For the HDE HW category we have determined, based on a re examination of our database and discussions with representatives from EMA, that 148 certificates is a more accurate projection, rather than the 130 in the proposal. This will result in a reduction of fees for such certificates. For NR CI we have also revised the number slightly upward to reflect a more accurate projection of 662 rather than the proposed. We have re calculated the fees amount for each of these categories and the change is included in the new fees shown in the table in new revised worksheet # 2 of the Revised Cost Analysis available in Docket A 2001 09 and at 40 CFR § 85.2405( a).

Although at this time, EPA believes there is enough certainty with regard to the total recoverable costs in future model years, EPA recognizes that the number of issued certificates " divisor" needs to be adjusted periodically in order to ensure that we only collect the appropriate fee. Therefore, we agree with the suggestion, made by the Alliance/ AIAM, that EPA monitor the number of certificates issued each year and collect a fee based on the most recent information and 2/ 12/ 04 43 an average of several years. However, we do not believe that rulemaking is necessary each time the Agency seeks to adjust fees based on the number of issued certificates. Therefore, in this rule, we are setting forth the methodology by which future calculations will be made, based on clearly defined criteria. EPA also recognizes that the industry needs to know the applicable fee in advance of the effective date. Therefore, by today's rulemaking, EPA is implementing a fee applicable to each certification request type that is applicable from the effective date of the regulation through the 2005 calendar year. Starting in calendar year 2006, and each subsequent year, EPA will adjust its fees based on both changes to the average number of certificates issued from the prior two model year period and an inflation adjustment factor. The inflation adjustment factor is discussed in section 4 below.

By example, for any certificate received in the 2006 or later calendar year the fee will be adjusted from the fee applicable to the previous calendar year. Using 2006 calendar year as an example, in July 2004 EPA will examine the number of certificates issued for each certification request type in the 2002 and 2003 calendar years, average the two years, and then divide this new number into the fee base established by today's rule. The fee base will be adjusted by the inflation factor before it is divided by the new certificates number. In July 2005, EPA will perform the same task for any certificate submitted in the 2007 calendar year, and so on. EPA will publish the new fees each year in the Federal Register and will issue a letter to the manufacturers notifying them of the new fees. See section 4, below, for a further discussion of how this annual adjustment regarding the number of certificates will be made for each certification request type, including those for nonroad industries in the " Other" category.

What Commenters Said:

Section 3.1.2. EMA stated that we should use the number of certificates issued in 2001 since we also used 2001 fiscal year as the starting point for determining activities and costs assessable against HDE manufacturers. EMA further stated that there should be no future automatic adjustments for certification fees based on whether the number of issued certificates varies from year to year in the future. Since a single base year was chosen as a foundation for the Agency's cost calculations, the marginal cost of each certificate should remain similarly fixed based on the number of issued certificates in that same base year. Otherwise, the entire cost calculations would have to be redone based not only on future numbers of annual certificates but also on future year budgets and activity allocations. EMA maintains that if more certificates are issued in one year than another, more fees will be received and if less certificates then less fees and that such an outcome is appropriate.

Our Response:

EPA disagrees that a single base year and the number of certificates issued that year should be chosen as a foundation of the fees cost calculation. The two basic components of certification fees are labor and testing costs. These costs will not vary each year as a result of the number of certificates that are issued because EPA will conduct the same number of tests that are outlined in the cost analysis and, furthermore, the same number of FTE will be dedicated to 2/ 12/ 04 44 certification review and testing. The FTE will adjust the amount of time spent on each application to the number of applications submitted. Because EPA will be providing the same services it is important for EPA to collect the same amount of fees each year.

EPA will be adjusting the fees annually to reflect the change in the cost of labor as is discussed in section 4. The costs of testing and the indirect costs of testing and labor may also change, most likely increase with inflation, but because some of the costs are fixed by contract and because the cost changes are more difficult to determine each year, EPA will not change the fees based upon the changes to these costs.

3.2 Heavy duty Highway and Nonroad Compression ignition Compliance Activities What We Proposed:

The Cost Analysis, on worksheet # 16, included the projected costs for an enhanced engine compliance program that EPA will implement for heavy duty highway and nonroad compression ignition engines. It includes confirmatory testing for certification, selective enforcement audits and in use dyno testing programs. We determined the costs by using contractor prices.

What Commenters Said:

Section 3.2.1. EMA described the costs of enhanced testing shown on worksheet # 16 as objectionable and improper because EPA has chosen to not implement such programs in the past presumably because it did not see a priority or clear benefit; nevertheless EPA now chooses to do so at the manufacturers' expense. As a result, the commenter further asserted that EPA must demonstrate the need and cost effectiveness of these new programs since it is now the manufacturers and not EPA that will bear the expense.

Our Response:

EPA, in planning for the future, determined that the amount of compliance oversight devoted to the heavy duty industry has been less than that devoted to the light duty industry. As part of the Agency's plan to increase compliance oversight for this industry, we intend to implement additional HDE HW and NR CI compliance programs and the costs of these programs are included in the Cost Analysis Document. The procurement of in use HDE HW engines is included on worksheet # 12 and the enhanced engine compliance program is outlined in worksheet # 16.

Please note that EPA reassessed its testing plans from those set forth in the notice of proposed rulemaking to a level that is more representative of the amount of testing that may be accomplished with the new testing facility in Ann Arbor and the new enhanced engine compliance program testing that will be conducted at a contractor's facility. EPA has used the information on resources and lab capabilities to make the changes and, therefore, the current rulemaking more 2/ 12/ 04 45 accurately represents the test program that EPA will put into place. The changes are discussed more fully in the Final Rulemaking, section III. B. Revised worksheets in the updated Cost Analysis reflect the new costs of the revised testing plan.

The additional compliance activities, the in use tests that will be conducted at NVFEL and those outlined on revised worksheet # 16 that will be performed by a contractor at a contracted facility, will begin to level the playing field between the light duty vehicle and engines industries. Furthermore, recent events including new emission standards and concerns about prior noncompliance with existing standards have caused EPA to want to increase the oversight devoted to this industry. New standards start in 2004 and 2007 for HDE HW and call for use of types of emission control technology not previously used on these engines. In 1998 consent decrees were entered into with almost the entire HDE HW industry, to resolve claims of several cases of noncompliance.

In view of the new standards to be implemented and concerns with claims of noncompliance and the lack of equity in testing between the light duty and engine industries, EPA determined that it needed to devote more oversight to the engine industries. We believe that the new testing, particularly the in use tests, will be an effective tool for promoting compliance with EPA emission standards. It is likely that in the future EPA will conduct more engine tests than outlined in the cost study. Fees will not be changed to reflect the additional cost of these tests without a new rulemaking.

What Commenters Said:

Section 3.2.2. EMA states that EPA estimated the costs for the enhanced testing programs listed on worksheet # 16 to be $ 380,000 for HDE HW and $ 380,000 for NR CI. EMA notes that this cost element alone is equivalent to $ 2,723 per HDE HW engine family and $ 630 per NR CI engine family. In addition, EMA states that the extra staffing needed to plan and oversee the enhanced testing program results in costs of $ 5,093 per certificate.

Our Response:

As discussed in the response to Section 3.2.1. above, EPA made several adjustments to the projected testing listed in the proposal including changes to the Enhanced Engine Compliance Programs described in revised worksheet # 16. The revised Enhanced Engine Compliance Program outlines a testing programs at a cost of $ 165,000 for the HDE HW industry and $ 300,000 for the NR CI industry. The cost per certificate for the enhanced engine compliance program would be $ 1,115 and $ 453 per engine family for the HDE HW and NR CI industries as proposed, respectively. EPA believes that this cost is justified as the new enhanced compliance program is needed as explained in the response to section 3.2.1, above.

EMA also referenced and expressed concern over the estimated extra staffing costs of $ 662,038. However, the Agency has only added one FTE to CCD Washington, DC, at a cost of $ 99,580 before overhead costs. This FTE will plan and oversee the enhance engine program. 2/ 12/ 04 46 Also testing will be conducted at contracted facilities.

What Commenters Said:

Section 3.2.3. With regard to worksheet # 7, EMA questioned LOD's added expenses of 2.25 direct FTE and 0.5 indirect FTE and EMA sought clarification as to how and why the Agency allocated these FTE to the HDE HW category as there is no description of what these new FTE would be doing. EMA also questioned whether the additional FTE might be inappropriately linked to the contracted out testing in worksheet # 16 or whether these costs are already incorporated into the CCD summary sheet at worksheet # 4.

Our Response:

EPA has revised LOD's additional labor needs to 1.25 direct and .25 indirect FTE. This revision reflects the labor needed to conduct the revised number of in use HD HW tests that will be conducted in the Ann Arbor laboratory. The 1.25 direct FTE include 1.0 FTE technician to conduct the testing in the test cells and 0.25 FTE to provide engineering support. The indirect FTE of 0.25 reflects the need for data management support for the test cells. The FTE are not linked to nor duplicated in the costs for the enhanced engine testing included in worksheet # 16 as the additional FTE will be participating in testing that will be conducted at NVFEL.

What Commenters Said:

Section 3.2.4. EMA expresses concerns regarding worksheet # 12 and the entry of $ 275,431 for " core testing costs" for HDE HW which is carried over to worksheet # 3 and then to worksheet # 1. Of these costs $ 225,360 is shown for heavy duty engine procurement. EMA contended that one would presume that this cost is associated with an in use testing program even though the nature of the testing is not described. The remaining costs appear to be allocated to the HDE HW category using the FTE method and this cost should similarly be excluded unless EPA provides an explanation of what this core testing is, why it is needed and how it complements and integrates with other compliance programs that exist or are proposed elsewhere in the NPRM. The commenter questions whether all of the testing programs in worksheet # 12 and worksheet # 16 are needed in addition to the Agency's existing compliance testing protocols.

Our Response:

Proposed engine procurement costs for heavy duty engines were shown in worksheet # 12. EPA had proposed to test 10 in use engines, two engine families of five engines per family. The cost to procure the engines is $ 25,240 for the first engine of the family and $ 21,860 for subsequent engines as explained in general terms in the Cost Analysis, page 52. The revised test plan consists of testing of three engines in one engine family. The new cost for procuring these engines, at the same cost per engine as proposed, is $ 68,960. The revised costs are shown on new worksheet # 12. This testing will be conducted at the Ann Arbor facility and will be conducted in addition to the HD HW in use testing listed on worksheet # 16 in which one in use 2/ 12/ 04 47 HD HW family will be tested. Therefore, only two heavy duty highway engine families will be evaluated out of the estimated 148 that are certified on a annual basis. Thus, less than two percent of the certified family production would be evaluated for in use emissions annually by EPA. EPA believes that this in use testing is justified as explained in the response to section 3.2.1, above.

3.3 General Cost Study Comments What We Proposed:

EPA's cost study detailed the costs the Agency incurred in implementing the MVECP. We set forth our explanations and reasoning in detail in the Cost Analysis Document. For example, we explained how we translated our costs into the proposed fees.

