None of today's rule revisions apply to any changes that are the subject of existing enforcement actions that the Agency has brought and none constitute a defense thereto. Also, today's new procedures do not apply retroactively to existing NSR permits or replacement activities that sources have made in the past. Furthermore, Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 86 prior applicability determinations on major modifications and the control requirements that currently apply to sources remain valid and enforceable.

As noted above, today we are changing certain exemptions to the major NSR program by taking final action on the ERP. This provision specifies activities that will qualify for the RMRR exclusion for those activities that begin actual construction after today's rules becomes effective in your jurisdiction. If you are subsequently determined not to have met all of the obligationsapplicable provisions of these new alternatives, you will be subject to any applicable enforcement provisions ( including the possibility of citizens' suits) under the applicable sections of the Act. Sanctions for violations of these provisions may include monetary penalties of up to $ 27,500 per day of violation, as well as the possibility of injunctive relief, which may include the requirement to install air pollution controls.

KJ. Quantitative Analysis At proposal, we presented a quantitative analysis of the possible emissions consequences of the range of different approaches to the RMRR exclusion, to evaluate if our policy conclusions are correct. Our analysis was conducted using the Integrated Planning Model ( IPM). This Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 87 analysis was done for electric utilities because we have a powerful model to perform such an analysis that we do not have for other industries. We stated that the results for electric utilities accurately reflect the trends we would see in other industries.

The IPM analyses of different scenarios showed that the breadth of the RMRR exclusion would have no practical impact on, let alone be the controlling factor in determining, the emissions reductions that will be achieved in the future under the major NSR program. The analyses showed that emissions of SO2 are essentially the same under all scenarios. This stands to reason because nationwide emissions of SO2 from the power sector are capped by the title IV Acid Rain Program. For NOxNOx, these analyses showed modest relative decreases in some cases and modest relative increases in other cases. These predicted changes represent only a modest fraction of nationwide NOxNOx emissions from the power sector, which hover around 4.3 million tons per year ( tpy). At this time, we do not have adequate information to predict with confidence which modeled scenario is most likely to occur, since if the options under consideration are adoptedt depends on what business cycle is predicted. What these analyses indicate,

however, is that regardless of which scenario is closest to what comes to pass, none of the proposed provisions related Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 88 to the RMRR exclusiontoday's rule will not have a significant impact on emissions from the power sector.

The DOE also presented further analysis of the possible emissions consequences of the range of different approaches to the RMRR exclusion. Using the National Energy Modeling System ( NEMS), a variety of changes in energy efficiency and availability were evaluated, as well as the effect on emissions resulting from these regulatory revisions. This analysis concluded that efficiency improvements resulting from increased maintenance, repair and replacement are expected to decrease emissions, whereas availability improvements are expected to increase emissions. In the cases represented in this analysis, the emissions reductions from assumed reductions in heat rates tended to dominate the corresponding effects of the assumed availability increases.

A number of commenters said that the underlying assumptions EPA used in the IPM analysis were flawed and resulted in erroneous conclusions regarding the emission reduction potential of the proposed RMRR rules. Several commenters stated that EPA's IPM analysis incorrectly assumes that no major modifications at any older units would ever trigger the requirement to add new pollution controls.

In addition, according to commenters, EPA also erroneously assumes that this lack of major maintenance, repair and Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 89 refurbishmentreplacement will have very little impact on the performance of those power plants, when in reality their emissions would increase significantly. The commenters cite a Clean Air Task Force analysis for power plants, which estimates that EPA's rule revisions will result in at least 7 million more tons of SO2 and 2.4 million more tons of NOXNOx annually. Some commenters also questioned the appropriateness of using EPA's analysis for the electric generating sector to draw conclusions about non utilities.

One commenter said the IPM and DOE NEMS analyses correctly demonstrate that EPA's RMRR proposal will have no appreciable impact on emissions from the power sector.

According to the commenter, this conclusion is consistent with EPA's findings in a 1989 report, " 1989 EPA Base Case Forecasts," which demonstrated that continuing to allow utilities to undertake activities including ongoing annual operating and maintenance activities and a major refurbishment when the unit reached 30 years of operating life would have no appreciable impact on emissions from the power sector, just as EPA's and DOE's recent analysis confirmed.

