[Federal Register Volume 81, Number 247 (Friday, December 23, 2016)]
[Notices]
[Pages 94366-94370]
[FR Doc No: 2016-30970]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL17-1-000]

Inquiry Regarding the Commission's Policy for Recovery of Income
Tax Costs

AGENCY:  Federal Energy Regulatory Commission, Department of Energy.

ACTION:  Notice of Inquiry.

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SUMMARY:  Following the decision of the U.S. Court of Appeals for the
District of Columbia Circuit in United Airlines, Inc., et al. v.
Federal Energy Regulatory Commission, 827 F.3d 122 (D.C. Cir. 2016),
the Commission seeks comment regarding how to address any double
recovery resulting from the Commission's current income tax allowance
and rate of return policies.

DATES:  Initial Comments are due February 6, 2017, and Reply Comments
are due February 27, 2017.

ADDRESSES:  Comments, identified by docket number, may be filed in the
following ways:
     Electronic Filing through http://www.ferc.gov. Documents
created electronically using word processing software should be filed
in native applications or print-to-PDF format and not in a scanned
format.
     Mail/Hand Delivery: Those unable to file electronically
may mail or hand-deliver comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE.,
Washington, DC 20426.
     Instructions: For detailed instructions on submitting
comments, see the Comment Procedures Section of this document.

FOR FURTHER INFORMATION CONTACT:
Glenna Riley (Legal Information), Office of the General Counsel, 888
First Street NE., Washington, DC 20426,<PHONE_NUMBER>,
<EMAIL_ADDRESS>
Andrew Knudsen (Legal Information), Office of the General Counsel, 888
First Street NE., Washington, DC 20426,<PHONE_NUMBER>,
<EMAIL_ADDRESS>
James Sarikas (Technical Information), Office of Energy Markets
Regulation, Federal Energy Regulatory Commission, 888 First Street NE.,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>
Scott Everngam (Technical Information), Office of Energy Markets
Regulation, Federal Energy Regulatory Commission, 888 First Street NE.,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>

SUPPLEMENTARY INFORMATION:
    1. The Commission seeks comments regarding how to address any
double recovery resulting from the Commission's current income tax
allowance and rate of return policies. This Notice of Inquiry (NOI)
follows the U.S. Court of Appeals for the District of Columbia Circuit
(D.C. Circuit) holding in United Airlines, Inc., et al. v. Federal
Energy Regulatory Commission that the Commission failed to demonstrate
that there is no double recovery of taxes for a partnership pipeline as
a result of the income tax allowance and return on equity (ROE)
determined pursuant to the discounted cash flow (DCF) methodology.\1\
Accordingly, the Court remanded the decisions to the Commission to
develop a mechanism ``for which the Commission can demonstrate that
there is no double recovery'' of partnership income tax costs.\2\
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    \1\ United Airlines Inc., et al. v. FERC, 827 F.3d 122, 134, 136
(D.C. Cir. 2016) (United Airlines).
    \2\ Id. at 137.
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    2. The Commission recognizes the potentially significant and
widespread effect of this holding upon the oil pipelines, natural gas
pipelines, and electric utilities subject to the Commission's
regulation. The importance of the income tax policy for partnership
entities extends well-beyond the particular interests of the parties to
the United Airlines proceeding. The Commission also recognizes that
additional industry comment may provide further insight into the
relationship between a partnership's income tax allowance and the
Commission's DCF methodology. Accordingly, this NOI seeks further
information as the Commission re-evaluates its policies following the
United Airlines decision. Initial Comments are due February 6, 2017,
and Reply Comments are due February 27, 2017.

I. Background

    3. This proceeding involves the relationship between the
Commission's income tax allowance and ROE policies. Both have evolved
in the past two decades to address the emergence of partnership
entities in FERC-regulated industries, particularly Master Limited
Partnerships (MLPs) that own oil and natural gas pipeline assets.\3\
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    \3\ See Composition of Proxy Groups for Determining Gas and Oil
Pipeline Return on Equity, 123 FERC ] 61,048 (2008) (Proxy Group
Policy Statement); Inquiry Regarding on Income Tax Allowances, 111
FERC ] 61,139 (2005) (Income Tax Policy Statement).
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A. The MLP Business Model

    4. An MLP is a publicly traded partnership.\4\ In order to be
treated as an MLP for Federal income tax purposes, an MLP must receive
at least 90 percent of its income from certain qualifying sources,
including natural gas and oil pipelines.\5\
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    \4\ The Internal Revenue Service defines a ``publicly traded
partnership'' as any partnership if its interests are traded on an
established securities market or are readily tradable on a secondary
market or the substantial equivalent thereof. 26 U.S.C. 7704; 26 CFR
1.7704-1.
    \5\ 26 U.S.C. 7704. Qualifying sources include natural resource
activities such as exploration, development, mining or production,
processing, refining, transportation, storage and marketing of any
mineral or natural resource, including gas and oil. Id.
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    5. MLPs consist of a general partner, that manages the partnership,
and limited partners, that provide capital and receive cash
distributions. MLP limited partner units are traded on public
exchanges, just like corporate stock shares.\6\ Based upon the MLP's
partnership agreement, MLPs generally (a) distribute most ``available
cash flow'' to the general and limited partners in the form of
quarterly distributions, and, in a separate calculation, (b) allocate
to the general and limited partners net partnership income for income
tax purposes.\7\
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    \6\ Proxy Group Policy Statement, 123 FERC ]61,048 at P 10.
    \7\ Id. at P 11; Master Limited Partnership Association (MLPA),
MLP-101, Basic Tax Principles, https://www.mlpassociation.org/mlp-101/basic-tax-principles/ (last visited Nov. 29, 2016) (MLPA Basic
Tax Principles). Most MLP agreements define ``available cash flow''
as (1) net income (gross revenues minus operating expenses) plus (2)
depreciation and amortization, minus (3) capital investments the
partnership must make to maintain its current asset base and cash
flow stream. Depreciation and amortization may be considered a part
of ``available cash flow,'' because depreciation is an accounting
charge against current income, rather than an actual cash expense.
Thus, depreciation does not reduce the MLP's current cash on hand.
Proxy Group Policy Statement, 123 FERC ]61,048 at P 11.

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    6. Quarterly cash distributions received by a partner are not
equivalent to the partner's share of the MLP's taxable income. MLPs are
pass-through entities and each partner is personally responsible for
paying income taxes on the partnership's net taxable income.\8\ For tax
purposes, the partnership agreement allocates to each partner a share
of the partnership's taxable income.\9\ Deductions, including
depreciation, losses, and credits, may substantially offset the taxable
income. As a result, a partner may have no net taxable income in a
given year.\10\
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    \8\ Income Tax Policy Statement, 111 FERC ]61,139 at P 33; MLPA
Basic Tax Principles; see also ExxonMobil Oil Corp. v. FERC, 487
F.3d 945, 954 (D.C. Cir. 2007) (ExxonMobil) (noting that ``investors
in a limited partnership are required to pay tax on their
distributive shares of the partnership income, even if they do not
receive a cash distribution''). In contrast, corporations pay
entity-level income taxes, and corporate dividends are second tier
income to a common stock investor, not analogous to partnership
distributions. SFPP, L.P., Opinion No. 511, 134 FERC ]61,121, at PP
223, 253 (2011) (Opinion No. 511).
    \9\ The partner reports this taxable income and its components
(e.g., gain, deductions, losses, credits) to the Internal Revenue
Service on the K-1. See Dep't of Treasury, Internal Revenue Service,
Partner's Instructions for Schedule K-1 (Form 1065) (2015), https://www.irs.gov/instructions/i1065sk1/index.html (IRS Instructions for
K-1).
    \10\ Proxy Group Policy Statement, 123 FERC ]61,048 at P 14.
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    7. In contrast, the partner may receive a quarterly distribution
whether or not it is allocated a positive net income tax liability for
that period. The quarterly distributions are considered to be a return
of capital, which reduces the partner's basis in the MLP units and is
only taxed at the time of distribution if the partner's adjusted basis
falls to zero.\11\ The investor's original basis (the price paid for
the units) is adjusted downwards by cash distributions and allocations
of deductions, and is adjusted upwards by allocations of income. When
the units are sold, the taxable gain is the sales price minus the
adjusted basis.\12\ The portion of the gain attributable to basis
reductions for prior depreciation deductions is ``recaptured'' and
taxed as ordinary income rather than capital gain.\13\
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    \11\ Id. P 15; MLPA Basic Tax Principles. Provided that the
partner's adjusted basis is above zero, tax on distributions is
deferred until the investor sells the units. If the basis falls to
zero, future cash distributions are taxed as capital gain in the
year received. MLPA Basic Tax Principles.
    \12\ MLPA Basic Tax Principles; IRS Instructions for K-1.
    \13\ MLPA Basic Tax Principles.
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B. Return on Equity Policies