What Commenters Said:

Section 3.3.1. EMA stated that without detailed knowledge of EPA's budget and budgeting process it is difficult to comment or challenge the specific cost elements in EPA's analysis. As stated previously, EPA is projecting the costs of future programs that have not been finalized or proposed. As such EPA has failed to provide commenters with the " necessary information" to comment in an adequately informed manner on the NPRM.

Our Response:

In our proposal, we explained the specific components of the MVECP. ( See 67 FR at 51406 08). As earlier mentioned in section 2 we also conducted a cost analysis to determine the costs associated with our certification and compliance program and set forth our analysis in the Cost Analysis Document. It describes EPA's current costs and projected costs for the identified program components. As earlier mentioned in section 2, we projected our costs to 2003 using the best information available at the time that the cost analysis was written. Wherever possible, explanations were included to detail the source of the information. Thus, we believe that we have " identif[ ied] the components of the [ MVECP] and provide[ d] a brief explanation of why each component is a part of the [ MVECP] program." American Medical Association v. Reno, 57 F. 3d 1129, 1135, ( D. C. Cir.).

We also believe that the Agency's budget is too general in nature and as such does not contain the level of specificity and explanations we have set forth in the Cost Analysis Document. This is because the Agency's budget is prepared to reflect the divisional levels and also generally entails resource allocation issues.

What Commenters Said:

Section 3.3.2. EMA states that the fee assessments would recover EPA's total cost in procuring equipment such as " computer hardware/ software", " in use on vehicle testing" and " on vehicle 2/ 12/ 04 48 testing units purchase" as listed on worksheet # 13. EMA states that it presumes that this is for the initiation of portable emission testing or " ROVER type" in use testing to enforce the Agency's NTE requirements and goes on to state that this is inappropriate because the NTE requirements do not take effect for heavy duty highway engines until 2007 and have not been proposed for NR CI engines. EMA further contended that the Agency was seeking to recover these " one time" procurement costs annually.

Our Response:

The costs that EMA specifically refers to are for equipment required for EPA's engine emissions in use screening testing. EPA currently uses portable emissions test equipment for screening in use engines for compliance with the applicable emissions standards and the defeat device prohibition, not for compliance with NTE emission standards as suggested by EMA. EPA plans to use this tool to refer engines that are suspected of noncompliance to be tested on engine dyno either in the AA lab or at a contracted facility. For this reason, the cost of the equipment is appropriate.

Portable emissions test equipment is a very effective screening tool. The equipment can collect a significant amount of data from engines without having to take the engines out of service. EPA plans to increase its number of testing units and expand the screening program. The costs of the equipment included in the cost study are recurring costs as EPA will need to buy additional testing units, replace outdated and damaged equipment and will have to maintain of the units that have been purchased.

Section 4: Automatic Adjustment of Fees What We Proposed:

We considered the effect of inflation on the MVECP and explained that inflation may have an impact on our recovery of the full costs associated with the program. Thus, we proposed, beginning with the 2005 model year, an annual automatic adjustment of fees based on the annual change in the Consumer Price Index ( CPI). We also proposed a formula to enable manufacturers to calculate the increase. We also solicited comments on alternate ways of adjusting fees on account of inflationary factors. ( See 67 FR at 51410)

We explained that we intended to issue annual letters, again beginning with the 2005 model year, informing manufacturers of the adjusted applicable fees. The proposed formula included an ability to project future fees due to the CPI adjustment based on two model years before the adjusted fee model year. Thus for model year 2005 EPA proposed a formula whereby the CPI for MY2003 ( as determined by July 2003 CPI number) is compared to the CPI from 2002. We also solicited comments regarding notification procedures of the new fee amounts. Id.

What Commenters Said: 2/ 12/ 04 49 Section 4.1.1. One commenter urged the Agency not to include an annual automatic adjustment and maintained that an " automatic" increase in fees based on the CPI for " all items" should not be implemented as the actual costs of MVECP will be impacted by many factors more significant than the CPI and such factors are not significantly correlated with the general rate of inflation. This commenter also suggested that the Agency's formula for annual adjustment is improper because many of the underlying costs are actually one time capital expenditures that will not fluctuate at all in response to any changes in the CPI.

Our Response:

In order to comply with both section 217 and the IOAA, and to timely collect fees based on actual costs and to collect fees for such costs at time of certification, EPA believes that it is most practical and appropriate to collect fees based on what it reasonably believes will be its actual costs at the time new certification applications are received. Thus EPA continues to believe it most appropriate to determine its current costs and how such costs may be affected by future events, including events such as inflation or the addition of new compliance programs. Although EPA does recognize that several variables exist which may influence the actual future costs that EPA incurs to provide MVECP services, including changes to its budget ( and resulting changes to EPA's expenditures on certain compliance programs such as contract costs for testing and procurement of testing vehicles, etc), EPA believes that such general historical budget variability ( appropriations for most of EPA's costs don't change dramatically from year to year and general contract costs remain relatively unchanged) has not in fact significantly affected EPA's actual costs as compared to increases associated with annual inflation costs. However, by today's rule we are narrowing the budget items that will be affected by the inflation adjustment to further limit those items that may indeed be affected by general budget variability.

We believe it is reasonable to consider the effect of inflation on the costs of conducting our various certification and compliance programs. However, at this time, EPA chooses to only implement a fee schedule that will include some adjustment by calendar year for labor costs as these costs can be reasonably determined as explained below.

We also agree with comments that fees should not be adjusted for one time capital expenditures or for other fixed costs. Because several components of the MVECP reflects items that have a " fixed cost" ( for example, the costs associated with the Lab Modernization), EPA has changed the inflation formula to address concerns regarding " one time costs" and that such cost not be adjusted by the CPI. At this time, EPA will only adjust labor costs each calendar year because, as explained below, we can reasonable determine the effect of inflation on these costs.

EPA also believes that to some extent it may not be appropriate to automatically adjust fees for the costs of some compliance programs, including current direct program costs ( e. g. contract costs) despite the general history of such costs increasing by some amount each year. Because EPA is not only continuing to implement its many current compliance activities but is also implementing several new compliance programs that may not have a predictable cost increase 10 EPA normally uses Federal payroll and non payroll inflators for budget projections issued by the Office of Management and Budget ( OMB) when OMB submits the President's Budget to Congress and the assumptions used for the " inflators" are higher than the CPI inflation adjuster that EPA is choosing to use to account for increases in labor costs in today's rulemaking. For example, in the fiscal year 2004 ( FY 04) President's Budget to Congress, for FY 04 EPA used a payroll ( or labor) inflator of 1.048 and for FY 05 through FY 13 EPA used an inflator of 1.040.

2/ 12/ 04 50 each year that tracks the inflation rate, EPA is not adjusting such direct program costs.

EPA believes that the determination of the labor requirements to cover the numerous compliance activities was accurate and that such labor requirements will remain constant or perhaps slightly increase within the next few years. Such labor costs ( as expressed in annual salary increases or decreases) for EPA historically track a rate of increase ( or decrease) that is at least as high as that of the CPI10. Thus, we are finalizing our regulations with a provision for automatic adjustment of labor costs for each fee category based on the changes in the CPI.

The table below represents the labor costs and the fixed costs for each certificate type. The fixed costs, represented in the F row, are those items in the cost study that are either amortized or otherwise may be affected by variables beyond inflation. These costs are determined from worksheet # 1 and include a total of all " operating costs" ( both indirect and direct) and thus does not include the labor costs and overall EPA overhead costs on worksheet # 1.

The labor costs, those that will be affected by the CPI, are represented in the L row. These are the costs that will increase or decrease with the CPI. These labor costs were determined from worksheet # 1 and the total labor ( direct and indirect) costs associated with each fee category ICI LD MC HW HD HW NR CI Other*

F 345,355 6,189,546 226,013 1,518,583 567,034 178,273 L 264,980 4,732,440 172,829 1,750,155 545,160 548,081 * This fee category continues to include the costs associated with MVECP services for the marine SI inboard/ sterndrive industry although the certification fees are not being finalized for that marine SI inboard/ sterndrive certification type by today's rule ( see section 1.2 for further discussion). At the time the final emissions rule for this certification type is proposed and becomes final, EPA will reexamine whether approximately 25 certificates per year will be issued to this certification type. The other certification types covered in the " Other" category will not be charged for any costs ( fixed or labor) associated with the marine SI inboard/ sterndrive certification type.

The total cost for each certificate type commencing in 2006, and each year thereafter, will be determined by multiplying the labor costs ( as noted in the table above) for each fee category by 2/ 12/ 04 51 the CPI ratio of the calender year ( CY) that the fees will be effective ( minus two years) to the CPI of calendar year 2002, then adding the fixed costs. The total of the adjusted labor costs plus the fixed costs are then multiplied by the existing overhead rate of 16.9 percent. This is similar to our proposed method except that we will now be adjusting only our labor costs. EPA's overall overhead costs are not adjusted. We are also implementing this automatic adjustment in the 2006 calendar year instead of the proposed 2005 in order to provide a stability period before the fees are adjusted. As explained below in section 4.1.4, for administrative simplicity, EPA will make annual adjustments by " calendar year" rather than " model year."

For each fee category EPA will determine the fee for applications submitted during any calendar year starting in 2006 and each year thereafter using the formula below:

Feecy= [ F + ( L * ( CPICY 2/ CPI2002))] * 1.169 / [( cert# MY 3 + cert# MY 4) * .5]

The first year that the fees will increase is 2006. That year EPA will determine the new fees using the following formula:

Fee2006= [ F + ( L * ( CPICY2004/ CPI2002))] * 1.169 / [( cert# 2003 + cert# 2002) * .5]

Feecy = the calendar year of the fees to be collected F = the fixed costs, not to be adjusted by the CPI L = the labor costs, to be adjusted by the CPI CPI CY 2 = the consumer price index for all U. S. cities using the " U. S. city average" area , " all items" and " not seasonally adjusted" numbers calculated by the Department of Labor listed for the month of July of the year two years before the calendar year. ( e. g., for the 2006 CY use the CPI based on the date of July, 2004). CPI 2002 = the consumer price index for all U. S. cities using the " U. S. city average" area , " all items" and " not seasonally adjusted" numbers calculated by the Department of Labor for December, 2002. The actual value for CPI 2002 is 180.9. 1.169 = EPA's 16.90 percent overall overhead cost cert# MY 3 = the total number of certificates issued for a fee category three years prior to the model year for applicable fees ( Feecy) cert# MY 4 = the total number of certificates issued for a fee category four years prior to the model year for the applicable fees ( Feecy)

For example and by way of a hypothetical, to determine the applicable fee for LD ICIs for any certification application received in calendar year 2006, based on a fixed cost of $ 345,355 and a labor cost of $ 264,980, a CPI in 2002 ( December 2002) of " 180.9" and a CPI in July, 2004 of " 183.1" ( this number represents the CPI in February 2003 and EPA will use the actual CPI number for July 2003 once it as been determined by the Dept. of Labor, since determined to be 183.9) , 95 certificates issued in 2003 and 85 certificates issued in 2002, the formula would be:

Fees 2006( LD ICI) = [$ 345,355

( $ 264,980 ( 183.1/ 180.9))] * 1.169/ [( 95

85) * .5] 2/ 12/ 04 52 This equals $ 7,969 ( all rounding of numbers should occur at the end of the calculation and the final dollar amount of the new fee will also be rounded up or down to the nearest dollar) and represents a cost decrease per ICI certificate of $ 425 from the fee being finalized today which will only apply from the effective date of the rule through the 2005 calendar year.