One commenter said the proposal lacks any reference to the gains accomplished by major NSR, the ongoing enforcement actions, settlements reached as a result of those actions,

or the potential gains from the investigations now pending. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 90 EPA's reliance on improvements in productive capacity as the measure of success fails to consider that productive capacity must be balanced with the interests of health and welfare. The commenter also noted that critical to EPA's burden to consider all the relevant factors leading to its conclusion that the exemptions are necessary and appropriate is at the very least an assessment of the expected effects on emissions, which in turn will determine the public health benefits and costs of the proposed rule. Although data on emission reductions achieved under the existing program are available, EPA has stated that it cannot accurately quantify the effects the proposed rule will have on emissions. BSome commenters stated that before promulgating a final rule, EPA should provide such a quantitative assessment of the rule.

We disagree with the commenters who believe that emissions would be significantly higher for electric utilities than are estimated under the IPM model runs.

These commenters' arguments rely on the assumption that EPA's base case is invalid because, if major NSR rules were left unchanged, eventually all coal fired utilities would either apply BACT or deteriorate so badly that they would have to shut down. We do not believe this assumption is accurate. Our experience suggests that under the current NSR program, managers of coal fired electric generating Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 91 facilities take whatever actions are necessary to avoid triggering major NSR, primarily because of its high retrofit costs and delays. If some maintenance projects, repair and replacement activities could trigger major NSR, facilities will limit their maintenanceactivities to those projects that do not trigger major NSR, and will take enforceable restrictions on fuel use or other actions to avoid major NSR. This results in some decline in efficiency and capacity, as the EPA's base case modeled, but the units would likely remain viable electric generating units for years without triggering BACT requirements. Thus, we believe our base case represents a far more realistic assessment of what would happen under current major NSR rules than the dramatic BACT reductions presented by these commenters.

Furthermore, in the future, while some of the facilities may be modified and subjected to control,

nationwide emissions as estimated in the model runs would still rise to the level of the Acid Rain cap for SO2. To the degree these modifications come at facilities that are otherwise projected to be controlled because of existing SO2 and NOXNOx requirements, there would be no difference in effect between the model runs and alternative scenarios. We agree with the commenter who noted that the recent analysis and the estimated impact on emissions is consistent with the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 92 previous EPA report in 1989. Our recent analysis confirms that efficiency improvements have the potential to result in environmental benefits that offset ( or more than offset)

emissions increases from improved availability, but that previous major NSR rules discouraged these improvements.

Regarding the applicability of our analysis to nonutility sectors, we continue to believe that our conclusions are valid for all sectors, and further, that the effects from the electric utility industry dominate those from other sectors. We acknowledge that the results for the SO2 cap for utilities cannot be extended to non utilities that are not similarly capped. However, our model runs for NOxNOx reflected the absence of a cap, and are therefore valid for other uncapped sectors. Thus in the case of industrial boilers, which behave similarly to utilities, we would expect to see similar efficiency improvements and availability improvements occurring in tandem, resulting in either modest increases or decreases. Because the overall emissions from this sector are significantly smaller than for utilities, the modeled effects for utilities are expected to dominate the analysis.

Finally, for other industrial sectors, we do not anticipate that emissions increases will result from maintenanceequipment replacement activities covered bythat Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 93 qualify as RMRR under today's rule. While some efficiency improvements may result, the overall effect of these improvements will not be to induce greater demand and greater emissions, as was seenshown by the modeling for utilities ( i. e., demand depends on independent factors).

Indeed, without increased demand, efficiency improvements that lower emissions per unit of output would result in a decrease in emissions.

Therefore, we affirm the overall conclusion of our analysis   that today's rule has no practical effect on the environmental benefits of major NSR in the future. We have presented additional, more detailed supporting information in our final RIA and our response to comments document, both of which can be found in the docket for today's action.

LK. Consideration of Other Options In addition to the cost based approaches that we proposed, we also asked for comment on age based and capacity based approaches, and any other viable option for addressing RMRR.

1. Annual Maintenance, Repair and Replacement Allowance We are not taking action on the proposed Annual Maintenance, Repair and Replacement Allowance option for the RMRR exclusion, and therefore public comments on this option are not addressed at this time. We will address comments on our proposed Annual Maintenance, Repair and Replacement Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 94 Allowance if and when we take final action on that proposal.

2. Capacity Based Option As mentioned above, we considered the alternative option of developing an RMRR provision based on the capacity of a process unit. Under such an approach, an owner or operator could undertake any activity that does not increase the capacity of the process unit. Basing RMRR on capacity has appeal for several reasons. The primary objective of RMRR is to keep a unit operating at capacity and/ or availability. In addition, the linkage between capacity and environmental impact is more apparent than that between cost and environmental impact. Finally, this type of approach might, in principle, be easier to use before beginning actual construction than some of the cost based approaches.