    8. In Hope,\14\ the Supreme Court stated that ``the return to the
equity owner should be commensurate with the return on investments in
other enterprises having corresponding risks. That return, moreover,
should be sufficient to assure confidence in the financial integrity of
the enterprise, so as to maintain its credit and to attract capital.''
\15\ Since the 1980s, the Commission has used the DCF model to develop
a range of returns earned on investments in companies with
corresponding risks for purposes of determining the ROE for regulated
entities.
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    \14\ Fed. Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591
(1944) (Hope).
    \15\ Id. at 603; see also Bluefield Waterworks & Improvement Co.
v. Pub. Serv. Comm'n, 262 U.S. 679, 692-693 (1923); Duquesne Light
Co. v. Barasch, 488 U.S. 299, 314 (1989).
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    9. Under the Commission's cost-of-service ratemaking methodology,
the DCF model is used to determine a reasonable ROE that a regulated
entity may recover in rates in addition to its costs. The purpose of
the DCF methodology is to estimate the return required by investors in
order to invest in the pipeline or utility whose rates are at
issue.\16\ To do this, the DCF model considers the range of returns
that the market provides investors in a proxy group of publicly-traded
entities with similar risk profiles.\17\
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    \16\ Martha Coakley, Mass. Attorney Gen. v. Bangor Hydro-Elec.
Co., Opinion No. 531, 147 FERC ]61,234, at P 14 (2014) (Opinion No.
531).
    \17\ See Canadian Ass'n of Petroleum Producers v. FERC, 254 F.3d
289, 293-294 (D.C. Cir. 2001).
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    10. The DCF model was originally developed as a method for
investors to estimate the value of securities, including common stocks.
It is based on the premise that ``a stock's price is equal to the
present value of the infinite stream of expected dividends discounted
at a market rate commensurate with the stock's risk.'' \18\ With
simplifying assumptions, the DCF model results in the investor using
the following formula to determine share price:
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    \18\ Id.; see also Proxy Group Policy Statement, 123 FERC
]61,048 at P 58.

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P = D/(k-g)

where P is the price of the stock at the relevant time, D is the
current dividend, k is the discount rate (or investors' required rate
of return), and g is the expected growth rate in dividends. For
ratemaking purposes, the Commission rearranges the DCF formula to solve
for ``k'', the discount rate, which represents the rate of return that
investors require to invest in the firm.\19\ Under the resulting DCF
formula, the required rate of return is estimated to equal current
dividend yield (dividends divided by share price) plus the projected
future growth rate of dividends:
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    \19\ Opinion No. 531, 147 FERC ]61,234 at P 15. In contrast,
``r'' represents the regulated entity's rate of return. Although the
Commission has at times used the terms ``r'' and ``k''
interchangeably, the Commission intends to apply these terms more
precisely and requests that the participants in this proceeding do
so also unless quoting a prior Commission order.

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k = D/P + g

    11. The Commission compares the returns of proxy group entities on
an after-entity-level-tax basis, rather than before-tax basis, because
most comparable securities trade on the basis of an entity's after-tax
return on its public utility income.\20\ Based typically upon the
median of the range of returns in the proxy group, the Commission
determines the regulated entity's allowed ROE,\21\ although the ROE may
sometimes be adjusted upwards or downwards within the zone of
reasonableness.\22\
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    \20\ Brief of Respondent Federal Energy Regulatory Commission,
at 8, Case No. 11-1479 (D.C. Cir., filed Feb. 5, 2016).
    \21\ See Southern California Edison Co. v. FERC, 717 F.3d 177,
182-183 (D.C. Cir. 2013).
    \22\ See, e.g., Opinion No. 531, 147 FERC ]61,234 at PP 150-151.
The zone of reasonableness is defined by the low and high estimates
of the market cost of equity for the members of the proxy group. Id.
P 23.
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    12. The Commission's proxy group criteria is based on the principle
that entities included in the proxy group must be of comparable risk to
the firm whose ROE is being determined in a particular rate
proceeding.\23\ As entities narrowly focused on providing oil and
natural gas pipeline transportation have increasingly adopted the MLP
business form, the Commission has included MLPs in the proxy group for
natural gas and oil pipelines because those MLPs are likely more
representative of predominantly pipeline firms than the diversified
corporations otherwise available for inclusion in a proxy group.\24\
The Commission uses the same DCF analysis for MLPs as for corporations,
except that the Commission uses a lower long-term growth projection for
MLPs than for corporations.\25\ The Commission concluded that an MLP's
quarterly distributions could be used to measure cash flows from the
investment without any adjustment to remove return of

capital.\26\ The Commission explained that ``since the DCF model uses
the total unadjusted cash flows to determine the stock's value, it is
theoretically inconsistent [with the DCF model] to use lower adjusted
cash flows when using the DCF model to determine the return required by
investors purchasing the stock.'' \27\
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    \23\ Petal Gas Storage, L.L.C. v. FERC, 496 F.3d 695, 699 (D.C.
Cir. 2007) (Petal); Proxy Group Policy Statement, 123 FERC ] 61,048
at PP 24, 29.
    \24\ See Proxy Group Policy Statement, 123 FERC ]61,048 at PP
47-50.
    \25\ The long-term growth projection for corporations is
projected growth in Gross Domestic Product (GDP) and for MLPs one
half that projection. Id. P 106.
    \26\ See Id. PP 57-63.
    \27\ See Id. P 58.
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C. Income Tax Policy

    13. In May 2005, the Commission issued an Income Tax Policy
Statement \28\ permitting an income tax allowance for all regulated
entities (including corporations and partnerships), provided that the
owners can show an actual or potential income tax liability to be paid
on income from the regulated assets. The Commission continued its
longstanding policy of permitting corporations to recover an income tax
allowance because corporations themselves incur a corporate income tax
liability. The Commission reasoned that while a partnership or other
pass-through entity does not pay taxes, the partners incur an income
tax liability on the partnership income. Accordingly, those income tax
costs are appropriately included in rates.\29\ The D.C. Circuit upheld
this policy, in ExxonMobil,\30\ explaining that the income tax
liability of partners is attributable to the regulated entity and may
be recovered in pipeline rates, provided that the partners have an
actual or potential income tax liability.\31\
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    \28\ See Income Tax Policy Statement, 111 FERC ]61,139. The
Policy Statement was issued in response to BP West Coast Products,
LLC v. FERC, 374 F.3d 1263 (DC Cir. 2004) (BP West Coast). That
decision held that the Commission failed to justify its then
existing policy of affording partnership entities an income tax
allowance for income attributable to interests held by corporations,
but not for income attributable to interests held by individuals.
    \29\ Id. P 34.
    \30\ ExxonMobil, 487 F.3d 945.
    \31\ Id. at 953-955.
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    14. In July 2016, in United Airlines,\32\ the D.C. Circuit,
reviewing a series of orders involving SFPP, L.P.,\33\ held that the
Commission failed to demonstrate that there is no double recovery of
taxes for a partnership pipeline as a result of awarding that pipeline
both an income tax allowance and a pre-investor-tax ROE pursuant to the
DCF methodology.\34\ The Court upheld ExxonMobil's finding that a
pipeline may recover partnership income tax costs so long as the
partners have an actual or potential income tax liability,\35\ but
concluded that allowing partnerships to double recover those tax costs
would be inconsistent with the Supreme Court's mandate in Hope.\36\
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    \32\ United Airlines, 827 F.3d 122.
    \33\ Opinion No. 511, 134 FERC ]61,121, order on reh'g, Opinion
No. 511-A, 137 FERC ]61,220 (2011), order on reh'g, Opinion No. 511-
B, 150 FERC ]61,096 (2015).
    \34\ United Airlines, 827 F.3d at 134, 136.
    \35\ Id. at 135 (citing ExxonMobil, 487 F.3d at 954-955); id. at
137.
    \36\ Id. at 137 (citing Hope, 320 U.S. at 603).
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    15. The Court remanded the decisions to the Commission to develop a
mechanism ``for which the Commission can demonstrate that there is no
double recovery'' of partnership income tax costs.\37\ The Court noted
that the Commission may consider the options of removing any
duplicative tax recovery for partnerships directly from the DCF ROE, or
eliminating all income tax allowances and setting rates based on pre-
tax returns.\38\
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    \37\ Id.
    \38\ Id. As noted by the Court, the Commission previously
considered the option of setting rates based on pre-investor level
and pre-entity level tax returns in its 2005 policy statement and
concluded this approach would be impracticable. See Income Tax
Policy Statement, 111 FERC ]61,139 at P 40.
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    16. The Court also directed the Commission to ensure parity between
equity owners in partnership and corporate pipelines.\39\ The Court did
not find persuasive the Commission's argument that ``any disparate
treatment between partners in partnership pipelines and shareholders in
corporate pipelines is the result of the Internal Revenue Code, not
FERC's tax allowance policy.'' \40\
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    \39\ United Airlines, 827 F.3d at 137.
    \40\ Id. at 136; see also BP West Coast, 374 F.3d at 1293 (``The
mandate of Congress in the tax amendment was exhausted when the
pipeline limited partnership was exempted from corporate taxation.
It did not empower FERC to do anything, let alone to create an
allowance for fictitious taxes.'').
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II. Commission Questions