Currently one can determine the CPI numbers by going to the Bureau of Labor Statistics website: ( http:// www. bls. gov/ data/ home. htm), then choosing the icon under " CPI All Urban Consumers ( Current Series) under the " Most Requested Statistics" column. From that page, choose ( by checking the box) U. S. All items, 1982 84= 100  CUUR0000SA0. This results in a page with a table called " Series Id: CUUR0000SA0" from which the applicable numbers may be drawn.

EPA also notes that manufacturers may have some concern regarding the proper budgeting for its costs for future certification applications and thus the regulations note that EPA will provide notification to manufacturers at least 15 months in advance of the calendar year in which new fees are due. If an event such as a rulemaking occurs that causes a significant change in the number of certificate applications received, the Agency will reexamine the formula to determine whether adjusting the fees based upon the number of certificate applications is still applicable.

What Commenters Said:

Section 4.1.2. Some commenters argued that automatic fee increases would reduce EPA's incentive to provide more efficient MVECP services and thus would amount to " gold plating" which Congress admonished against.

Our Response:

EPA does not believe that automatic fee increases would amount to " gold plating," rather EPA is recognizing that annual adjustments to its labor costs are a reality and that in order to recover its actual costs in a timely manner that an automatic adjustment best serves this function. We believe that the intent of both the IOAA and section 217 is for EPA to continue to collect its full actual costs and to do so in a reasonable and timely manner; EPA does not believe it timely to periodically evaluate its labor costs ( in light of inflation) and issue subsequent new fees rules. The result of such practice would be for EPA to forego collecting a significant portion of its costs. EPA continues to strive to provide its services in an efficient manner and recognizes that other cost adjustments may be necessary in the future and will at that time conduct an additional cost study and rulemaking if significant changes in its costs have occurred.

What Commenters Said:

Section 4.1.3 Two commenters suggested that any adjustments to fees should be done through periodic rulemaking and be based on actual rather than assumed costs. Otherwise there is no incentive for the Agency to review its actual program to determine the latest actual costs of the 2/ 12/ 04 53 program. One of the commenters noted that even the number of certificates that are issued by EPA could have a more significant effect than changes due to inflationary increase.

Our Response:

EPA agrees with the comment that the number of certificates that are issued could have a significant effect on the amount of fees that should be charged per certificate and addresses that issue in section 3.1.

As noted in the discussion in section 3.1, EPA is adopting a provision to adjust fees based on any potential change in the number of certificates starting in the 2006 calendar year and will employ a similar methodology as the annual inflation adjustment and will perform both at the same time. The fee amount per certificate will be determined by dividing the total cost for each certificate type ( as determined under the inflation calculation noted above) by the " rolling average" of the number of certificates issued by EPA for the model years three and four years preceding the calendar year that the fees will become effective.

EPA is committed to the objectives of recovering its actual costs in a timely manner and in providing fee payers proper notice of the amount of fees that are required when they apply for certification. EPA anticipates that it will have an opportunity to make any necessary adjustments to the fees regulation during the course of several future rulemakings. However, EPA disagrees with the commenters suggestions that any adjustments should be done through a periodic rulemaking. The clear formula that EPA has provided by today's rulemaking provides a predetermined basis by which to determine adjustments to fees based on any change in the number of certificates or changes in the costs of labor to provide the same services as are provided currently. The changes in the costs of labor ( for the same number of employees) is based on a very conservative formula of the annual CPI. EPA believes this is a fair and reasonable process for adjusting fees and avoids unnecessary and possibly untimely rulemaking ( a rulemaking not done in time to reflect changes in the number of certificates or labor costs) that may prove inefficient.

In addition, EPA will issue a notice at least 15 months before the calendar year in which new fees are owed which will notify certification applicants of the new fees. As discussed in section 3.1 regarding the number of engine families or certificates issued within a certification request type, EPA plans to make this inflation adjustment calculation at the same time as the calculation of the number of certificates and will announce both adjustments together. In other words, EPA will analyze the adjusted costs based on inflation and also determine the new average number of certificates.

What Commenters Said:

Section 4.1.4. A commenter also expressed concern with EPA's proposal to issue notices of fee adjustments through a guidance letter on grounds that the letter will not provide adequate notification to manufacturers and will provide no adequate opportunity for public review and 2/ 12/ 04 54 comment. The commenter further asserted that manufacturers would need at least 15 months notice prior to the model year commencement. EPA notes that this same commenter suggests that a manufacturer would need to receive notice by October 1, 2003 which would be 15 months in advance of January 1, 2005. This would be impractical since a manufacturer could receive a certificate for model year 2005 on January 2, 2004 and it could receive such certificate if it submitted its application by November, 2003.

Our Response:

EPA wishes to clarify that the fees adjustment formula as proposed and finalized today, is a self implementing mechanism ( in fact, the fee payer is able to perform the CPI/ labor calculation based on the formula set forth in today's regulation and the effect of the number of certificates is also predetermined). As such, EPA plans to issue a letter providing information to the manufacturers of the upcoming rates approximately 16 months before they become effective by operation of today's rule. EPA believes this will provide reasonable opportunity for manufacturers to make necessary preparations for paying any adjusted fees at time of application for certification..

Because EPA proposed the basis ( and formula) by which fees will be adjusted for inflation and it involves a relatively ministerial collection of facts and application to the formula we continue to believe that the appropriate mechanism by which to adjust such fees is by this mechanism rather than a new rulemaking which would only perform a similar task. By today's rule fee payers will be informed of the fees applicable until 2006 and will know how fees will be adjusted on an annual basis ( for variable costs as explained above) by operation of today's rule.

However, because both EPA and manufacturers may be involved in the submitting, processing, issuing and receiving certificates for different model years at the same time, and because EPA is attempting to recover the costs for actual services provided at a given point in time we believe it is reasonable to adjust fees by calendar year rather than by model year. This will avoid the confusion regarding the amount of fees that are owed and whether the certification applications were submitted before or after EPA's adjustment. Because of the overall timing of this rule we also believe it is appropriate to implement the fee adjustment starting in the 2006 calendar year. Therefore, starting in calendar year 2006, for any certification application that is received on January 1, 2006 and thereafter ( until fees are adjusted for calendar year 2007 and certification applications are submitted on January 1, 2007 and thereafter, etc.) EPA will issue a letter approximately 16 months before the applicable calendar year informing manufacturers of the adjustment in fees.

Section 5: Effective Date and Application of New Fees What We Proposed:

We proposed the " effective date" of our new fees schedule as 60 days from the date of 2/ 12/ 04 55 publication of the final rule. ( 67 FR at 51411). We also proposed applying the new fees to 2003 and later model year vehicles and engines. Id. In addition, we proposed excluding " complete" certification applications received prior to the effective date of the new fees regulation ( including any remaining 2003 certification applications). Id.

What Commenters Said:

Section 5.1.1. One commenter suggested that the new fee schedule should take effect for certification applications for the model year following the model year in which the final rule is published, in this way the manufacturers will have certainty regarding the appropriate amount of the certification fee to be submitted and thus will not have to guess the date that EPA will deem their certification application complete.

The Alliance/ AIAM stated that EPA's proposal to increase fees ( for light duty vehicle manufacturers) for manufacturers that submit 2003 and later model year certification requests received on or after 60 days from publication of the final rule creates uncertainty regarding the appropriate fee to submit with each application. The commenter notes that it cannot project when EPA will issue the rule and thus for it to perform its necessary budgeting to assure that it has necessary funds to cover the increase.

Our Response:

EPA understands that it would be helpful to manufacturers to have a date before which they are assured that they will be paying the old fees so that they can budget with certainty up to that date. For this reason EPA is finalizing the implementation date as March 1, 2004 or 60 days from the publication of the final rule, whichever is later. We believe that at least a 60 day lead time between when the rule is published and when applicants will be required to pay new fees is adequate and appropriate. EPA is again guided by the principle that its compliance programs ought to be self sustaining to the extent possible and that because we are incurring costs at this point in time that new fees should commence. Although we anticipated that the final fees rule would become final in fiscal year 2003 ( FY03), and based our projections of costs to be incurred during that time, we believe it even more appropriate that we collect fees in FY04 ( during which this rule becomes effective) as our compliance programs based on new requirements such as Tier 2 and the 2004 HDE regulations will be in place and our anticipated budget increases will be more likely in place.

In addition, manufacturers have been informed of the new fees rulemaking and commencement of new fees in FY03 for over 2 years. An advance fees rulemaking briefing was held for regulated industries on August 29, 2001 in Ann Arbor, MI. At that time EPA provided a draft of the fees schedule and cost study. The purpose of the briefing was to give businesses enough time to plan for fees in their budgets. Furthermore, the proposed rule was published in August 2002 giving manufacturers notice of the fees rulemaking and implementation time periods. Therefore, the new fees will be applicable to any new certification applications ( for MY2004, or 2005) submitted and received on or after March 1, 2004, or more than 60 days after publication 11For ICIs, the requirement of ORVR and OBD systems depend on the age of vehicle and model year. ICIs should check with their EPA certification representative for the vehicle or engine model year certification requirements.

2/ 12/ 04 56 of this rule in the Federal Register. The new fees will not apply to any certification applications received by EPA prior to the effective date of the regulations, providing that they are complete and include all required data.

What Commenters Said:

Section 5.1.2. One commenter expressed concern that manufacturers will have no way of knowing whether their applications have been received and deemed complete before the rule becomes final, and that potential delays in EPA's review of the applications could result in an undue increase in fee or delays in determining the appropriate fee. Instead, EPA should impose new fees for the model year following the model year in which the final rule is published, with at least 16 months prior to the January 1 of the same model year.

Our Response:

Once a complete application is submitted to EPA the length of time it takes to review the application will not be a factor in meeting the effective date deadline. Follow up questions or clarification questions pertaining to complete applications will not be a factor in meeting the effective date deadline. As long as a complete application is submitted before the effective date the manufacturer may pay the current fee, or in the case of nonroad manufacturers no fee payment would be required at that time.

EPA maintains that manufacturers must submit a complete certification application in order to be considered meeting the effective date deadline. A complete application may slightly vary among the various industry types but in general a complete certification application includes basic information about the engine family/ test group, emissions test data, certification levels, applicable emission standards, and information on emission control components.

