CSAPR which was to replace CAIR was stayed
by the D.C. Appeals Court is not relevant since neither CAIR nor the
CSAPR replace the requirements of the NOX SIP Call, and EPA
has determined that the area does not need any additional reductions
from CAIR or the CSAPR to remain in attainment.
    EPA also disagrees with the commenter's argument that the emission
reductions in upwind areas associated with the NOX SIP Call
cannot be considered permanent and enforceable because the
NOX SIP Call provides for a trading program. There is no
support for the commenter's argument that EPA must ignore all emission
reductions in upwind areas that were achieved by the NOX SIP
Call simply because the mechanism used to achieve the emission
reductions is an emissions trading program. As a general matter,
trading programs establish mandatory caps on emissions and permanently
reduce the total emissions allowed by sources subject to the programs.
The emission caps and associated controls are enforced through the
associated SIP rules or Federal Implementation Plans (FIPs). Any
purchase of allowances and increase in emissions by a utility
necessitates a corresponding sale of allowances and results in an
emission reduction by another utility. Given the regional nature of
ozone formation and transport, the emission reductions will have an air
quality benefit that will compensate, at least in part, for the impact
of any emission increase.
    In addition, the case cited by the commenter, NRDC v. EPA, 571 F.3d
1245 (DC Cir. 2009), does not support the commenter's position. The
case addressed EPA's determination that the CAA nonattainment area RACT
requirement was satisfied by the NOX SIP Call trading
program. The court held that, because EPA had not demonstrated that the
trading program would result in sufficient emission reductions within a
nonattainment area, its determination that the program satisfied RACT
was not supported. Id. 1256-58. The court explicitly noted that EPA
might be able to reinstate the provision providing that compliance with
the NOX SIP Call satisfies NOX RACT for EGUs for
particular nonattainment areas if, upon conducting a technical
analysis, it could demonstrate that the NOX SIP Call results
in greater emissions reductions in a nonattainment area than would be
achieved if RACT-level controls were installed in that area. Id. at
1258. In this case, EPA did not assume that the NOX SIP Call
led to any reductions within the nonattainment area. As such, the NRDC
v. EPA decision is not relevant here.
    Comment 4f: The commenter asserts that neither EPA nor the State of
Wisconsin have attempted to demonstrate the connection between the
reported emission reductions and the observed ozone air quality
improvement in the Milwaukee-Racine area. No modeling or other
acceptable analyses, including temporal analyses of emission changes
and ozone changes, have been done to demonstrate that the emission
reductions are responsible for the observed air quality improvement. No
correlation between emission changes and ozone changes has been
established. Therefore, EPA has failed to prove that permanent and
enforceable emission reductions have caused the observed ozone air
quality improvement in the Milwaukee-Racine area.
    Response 4f: EPA's conclusion that the ozone improvement in the
Milwaukee-Racine area is due to the implementation of emission controls
is fully supported by the facts and applicable legal criteria. As
discussed in greater detail in response 4(b), EPA's longstanding
practice and policy provides for states to demonstrate permanent and
enforceable emissions reductions by comparing nonattainment area
emissions occurring during the nonattainment period with the emissions
in the area during the attainment period. Therefore, selecting 2008 as
a representative attainment year, and comparing emissions for this year
to those for a representative year during the nonattainment period,
2005, is an appropriate and long-established approach that demonstrates
the occurrence of emission reductions in the area between the years of
nonattainment and attainment. These emission reductions, therefore, can
be seen to account for the observed air quality improvement.
    With respect to the commenter's assertion that EPA has not
conducted analyses to prove that emission reductions between 2005 and
2008 led to reduced ozone concentrations, as noted above, comparing
emissions for a representative nonattainment year to emissions for a
representative attainment year is such a demonstration. The CAA does
not specifically require the use of modeling in making any such
demonstration and it has not been the general practice to do so. The
State has