    17. The Commission seeks comment regarding methods to allow
regulated entities to earn an adequate return consistent with Hope \41\
that do not result in a double recovery of investor-level taxes for
partnerships or similar pass-through entities.
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    \41\ 320 U.S. at 603.
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    18. Comments should consider the fundamental concerns presented by
United Airlines and shipper litigants that permitting a partnership
entity to have an income tax allowance results in a double recovery of
investor-level tax costs because:

     The DCF methodology estimates the rate of return that
an investor requires in order to invest in the regulated entity.\42\
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    \42\ United Airlines, 827 F.3d at 136; Opinion No. 531, 147 FERC
] 61,234 at P 14.
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     As a general matter, potential investors evaluate
whether to invest in an entity based on the returns they expect to
receive after paying any applicable taxes on the investment
income,\43\ and thus, to attract capital, entities in the market
must provide investors a return that covers investor-level taxes and
leaves sufficient remaining income to earn their required after-tax
return.\44\
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    \43\ Kern River Gas Transmission Co., Opinion 486-B, 126 FERC ]
61,034, at P 114 (2009) (``investors invest on the basis of after-
tax returns and price an instrument accordingly'').
    \44\ United Airlines, 827 F.3d at 136. In finding that ``the
[DCF ROE] determines the pre-tax investor return required to attract
investment, irrespective of whether the regulated entity is a
partnership or a corporate pipeline,'' the Court relied on Opinion
No. 511, 134 FERC ] 61,121 at PP 243, 244, which included the
following example:
    The investor desires a 6 percent after-tax return and has a 25
percent marginal tax rate. Thus, the security must have an ROE of 8
percent to achieve an after-tax yield of 6 percent. Assume that the
distribution or dividend is $8. The investor will price the security
at $100. Conversely, if the security price is $100 and the yield is
$8, the Commission determines that the required return is 8 percent.
If the dollar distribution increases to $10, the investor will price
the security at $125 because $10 is 8 percent of $125. The
Commission would note that the security price is $125 and that the
yield is $10, or a return of 8 percent. If the distribution is $6,
the security price will drop to $75, a return of 8 percent. The
Commission would observe a $75 dollar security price, a $6 yield,
and a return of 8 percent. In all cases the ROE is 8 percent and the
after-tax return is 6 percent based on the market-established
return.
    Although the concept may be more complex for an MLP, this
proposition is also evidenced in the fact that the yields on bonds
that pay taxable interest income are higher than the yields on bonds
of state and local governments that pay tax-exempt income. Joint
Initial Brief of Shipper Petitioners, at 20, Case No. 11-1479 (D.C.
Cir., filed Feb. 5, 2016).
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     Because the return estimated by the DCF methodology
includes the cash flow necessary to cover investors' income tax
liabilities and earn a sufficient after-tax return, the Commission's
policy of allowing partnership entities to recover a separate income
tax allowance may result in a double recovery.\45\
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    \45\ United Airlines, 827 F.3d at 137 (remanding for the
Commission to consider ``mechanisms for which the Commission can
demonstrate that there is no double recovery'').
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     While allowing a partnership entity to recover the
partner-investors' tax costs is reasonable,\46\ allowing a
partnership to double recover those tax costs is not.\47\
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    \46\ Id. at 135, 137 (noting that the Commission had a reasoned
basis for granting an income tax allowance to partnership
pipelines); ExxonMobil, 487 F.3d at 951-953 (concluding that the
Commission provided a reasonable justification for its policy of
allowing partnership pipelines an income tax allowance to the extent
that the partners incur actual or potential tax liability); see also
City of Charlottesville v. FERC, 774 F.2d 1205, 1207 (D.C. Cir.
1985) (``cost-of-service ratemaking principles'' require ``rates
yielding sufficient revenue to cover all proper costs, including
federal income taxes, plus a specified return on invested
capital''); BP West Coast, 374 F.3d 1263 at 1286 (``There is no
question that as a general proposition a pipeline that pays income
taxes is entitled to recover the costs of the taxes paid from its
ratepayers''); Pub. Serv. Comm'n of N.M. v. FERC, 653 F.2d 681, 683
(D.C. Cir. 1981).
    \47\ United Airlines, 827 F.3d at 136 (finding that ``[b]ecause
the Supreme Court has instructed that `the return to the equity
owner should be commensurate with returns on investments in other
enterprises having corresponding risks,' FERC has not shown that the
resulting rates under FERC's current policy are `just and
reasonable.' '') (quoting Hope, 320 U.S. at 603).

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     Changes in the share price do not resolve the double
recovery issue. MLP investors will demand the same percentage return
on the share price whether or not a pipeline receives an income tax
allowance. If an MLP obtains a new revenue source that increases its
distributions to investors (such as an income tax allowance that
increases its rates), the share price will rise until, once again,
the investor receives the cash flow necessary to cover investors'
income tax liabilities and earn a sufficient after-tax return.\48\
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    \48\ Opinion No. 511, 134 FERC ] 61,121 at PP 243-44; Joint
Initial Brief of Shipper Petitioners, at 34-35, 39-40, Case No. 11-
1479 (D.C. Cir., Feb. 5, 2016); id. at Attachment 3 (SFP-98 and SFP-
99); Proxy Group Policy Statement, 123 FERC ] 61,048 at P 58
(``under the DCF model, all cash flows, whatever their source,
contribute to the value of stock''); see also United Airlines, 827
F.3d at 136-137. Although the Court did not directly address this
particular aspect of the Shippers' argument, the Shippers have
repeatedly raised it in their claims that this income results in a
double recovery. See Opinion No. 511, 134 FERC ] 61,121 at PP 238-
239. Further, citing to the same passage in Opinion No. 511 as the
Shippers, the Court did acknowledge that ``the [DCF ROE] determines
the pre-tax investor return required to attract investment,
irrespective of whether the regulated entity is a partnership or a
corporate pipeline.'' United Airlines, 827 F.3d at 136 (citing
Opinion No. 511, 134 FERC ] 61,121 at PP 243-244).
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     As opposed to an MLP pipeline, the double recovery
issue does not arise for a corporation's income tax allowance. The
corporation pays its corporate income taxes itself. Accordingly,
although a return to investors must cover investor-level taxes and
sufficient remaining income to earn their required after-tax return,
the corporate income tax is not an investor level tax.\49\ Thus, the
corporate income tax cost recovered in the income tax allowance is
not reflected in the return estimated by the DCF methodology.\50\
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    \49\ Income Tax Policy Statement, 111 FERC ] 61,139 at P 38.
    \50\ United Airlines, 827 F.3d at 136 (finding that ``unlike a
corporate pipeline, a partnership pipeline incurs no taxes, except
those imputed from its partners, at the entity level'' and that the
facts ``support the conclusion that granting a tax allowance to
partnership pipelines results in inequitable returns for partners in
those pipelines as compared to shareholders in corporate
pipelines.'').