For light duty vehicles a complete application includes a summary sheet of emissions test data and basic information on test group, certification levels, applicable emission standards, carryover information, auxiliary emission control device ( AECD) information, description of emission control components used, descriptions and EPA approvals for On Board Vapor Refueling ( ORVR) and On Board Diagnostics ( OBD) systems.

For ICIs, the complete application for certification should contain a summary of the emissions test data, city and highway fuel economy ( mpg) data, evaporative test data, test vehicle description, a description of vehicles covered by a certificate, 50K, 100K, and 120K Deterioration Factors ( DFs), applicable emissions standards, statements of compliance for Cold CO and the Supplemental Federal Test Procedure ( SFTP) and EPA approvals for ORVR and OBD systems11. 2/ 12/ 04 57 A complete heavy duty vehicle and engine application includes basic information on the engine family, emission limits for Average, Banking & Trading ( AB& T) families, emissions test data, certification levels, applicable emission standards, information on where the testing was performed, carryover information ( if applicable), AECD description, a detailed description of all emission control components, parts listing, parts numbers, emission control components description, copy of maintenance instructions to be provided to the purchaser, copy of the emissions label, and a signed statement of compliance.

A complete nonroad application includes basic information on the engine family, emission limits for AB & T families, emissions test data ( including evaporative data where required) , certification levels, deterioration factors, applicable emission standards, information on where the testing was performed, carryover information ( if applicable), AECD description, a detailed description of all emission control components, parts listing, parts numbers, listing of model applicability, emission control components description and description of operation, and a signed statement of compliance, description of the test procedure used, special or alternative test procedure description if applicable, operating cycle and the service accumulation period necessary to break in the test engines and stabilize emission levels, scheduled maintenance, description of adjustable operating parameters, copy of maintenance instructions to be provided to the purchaser and a copy of the emissions label, and a durability demonstration for any after treatment device used in an engine family.

In summary, complete applications as described above must be submitted before the effective date in order to fall under the pre existing fee amounts. In addition, the time required for EPA to review the application will not be a factor in meeting the effective date. As long a complete application is submitted before the effective date takes place, the current fee regulations would still apply to that application. Incomplete applications or applications with major pieces of information missing will not be considered complete. If an incomplete application is submitted a week before the rule's effective date, manufacturers should be prepared to pay the new fees for that application.

What Commenters Said:

Section 5.1.3. One commenter stated that the title to 40 CFR 85.2405( a)  Fees for the 2003 and 2004 model years  may be misleading since the fees proposed apply only to certain 2003 engine families ( those submitted after the effective date of the new fees rule).

We have revised the title to 40 CFR 85.2405( a) to read " Fees for the 2004 and 2005 calendar years." Because of the different certification time periods during the calendar year in which various industry types choose to certify we continue to believe it most appropriate to make the new fees applicable at a point in time where new costs are incurred and regardless of what model year any manufacturer may be certifying. We have changed the title to also include the 2005 calendar year as EPA will be collecting the same amount of fees from the effective date through the 2005 calendar year ( we will not be adjusting fees until the 2006 calendar year and have thus changed the title to 40 CFR 85.2405( b) to read " Fees for the 2006 calendar year and 2/ 12/ 04 58 beyond."

As explained in section 5.1.2, any complete certification applications ( submitted for model year 2004, or 2005) which is submitted and received on or after March 1, 2004, or more than 60 days after publication of this rule in the Federal is only subject to EPA's existing fees rule, therefore we do not believe it necessary to provide further clarification to 85.2405( a). For example, a model year 2004 nonroad certification application received before the new fee rule becomes effective would not require any fee to be paid since under EPA's existing fee rule ( from 1992) no fees are required for nonroad applications.

Section 6: Reduced Fees 6.1 Reduced Fee of One Percent Aggregate Retail Price What We Proposed: EPA proposed to continue the current two part test which, if met, would qualify an applicant for a reduction of a portion of the certification fee.

A reduced fee is available when:

( 1) The certificate is to be used for the sale of vehicles or engines within the U. S.; and ( 2) The full fee for the certification request exceeds one percent of the projected aggregate retail price of all vehicles or engines covered by that certificate.

Manufacturers that qualify for a reduced fee pay one percent of the aggregate retail price of the vehicles and engines covered by a certificate. Under the reduced fee provision, we proposed to retain this requirement to ensure proper balance between recovering the MVECP costs and mitigate economic burden. EPA invited comment on the continued use of the one percent multiplier, 67 FR 51412.

The Agency proposed two separate pathways by which a manufacturer may request and pay a reduced fee amount. Under the first pathway, manufacturers seeking a reduced fee would include in their certification application a calculation of the reduced fee and a statement that they meet the reduced fee criteria. The manufacturer's evaluation and submission of a fee amount under this reduced fee provision would be subject to EPA review or audit. Id. The Agency proposed that the applicant for a reduced fee also subsequently provide EPA with a report ( called a " report card"). This report would include the total number of vehicles ultimately covered by the certificate, including information on all certificates held by the manufacturer that were issued with a reduced fee, a calculation of the actual final reduced fee due for each certificate, which is derived by adding up the total number of vehicles and their sales prices, a statement of the total initial fees paid by the manufacturer, and the total final fees due for the manufacturer. Id. We also proposed that manufacturers would also be required to " true  up" or submit the final reduced fee due as calculated in the report card within 45 days of the end of the model year. Id. 2/ 12/ 04 59 Under the second pathway, manufacturers who, due to the nature of their business, are unable to make accurate estimates of the aggregate projected retail price of all the vehicles or engines to be covered by the requested certificate, would pay one percent of the retail selling price of five vehicles, engines or conversions when applying for a certificate or a minimum fee of $ 300. Examples of such manufacturers are those that modify customer owned vehicles ( as done by some ICIs and after market alternative fuel converters) since they are uncertain of their customer base. Under this pathway, manufacturers would be required to submit the same report card and true up the actual amount of reduced fee due similar to the first pathway, described above. Id.

What Commenters Said:

Section 6.1.1. VSC contended that the proposed minimum " 5 car up front deposit" was unreasonable and that the Agency had failed to provide a rationale for its proposal. VSC also stated that it is just as common, if not more common, for an ICI's certificate to cover a total of one ( 1) car as opposed to 5. VSC noted that EPA had previously acknowledged that it is difficult for ICIs to work with a system that requires them to predict the number of cars they will import. VSC stated that the same associated problem would arise under the Agency's proposal.

VSC suggested that the one percent low volume fee should allow the ICI to pay one percent of the value of the cars to be covered by the certificate for which the ICI has a contract when making a certification request. VSC further suggested that for additional cars imported under the certificate, ICIS should pay one percent of the value of each car as each car is imported, until payment of the standard $ 8,394 fee. VSC noted that under a pay as you go system, EPA would receive fees at the time of certification or importation and ICIs would only pay for cars they are actually working on and importing.

Our Response:

In response to comments received EPA has modified its reduced fee provisions to respond to many of the issues raised. The revised reduced fees provisions are as follows:

The reduced fee program for this rule provides two separate pathways by which a manufacturer can request and pay a reduced fee amount. The fee will be one percent of the aggregate retail price of the vehicles and engines covered by the certificate with a refundable minimum initial payment of $ 750. Each pathway specifies when manufacturers are required to determine the price of the vehicles or engines actually sold under a certificate and when to either pay additional fees or seek a refund. Under both pathways the manufacturer:

1) Pays a fully refundable initial payment of $ 750 or one percent of the aggregate retail price of the vehicles or engines, whichever is greater, with the request for a reduced fee. 2) Receives a certificate for an estimated number of vehicles or engines in the engine family to be covered by the certificate. 3) Requests a revised certificate if the number of vehicles or engines in the engine family 12 Typically, this will be the first February 15 after a certificate expires. Certificates generally expire on December 31 of the model year.

2/ 12/ 04 60 exceeds that on the certificate. 4) Is in violation of the Clean Air Act if the number of vehicles or engines made or imported is greater than the number indicated on the certificate.

The first pathway will be available for engine families having less than six vehicles, none of which have a retail price of more than $ 75,000 each. Manufacturers seeking a reduced fee include in their certification application a statement that the reduced fee is appropriate under the criteria. If one percent of the aggregate retail price of the vehicles or engines is greater than $ 750, the manufacturer must submit a calculation of the reduced fee and the fee. If one percent aggregate retail price of the vehicles or engines is less than $ 750 the manufacturer will submit a calculation of the reduced fee and an initial payment of $ 750. In the event that the manufacturer does not know the value of all of the vehicles to be imported under the certificate, it may use the values of the vehicles or engines that are available to determine the initial payment.

The manufacturer's evaluation and submission of a fee amount under this reduced fee provision is subject to EPA review or audit. If the manufacturer's statement of eligibility is accepted, the manufacturer will receive a certificate for five vehicles or engines.

If the manufacturer's statement of eligibility or request of a reduced fee is rejected by EPA then EPA may require the manufacturer to pay the full fee normally applicable to it or EPA may adjust the amount of the reduced fee that is due.

A manufacturer's statement that it is eligible for a reduced fee can be rejected by EPA before or after a certificate is issued if the Agency finds that manufacturer's evaluation does not meet the eligibility requirements for a reduced fee, the manufacturer failed to meet the requirements to calculate a final reduced fee using actual sales data, or the manufacturer failed to pay the net balance due between the initial and final reduced fee calculation ( see below for discussion of the final fee calculation, reporting and payment).

Within 30 days of the end of the model year, the applicant for a reduced fee will also provide EPA with a report called a " report card" to aid our review of the applicant's statement of applicability. This report shall include the total number of vehicles ultimately covered by the certificate. The report card shall include information on all certificates held by the manufacturer that were issued with a reduced fee under the first pathway. For each certificate the report will include a calculation of the actual final reduced fee due for each certificate which is derived by adding up the total number of vehicles and their sales prices and calculating one percent of the total, a statement of the initial fees paid and the difference between the initial payment and the total final fee for the manufacturer. Manufacturers will be required to submit the report card within 30 days of the end of the model year12, EPA believes this is reasonable as manufacturers should have final figures for each certificate by this time. 2/ 12/ 04 61 A manufacturer may request a refund if the final fee is less than the initial payment. If the final fee is greater than the initial payment, manufacturers will be required to " true up" or submit the final reduced fee due as calculated in the report card within 45 days of the end of the model year. The decision to eliminate a minimum final reduced fee of $ 300 was made as a result of comments regarding EPA's proposed policy of only issuing refunds greater than $ 500. This is discussed more fully in section 8 of the Response to Comments Document.

In addition, EPA may require that manufacturers submit a report card, with the same or similar information as noted above, for previous model years. The purpose of such report card would be to give EPA assurance that the manufacturer has demonstrated a continuous capability of submitting the necessary year to year report cards and that appropriate fees have been paid. This will assist EPA in its determination as to whether a manufacturer is capable of adequately projecting its annual sales for reduced fee purposes and whether the manufacturer shall remain eligible for the reduced fee provisions.