identified a number of permanent and enforceable regulatory control
measures that have been implemented in Wisconsin as well as in upwind
areas, and has documented significant emissions reductions resulting
from these programs. These documented permanent and enforceable
emissions reductions in combination with four three-year periods of
monitoring data showing that the Milwaukee-Racine area is attaining the
1997 8-hour ozone NAAQS (2006-2008, 2007-2009, 2008-2010, and 2009-
2011) represents an adequate demonstration that the improvement in air
quality can reasonably be attributed to the significant reduction in
emissions resulting from permanent and enforceable emissions control
programs.
    Comment 5: The commenter contends that EPA has not conducted an
adequate analysis of the effect the ozone redesignation will have on
other NAAQS. The commenter claims that EPA has failed to comply with
the requirements of section 110(l), which requires EPA to conduct such
an analysis whenever it approves a revision in a state air quality
plan.
    Response 5: Section 110(l) provides in part: ``the Administrator
shall not approve a revision of a plan if the revision would interfere
with any applicable requirement concerning attainment and reasonable
further progress * * *, or any other applicable requirement of this
chapter.'' As a general matter, EPA must and does consider section
110(l) requirements for every SIP revision, including whether the
revision would ``interfere with'' any applicable requirement. See,
e.g., 70 FR 53, 57 (January 3, 2005); 70 FR 17029, 17033 (April 4,
2005); 70 FR 28429, 28431 (May 18, 2005); and 70 FR 58119, 58134
(October 5, 2005). The Wisconsin maintenance plan and redesignation for
the 1997 8-hour ozone standard do not revise or remove any existing
emissions limit for any NAAQS, nor do they alter any existing control
requirements. On that basis, EPA concludes that the redesignation will
not interfere with attainment or maintenance of any air quality
standards. The commenter does not provide any information to
demonstrate that approval of this redesignation would have any impact
on the area's ability to comply with the any NAAQS. In fact, the
maintenance plan provided with the State's submission demonstrates a
decline in ozone precursor emissions over the timeframe of the initial
maintenance period. As a result, the redesignation will not relax any
existing rules or limits, nor will the redesignation alter the status
quo air quality. The commenter has not provided any reason that the
redesignation might interfere with attainment of any standard or with
satisfaction of any other requirement of the CAA, and EPA finds no
basis under section 110(l) for EPA to disapprove the SIP revision.

III. What actions is EPA taking?

    EPA is approving a request from the State of Wisconsin to
redesignate the Milwaukee-Racine area to attainment of the 1997 8-hour
ozone standard. EPA is also taking several other related actions. EPA
is approving, as a revision to the Wisconsin SIP, the State's plan for
maintaining the 1997 8-hour ozone standard through 2022 in the area.
EPA is approving the 2005 emissions inventories as meeting the
comprehensive emissions inventory requirement of the CAA for the
Milwaukee-Racine and Sheboygan areas. Finally, EPA finds adequate and
is approving the State's 2015 and 2022 MVEBs for the Milwaukee-Racine
area.
    In accordance with 5 U.S.C. 553(d), EPA finds there is good cause
for these actions to become effective immediately upon publication.
This is because a delayed effective date is unnecessary due to the
nature of a redesignation to attainment, which relieves the area from
certain CAA requirements that would otherwise apply to it. The
immediate effective date for this action is authorized under both 5
U.S.C. 553(d)(1), which provides that rulemaking actions may become
effective less than 30 days after publication if the rule ``grants or
recognizes an exemption or relieves a restriction,'' and section
553(d)(3), which allows an effective date less than 30 days after
publication ``as otherwise provided by the agency for good cause found
and published with the rule.'' The purpose of the 30-day waiting period
prescribed in section 553(d) is to give affected parties a reasonable
time to adjust their behavior and prepare before the final rule takes
effect. Today's rule, however, does not create any new regulatory
requirements such that affected parties would need time to prepare
before the rule takes effect. Rather, today's rule relieves the state
of planning requirements for this 8-hour ozone nonattainment area. For
these reasons, EPA finds good cause under 5 U.S.C. 553(d)(3) for these
actions to become effective on the date of publication of these
actions.