    19. In light of the above, the Commission invites comments
regarding any proposed methods to adjust the income tax allowance
policy or current ROE policies to resolve any double recovery of
investor-level tax costs for partnerships or similar pass-through
entities. Comments should provide a detailed explanation of any
proposal, including evidentiary support and how any adjustment to the
Commission's tax allowance and/or ROE policies should be specifically
implemented. Comments should explain how the proposed approach would
(a) resolve any double recovery of investor-level income tax costs for
partnership entities, and (b) allow regulated entities to earn a
sufficient return consistent with the capital attraction standard in
Hope.\51\ Comments should support any proposed methods with data,
theoretical analyses, empirical studies, or any other evidence relevant
to demonstrating the level of partner-investor tax costs reflected in
the ROE estimated by the DCF methodology. Comments should address how
these proposals apply to publically traded pass-through entities, such
as MLPs and real estate investment trusts (REITS), as well other pass
through entities, including closely held partnerships and joint
ventures.
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    \51\ 320 U.S. at 603.
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    20. Comments should also address the practical application of their
proposals. For example, to the extent a commenter advocates eliminating
the income tax allowance for partnerships and relying on the ROE
awarded the pipeline for the recovery of investor-level tax costs, its
comments should address whether any changes to the Commission's ROE
policies are necessary to ensure that the ROE reflects appropriate tax
costs for the particular entity whose rates are at issue.\52\
Alternatively, commenters could propose reducing the DCF return to
remove all investor-level tax costs and rely on an income tax allowance
to recover the investor-level tax costs. Commenters advocating this
latter approach should explain how an adjustment to the DCF return
could be made to remove investor-level tax costs for each entity in the
DCF proxy group.\53\ In addition, those commenters should describe how
to determine the level of the income tax allowance for partnership
entities.\54\ As stated above, commenters should ensure that their
proposals do not result in a double recovery of investor level income
tax costs for partnership entities as required by United Airlines.
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    \52\ For example, investors in an MLP incur different investor-
level taxes than investors in a corporation. Commenters could
propose adjustments to equalize the after-investor-level tax returns
for each entity in the proxy group or explain why such adjustments
are not necessary. Alternatively, commenters could propose a means
for including only entities in the proxy group that incur similar
investor-level tax costs. To the extent any commenter advocates the
latter approach, that commenter should address how the composition
of the proxy group and the availability of companies for the proxy
group in a given rate case could be affected if the composition of
the proxy group is changed to account for the different investor-
level taxes of different business forms. See Petal, 496 F.3d 695 at
698-700; Proxy Group Policy Statement, 123 FERC ] 61,048 at P 9
(explaining that an insufficient number of pipelines using the
corporate business form are available for the formation of a natural
gas pipeline proxy group).
    \53\ See n.52.
    \54\ Currently, the Commission uses the weighted marginal tax
rate of the MLP's partners. Income Tax Policy Statement, 111 FERC ]
61,139 at P 32; SFPP, L.P., 121 FERC ] 61,240, at P 35 (2007).
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III. Procedure for Comments

    21. The Commission invites interested persons to submit written
comments on the issue identified in this Notice of Inquiry as discussed
above. Comments are due February 6, 2017 and reply comments are due
February 27, 2017. Comments must refer to Docket No. PL17-1-000, and
must include the commenter's name, the organization it represents, if
applicable, and its address. To facilitate the Commission's review of
the comments, commenters are requested to provide an executive summary
of their position. Additional issues the commenters wish to raise
should be identified separately. The commenters should double space
their comments.
    22. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
    23. Commenters that are not able to file comments electronically
must send an original of their comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE.,
Washington, DC 20426.
    24. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.

IV. Document Availability

    25. The Commission provides all interested persons an opportunity
to view and/or print the contents of this document via the Internet
through the Commission's Home Page (http://www.ferc.gov) and in the
Commission's Public Reference Room during normal business hours (8:30
a.m. to 5:00 p.m. Eastern time) at 888 First Street NE., Room 2A,
Washington, DC 20426.
    26. From the Commission's Home Page on the Internet, this
information is available in the Commission's document management
system, eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word

format for viewing, printing, and/or downloading. To access this
document in eLibrary, type the docket number (excluding the last three
digits) in the docket number field.
    27. User assistance is available for eLibrary and the Commission's
Web site during normal business hours. For assistance, please contact
the Commission's Online Support at 1-866-208-3676 (toll free) or 202-
502-6652 (email at<EMAIL_ADDRESS>or the Public Reference
Room at<PHONE_NUMBER>, TTY<PHONE_NUMBER> (email at
public.referenceroom@ferc.gov).

    By direction of the Commission.

    Issued: December 15, 2016.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2016-30970 Filed 12-22-16; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register: December 20, 2006 (Volume 71, Number 244)]
[Notices]
[Page 76310]
[DOCID:fr20de06-69]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER07-198-000]

Highland Energy, Inc.; Notice of Issuance of Order

December 14, 2006.
    Highland Energy, LLC (Highland) filed an application for market-
based rate authority, with an accompanying rate tariff. The proposed
market-based rate tariff provides for the sale of energy, capacity and
ancillary services at market-based rates. Highland also requested
waivers of various Commission regulations. In particular, Highland
requested that the Commission grant blanket approval under 18 CFR part
34 of all future issuances of securities and assumptions of liability
by Highland.
    On December 14, 2006, pursuant to delegated authority, the
Director, Division of Tariffs and Market Development--West, granted the
requests for blanket approval under part 34. The Director's order also
stated that the Commission would publish a separate notice in the
Federal Register establishing a period of time for the filing of
protests. Accordingly, any person desiring to be heard or to protest
the blanket approvals of issuances of securities or assumptions of
liability by Highland should file a motion to intervene or protest with
the Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426, in accordance with Rules 211 and 214 of the
Commission's Rules of Practice and Procedure. 18 CFR 385.211, 385.214
(2004).
    Notice is hereby given that the deadline for filing motions to
intervene or protest is January 16, 2007.
    Absent a request to be heard in opposition by the deadline above,
Highland is authorized to issue securities and assume obligations or
liabilities as a guarantor, indorser, surety, or otherwise in respect
of any security of another person; provided that such issuance or
assumption is for some lawful object within the corporate purposes of
Highland, compatible with the public interest, and is reasonably
necessary or appropriate for such purposes.
    The Commission reserves the right to require a further showing that
neither public nor private interests will be adversely affected by
continued approvals of Highland's issuance of securities or assumptions
of liability.
    Copies of the full text of the Director's Order are available from
the Commission's Public Reference Room, 888 First Street, NE.,
Washington, DC 20426. The Order may also be viewed on the Commission's
Web site at http://www.ferc.gov, using the eLibrary link. Enter the

docket number excluding the last three digits in the docket number
filed to access the document. Comments, protests, and interventions may
be filed electronically via the Internet in lieu of paper. See, 18 CFR
385.2001(a)(1)(iii) and the instructions on the Commission's Web site
under the ``e-Filing'' link. The Commission strongly encourages
electronic filings.

Magalie R. Salas,
Secretary.
[FR Doc. E6-21694 Filed 12-19-06; 8:45 am]

BILLING CODE 6717-01-P


[Federal Register Volume 84, Number 192 (Thursday, October 3, 2019)]
[Rules and Regulations]
[Pages 52766-52771]
[FR Doc No: 2019-21206]

=======================================================================
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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R09-OAR-2019-0068; FRL-10000-53-Region 9]

Determination of Attainment by the Attainment Date; 2006 24-Hour
Fine Particulate Matter National Ambient Air Quality Standard; Pinal
County, Arizona

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency (EPA) is taking final
action to determine that the West Central Pinal County nonattainment
area attained the 2006 24-hour national ambient air quality standard
(NAAQS) for particulate matter with a diameter of 2.5 micrometers or
smaller (PM2.5 or ``fine particulate matter'') by December
31, 2017, the statutory attainment date for the area. This final action
is based on the three-year average of annual 98th percentile 24-hour
concentrations for the 2015-2017 period, using complete, quality-
assured, and certified PM2.5 monitoring data.