Under this pathway, if a manufacturer fails to report within 30 days or pay the balance due by 45 days of the end of the model year, then EPA may refuse to approve future reduced fee requests from that manufacturer. In addition, if a manufacturer fails to report within 30 days and pay the balance due by 45 days of the end of the model year as noted above then the Agency may deem the applicable certificate void ab initio.

The second pathway is available for engine families that contain more than five vehicles or engines and/ or have at least one vehicle or engine with a retail price of more than $ 75,000. Manufacturers seeking a reduced fee under this pathway include in their applications a statement that the reduced fee is appropriate under the criteria and a calculation of the amount of the reduced fee ( 1.0 percent of the aggregate retail price of vehicles or engines) or an initial payment of $ 750, whichever is greater. As in the first pathway, the manufacturer's evaluation and submission of a fee amount under this reduced fee provision is subject to EPA review or audit. If the manufacturer's statement of eligibility is accepted, the manufacturer will receive a certificate for the number of vehicles or engines to be covered by the certificate.

If the manufacturer's statement of eligibility or request of a reduced fee is rejected by EPA then EPA may require the manufacturer to pay the full fee normally applicable to it or EPA may adjust the amount of the reduced fee that is due.

A manufacturer's statement that it is eligible for a reduced fee can be rejected by EPA before or after a certificate is issued if the Agency finds that the manufacturer's evaluation does not meet the eligibility requirements for a reduced fee.

At the end of the model year, the manufacturer may request a refund if the final fee is less than the initial payment. Manufacturers with certificates issued with reduced fees under this pathway will not be required to submit the report card and true up described above under the first pathway. 2/ 12/ 04 62 Under either pathway, if the manufacturer realizes that it will make or import more vehicles or engines than the number specified on the certificate, the manufacturer must request a revised certificate with an increased number of vehicles or engines indicated. At the time of revision, the manufacturer must pay one percent of the aggregate retail price of the number of vehicles or engines that are being added to the certificate. The additional fee must be received by the Agency and the certificate must be revised and issued before the additional vehicles or engines may be sold or imported in the United States. If a manufacturer imports or sells more vehicles or engines than that indicated on the certificate, the manufacturer will be in violation of the CAA for selling or importing uncertified vehicles ( those over and above the number indicated on the original certificate.)

As suggested by VSC, after the initial payment has been submitted, the above reduced fee provisions will allow manufacturers to pay one percent of the retail price of each vehicle or engine as needed. This pay as you go provision will give ICIs and other manufacturers the advantage of only paying a $ 750 ( equivalent to the average fee for two imported vehicles) or one percent of the value of the vehicles initial payment and then paying for additional vehicles as needed. Manufacturers that request revised certificates for an increased number of vehicles will pay the additional one percent fee per vehicle at the time the revised certificate is requested.

In some cases, when a manufacturer requests a certificate under the first pathway, the retail price of five vehicles or engines covered by the certificate may exceed the initial payment. Under the provisions we are finalizing today, the difference between the initial payment and the final reduced fee will not be required until after the end of the year. Therefore, EPA believes that the reduced fee provides flexibility and mitigates any unreasonable economic burden that a full fee may present to manufacturers with small engine families.

What Commenters Said:

Section 6.1.2. Sierra Research ( SR) supported our reduced fee provision. In addition, they requested clarification of the term " retail sales price" in the final rule. SR sought clarification as to whether the " retail sales price" refers to the engine price sold by the engine manufacturer to the equipment manufacturer ( OEM) or the engine price sold to the " consumer." SR noted that the latter is often referred to as the " replacement price," and would be a component of the total equipment price.

SR suggested that the term " retail sales price" refer to the price at which the engine is sold to the OEM, and not the replacement price. SR suggested that this term not refer to the replacement price because it can be difficult to determine what the replacement price is at the time of certification and it can change over time.

Our Response:

The retail sales price of a vehicle or engine is the price to the consumer, or the replacement price, as defined by SR. This price is the easiest to determine across industries as all 2/ 12/ 04 63 of the vehicles and engines are either made for sale or will have a value on the market if a manufacturer was to replace its own product by one of another manufacturer. If the final sales price is different than the price projected at certification, the reduced fee can be adjusted at the end of the model year to reflect the correct retail sales price and additional fees may be paid or a refund request may be made by the manufacturer.

What Commenters Said:

Section 6.1.3. SR noted that the regulations do not address how to aggregate different retail sales prices and requested clarification in the final rule.

SR suggested using the average sales price of all models while noting that EPA would prefer a sales weighted price where the manufacturer multiplies the price of each model by the number of engines projected to be sold, sums the results for all models and then divides by the total number of engines for all models.

Our Response:

The aggregate retail price of an engine family is the total of the retail sales prices of each of the engines or vehicles in the family added together. For example, if a manufacturer wanted to certify a family of engines that included five engines that sold for $ 100 each and four engines that would sell for $ 150 each, the aggregate retail price of the family would be ( 5 x $ 100)+( 4 x $ 150) or $ 1,100.

What Commenters Said:

Section 6.1.4. EMA commented on proposed 40 CFR 85.2406( b)( 5)( i) which states that EPA may require future reduced fee eligibility determinations if it determines that a manufacturer has not properly assessed its eligibility for reduced fees in its initial application. EMA commented that this was unnecessary because EPA always has the final authority for making reduced fee determinations.

EMA also suggested that the language proposed in 40 CFR § 85.206( b)( 5)( ii) which allows EPA to require a manufacturer to use the provisions in ( b)( 7) rather than the provisions in paragraphs ( b)( 1) through ( b)( 4) will generally not provide any disincentive for improperly requesting reduced fees.

This commenter further stated that proposed 40 CFR § 85.2406( b)( 7)( i) was inconsistent with proposed 40 CFR § 85.2406( b)( 5)( ii). Proposed 40 CFR § 85.2406( b)( 7)( i) states that a manufacturer must use the " second pathway" for reduced fees " if EPA makes such a determination under paragraph ( b)( 5)( ii) of this section" but subparagraph ( i) of 85.2406( b)( 7) states that the request to use reduced fees under the provisions of pathway 2 shall be made prior to the submission of an application for certification. The commenter observed that this inconsistency arises when a manufacturer uses pathway 2 as a result of EPA determination under 2/ 12/ 04 64 ( b)( 5)( ii). To the commenter this appears to not comply with the provisions of 85.2406( b)( 7)( i).

Our Response:

EPA agrees with these comments and the final rule has been amended to reflect the changes. The paragraph stating that EPA may " require that future reduced fee eligibility determinations be made by the Agency" is unnecessary and, therefore, the language is not included in the reduced fee regulatory language set forth in the final rule.

The final regulatory language does not state that EPA will require a manufacturer to use one reduced fee pathway over the other. The price and the number of vehicles or engines to be covered by a certificate will determine the pathway manufacturers will use to determine the initial reduced fee payment.

What Commenters Said:

Section 6.1.5. EMA sought clarification as to the applicability of 85.2406( b)( 5)( iii) which indicates that EPA may " deny future reduced fee requests and require submissions of the full fee payment until such time as the manufacturer demonstrates to the satisfaction of the Administrator that its reduced fee submissions are based on accurate data and that the final fee payments are made within 45 days of the end of the model year." EMA wondered how manufacturers would make the requisite demonstrations if the Agency denied all future requests for the use of reduced fees.

Our Response:

If EPA denies reduced fee requests and requires submissions of full fee payment, the manufacturer should contact the EPA and demonstrate that its reduced fee submissions are based on accurate data and that the final fee payments are made within 45 days of the end of the model year of the year in question. This can be done by providing an explanation and any convincing information or data that the reduced fee submission is appropriate and that reports were submitted on time. Such data may include the most recent production data for the previous year, proof of payment of correct fees amounts for the previous year, and recent production plans for the current year. Upon examining the data submitted by the manufacturer for the model year in question, EPA may approve the reduced fee request and, at that time, would consider any future reduced fee requests.

What Commenters Said:

Section 6.1.6. OPEI commented that the proposed reduced fee system is inadequate for existing small volume engine families. OPEI's example of this was the following: " Assume that a lawn and garden engine costs $ 100. For a manufacturer to be eligible for a reduced fee ( i. e., a fee less than $ 827), the manufacturer could sell no more than 827 engines  13 Under the one percent of total sales trigger, engine sales would have to be less than $ 82,700 to take effect; assuming a per unit engine cost of $ 100, the manufacturer could sell no more than 827 engines ($ 82,700/$ 100 = 827 engines).

2/ 12/ 04 65 one sixth of the existing small volume cutpoint. 13 Thus the one percent sales trigger is not an effective solution for small volume lawn and garden engines."

OPEI quotes 40 CFR § 90.3.: " In the lawn and garden context, a small volume engine family means":

[ A] ny handheld engine family or any non handheld engine family whose eligible production in a given model year are projected at the time of certification to be no more than 5,000 engines.

OPEI requested that EPA include an additional provision that eliminates certification fees for small volume small spark ignition ( SSI) engine families with less than 5,000 units. OPEI further stated that eliminating the fee for small engine families is critical because there is inadequate revenue from small volume engine family sales to adequately spread the costs of the proposed certification fees. OPEI commented that if EPA imposes a certification fee on lawn and garden engines, the agency should reconcile that fee with the 5,000 unit cutpoint definition of small volume engine families in 40 CFR part 90.

Our Response:

EPA established a reduced fee provision for instances to alleviate the economic burden that may be imposed by the full fee requirement. The reduced fee payment of one percent of the aggregate retail price of the engines or vehicles will assure that all manufacturers will be treated equitably and that none will be required to pay more than one percent of the projected aggregate retail price of small volume families of the engines or vehicles.

Emissions regulations have specified small volume engine family sizes for different industries. The small engine family sizes were specified to differentiate from larger engine families for purposes such as technology application or regulatory implementation. The fees rule differs from these rules as it does not distinguish the need for a reduced fee by the size of the family but, rather, by the amount of fees that the manufacturer of the family would have to pay.

6.2 Retroactive Payment Under Reduced Fee Program What Commenters Said:

EMA submitted an additional alternative to the reduced fee pathways. EMA suggested that manufacturers who pay the full fee at the time of certification should also have the ability to seek refunds at the end of the model year if the fee paid exceeds one percent of the retail sales. 14Typically, this will be the first February 15 after a certificate expires. Certificates generally expire on December 31 of the model year.

2/ 12/ 04 66 According to EMA, this would enable EPA to receive the fees up front and avoid any unnecessary delays while not adding too much year end burden for manufacturers already required to produce year end production volume reports.

EPA Response:

Currently, the retroactive reduced fee option is available for those engine families/ test groups that meet the one percent reduced fee provision. Our response is just to clarify the process. A manufacturer that pays the standard fee for an engine family or test group and later determines that it meets the criteria for a reduced fee may qualify for a retroactive reduced fee. Under today's provision, the manufacturer may be required to submit a report card and a refund request at the end of the calender year for the amount of the difference between the fee paid and one percent of the aggregate retail sales price of the vehicles or engines covered by the certificate.