IV. Statutory and Executive Order Reviews

    Under the CAA, redesignation of an area to attainment and the
accompanying approval of a maintenance plan under section 107(d)(3)(E)
are actions that affect the status of a geographical area and do not
impose any additional regulatory requirements on sources beyond those
imposed by state law. A redesignation to attainment does not in and of
itself create any new requirements, but rather results in the
applicability of requirements contained in the CAA for areas that have
been redesignated to attainment. Moreover, the Administrator is
required to approve a SIP submission that complies with the provisions
of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40
CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to
approve state choices, provided that they meet the criteria of the CAA.
These actions do not impose additional requirements beyond those
imposed by state law and the CAA. For that reason, these actions:
     Are not a ``significant regulatory action'' subject to
review by the Office of Management and Budget under Executive Order
12866 (58 FR 51735, October 4, 1993);
     Do not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Are certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Do not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Do not have Federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Are not an economically significant regulatory action
based on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Are not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Are not subject to requirements of Section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the Clean Air Act; and
     Do not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, this rule does not have tribal implications as
specified by

Executive Order 13175 (65 FR 67249, November 9, 2000), because
redesignation is an action that affects the status of a geographical
area and does not impose any new regulatory requirements on tribes,
impact any existing sources of air pollution on tribal lands, nor
impair the maintenance of ozone national ambient air quality standards
in tribal lands. However, because there are tribal lands located in
Milwaukee County, we provided the affected tribe with the opportunity
to consult with EPA on the redesignation. The affected tribe raised no
concerns with the redesignation.
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this action and
other required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2).
    Under section 307(b)(1) of the CAA, petitions for judicial review
of this action must be filed in the United States Court of Appeals for
the appropriate circuit by October 1, 2012. Filing a petition for
reconsideration by the Administrator of this final rule does not affect
the finality of this action for the purposes of judicial review nor
does it extend the time within which a petition for judicial review may
be filed, and shall not postpone the effectiveness of such rule or
action. This action may not be challenged later in proceedings to
enforce its requirements. (See section 307(b)(2).)

List of Subjects

40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by
reference, Intergovernmental relations, Nitrogen dioxide, Ozone,
Volatile organic compounds.

40 CFR Part 81

    Air pollution control, Environmental protection, National parks,
Wilderness areas.

    Dated: July 11, 2012.
Susan Hedman,
Regional Administrator, Region 5.

    Therefore, 40 CFR parts 52 and 81 are amended as follows:

PART 52--[AMENDED]

0
1. The authority citation for part 52 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

0
2. Section 52.2585 is amended by adding paragraphs (z) and (aa) to read
as follows:

Sec.  52.2585  Control strategy: Ozone.

* * * * *
    (z) Approval--Wisconsin submitted 2005 VOC and NOX
emissions inventories for the Milwaukee-Racine and Sheboygan areas on
September 11, 2009, and supplemented the submittal on November 16,
2011. Wisconsin's 2005 inventories satisfy the emissions inventory
requirements of section 182(a)(1) of the Clean Air Act for the
Milwaukee-Racine and Sheboygan areas under the 1997 8-hour ozone
standard.
    (aa) Approval--On September 11, 2009, Wisconsin submitted a request
to redesignate the Milwaukee-Racine area to attainment of the 1997 8-
hour ozone standard. The state supplemented this submittal on November
16, 2011. As part of the redesignation request, the State submitted a
maintenance plan as required by section 175A of the Clean Air Act.
Elements of the section 175 maintenance plan include a contingency plan
and an obligation to submit a subsequent maintenance plan revision in 8
years as required by the Clean Air Act. The ozone maintenance plan also
establishes 2015 and 2022 Motor Vehicle Emission Budgets (MVEBs) for
the area. The 2015 MVEBs for the Milwaukee-Racine area is 21.08 tpd for
VOC and 51.22 tpd for NOX. The 2022 MVEBs for the Milwaukee-
Racine area is 15.98 tpd for VOC and 31.91 tpd for NOX.

PART 81--[AMENDED]

0
3. The authority citation for part 81 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

0
4. Section 81.350 is amended by revising the entries for Milwaukee-
Racine, WI in the table entitled Wisconsin--1997 8-Hour Ozone NAAQS
(Primary and Secondary) to read as follows:

Sec.  81.350  Wisconsin.

* * * * *

                           Wisconsin--1997 8-Hour Ozone NAAQS (Primary and Secondary)
----------------------------------------------------------------------------------------------------------------
                                               Designation \a\                    Category/classification
          Designated area          -----------------------------------------------------------------------------
                                       Date \1\              Type             Date \1\              Type
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
Milwaukee-Racine, WI:
    Kenosha County................         7/31/12  Attainment...........
    Milwaukee County..............
    Ozaukee County................
    Racine County.................
    Washington County.............
    Waukesha County...............
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------
\a\ Includes Indian Country located in each county or area, except as otherwise specified.
\1\ This date is June 15, 2004, unless otherwise noted.