DATES: This rule will be effective on November 4, 2019.

ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-R09-OAR-2019-0068. All documents in the docket are
listed on the https://www.regulations.gov website. Although listed in
the index, some information is not publicly available, e.g.,
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Certain other material, such as
copyrighted material, is not placed on the internet and will be
publicly available only in hard copy form. Publicly available docket
materials are available through https://www.regulations.gov, or please
contact the person identified in the FOR FURTHER INFORMATION CONTACT
section for additional availability information.

FOR FURTHER INFORMATION CONTACT: Jerry Wamsley, EPA Region IX, (415)
947-4111<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Throughout this document, ``we,'' ``us'' and
``our'' refer to the EPA.

Table of Contents

I. Summary of the Proposed Action
II. Public Comments and EPA Responses
III. Final Action
IV. Statutory and Executive Order Reviews

I. Summary of the Proposed Action

    On April 25, 2019, the EPA proposed to determine that the West
Central Pinal County nonattainment area attained the 2006 24-hour
PM2.5 NAAQS by December 31, 2017, the statutory attainment
date for the area.\1\ Our proposed action is based on the three-year
average of annual 98th percentile 24-hour concentrations for the 2015-
2017 period, using complete, quality-assured, and certified
PM2.5 monitoring data.
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    \1\ 84 FR 17368, (April 25, 2019).
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    For an area classified as Moderate under the Clean Air Act (CAA),
such as the West Central Pinal County PM2.5 nonattainment
area, section 188(c) provides that the statutory attainment date is
``as expeditiously as practicable but no later than the end of the
sixth calendar year after the area's designation as nonattainment.''
Therefore, the applicable attainment date for West Central Pinal
County, designated nonattainment in 2011 and classified as Moderate in
2014, is attainment as expeditiously as practicable, but no later than
December 31, 2017.\2\ Section 188(b)(2) of the CAA requires that the
Administrator determine whether the state has attained the NAAQS in a
nonattainment area by the applicable attainment date. Consequently, the
EPA's proposed determination of attainment is pursuant to the Agency's
statutory obligation, under CAA section 188(b)(2), to determine whether
the West Central Pinal County nonattainment area has attained the 2006
24-hour PM2.5 NAAQS by no later than December 31, 2017.
Given this attainment date and the form of the 2006 24-hour
PM2.5 NAAQS, the applicable 3-year data review period is
calendar years 2015 to 2017.
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    \2\ 79 FR 31566, 31569, fn 5.
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    Under 40 CFR part 50, Sec.  50.13 and in accordance with appendix
N, a nonattainment area meets the 2006 24-hour PM2.5 NAAQS
when the area's design value is less than or equal to 35 micrograms per
cubic meter ([micro]g/m\3\). As discussed in detail in Section III of
our proposal, the determination of whether an area's air quality meets
the 2006 24-hour PM2.5 NAAQS is generally based upon three
years of complete, quality-assured data gathered at established state
and local air monitoring stations (SLAMS) in a nonattainment area and
entered into the EPA's Air Quality System (AQS) database.\3\ Because we
are determining attainment of the PM2.5 NAAQS as of December
31, 2017, the applicable 3-year data review period is 2015-2017.
Ambient air quality data must generally meet data completeness or
substitution requirements for each year under evaluation. The data
completeness requirements are met when at least 75 percent of the
scheduled sampling days for each quarter have valid data.\4\ The state
must submit data from ambient air monitors operated by state or local
agencies in compliance with the EPA monitoring requirements to AQS.
Monitoring agencies certify annually that these data are accurate to
the best of their knowledge. Accordingly, the EPA relies primarily on
data in AQS when determining the attainment status of areas.
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    \3\ AQS is the EPA's national repository of ambient air quality
data.
    \4\ 40 CFR part 50, appendix N, section 4.2(b).
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    The PM2.5 ambient air quality monitoring data collected
within the West Central Pinal County nonattainment area for the 2015-
2017 period must meet data completeness or substitution criteria
according to 40 CFR part 50, appendix N. The ambient air quality
monitoring data completeness requirements are met when quarterly data
capture rates for all four quarters in a calendar year are at least 75
percent.\5\ For the purposes of our proposal, we reviewed the data for
the 2015-2017 period for completeness and determined that the
PM2.5 data collected by Pinal County met the completeness
criterion for all 12 quarters at PM2.5 monitoring sites in
the West Central Pinal County nonattainment area. The 2015 Cowtown data
were complete, and the 2016 and 2017 Hidden Valley data, the relocated
Cowtown monitoring site, were complete.\6\
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    \5\ 40 CFR part 50, appendix N, section 4.2(b)(2).
    \6\ AQS Database, Combined Site Sample Values Report, dated
March 28, 2019, included in our docket.
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    The EPA's proposed determination as to whether the West Central
Pinal County area has attained the PM2.5 NAAQS pursuant to
CAA section 188(b)(2) was based on monitored ambient air quality data.
The validity of this determination depends in part on whether the
monitoring network adequately measures ambient PM2.5 levels
in the nonattainment area. Pinal County, the local agency responsible
for collecting PM2.5 data in the nonattainment area, submits
annual monitoring network plans to the EPA. These plans describe the
status of the air monitoring network, including monitor siting, as
required under 40 CFR part 58. The EPA reviews these annual network
plans for compliance with the applicable monitoring requirements in 40
CFR 58.10. With respect to PM2.5, we have found that the
annual network

plans submitted by Pinal County meet the applicable requirements under
40 CFR part 58.\7\ Furthermore, we concluded in our ``Technical Systems
Audit Report'' of Pinal County's ambient air quality monitoring program
that the ambient air monitoring network currently meets or exceeds the
requirements for the minimum number of monitoring sites designated as
SLAMS for PM2.5 in the West Central Pinal County
nonattainment area.\8\ Pinal County certifies annually that the data it
submits to AQS are quality-assured and has done so for each year
relevant to this determination of attainment, 2015-2017.\9\
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    \7\ We have included in our docket the correspondence
transmitting our annual network reviews, e.g., correspondence dated
October 30, 2017, from Gwen Yoshimura, Manager, Air Quality Analysis
Office, EPA Region IX, to Michael Sundblom, Director, Pinal County
Air Quality Control District.
    \8\ We have included in our docket the correspondence concerning
our audit, e.g., correspondence dated September 28, 2016, from
Elizabeth Adams, Acting Division Director, Air Division, EPA Region
IX, to Michael Sundblom, Director, Pinal County Air Quality Control
District.
    \9\ We have included in our docket Pinal County's annual data
certifications for 2015, 2016 and 2017, e.g., correspondence dated
April 30, 2018, from Josh DeZeeuw, Air Quality Manager, Pinal County
Air Quality Control District, to Elizabeth Adams, Acting Division
Director, Air Division, EPA Region IX. Annual data certification
requirements can be found at 40 CFR 58.15.
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    Our proposal also discussed the EPA's review and approval of Pinal
County's January 2016 relocation of the PM2.5 SLAMS
monitoring site from the Cowtown location to a new location at Hidden
Valley.\10\ Beginning in late 2013 and through 2015, Pinal County and
the EPA engaged in a cooperative multi-year process to review
alternative locations and relocate the Cowtown PM2.5 SLAMS
monitoring site. Over the course of 2014 and 2015, Pinal County
operated temporary monitors at two other potential replacement
monitoring site locations (i.e., Hidden Valley; and White and Parker).
This allowed Pinal County and the EPA to assess the data from each
location and to determine if either of the proposed monitoring site
locations met the applicable system modification requirements in 40 CFR
58.14 for monitoring site relocation. Based on an assessment of
PM2.5 concentrations, land use, and nearby sources, the EPA
approved the relocation of the Cowtown PM2.5 SLAMS
monitoring site to the new Hidden Valley location.\11\ The EPA stated
in its Relocation Approval Letter that the data from the old and new
monitoring site locations would be combined to form one continuous data
record for design value calculations.\12\ Consequently, the 2015-2017
design value is a composite data record consisting of 2015 data from
the Cowtown monitoring site and 2016 and 2017 data from the relocated
Cowtown site, now operating at Hidden Valley.
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    \10\ The site identification numbers are as follows: Cowtown
(AQS ID: 04-021-3013); and, Hidden Valley (AQS ID: 04-021-3015).
    \11\ For a complete discussion of the EPA's review and approval
of the Cowtown monitoring site relocation, refer to correspondence
dated October 22, 2015, from Meredith Kurpius, EPA Region IX, to
Michael Sundblom, Pinal County Air Quality Control District
(``Relocation Approval Letter''), in the docket for this rulemaking.
    \12\ Id.
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    In summary, the EPA's evaluation of whether the West Central Pinal
County nonattainment area has met the 2006 PM2.5 24-hour
NAAQS is based on our review of the monitoring data, the adequacy of
the PM2.5 monitoring network in the nonattainment area, and
the reliability of the data collected by the network, as discussed in
detail in our proposal for this action. The data indicate that the 24-
hour design value for the 2015-2017 period, 32 [micro]g/m\3\, was less
than or equal to 35 [micro]g/m\3\, the 2006 PM2.5 24-hour
NAAQS. Therefore, the EPA proposed to determine, based upon three years
of complete, quality-assured and certified data from 2015-2017, that
the West Central Pinal County nonattainment area attained the 2006 24-
hour PM2.5 NAAQS by the applicable outermost attainment
date, December 31, 2017.