6.3 Year End Report What We Proposed:

We proposed that each applicant for a reduced fee must provide EPA with a report card within 30 days of the end of the model year 14( 67 FR 51411 51412) . We stated that this report shall include the total number of vehicles ultimately covered by the certificate. The report card shall include information on all certificates held by the manufacturer that were issued with a reduced fee, a calculation of the actual final reduced fee due for each certificate which is derived by adding up the total number of vehicles and their sales prices, a statement of the total initial fees paid by the manufacturer and the total final fees due for the manufacturer. Manufacturers would be required to " true  up" or submit the final reduced fee due as calculated within the report card within 45 days of the end of the model year. Id.

What Commenters Said:

VSC stated there is no need for a year end settlement, but a year end audit would be appropriate under the pay as you go system because EPA is getting its money at the time of certification or importation. The commenter also stated that because ICI must file EPA form 3520 8, a Final Admission Form, for each imported vehicle, the payment of the additional fees can be easily tracked.

Our Response:

EPA believes that a year end settlement is needed for some manufacturers undergoing the reduced fee process. A true up requirement at the end of the year ensures that any outstanding 15 See EPA docket number A 2001 09 for letter from Jane Armstrong dated April 14, 1999 to Peter Di Bernardi regarding ICI owner imported vehicles and certification.

2/ 12/ 04 67 fee payments owed to the government are paid. Under the first reduced fee provision discussed above in section 6.1, a manufacturer can receive a conditional certificate for five vehicles, engines or motorcycles and pay $ 750 at certification time and true up with a report card at the end of the year. Manufacturers utilizing the second pathway will not be required to submit the report card and true up as required under the first pathway.

The initial information that manufacturers submit in the report card for reduced fees under the first pathway will be necessary for EPA to establish all of the vehicles made or imported under each certificate and the fee payments that have been made by the manufacturer as well as the final reduced fee. We agree that audits and information provided on the 3520 8 forms may be helpful to confirm the information submitted by manufacturers but cannot be solely relied upon for all of the information submitted in the report card.

6.4 ICI Owner Imported Vehicles ( Not for Resale)

What We Proposed:

We proposed that the cost basis for calculating a reduced fee for an ICI certification be based upon the full cost of the vehicle or engine rather than the cost or value of the conversion. We explained that EPA has not received a fee payment for the " base vehicle" or the vehicle imported before its conversion to meet United States' emissions requirements. For alternative fuel converted vehicles or engines that have been originally certified by an OEM, we proposed the reduced fee cost basis as the value added by the conversion.( 67 FR 51412)

What Commenters Said:

VSC argued that the standard ICI fee should not apply to owner imported vehicles. VSC suggested that the fee for owner imported vehicles ( not for resale) should be five percent of the cost of conversion of the vehicle to meet EPA emission standards. VSC cited a letter sent to Mr. Di Bernardi of Liphart & Associates by Jane Armstrong of EPA ( dated April 14, 1999) which discusses a class of ICI vehicles that are described as owner imported ( not for resale) and are modified through the installation of OEM parts to be identical to a certified OEM vehicle sold in the United States. VSC called these vehicles " Di Bernardi vehicles15."

According to VSC, EPA would recoup more money under a fee based on five percent of a conversion of such vehicles than the one percent cost of conversion rule applicable to alternative fuel vehicles. VSC stated that the average owner imported vehicle conversion costs approximately $ 8000, and five percent of this amount would mean a fee of $ 400. VSC stated 2/ 12/ 04 68 that this amount would be 400 times more than the per vehicle cost for OEMs. VSC further noted a fee based on cost of conversion was appropriate in light of the fact that our certification and compliance activities for these types of vehicles were limited.

VSC also stated that EPA was recouping additional fees from ICIs by requiring ICIs to recertify each year owner imported vehicles of a given model year already certified by an ICI for one MY.

Our Response:

EPA disagrees with the suggestion that fees for owner imported vehicles should be only five percent of the cost of conversion because EPA's services are limited in these cases as opposed to an OEM vehicle. We require modification of owner imported vehicles through installation of OEM parts in order for these vehicles to be identical to a certified OEM vehicle sold in the United States. This includes vehicles for resale, and modification and test vehicles options included in 40 CFR 85.1509 and 40 CFR 89.609 and those imported on behalf of a private or another owner ( not for resale). EPA believes that an owner imported vehicle under an engine family/ test group certified by EPA must meet the same emission standards/ requirements as vehicles and engines imported for resale. As a result, each model year owner imported and other ICI vehicles are subject to services such as extensive pre certification/ certification assistance, application review, processing and approval to ensure that they meet the certification criteria and allowed final importation. Other services include recall, maintenance instruction, warranty, running changes, emissions testing and labeling, and fuel economy testing and labeling. EPA recoups costs in providing these type of MVECP services for these vehicles.

In addition, EPA addressed in the abovementioned letter to Mr. Di Bernardi of Liphart & Associates the alternative methods of compliance demonstration for ICI owner imported vehicles but did not grant exemptions for compliance with the standards.

EPA believes that all ICI vehicles are subject to a standard fee. If there is an unreasonable economic burden in adhering to the fees regulations, manufacturers including ICIs may apply for a reduced fee. Therefore, EPA believes the reduced fee process for these vehicles and engines is applicable as proposed.

6.5 $ 300 Minimum Fee Payment What We Proposed:

As part of the proposed reduced fee provision, we proposed a minimum fee of $ 300. We believed this amount represented the lowest level of fee that is cost effective for the Agency to collect and still representative of the actual costs incurred by the Agency in providing MVECP services. What Commenters Said: 2/ 12/ 04 69 OPEI commented that if the Agency believes ( for administrative reasons) that anything less than $ 300 is not cost effective then the certification fee for lawn and garden small engine families should simply be waived.

Our Response:

The purpose of the fees rulemaking is to recover the costs for the services that EPA provides to manufacturers. Because EPA realizes that the costs of the fees may represent an unreasonable burden for manufacturers of small engine families EPA is adopting reduced fee provisions ( see discussion in section 6) whereby manufacturers of small engine families will have to pay no more than one percent of the aggregate retail price of the vehicles or engines sold under the certificate. To waive the fee completely is not in keeping with the core purpose of section 217 of the CAA and the IOAA to recover the costs for the services it provides. EPA also believes that the likelihood of such reduced fees dropping below $ 300 is very low and in such cases it is still appropriate to collect such a fee to keep an equitable and level playing field among those manufacturers that have sales above or below $ 300,000 under a certificate ($ 300 would represent one percent of $ 300,000 in that instance).

Section 7: ICI Issues 7.1 Fee Provisions Specific to ICIs What We Proposed:

We proposed separate and lower fees for ICI light duty on highway certificate requests. We examined the costs associated with ICIs and OEM and found that the costs associated with administering the light duty ICI program was lower that the costs associated with administering the light duty ICI program was lower than the costs for light duty original equipment manufacturers ( OEMs). We proposed a fee of $ 8,394 for light duty ICI certificates with no limit on the number of vehicles to be covered by the certificate. For all other ICI categories, we explained that our certification and compliance activities were no different for ICIs than OEMs and, therefore, we established the same fees for ICIs and OEMs. Id. As discussed in section 6.1, above, we also proposed reduced fee provisions to alleviate any economic burden imposed by the full standard fee.

What Commenters Said:

VSC suggested that the Agency should promulgate specific fee provisions for ICIs especially in light of the fact that most of the services the Agency is seeking to recover the associated costs are inapplicable to ICIs. As examples, VSC cited the Agency's CFEIS system, certification compliance audits, selective enforcement audits, monitoring of in use data, review of in use testing, or Agency run in use or recall tests. VSC also stated that a multi part ICI fee system was necessary due to the lack of similarity between ICI importations. 2/ 12/ 04 70 VSC further stated that ICI specific provisions would still meet the government's need to collect fees that offsets its costs, while taking into account the fact that ICIs are small businesses.

Our Response:

Under the certification and compliance program ICIs must meet certain requirements and the fees reflect the costs incurred in providing services that assist ICIs in meeting those certification and compliance requirements. As explained earlier in sections under 2.4, we grouped the various industries into categories based on the similarity in the type of services we provide under the MVECP then separated the categories into subcategories if the levels of service within a category differed as is the case with light duty vehicles, motorcycles and ICIs within the Lightduty category ( worksheet # 2.)

ICIs do not receive all of the services that are provided to the light duty subcategory. As pointed out by VSC, ICIs do not use CFEIS, receive selective enforcement audits or services that involve in use testing. The fees for ICIs do not include the costs of these services. That is why the fees for ICIs are lower than the fees for the LD manufacturers. ICIs fees include the cost of providing the services of certification and fuel economy testing, extensive assistance with precertification activities, application preparation and application review.

In addition, EPA believes no multi part fee system is necessary for the various ICI importations because of the complexity of the vehicle models, ages, and types of ICI work performed on ICI vehicles and engines. Furthermore, the reduced fee provisions allows some flexibility and adjustments in fees for ICIs and other manufacturers.

The EPA believes that this fee adequately reflects the time, labor and expenses spent on ICI pre certification and certification activities. ICI certification process is very time and resource intensive yet as a category ICIs request less certificates and cover fewer vehicles per certificate than OEMs or industry categories.

7.2 ICI Vehicles Imported for Resale What We Proposed:

EPA proposed a fee of $ 8,394 for light duty ICI certificates as EPA has determined that this recovers the costs of MVECP services provided.

What Commenters Said:

VSC argued that this fee of $ 8,394 should be applicable to only ICI cars imported for 16EPA Form 3520 1, known as the Declaration Form, is called the Importation of Motor Vehicles and Motor Vehicle Engines Subject to Federal Air Pollution Regulations form. This form is collected by customs to ensure that motor vehicles and engines imported into the U. S. conform with applicable emission requirements. Code A is described under the Independent Commercial Importer ( ICI) Imports section of the form as any vehicle or engine imported by an ICI for modifications in accordance with a valid EPA certificate of conformity issued for the specific make, model, and model year in accordance with 40 CFR 85.1505. 17Currently, EPA Form 3520 1 contains codes A, C, J, and Z under the ICI section. These codes describe the type of vehicles that are imported. EPA believes the vehicles imported under a certificate does not only include code A, certification vehicles and code J, pre certification test vehicles. It also includes code C, modification and test vehicles and code Z, vehicles that are modified to be identical to an OEM with permission. This does not include vehicles or engines that may be excluded or exempted by the Administrator per section 203 of the CAA and/ or U. S. customs.