* * * * *
[FR Doc. 2012-18091 Filed 7-30-12; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register Volume 84, Number 205 (Wednesday, October 23, 2019)]
[Notices]
[Pages 56871-56873]
[FR Doc No: 2019-23053]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87331; File No. SR-ICEEU-2019-021]

Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change Relating
to Amendments to Futures and Options Risk Procedures (the ``F&O Risk
Procedures'').1
---------------------------------------------------------------------------

    \1\ Capitalized terms used but not defined herein have the
meanings specified in the ICE Clear Europe Clearing Rules (the
``Rules'').

October 17, 2019. Pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice
is hereby given that on October 4, 2019, ICE Clear Europe Limited
(``ICE Clear Europe'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule changes described in
Items I, II, and III below, which Items have been prepared primarily by
ICE Clear Europe. ICE Clear Europe filed the proposed rule change
pursuant to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(4) \5\
thereunder, such that the proposed rule change was immediately
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    ICE Clear Europe proposes to make certain amendments to the F&O
Risk Procedures to enhance to enhance their clarity in relation to the
margin account structure, certain margin add-on calculation
methodology, the process for the monitoring and reporting of the back-
testing results and the data management and governance document
processes.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, ICE Clear Europe included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

(a) Purpose
    ICE Clear Europe is proposing to amend its F&O Risk Procedures to
enhance their clarity in relation to the margin account structure,
certain margin add-on calculation methodology, the process for the
monitoring and reporting of the back-testing results and the data
management and governance document processes.
    The revised procedures ensure that the short descriptions of the
various accounts offered by ICE Clear Europe would be aligned with the
related terminology present in the ICE Clear Europe Clearing
Procedures. They would also allow for the clarification of the ICE
Clear Europe departments responsible for the review of the F&O margins'
parameters. The proposed amendments would also include certain other
enhancements and clarifications, described below.
I. European Market Infrastructure Regulation (EMIR) Add-On
    The amendments would facilitate a more accurate description of the
methodology with which the Clearing House currently complies with
Article 26 of the EMIR Regulatory Technical Standards (RTS). The
requirement prescribes that all Clearing Members' house and proprietary
positions from affiliates of a Clearing Member use a minimum of a two-
business day margin period of risk (MPOR).
    The EMIR add-on ensures that at least a two- business day MPOR
amount would be collected for these positions for products that would
otherwise use a one- business day MPOR for initial margin.
    The amendments would ensure an accurate explanation of the EMIR
add-on calculation inclusion in the ICE Clear Europe end of day margins
calculation process and of the fact that ICE Clear Europe does not
publish parameter arrays used for calculating additional initial
margins.
II. Back-Testing
    Several aspects of the F&O Risk Procedures addressing the back-
testing process would be amended to enhance clarity and to ensure that
the operational steps followed by ICE Clear Europe are accurately
reflected in the F&O Risk Procedures. The amendments would cover the
assumptions and the formula for the margin coverage calculation and its
test methodology. In relation to the back-test statistics, the
amendments would specify that the Clearing Risk Department (CRD) could
apply at its discretion other back testing statistics, in addition to
the standard Basel Traffic Light.\6\
---------------------------------------------------------------------------

    \6\ Basel Statistics test as per--Basel Committee on Banking
Supervision, ``Supervisory framework for the use of ``backtesting''
in conjunction with the internal models approach to market risk
capital requirements'' (January 1996), available at: https://www.bis.org/publ/bcbs22.pdf.
---------------------------------------------------------------------------