II. Public Comments and EPA Responses

    The public comment period on the proposed rule opened on April 25,
2019, the date of its publication in the Federal Register, and closed
on May 28, 2019. During this period, the EPA received one comment
letter submitted by the Center for Biological Diversity (CBD). The
CBD's comments are addressed below. A copy of their comment letter is
included in the docket for this final action.
    Comment #1: The EPA did not follow Federal regulations and erred in
determining attainment of the 24-hour PM2.5 NAAQS over the
2015-2017 timeframe for two reasons. First, three years of annual data
is needed at ``each eligible monitoring site'' to determine a design
value. The Cowtown and Hidden Valley monitors constitute separate
monitoring sites, and the EPA did not have three years of annual data
at either site. Second, for a combined site data record, the monitoring
sites must be collocated.\13\ Cowtown and Hidden Valley, however, are
not collocated monitoring sites as defined by Federal regulations.
Therefore, the EPA's calculated 2015-2017 design value was calculated
incorrectly and is inconsistent with Federal regulations for developing
design values from two separate monitoring sites.
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    \13\ The CBD comment letter used the term ``collated.'' We
believe this term is incorrect given that the reference CBD cited
was for the definition of ``collocated,'' per 40 CFR part 50,
appendix N, 1.0(c).
---------------------------------------------------------------------------

    Response #1: The EPA disagrees with the commenter's contention that
combining the data from the two sites is not permitted under the Act
and applicable Federal regulations. The EPA's monitoring regulations
addressing ``[s]ystem modification'' contain a specific provision that
allows for relocating an air quality monitoring site: ``[a] SLAMS
monitor not eligible for removal under any of the criteria in
paragraphs (c)(1) through (c)(5) of this section may be moved to a
nearby location with the same scale of representation if logistical
problems beyond the State's control make it impossible to continue
operation at its current site.'' \14\ By referring to ``mov[ing]'' a
monitor, as opposed to ``remov[ing]'' it,\15\ the monitoring
regulations allow for such monitors to be treated as a single site for
design value calculation purposes.
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    \14\ 40 CFR 58.14(c)(6).
    \15\ See id.
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    As discussed in our proposal, in 2013 logistical problems beyond
the State's control made it impossible for Pinal County to continue
operation of the Cowtown monitor. From late 2013 through 2015, Pinal
County and the EPA engaged in a cooperative multi-year process to
review and evaluate alternative locations and to relocate the Cowtown
PM2.5 SLAMS monitoring site, ultimately to the Hidden Valley
monitoring site. Because Pinal County moved the Cowtown monitor in
accordance with the appropriate EPA regulations and guidance, including
a notice and opportunity for public comment, and the EPA approved the
site relocation, it is appropriate to combine the data from before and
after the relocation for the purpose of calculating valid design
values. We review this monitor relocation effort in more detail below.
    In 2013, the private landowners of the Cowtown monitoring site
notified Pinal County that they would no longer allow the County's
long-term use of their property for the monitoring site. In response,
Pinal County negotiated a two-year lease extension to allow for
continued data collection at the site while the County and the EPA
worked to relocate the monitor appropriately

according to Federal regulations and EPA guidance. Generally, the EPA
interprets ``nearby location with same scale of representation'' to
mean a nearby location that measures similar pollutant concentrations
from similar emissions sources. In 2014, Pinal County initiated a
special study to evaluate locations throughout the West Central Pinal
County PM2.5 nonattainment area that would meet the EPA's
monitor siting and relocation requirements, i.e., nearby locations with
the same scale of representation.
    Viable long-term monitoring locations in the immediate vicinity of
the Cowtown monitor were not available. As a result, from June 2014 to
June 2015, Pinal County conducted parallel ambient monitoring at two
nearby locations with a similar source mix and proximity to sources as
the Cowtown monitor: Hidden Valley; and White and Parker. The
monitoring at the three different sites revealed that with respect to
the 98th percentile PM2.5 value, the key value for 24-hour
NAAQS design value calculations, the Cowtown monitors and the Hidden
Valley monitor tracked closely (28.5 and 29.0 [micro]g/m\3\ for the two
Cowtown monitors, compared to 30.6 [micro]g/m\3\ for the Hidden Valley
monitor). The other candidate location, White and Parker, did not track
as closely (with a value of 24.9 [micro]g/m\3\), even though it was
closer to the Cowtown monitors.\16\ The concurrent monitoring over a
year at multiple monitoring sites demonstrates that the County was able
to find another very similar site less than ten miles from the original
site, thus satisfying the regulatory requirements for an air quality
monitor relocation.
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    \16\ Moving the monitor to the nearest available site is not
necessarily optimal, because the nearest available site may involve
shifts in the most proximate land uses, may not be downwind from
predominate sources, and may potentially underestimate concentration
values. Instead, the EPA and the County had to balance proximity to
the Cowtown site with keeping the site near a similar mix of land
uses and local PM2.5 sources.
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    To conclude our review of this multi-year relocation effort, at
Pinal County's request, the EPA evaluated the collected data and
approved the relocation of the Cowtown monitoring site to the current
Hidden Valley monitoring site location. The EPA determined that Pinal
County met all applicable requirements of 40 CFR 58.14(c)(6) and
specifically stated in our October 22, 2015 approval letter that ``[a]s
this is a relocation, the data from the old and new sites will be
combined to form one continuous data record for design value
calculations.'' \17\ The EPA notes that Pinal County's analysis and the
EPA's approval letter were subject to public comment as part of Pinal
County's 2017 annual network plan submission and that the County
received no adverse comments.\18\ Because the transition from the
Cowtown monitor to the Hidden Valley monitor constituted a relocation
and was subject to the EPA's approval under 40 CFR 58.14(c)(6), it was
appropriate for the EPA to use the old and new monitoring sites in
calculating a design value for the West Central Pinal County
nonattainment area.\19\
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    \17\ For a complete discussion of the EPA's review and approval
of the Cowtown monitoring site relocation, refer to correspondence
dated October 22, 2015, from Meredith Kurpius, EPA Region IX, to
Michael Sundblom, Pinal County Air Quality Control District
(``Relocation Approval Letter''), in the docket for this rulemaking.
    \18\ Pinal County Air Quality Control District posted the draft
2017 Ambient Monitoring Network Plan and 2016 Data Summary,
containing the EPA's approval of the site relocation on the
department's website, and made the document available in the
District's offices for a public comment period from May 19, 2017
through June 19, 2017.
    \19\ The fact that, as the commenter points out, the two
locations are assigned separate AQS ID numbers is not determinative
of whether data from the two locations are appropriate for
combination. In the Relocation Approval Letter, the EPA stated ``As
this is a relocation, the data from the old and new sites will be
combined to form one continuous data record for design value
calculations. Please note this in the AQS comment field for both the
old and the new AQS site . . . .'' (emphasis added). Accordingly,
the fact that the two locations were organized separately for data
entry purposes does not mean that the data may not be combined for
design value calculation purposes.
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    The combination of data from two monitoring sites to calculate a
valid design value following an approved relocation has been a
longstanding and common EPA practice. The EPA's 2017 Design Value
Report for PM2.5 shows 18 PM2.5 monitoring sites
nationwide for which pre- and post-relocation monitors are linked for
design value calculation purposes.\20\ The design value reports for
other pollutants show even more linked monitors.\21\
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    \20\ https://www.epa.gov/sites/production/files/2018-07/pm25_designvalues_20152017_final_07_24_18.xlsx.
    \21\ The 2017 Design Value Report for ozone shows 27 relocated
sites linked for design value calculation purposes. https://www.epa.gov/sites/production/files/2018-07/ozone_designvalues_20152017_final_07_24_18.xlsx.
---------------------------------------------------------------------------