Several commenters were concerned with defining the capacity of a process unit. Capacity may be defined based on input or output. Nameplate capacity of a process unit may vary greatly from the capacity at which the process unit may be able to operate. It may be more appropriate in some industries to measure capacity based on input while in others on output. Commenters felt that a capacity based approach would not be workable at complex manufacturing sources, because " capacity" as a useful shorthand term for the processing capability correlates exactly only with a Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 95 historical feed or product slate no longer available or made. A number of commenters supported a capacity based option, generally indicating that a capacity based option would be simpler and less burdensome to use than the other proposed approaches.

Another large concern of commenters was that a capacity based approach could prevent facilities from performing activities that make the facilities more efficient. RMRR provisions need to include some form of the other approaches to account for energy efficiency projects at utilities, which could increase capacity. Some commenters noted that maximum hourly emissions is a more appropriate surrogate for a change in capacity, because it is consistent with existing NSPS procedures and with averaging periods for ambient air quality monitoring and standards.

We agree that an appropriate capacity based approach would have to be tailored to various types of sources, with capacity based on input for some and on output for others.

As an example, in a review of promulgated and proposed Maximum Achievable Control Technology standards, six of eleven standards measured capacity based on process unit output while five standards based capacity on input. In fact, the NSPS exclusion for increases in production rate at 40 CFR 60.14( e) originally was dependent upon the " operating Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 96 design capacity" of an affected facility. In proposed revisions to the NSPS program published on October 15, 1974,

we state ( 39 FR 36948):

" The exemption of increases in production rate is no longer dependent upon the " operating design capacity." This term is not easily defined, and for certain industries the " design capacity" bears little relationship to the actual operating capacity of the facility."

We also agree that a capacity based approach has its limitations, as described by the commenters. We have concluded that the ERP eliminates the need to implement the capacity based approach. We have decided not to finalize a capacity based approach.

3. Age Based Option Under our proposed age based approach, any process unit under a specified age could undergo any activity that does not increase the capacity of a process unit on a maximum hourly basis without triggering the requirements of the major NSR program. However, the activities could not constitute reconstruction of the process unit; that is,

their cost could not exceed 50 percent of the cost of a replacement process unit. The age of the process unit would likely be in the range of 25 50 years. We also proposed Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 97 that the owner or operator would have to become a Clean Unit as defined at 40 CFR 51.165( c)( 3), 51.166( t)( 3), and 52.21( x)( 3), once the age of a process unit exceeds the age threshold.

Such an approach would provide an owner or operator a clear understanding of RMRR for an extended period of time.

It also may provide the owner or operator greater flexibility than under the current system for a limited period of time. Like the capacity based approach, this approach would, in principle, allow for a fairly simple preconstruction determination of applicability.

Very few commenters expressed any interest in developing this type of approach. Their concerns centered around defining capacity and establishing the age cut off ( because the useful life of equipment is difficult to establish and may vary greatly). Other concerns raised by commenters were that some of the activities that would be allowed at newer sources do not fit within any ordinary meaning of RMRR and some of the activities that would be forbidden at older facilities would come within that meaning, and also that some sources may consciously, and appropriately, engage in aggressive RMRR as a method of maximizing the life span of its process units, and an agebased approach would discriminate against them.

One commenter stated that EPA should establish a normal Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 98 lifetime, tailored to each industry, beyond which industry would need to install BACT or shut down. This type of approach would obviously require a substantial amount of time.

The age of a source alone is not a legitimate reason to require the addition of pollution control equipment. Age has no direct bearing on a unit's environmental impact; some facilities maintain equipment better than others. We have decided not to promulgate an age based approach. We have several basic concerns with this approach that we have not been able to reconcile. We also believe that the equipment replacement approach largely addresses the commenters'

concerns regarding the age based approach.

Thus, we have decided not to finalize a rule using this approach.

ML. Specific List of Excluded Activities Several commenters supported the development of lists of activities that are considered RMRR; some of these commenters also supported developing lists of activities that do not qualify as RMRR. Commenters suggested various ways in which such lists could fit into the overall RMRR program. We are concerned, however, that such a list would have to be implemented through rulemaking, which would require a considerable amount of time and resources. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 99 A commenter suggested two ways by which we could develop a list of qualifying activities. First, we could review records for ongoing enforcement activity, to identify activities that we have and have not already alleged to be routineRMRR. There is an ample body of knowledge for electric power plants. Second, we could identify where activities would fall with respect to the cost criteria,

then adjust the classification of each activity based on the WEPCO criteria to prepare lists of routine and nonroutine activities.