    In relation to the macro back-testing the amendments would explain
that if the model displays consistent and continuous red zone for some
portfolios, ICE Clear Europe may require Clearing Members to provide
for additional margin, referred to as super margin.
    The amendments would also introduce a new section to the F&O Risk
Procedures to address the margin coverage and back-testing monitoring
and reporting process. The amendments would clarify, for both the macro
and micro back-testing, the process for the daily creation of the
relevant risk report for the top day breaches and the process for the
related investigation by a Clearing Risk Department (``CRD'') analyst
and escalation process to senior CRD personnel. Each macro margin
coverage breach is also presented monthly to the Model Oversight
Committee and bi-monthly to the F&O Product Risk Committee. The
amendments would also cover the frequency with which the back-testing
statistics, for both macro and micro back-testing, are generated and
the internal reporting process followed for the review of the related
results. Back-testing results would be reported by CRD analysts daily
to Clearing House senior management staff with respect to macro back-
testing results, and with respect to macro and micro back-testing
results, monthly to the Model Oversight Committee and bi-monthly to the
F&O Product Risk Committee. A Risk Oversight Department (``ROD'')
analyst also reviews the macro level results and discusses details if
necessary before presenting it to the Model Oversight Committee. Model
remediation actions on a Clearing Member portfolio at a macro level or
due to product back-testing results at a micro level would be flagged
to senior management, the Model Oversight Committee and the F&O Product
Risk Committee. The same information regarding monitoring and reporting
would also be summarized in a table which would specify the level of
the back-testing, the name of the report that is generated, the metrics
contained in each report, the storage system used by the Clearing
House, the frequency of

the generation of each report and the audience with whom it is shared.
III. Data Management
    The amendments would also introduce a new section to the F&O Risk
Procedures to define the different types and sources of data used by
the CRD and the related controls. The amendments classify the data used
by the CRD into either static or dynamic data, and explain which data
are included in each category.
    The amendments would also provide details on the data quality
checks performed by the CRD on the static and dynamic data and on the
historical prices.
    The section would also describe the reasons for which the CRD is
allowed to correct or exclude data from being used in the margin models
or stress scenarios and require that the list of exclusions and
corrections with related justifications be reviewed each month by the
Model Oversight Committee.
IV. Document Governance and Exception Handling
    The amendments would also introduce a new section to the F&O Risk
Procedures to describe the breach management process for the reporting
and possible escalation of material breaches or unapproved deviations
from the F&O Risk Procedures. The section would also include the
description of the exception handling process and governance.
    Certain other typographical corrections and similar clarifications
would also be made.
(b) Statutory Basis
    ICE Clear Europe believes that the proposed amendments are
consistent with the requirements of Section 17A of the Act \7\ and the
regulations thereunder applicable to it, including the standards under
Rule 17Ad-22.\8\ Section 17A(b)(3)(F) of the Act \9\ requires, among
other things, that the rules of a clearing agency be designed to
promote the prompt and accurate clearance and settlement of securities
transactions and, to the extent applicable, derivative agreements,
contracts, and transactions, to assure the safeguarding of securities
and funds in the custody or control of the clearing agency or for which
it is responsible, and the protection of investors and the public
interest. As discussed above, the proposed amendments to the F&O Risk
Procedures are intended to more accurately reflect Clearing House
practice and to enhance the ICE Clear Europe internal processes with
respect to the EMIR add-on application, the back-testing calculation,
data management activity and document governance. This would facilitate
the Clearing House's ability to manage risk generally, and therefore
promote the prompt and accurate clearance and settlement of
transactions, and further the public interest in the sound operation of
clearing agencies. (The amendments should not significantly affect, and
are consistent with, the safeguarding of securities or funds in the
custody or control of the Clearing House or for which it is
responsible.) As a result, in ICE Clear Europe's view, the amendments
are consistent with the requirements of Section 17A(b)(3)(F) of the
Act.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1.
    \8\ 17 CFR 240.17Ad-22.
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The amendments would also satisfy the relevant specific
requirements of Rule 17Ad-22,\10\ as set forth in the following
discussion. Through providing additional details, including details
relating to monitoring of margin coverage and back-test statistics, the
margin coverage calculation formula and data quality monitoring, and
enhancing overall clarity of the F&O Risk Procedures, the amendments
are consistent with Rule 17Ad-22(e)(3)(i),\11\ which requires clearing
agencies to have reasonably designed policies and procedures that, at a
minimum, include risk management policies, procedures, and systems
designed to identify, measure, monitor, and manage the range of risks
that arise in or are borne by a clearing agency.
---------------------------------------------------------------------------