2/ 12/ 04 71 resale under Declaration A on EPA form 3520 1.16 Our Response:

We disagree with this comment. The EPA believes that the ICI fee applies to all ICI certificates. This includes certificates that cover vehicles and engines for sale, vehicles and engines not for sale ( i. e., owner imported) and those modified under the modification and test provisions. Therefore the standard fee is applicable to each certificate that covers these types of ICI importations. EPA believes the type of vehicles ICIs should pay fees for are also specified on the EPA Declaration form 3520 1.17 7.3 Modification and Test Cars What We Proposed:

The proposed reduced fees provision required inclusion of all vehicles sold by a manufacturer in the aggregate retail price, 67 FR 51411. EPA proposed that when calculating the aggregate retail sales price of vehicles or engines under the reduced fee provisions, such calculation must not only include vehicles and engines actually sold by the ICI but also those modified under the modification and test options in 40 CFR 85.1509 and 40 CFR 89.609 and those imported on behalf of a private or another owner, 67 FR 51412.

What Commenters Said:

Section 7.3.1. VSC argues that EPA recognized the " Mod and Test" procedure as an alternative to the full certification procedure for modification and test vehicles ( also known as Declaration 18 Imported vehicles are described by codes selected on the EPA Form 3520 1. Code " C" which is listed under the ICI imports category means that the vehicle is being imported by an ICI for modification and testing in accordance with 40CFR § 85.1509. Such vehicles or heavy duty engine must be at least 6 years old.

2/ 12/ 04 72 ` C' cars) 18, in the 1987 ICI Rule, and stated that this was a " clear reason" why the fees rule should not be applicable to such vehicles. VSC also stated that the process applicable to modification and test cars should not even be called " certification." In addition, VSC argued that EPA had failed to justify the combination of modification and test cars with other ICI imports since the Agency's regulations treat them differently. VSC further stated that the fact that these vehicles have historically been included in the fee regulation was insufficient to justify their continued inclusion.

Our Response:

We disagree with this comment. We believe that ICI modification and test vehicles must meet the applicable emissions standards and undergo the certification process. As certificate holders, ICIs are required to perform all of the necessary modifications and emissions testing to ensure the vehicles they import comply to EPA emissions standards and requirements. Under EPA's import regulations, modification and test cars must be covered by a certificate ( unless otherwise exempted by the EPA Administrator or Customs). Furthermore, Section 206 of the CAA allows the EPA Administrator to test any emission control system incorporated in a motor vehicle or engine to determine whether such system enables the vehicle or engine to conform to the required emission standards. In addition, a certificate of conformity may be issued under this section only if the Administrator determines that the importer ( or any person) has established to the satisfaction of the Administrator that any emission control device, system or element installed on or incorporated in such vehicle or engine conforms to the emission requirements. Section 217 of the Act and the IOAA authorize EPA to recover the costs of compliance and certification services it provides to manufacturers. Hence, we believe ICIs must pay fees that represent the costs involved in assuring that modification and test cars meet emission standards.

The 1987 Rule for Importation of Noncomforming Motor Vehicles and Motor Vehicle Engines ( 52 FR 36136, September 25, 1987) that VSC mentioned provides a more enhanced modification and test program in part due to previous noncompliance issues. As a result, these vehicles have been historically included in the fee regulation because they are imported under a certification based program. Being certificate holders makes ICIs responsible for complying with all the emission requirements for these vehicles which may or may not be owned by the certificate holder.

We agree with VSC that EPA has allowed alternative methods of compliance demonstration for ICIs ( that meet certain criteria) however they are required to comply with applicable emission standards and to properly install required emission related components that are fully functional. By requiring ICIs to adhere to the test/ modification provisions while 19Form 3520 1, EPA Declaration Form has codes describing the types of vehicles and engines that are to be imported into the U. S. that must be declared by the manufacturer. Codes " Z" listed under the ICI imports category means imported by an ICI for the purpose of modifying to be identical to an original equipment manufacturer ( OEM) certified version in accordance with written instructions from the OEM that are specific to the vehicle or heavy duty engine being imported. Codes " E" and " M" fall under the EPA exempted vehicles category and mean vehicle or engine at least 21 years old and Canadian vehicle/ miscellaneous exemption, respectfully. Codes " B" and " EE" fall under the U. S. conforming and " identical" vehicles category. More specifically, code " B" indicates that the vehicle is U. S. certified and is unmodified bearing a U. S. EPA emission control label in the engine compartment or motorcycle frame in English. Code " EE" indicates that the vehicle is identical in all material respects to a U. S. certified version either as a Canadian vehicle ( with the proper Canadian emission control label and other customs EPA requirements as listed on form 3520 1), or as a vehicle from any country ( requiring a letter from the manufacturer's U. S. representative ( not dealer or mechanic) on letterhead stating the vehicle is identical to a U. S. EPA certified version with respect to emissions, is not being imported for resale or lease, and other requirements as listed on form 3520 1).

2/ 12/ 04 73 undergoing the certification process ensures that this happens.

ICI vehicles or engine certificates cover vehicles or engines which are imported into U. S. but was not originally certified by an OEM. EPA recovers costs associated with providing various MVECP services to ensure that these vehicles and engines meet emission requirements. These requirements include meeting emission standards, and also include undergoing recall, maintenance instruction, warranty, running changes, emissions testing and labeling, and fuel economy testing and labeling which are the same requirements with which light duty OEMs are required to comply. In addition, ICIs receive extensive assistance with pre certification activities, application preparation and application review. The EPA import team reviews numerous applications for import exemptions due to hardship or other forms of exemptions. EPA incurs costs for conducting these types of services. Therefore, we believe ICIs must pay fees that represent the costs involved in assuring that modification and test cars meet emission standards.

What Commenters Said:

Section 7.3.2. VSC also commented that vehicles declared on EPA's Declaration Form 3520 1 under categories " Z" " E", " M", " EE", and " B" 19 should likewise not have to pay any fee. They asserted that EPA has not established that it has any costs to recoup in regard to these vehicles.

Our Response:

EPA disagrees with this comment. Under EPA's import regulations, including section 203 of the CAA these vehicles may not be imported into the U. S. unless covered under a certificate of conformity, exempted by the Administrator or otherwise authorized by EPA and 2/ 12/ 04 74 U. S. Customs Service regulations. Based on the EPA Declaration form 3520 1 codes " E" and " M" fall under the exemption category. Although the vehicles imported under the exemption category must meet certain government requirements, we agree that certification fee costs currently do not apply to these vehicles. In addition, certification fees currently do not apply to vehicles indicated as codes " B" and " EE" on Declaration form 3520 1. The codes " B" and " EE" fall under the U. S. conforming and " identical" vehicles category and cover vehicles that are required to conform to EPA emissions standards. Proof must be provided to Customs that these vehicles comply as indicated on the Declaration form 3520 1. Furthermore, the " Z" code indicates that the vehicle or engine is imported by an ICI for the purpose of modifying it to be identical to an OEM certified version ( with written OEM instructions) and this requires undergoing the certification process and submitting a fee payment. Currently, EPA Form 3520 1 contains codes A, C, J, and Z under the ICI section. These codes describe the type of vehicles that are generally imported by ICIs. EPA believes the vehicles imported under a certificate does not only include code A, certification vehicles and code J, pre certification test vehicles. It also includes code C, modification and test vehicles and code Z, vehicles that are modified to be identical to an OEM with permission. Under these ICI categories vehicles and engines for resale, modification and test vehicles and engines, or owner imported vehicles ( not for resale) must undergo the certification process and therefore, pay fees, as discussed earlier in the response to section 7.2 above.

7.4 ICI Licensing What We Proposed:

ICI licensing was not proposed in the NPRM.

What Commenters Said:

VSC suggested that EPA offer through the fees program an ICI license that is renewed annually, similar to the National Highway Traffic Safety Administration ( NHTSA) Registered Importer program. VSC further stated that in addition to raising revenue, an ICI licensing program will provide a control on companies seeking to become ICIs.

Our Response:

This comment is beyond the scope of this rulemaking.

7.5 ICIs and SBREFA What We Proposed:

In section VIII. B. of the proposed rule we certified our proposed fees as having no significant economic impacts on small entities. In addition, we also stated that our reduced fee provisions would limit the impacts of this rule on small entities. ( Section VIII. B., Regulatory 2/ 12/ 04 75 Flexibility Act ( RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 ( SBREFA), 5 U. S. C. 601 et seq. ( 67 FR 51414).

What Commenters Said:

Section 7.5.1. VSC stated that the Regulatory Flexibility Act, 5 U. S. C. 601 612 was amended by SBREFA, Public Law 104 121, to ensure that concerns regarding small entities are adequately considered during the development of new regulations that affect them. VSC further quoted the SBREFA amendments in which Congress stated that " uniform Federal regulatory * * * requirements have in numerous instances imposed unnecessary and disproportionately burdensome demands including legal, accounting, and consulting costs upon small businesses * * * with limited resources[,]" and directed agencies to consider the impacts of certain actions on small entities.

VSC suggested that EPA consider two points: ( 1) " the significant economic impact the proposed rule has on small entities; and ( 2) any significant alternatives to the proposed rule which would ensure that the objectives of the proposal were accomplished while minimizing the economic impact of the proposed rule on small entities and providing relief to small certifiers of vehicles."

Our Response:

We are committed to minimizing the burden of the fees regulations on small entities or entities with small engine families to the extent feasible while still meeting the statutory requirements to charge fees. The Agency did consider the economic impacts of this rule on small entities, however, we believe this rule will not have a significant economic impact on a substantial number of small entities. We reviewed the rulemakings that set emission standards for the industries affected by the fees rule, including those manufacturers affected by the recreational vehicle rule. The review showed that approximately 108 small businesses will be paying fees. The Agency examined the cost of the fees and determined that the average cost for manufacturers of all sizes, across industry sectors, is approximately $. 41 per vehicle or engine.

Nevertheless, to mitigate possible economic hardship EPA is adopting an alternative to the full certification fee requirement including reduced fee provisions to help small volume entities meet the regulations while ensuring the fees rule objectives can be accomplished. The reduced fee provisions limits the impact of this rule on small entities to one percent of the aggregate retail sales price of the vehicles or engines covered by a certification request. Hence, the fee a manufacturer would pay will not exceed one percent of the aggregate retail sales price of the vehicles or engines covered by a certificate. This one percent amount represents a modest cost of doing business. EPA also believes enough notification of this fees rule was provided to allow manufacturers enough time to plan for fees in their budgets.

What Commenters Said: 2/ 12/ 04 76 Section 7.5.2. VSC suggested that EPA should recognize that ICIs are not OEMs. VSC further stated that SBREFA requires this distinction and also compels EPA to adopt a fee system that carefully considers ICIs' and how they differ from OEMs. VSC requested that we consider and include " the fact" that ICIs are small businesses that, on the average, import fewer than 100 vehicles annually.