Some commenters felt that industry specific lists of routine and nonroutine activities would provide the best interim clarification to major NSR until legislative reform is in place. Other commenters opposed the development of lists of activities that are considered RMRR, contending that such lists would become quickly outdated.

Some commenters requested that certain activities be specifically classified as RMRR. These activities included the following:

S The common practice of changing out the engine core in a combustion turbine when it is due for overhaul ( to reduce downtime). The removed engine core is overhauled offline, and is then available to be switched in for the next like kind engine core that reaches the point of overhaul. Unless componentsthe Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 100 parts are upgraded, the heat input remains the same and so does the emissions rate.

S Any change that does not increase the achievable hourly emissions ( as determined based on the permit and/ or original design parameters) of existing equipment,

processes, and emissions units.

Another commenter suggested the following list:

S Certain activities, for example, boiler tuning and maintenance, repair and replacement of air pollution equipment or CEMS should be categorically exempted as RMRR.

S Any project that is part of a long term service agreement ( primarily gas turbines) should be categorically exempted from major NSR.

S Any project involving steam turbine overhaul work should be categorically exempted from major NSR.

We believe there are simply too many activities in too many industries to effectively improve major NSR implementation through creation of lists. Moreover, lists would be a " snapshot in time" that would need to be reviewed and periodically updated for each industry sector. EPA has consequently decided to not list activities that have a categorical exclusion for routine equipment replacements activities that are categorically excluded as RMRR. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 101 NM. Stand alone Exclusion for Energy Efficiency Projects In the proposal, we acknowledged that certain types of projects that improve energy efficiency would not qualify as RMRR. We solicited comment on whether there was the need for a " stand alone" exclusion for activities that promote energy efficiency.

Many commenters supported a stand alone exclusion from major NSR for energy efficiency projects. With the following safeguards, they favored specifically excluding from the definition of " major modification"

activities/ projects that promote energy efficiency and/ or resource conservation when: ( 1) The project results in lower emissions per unit of production or lower energy utilization per unit of production; ( 2) the percent decrease in emissions or energy utilization per unit of production is greater than the percent increase in maximum hourly emission rates; ( 3) project costs do not exceed 50 percent of the replacement value of the process unit; and ( 4) the project does not result in an increase in allowable emissions.

Other commenters pointed out that efficiency upgrades will frequently create incentives to further utilize a source and subsequently increase mass emissions. One commenter stated that if activities that result in small efficiency gains can qualify as RMRR, older, dirtier electric generating units will be better able to out compete Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 102 newer, much cleaner plants ( that have higher costs due to emission controls).

One commenter stated that EPA is incorrect in stating that energy efficiency projects are being discouraged by major NSR, particularly under the new actual to

projectedactual applicability test. This commenter added that the only projects that are discouraged by major NSR are ones that increase emissions. This commenter felt that the December 2002 final major NSR rules provide a broad range of major NSR exemptions ( including revised baseline determinations, Clean Unit designations, pollution control projects, PALS, and combinations of these provisions, as well as an RMRR exemption) under which energy efficiency projects will certainly occur.

We strongly support efforts to improve energy efficiency at existing power plants. These activities reduce the amount of air pollution emitted per unit of electricity generated and also reduce greenhouse gas emissions. We believe that today's ERP supports energy efficiency projects and that the actual to projected actual applicability test contained in the December 2002 NSR final rules also should remove impediments to energy efficiency projects. Together, these rules will obviate the need for a specified RMRR provision for energy efficiency projects. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 103 Thus, at this time we are not proceeding with finalizing a provision at this timeto categorically exclude energy efficiency projects from major NSR.

ON. Legal Basis The modification provisions of the NSR program in parts C and D of title I of the CAA are based on the definition of modification in section 111( a)( 4) of the CAA. The term " modification" means " any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source of which results in the emission of any air pollutant not previously emitted." As we observed in the notice of proposed rulemaking for this rule, that definition contemplates that you will first determine whether a physical or operational change will occur. If so, then you proceed to determine whether the physical or operational change will result in an emissions increase over baseline levels.

Real world, common sense usage of the word " change" in " physical change" and " change in the method of operation"

shows that " change" is susceptible to multiple meanings.

As we have noted previously, " EPA has always recognized that Congress obviously did not intend to makehat every activity at a source subject to new source requirementsan existing facility be considered a physical or operational change for Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 104 purposes of NSR." 57 FR 32,314, 32,3169 ( July 21, 1992).