    \10\ 17 CFR 240.17Ad-22.
    \11\ 17 CFR 240.17Ad-22(e)(3). The rule states that: ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (3) Maintain a sound risk management framework for
comprehensively managing legal, credit, liquidity, operational,
general business, investment, custody, and other risks that arise in
or are borne by the covered clearing agency, which: (i) Includes
risk management policies, procedures, and systems designed to
identify, measure, monitor, and manage the range of risks that arise
in or are borne by the covered clearing agency, that are subject to
review on a specified periodic basis and approved by the board of
directors annually;''
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(i) \12\ specifically requires clearing agencies
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market. The proposed amendments with respect to the EMIR add-on
application are consistent with such requirement as they facilitate the
application of the two-business day MPOR margin requirement for the
relevant products to cover credit exposures to Clearing Members
relative to the related product risks.
---------------------------------------------------------------------------

    \12\ 17 CFR 240.17Ad-22(e)(6). The rule states that: ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (6) Cover, if the covered clearing agency provides
central counterparty services, its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum: (i) Considers, and produces margin levels commensurate
with, the risks and particular attributes of each relevant product,
portfolio, and market;''
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(vi)(D) \13\ specifically requires clearing
agencies to implement reasonably designed policies and procedures to
cover its credit exposures to its participants by establishing a risk-
based margin system that is monitored by management on an ongoing basis
and is regularly reviewed, tested, and verified by reporting the
results of its analyses to appropriate decision makers at the covered
clearing agency. In compliance with these requirements, the proposed
amendments to the F&O Risk Procedures specify the monitoring and the
reporting process which ICE Clear Europe must follow in relation to the
results of the macro and micro level back-testing results. The
amendments to the F&O Risk Procedures describe for each test, the
frequency of the reporting of the relevant results and the ICE Clear
Europe departments responsible for their monitoring and review, which
include senior management, the Model Oversight Committee and the F&O
Product Committee.
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(6). The rule states that: ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (6) Cover, if the covered clearing agency provides
central counterparty services, its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum: (vi) Is monitored by management on an ongoing basis and is
regularly reviewed, tested, and verified by: (D) Reporting the
results of its analyses under paragraphs (e)(6)(vi)(B) and (C) of
this section to appropriate decision makers at the covered clearing
agency, including but not limited to, its risk management committee
or board of directors, and using these results to evaluate the
adequacy of and adjust its margin methodology, model parameters, and
any other relevant aspects of its credit risk management
framework;''
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(2)(i) and (v) \14\ requires clearing agencies to
establish reasonably designed policies and

procedures to provide for governance arrangements that are clear and
transparent and specify clear and direct lines of responsibility. To
facilitate compliance with this requirement, the proposed amendments to
the F&O Risk Procedures more clearly define the ICE Clear Europe
departments responsible for review of back-testing results, data
quality checks, breach management and exception handling.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17Ad-22(e)(2). The rule states that: ``[e]ach
covered clearing agency shall establish, implement, maintain and
enforce written policies and procedures reasonably designed to, as
applicable: (2) Provide for governance arrangements that: (i) Are
clear and transparent; . . . (v) Specify clear and direct lines of
responsibility. . . .
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed rule changes would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
amendments on the EMIR add-on would apply to those F&O Contracts that
are margined using a one-business day MPOR and are intended to
strengthen risk management relating to these products and to ensure
compliance with EMIR requirements relating to the EMIR add-on. The
amendments would apply to all F&O Clearing Members that trade contracts
in the relevant category. ICE Clear Europe does not believe the
amendments would generally affect the overall cost of clearing for F&O
Clearing Members or other market participants or otherwise affect
access to clearing generally. To the extent the amendments relating to
the EMIR add-on may impose certain additional costs on F&O Clearing
Members, these result from requirement imposed by EMIR and are
generally applicable to F&O Clearing Members. As a result, any
additional burdens placed on F&O Clearing Members would be appropriate
in furtherance of enhancing risk management, and are not intended to
disadvantage any particular Clearing Member. As a result, ICE Clear
Europe believes that any impact on competition would be appropriate in
furtherance of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others

    Written comments relating to the proposed amendments have not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any comments received with respect to the proposed
rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder. At
any time within 60 days of the filing of the proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-ICEEU-2019-021 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICEEU-2019-021. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change, between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Section, 100 F Street NE, Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filings will also be available for inspection
and copying at the principal office of ICE Clear Europe and on ICE
Clear Europe's website at https://www.theice.com/clear-europe/regulation.
    All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ICEEU-2019-021 and should be
submitted on or before November 13, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23053 Filed 10-22-19; 8:45 am]
 BILLING CODE 8011-01-P