Our Response:

EPA believes that although ICI manufacturers are often small businesses and in some instances may differ from OEMs, both ICIs and OEMs are certificate holders. As certificate holders, ICIs are required to meet certain certification and compliance requirements. These requirements include meeting emission standards, and also include undergoing recall, maintenance instruction, warranty, running changes, emissions testing and labeling, and fuel economy testing and labeling which are the same requirements that light duty OEMs are required to comply to. EPA incurs costs for conducting these types of services.

Under the ICI category of the cost study, we have calculated fees only for the services applicable to ICIs and thus, ICI certificates cost considerably less than certificates for other vehicle manufacturers. EPA also believes that the reduced fees provision, while enabling the objectives of both section 217 and the IOAA to be met, minimizes the economic impact of this rule on small entities or entities with small engine families.

Section 8: Other Topics 8.1 EPA Services What We Proposed:

As previously mentioned in sections 2 and 3, our proposed fees were based on the costs the Agency incurs in providing certification and compliance services to the various certification groups.

What Commenters Said:

Mercury Marine stated that the office that handles marine SI certification and compliance was understaffed and required follow up calls to encourage timely processing of applications. Mercury Marine sought an explanation from EPA as to how fees would be used to improve the level of service, or more specifically, to improve the processing of requests in a timely fashion.

Our Response:

The fees schedule is based on the type of services provided to each category as well as the amount of services that each category receives. It is also based on the current and projected costs for each industry. The projected costs for the " Other" category does include the cost of 2/ 12/ 04 77 additional personnel to assist in processing applications. EPA will continue to ensure the timely processing of applications.

8.2 Fee Payment Timing What We Proposed:

EPA proposed that fees must be paid in advance of receiving a certificate ( 67 FR 51410). We also emphasized that the Agency would not process applications until the appropriate fees had been fully paid. ( 67 FR 51411).

What Commenters Said:

Three commenters suggested that the Agency should not require fees payment prior to issuing certificates.

Our Response:

In most instances, we begin reviewing certification applications and, in some cases, complete our review, prior to receiving fees payment. Thus, we do not necessarily suspend application review because of non payment of fees. However, because we cannot issue a certificate of conformity before receipt of fees, we are maintaining the requirement that fees be paid in advance of submitting an application for certification. We believe this will ensure that we do not delay the issuance of certificates.

8.3 Running Changes and Carryovers What We Proposed:

We did not propose any special provisions for running changes and carryover applications.

What Commenters Said:

Sierra Research noted that the Agency did not propose any provisions for running changes and requested clarification that running change were not certification requests and therefore, would not trigger fees.

OPEI suggested that certification for lawn and garden engines be set at no more than $ 300 since most certificate applications for this category were carryover applications, which generally costs less time and effort to process as compared to new certification applications.

Our Response: 2/ 12/ 04 78 We are responding for purposes of providing information only. Running changes are those changes in a vehicle or engine configuration, equipment or calibration which are made by an OEM or ICI in the course of a motor vehicle or engine production. The cost of a running change is included in the fees cost for an engine family or test group within the same engine emissions control system combination. Therefore, they do not trigger additional fees.

Carryover applications are certification applications that use data from a prior year's application. When a manufacturer elects to carry over test data from a previous model year, its certification effort may be reduced. Further, such carryover test data may reduce some of our efforts. However, such potential reductions are offset by additional activities necessitated by the carryover request. The application for a carryover is usually not an exact duplicate of the MY being carried over. For example, carryover applications may involve changes ( e. g. additional test weight and horsepower) which could change the test vehicle or engine selection. In such cases, EPA must conduct additional review of carryover requests to ensure that they meet EPA requirements and that the test vehicles or engines were properly selected for the carryover application. Further, EPA must review a carryover application to determine the applicability for the regulations for the new model year as compared to the carryover model year. Thus, carryover applications do not necessarily result in lower costs than a certification request for a new engine family/ test group. As a result, the fee schedule will remain as proposed. Carryover certification requests will not be distinguished from new certification requests.

8.4 Refunds Less than $ 500 and Final Fee Payments Less than $ 500 What We Proposed:

For applicants who fail to obtain certificates and who subsequently request refunds, we proposed full fee refunds of amounts exceeding $ 500. This was a change from the existing requirement that allowed for partial refunds when applicants fail to obtain a signed certificate ( see 40 CFR § 86.908 93( b)( 1), as amended by § 86.908 01( b)( 1)). We also proposed the option of applying the refund to another certification request.

Further, we proposed the continuation of the existing requirement of providing partial refunds resulting from decreases in the aggregate projected retail sales price of vehicles or engines covered by the certification request. ( See, 40 CFR § 86.908 93( b)( 2) and 86.908 01( b)( 2)). We also invited comments on whether to limit refund requests to $ 500. ( 67 FR 51412).

As earlier discussed in section 6 above, we proposed a reduced fee provision that includes calculating a final reduced fee within 30 days of the end of the model year and " true up" of any additional fees owed within 45 days of the end of the model year. Under the 1992 fees rule reduced fee applicants pay an additional waiver fee any time the aggregate projected retail sales price of the vehicles or engines to be covered by a certification request changes. Also, there was no minimum amount due before payment was required. ( See, 40 CFR § 86.908 93( a)( 5)).

What Commenters Said: 2/ 12/ 04 79 EMA supported our proposal to allow manufacturers request a full refund in cases where a certificate is not issued. EMA suggested that 40 CFR § 85.2407( a) should read " may," instead of " shall." EMA suggested that we clarify that manufacturers are entitled to a full refund regardless of the reason for non issuance of a certificate.

EMA suggested that 40 CFR § 85.2407( b) should read " shall" instead of " may." EMA also suggested that refunds should be predicated upon a decrease in " actual" rather than " projected" sales prices.

EMA further objected to proposed 40 CFR § 85.2407( b)( 3) and ( b)( 4)( vi) and argued that manufacturers should be entitled to any and all refunds regardless of the amount.

Our Response:

EPA agrees with EMA's comment regarding refund language. Regulatory language has been amended to reflect these changes in 40 CFR § 85.2405( a) and ( b). Upon request from a manufacturer EPA will refund fees. This includes instances of overpayment, when the manufacturer withdraws an application or when EPA denies a certificate as well as any other circumstances that would lead to a certificate not being issued. Also, 40 CFR § 85.2407( a) and ( b) have been changed to read:

( a) Full Refund. The Administrator shall refund the total fee imposed by 85.2405 if the applicant fails to obtain a certificate, for any reason, and requests a refund.

( b) Partial Refund. The Administrator shall refund a portion of a reduced fee, paid under 85.2406, due to a decrease in the aggregate projected or actual retail sales price of the vehicles or engines covered by the certification request.

However, we disagree with the comment that refunds should be predicated on the decrease in the aggregate " actual" price rather than the aggregate " projected" price. This is because not all of the vehicles or engines would have been sold and the actual price may not be available at the time of the refund request therefore we have revised the regulatory language to indicate projected or actual price. The manufacturer should use whichever is more accurate.

EPA agrees that it should not limit refunds to $ 500 minimum. Therefore EPA is not adopting proposed § 85.2407( b)( 3) and ( b)( 4)( vi). However, the rationale behind EPA's proposal that manufacturers should not be required to pay a " true up" payment of less than $ 500 was balanced out by the proposal that refunds would be limited to amounts of $ 500 or more. We believed that the amounts not paid in refunds would equal the payments not received for " trueup Therefore, since EPA will be paying full refunds, EPA is setting forth in today's rule that full payment must be submitted at true up to avoid an overall deficit in its recovery of MVECP costs and to continue to abide by the intent of the IOAA and CAA.

8.5 Reduced Costs for California only 2/ 12/ 04 80 What We Proposed:

EPA proposed a separate California only fee for only the light duty and heavy duty fee categories. No California only fee was proposed for the motorcycle, ICI, Nonroad CI and Other categories because EPA's responsibilities for vehicles and engines are not decreased even though certification is only requested for the State of California.

What Commenters Said:

One commenter argued that our proposed fees for California only certificates was inappropriate since the Agency did not provide any benefits to manufacturers.

Echo stated that the " Other" category should have reduced fees for California only families because other categories have reduced fees for California only. Echo stated that the full fees for these families cannot be justified and that EPA should not charge for service not provided. Echo also observed that the CARB may decided to add its own fees further raising the cost to manufacturers.

OPEI commented that EPA should not impose certification fees on California only engine families that are not sold outside of California. OPEI questioned the utility of requiring this dual certification burden. The commenter further argued that the proposed fees should be waived since California only engine families are sold only in California, and as a result, do not generate national sales revenue. OPEI, further requested that the certification fee be waived with respect to California only engine families.

Our Response:

The Clean Air Act requires that vehicles sold in the United States to be covered by a federal certificate of conformity including those sold in California. The EPA receives applications and certifies all vehicles and engines sold in the US. The EPA review and testing required for California only certification, and therefore the benefits received, are no less than that required for other certificates. Test results generated by EPA from certification tests of these vehicles and engines are shared with the CARB to assist in its certification process. However, the Californiaonly fee is less than the standard fee because EPA does not incur the cost of the in use program. The CARB conducts an in use program for these categories, but at this time EPA does not. Thus the fee for California only certificates for light duty and heavy duty vehicles and engines reflects the EPA costs in the certification component of the MVECP.

In the case of engines and vehicles in the " Other" category, EPA is assessing the costs of the certification and minimal testing services that it provides. A lower California only fee is not offered as EPA's work is not decreased by compliance work done by the CARB.

OPEI stated that no national sales revenue is generated to absorb the cost of the fee, however, because EPA reviews the certificate applications and the manufacturer receives benefit 2/ 12/ 04 81 from receiving a certificate, EPA should recover the costs of providing this service as directed by the CAA and the IOAA.

8.6 Fee Payment Suggestions What We Proposed:

We invited comments on methods of streamlining the fee payment process while still maintaining the requirement that fees be paid in advance of certification services. ( 67 FR 51411).

What Commenters Said:

One commenter suggested that EPA allow manufacturers to submit fees for " undesignated" families. This commenter noted that as long as prepaid funds existed for a given manufacturer, fee payments for specific families could be designated when the manufacturer subsequently submitted an application.

In addition, the commenter suggested that EPA modify the fee filing form by deleting the requirement for manufacturers to specify family names at the time of fee submission.

Our Response:

EPA believes the process of collecting and tracking fee payments by engine families or test groups has been very effective. This process has been especially useful for handling fee refunds and other transactions. However, EPA is also exploring other ways to collect, track and process fee payments. As suggested, we are now looking at other ways manufacturers can submit upfront fee deposits for undesignated families. We anticipate that in such instances, manufacturers should be able to draw from this deposit to pay for engine families or test groups perhaps designated later in the model year or for which certification applications are submitted. Prior to the effective date of this rule, we are planning to issue a manufacturers' guidance letter describing how to submit fee payments and conduct other fee transactions.

In addition, we are exploring the idea of a banking or accounting system to handle fee payments and transactions. If utilized, a banking or an accounting mechanism would be useful in streamlining the fee collection process and other transactions. EPA may explore how this accounting system would work for future fee adjustments.