    The EPA's longstanding practice of combining data from two
monitoring sites when calculating a design value was explained in the
recent 2015 Ozone (O3) NAAQS revision. In that rulemaking,
the EPA specifically codified the existing convention in 40 CFR part
50, appendix U, and explained that ``although data handling appendices
for previous O3 standards do not explicitly mention site
combinations, the EPA has approved over 100 site combinations since the
promulgation of the first 8-hour O3 NAAQS in 1997''.\22\ The
EPA explained, ``the EPA's intention in proposing this addition was
merely to codify an existing convention, and to improve transparency by
implementing site combinations in AQS design value calculations.'' \23\
The final rulemaking also noted that ``[p]ublic commenters unanimously
supported'' the change in regulatory text and further clarified that
``[s]ince this provision has already been used in practice under
previous O3 standards, site combinations will be applied to
AQS design value calculations for both the revised O3
standards and previous O3 standards.'' \24\ The EPA's
preamble in the proposed rule for the 2015 Ozone NAAQS revision further
expands on the EPA's rationale concerning site combinations and states
that ``[s]ite combinations may be approved by the Regional
Administrator, after he or she has determined that the measured air
quality concentrations do not differ substantially between the two
sites.'' \25\ Although this specific rulemaking was for the 2015 ozone
NAAQS, the EPA has used the same longstanding convention for
PM2.5 site combinations, as described above. As with the
ozone NAAQS design value calculations in advance of the 2015 ozone
NAAQS final rule, the fact that the EPA has not at this point expressly
codified this practice in regulatory provisions for PM2.5
does not prevent the EPA from combining PM2.5 data for
relocated monitors in line with its longstanding practice and as
allowed under 40 CFR 58.14(c)(6).
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    \22\ 80 FR 65292, 65411 (October 26, 2015).
    \23\ Id.
    \24\ Id.
    \25\ 79 FR 75234, 75352 (December 17, 2014).
---------------------------------------------------------------------------

    To summarize our response to the commenter's first point
challenging our use of data from relocated monitors, in order to locate
a site that constituted a ``nearby location with the same scale of
representation'' under Sec.  58.14(c)(6), Pinal County and the EPA
engaged in a cooperative multi-year process to review alternative
locations and relocate the Cowtown PM2.5 SLAMS monitoring
site due to logistical problems beyond the control of the State or the
District. Pinal County and the EPA analyzed the data from candidate
locations to determine if the proposed monitoring site locations met
the applicable system modification requirements in 40 CFR 58.14 for
monitoring site relocation. Specifically, based on an assessment of
PM2.5 concentrations (which concurrent ambient monitoring
demonstrated to track closely), land use, and nearby sources, the EPA
approved the relocation of the Cowtown PM2.5

SLAMS monitoring site to the new Hidden Valley location. As noted in
the EPA's Relocation Approval Letter, the data from the Cowtown and
Hidden Valley monitoring site locations are suitable for combination to
form one continuous data record for design value calculations. This
approach is both authorized by the EPA's monitoring regulations, and
consistent with the EPA's longstanding practice. Consequently, the
2015-2017 design value the EPA used for this determination of
attainment is consistent with Federal regulations concerning monitor
relocations and the EPA's past policy and precedent for combining
monitoring site data when computing a design value in such
circumstances.
    The commenter's second argument, that ``[f]or a combined site data
record, monitors have to be [collocated],'' is inapposite. The
definition of ``combined site data record,'' given in 40 CFR part 50,
appendix N, section 1.0(c) is ``the data set used for performing
calculations in appendix N. It represents data for the primary monitors
augmented with data from collocated monitors . . . .'' Although this
provision makes clear that data from collocated monitors may be used to
augment data from primary monitors, it does not prohibit the
combination of data from a primary monitor, before and after it is
relocated. Accordingly, the EPA does not agree that the regulation
defining ``combined site data record'' indicates that the proposed
determination of attainment was inappropriate.
    Comment #2: The CBD writes that the 98th percentile value for the
2016-2018 period is above the NAAQS. The CBD suggests that this
indicates three things: First, compared to the 2016-2018 Hidden Valley
monitor's annual concentration, the 2015 Cowtown monitor's annual
concentration is so low as to suggest that it is not representative of
the Cowtown monitoring site; \26\ second, the area has a
PM2.5 pollution problem, as evidenced by the fact that it is
violating the NAAQS based on 2018 data; and third, over 2016-2018, the
Hidden Valley monitoring site concentration values are trending upward.
---------------------------------------------------------------------------

    \26\ The comment states that ``the Cowtown site, which had a
98th percentile in 2015 of 22.6 . . . is not representative of the
Cowtown site.'' The comment is unclear. The EPA infers that the
commenter is indicating one of three things: (1) That the 22.6
Cowtown value in 2015 is not indicative of long-term conditions at
the Cowtown site, (2) that the Cowtown site is not representative of
the Hidden Valley site, or (3) that the Hidden Valley site is not
representative of the Cowtown site.
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    Response #2: In this notice, the EPA is acting pursuant to its
statutory obligation to ``[w]ithin 6 months following the applicable
attainment date for a PM10 [or PM2.5]
nonattainment area . . . determine whether the area attained the
standard by that date.'' \27\ As explained above, and in our proposal,
the attainment date for the West Central Pinal County PM2.5
nonattainment area is December 31, 2017.\28\ The statutory requirement
to determine whether the area has attained ``by that date'' sets the
timeframe for the EPA's analysis. The Act requires the EPA to determine
whether the West Central Pinal County PM2.5 nonattainment
area attained the standard by December 31, 2017. Accordingly, to the
extent that CBD's comment suggests that the EPA must evaluate
monitoring data that was collected subsequent to the applicable
attainment date, the EPA disagrees. The EPA will continue to review
data for 2018 and subsequent years, but these data are outside the
scope of the present action.
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    \27\ 42 U.S.C. 7513(b)(2).
    \28\ For an area classified as Moderate under the Clean Air Act
(CAA), such as the West Central Pinal County PM2.5
nonattainment area, section 188(c) states that the statutory
attainment date is ``as expeditiously as practicable, but no later
than the end of the sixth calendar year after the area's designation
as nonattainment.'' Therefore, the applicable attainment date for
West Central Pinal County, designated nonattainment in 2011 and
classified as Moderate in 2014, is December 31, 2017. 79 FR 31566,
31569, fn 5.
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    The CBD's comment regarding whether the Cowtown site is
``representative'' is unclear. To the extent that CBD's comment argues
that the 2018 data from Hidden Valley site indicates that the 2015 data
from the Cowtown site is not representative of the Cowtown site and
ambient air quality at that site, this statement is unsubstantiated.
The fact that the 2015 Cowtown design value is lower than the 2016,
2017, and 2018 measurements at Hidden Valley does not mean that the
2015 Cowtown data is not representative of the Cowtown site and ambient
air quality at that location, as measured in 2015. The State and the
EPA evaluated the respective monitor locations in 2015 and 2018 as part
of the annual monitoring network review process, and both were
consistent with applicable regulatory siting requirements.\29\ Some
annual variation in monitor data is not particularly unusual for a 24-
hour NAAQS and does not automatically call into question the validity
of a monitor location. Absent some indication of a technical problem
with the Cowtown monitor, which the commenter does not suggest, the
2015 data collected at the Cowtown site is representative of the
ambient PM2.5 concentrations at the Cowtown site in 2015.
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    \29\ See Correspondence dated October 27, 2015, from Gretchen
Busterud, EPA-Region IX, to Michael Sundblom, PCAQCD; and,
correspondence dated October 30, 2018, from Gwen Yoshimura, Manager,
Air Quality Analysis Office, EPA Region IX, to Michael Sundblom,
Director, Pinal County Air Quality Control District.
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    To the extent that CBD's comment argues that the 2018 data and
CBD's calculated 2016-2018 design value indicate that the Cowtown site
is not representative of the Hidden Valley site, or vice versa, in our
response to Comment #1, we discussed our rationale for approving the
relocation of the Cowtown monitoring site and determining a design
value using data from both the Cowtown and Hidden Valley monitors. The
EPA concluded through that process, involving more than two years of
cooperation with the District and substantial concurrent monitoring at
the Cowtown and Hidden Valley sites, followed by a public notice and
comment period, that the Hidden Valley site was a ``nearby location
with the same scale of representation'' as the Cowtown site.\30\ That
analysis demonstrated, based on almost a year of concurrent sampling,
from June 2014 to June 2015, that the 98th percentile PM2.5
concentration between the two sites tracked closely.\31\ Moreover, the
EPA's relocation analysis included an investigation of the land use,
and nearby sources surrounding the two sites, and concluded that they
were similar.\32\ In light of the substantial concurrent monitoring
data and additional analysis completed by the EPA, the commenter's
suggestion that a cross-year comparison of data streams from different
locations shows that one monitoring site is either not representative
of the other, or not representative of ambient PM2.5
concentrations at the time they were observed, is not persuasive. In
general, pollution levels can exhibit annual variation, with
particulate matter pollution in arid regions showing a strong
dependency on variable factors such as variations in levels of local
and/or regional anthropogenic emissions, the

effectiveness of existing local measures, and meteorology. Considering
these varying factors, a simple cross-year comparison of the monitoring
data at each location does not establish the comparability of the two
sites and is not a useful means of determining that the different
monitor locations are validly measuring ambient PM2.5
concentrations accurately. Accordingly, the EPA disagrees with the
commenter that the 2018 monitoring data, and any design value
calculations stemming from it, indicate that the 2015 Cowtown data are
not representative of ambient PM2.5 concentrations in 2015,
or that the Cowtown and Hidden Valley sites are not sufficiently
representative of each other, and the ambient PM2.5
concentrations at these sites.
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    \30\ See 40 CFR 58.14(c)(6), Relocation Approval Letter.
    \31\ In fact, over the concurrent monitoring period, the 98th
percentile value (the value used in design value calculations for
the 24-hour NAAQS) for the Hidden Valley monitor was slightly higher
than the value for the Cowtown monitor, suggesting that the change
from the Cowtown site to the Hidden Valley site may lead to a higher
design value for the 24-hour PM2.5 NAAQS.
    \32\ Relocation Approval Letter.
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    The CBD's remaining comments, that the 2018 data shows that the
West Central Pinal County nonattainment area has a pollution problem
and that it shows an upward trend over time, address issues that are
outside the scope of the present action. As explained above, the
statutory timeframe for the EPA's analysis in this determination of
attainment ends at the applicable attainment date of December 31, 2017.
Although the EPA may consider the more recent air quality monitoring
data after this date in future actions, it does not bear on the EPA's
statutory obligation under 42 U.S.C. 7513(b)(2) to determine whether
the West Central Pinal County nonattainment area has attained the
standard ``by that date.'' \33\ Accordingly, the EPA disagrees with the
commenter that the EPA should determine that the West Central Pinal
County nonattainment area did not attain the 2006 24-hour
PM2.5 NAAQS by its December 31, 2017 attainment date because
of monitoring data from 2018.
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    \33\ 42 U.S.C. 7513(b)(2).
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III. Final Action

    For the reasons discussed in our proposed action and in this final
rule, under section 188(b)(2) of the CAA, the EPA is taking final
action to determine that the West Central Pinal County Moderate
nonattainment area attained the 2006 24-hour PM2.5 NAAQS by
its applicable attainment date, December 31, 2017. Our determination of
attainment is based on complete, quality-assured and certified
PM2.5 monitoring data for the appropriate three-year period,
2015-2017.
    Once effective, this action satisfies the EPA's obligation pursuant
to CAA section 188(b)(2) to determine whether this area attained the
standards by the applicable attainment date. This determination of
attainment does not constitute a redesignation to attainment. Rather,
redesignations require states to meet several statutory criteria in CAA
section 107(d)(3), including EPA approval of a state plan demonstrating
maintenance of the air quality standards for 10 years after
redesignation.

IV. Statutory and Executive Order Reviews

    This final action determines that West Central Pinal County has met
the 2006 24-hour PM2.5 NAAQS as a statement of fact
according to regulations and requirements discussed in this action and
in the prior proposal. For that reason, this action:
     Is not a significant regulatory action subject to review
by the Office of Management and Budget under Executive Orders 12866 (58
FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
     Is not expected to be an Executive Order 13771 (82 FR
9339, February 2, 2017) regulatory action because this action is not
significant under Executive Order 12866;
     Does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Does not have federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of Section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the Clean Air Act; and,
     Does not provide the EPA with the discretionary authority
to address, as appropriate, disproportionate human health or
environmental effects, using practicable and legally permissible
methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
    This action does not have tribal implications as specified in
Executive Order 13175. No tribal areas are located within the West
Central Pinal County PM2.5 nonattainment area. The CAA and
the Tribal Authority Rule establish the relationship of the Federal
Government and tribes in developing plans to attain the NAAQS, and this
rule does nothing to modify that relationship. Thus, Executive Order
13175 (65 FR 67249, November 9, 2000) does not apply to this action.
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. The EPA will submit a report containing this action and
other required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2).
    Under section 307(b)(1) of the Clean Air Act, petitions for
judicial review of this action must be filed in the United States Court
of Appeals for the appropriate circuit by December 2, 2019. Filing a
petition for reconsideration by the Administrator of this final rule
does not affect the finality of this action for the purposes of
judicial review, does not extend the time within which a petition for
judicial review may be filed, and shall not postpone the effectiveness
of such rule or action. This action may not be challenged later in
proceedings to enforce its requirements. (See section 307(b)(2).)

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Ammonia, Fine
particulate matter, Incorporation by reference, Intergovernmental
relations, Nitrogen dioxides, Reporting and recordkeeping requirements,
Sulfur dioxides, Volatile organic compounds.

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

    Dated: September 17, 2019.
Deborah Jordan,
Acting Regional Administrator, Region IX.

    For the reasons stated in the preamble, title 40, chapter I of the
Code of Federal Regulations is amended as follows:

PART 52--APPROVAL AND PROMULGATION OF IMPLEMENTATION PLANS

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

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

Subpart D-Arizona

0
2. Section 52.131 is amended by adding paragraph (d) to read as
follows:

Sec.  [thinsp]52.131  Control Strategy and regulations: Fine Particle
Matter.

* * * * *
    (d) Determination of attainment. Effective November 4, 2019, the
EPA has determined that, based on 2015 to 2017 ambient air quality
data, the West Central Pinal County, AZ PM2.5 nonattainment
area has attained the 2006 24-hour PM2.5 NAAQS by the
applicable attainment date of December 31, 2017. Therefore, the EPA has
met the requirement pursuant to CAA section 188(b)(2) to determine
whether the area attained the standard. The EPA also has determined
that the West Central Pinal County, AZ nonattainment area will not be
reclassified for failure to attain by its applicable attainment date
under section 188(b)(2).

[FR Doc. 2019-21206 Filed 10-2-19; 8:45 am]
 BILLING CODE 6560-50-P