Conceivably, " change" could encompass a range of activities from periodically replacing filters in production machinery,

to once in a lifetime anticipated replacement of a component, to complete replacement of a production unit.

For example, all cars must periodically have their oil " changed." When considered from one perspective, this activity does represent a " change" because old oil is removed and new oil is added. From another perspective,

however, this activity would not be considered a change because it does not alter any significant characteristic of the car.

More to the point, chemical and pharmaceutical manufacturing operations often are designed, operated, and permitted under major NSR as " multi function" facilities.

These facilities have numerous pieces of equipment ( such as storage tanks, reactors, distillation columns, centrifuges,

filter dryers, etc.) that can be reconfigured to accommodate a wide variety of products and operating conditions. When switching from product X to product Y, a plant can make substantial " changes" in the types of equipment used, the processing conditions, and the raw materials, reagents,

solvents, and other processing materials. In this case, the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 105 same basic equipment is used to make a wide variety of end products. But, as long as the facility is operated as designed and permitted under major NSR, we would not consider ( and have not considered over the 20+ year life of the NSR program) such changes to be physical or operational " changes" for purposes of administering the NSR program.

Similarly, manufacturing equipment often is built with expendable parts. For example, industrial gas turbines,

such as those used to drive compressors on natural gas pipelines, regularly need to have parts replaced as they wear out due to the high temperature and pressure conditions inside the turbine. In fact, these gas turbines are built with the knowledge and expectation that such replacements will be needed. In recognition of this fact, under the New Source Performance Standard for gas turbines, 40 C. F. R. Part 60 Subpart GG, we have concluded that " replacement of stator blades, turbine nozzles, turbine buckets, fuel nozzles,

combustion chambers, seals, and shaft packings" are not " changes" for regulatory purposes. Cite to EPA 450/ 2 77

017a, background support document for GG. Such replacements are akin to getting a new set of brakes on a car   not something that happens often, not an activity that is necessarily inexpensive, but plainly an activity that is an expected part of maintaining and operating the facility and one that does not represent an alteration of the affected Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 106 process unit.

As the preceding examples suggest, identifying activities that are " changes" for NSR purposes   and thus potentially trigger the need for an NSR permit   requires the exercise of Agency expertise. The application of agency expertise to the interpretation of this statutory term is the classic situation in which an agency has been accorded deference under Chevron, U. S. A., Inc. v. NRDC, 467 U. S. 837 ( 1984).

Historically, we have asserted the power to interpret the relevant statutory terms. For example, even though both the NSPS and the PSD/ NNSRNSR programs incorporate the definition of " modification" from section 111, from the outset EPA has adopted quite disparate readings of the term in our rules. See [ ASARCO case, WEPCO preamble for idea NSR & NSPS are different programs with different terminology] 57 Fed. Reg. 32314, 32316 ( July 21, 1992) ( WEPCO rule discussion of how emission increases are calculated differently for the NSPS and NSR programs). The NSPS program requires a change to result in an increase in the hourly potential to emit of the facility. 40 C. F. R. 60.14( a)

( b). In contrast, under PSD and NNSRNSR, historically we have required an increase in annual emissions. [ cite for old regs] E. g., 40 C. F. R. 51.165( a)( 1)( x). These disparate Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 10 As discussed below, our regulations provided a comparable exclusion from NSPS at the time of the 1977 Amendments that established the NSR program.

107 tests reflect the Agency's view that the statutory term " modification" must be construed with a view to what makes sense in particular statutory context, and are not obvious on their face.

The exclusions from NSR we adopted in 1980 also reflect the exercise of the Chevron discretion. Not only did we adopt the RMRR exclusion at that time, but we also adopted exclusions for increases in the hours of operation, fuel changes, and raw material changes. Only the RMRR exclusion arguably could be justified as de minimis. For example, by doubling hours of operation, a 500 ton per year emitting plant could conceivably double its emissions. 10 The extra 500 tpy is far above any level EPA has ever thought justifiable as de minimis. E. g., 40 C. F. R. 51.166( b)( 23)( i)

( definition of " significant"). Nor is it likely that these other exclusions could be based on some inherent power to adopt categorical exemptions from the Act's commands. See Alabama Power Company v. Costle, 636 F. 2d 323, 359 ( D. C.

Cir. 1980) (" categorical exemptions . . . are not favored").

Accordingly, these other exclusions must be justified as an exercise of Chevron discretion.

It is important to note that, in 1977 when Congress incorporated by reference into the NSR program the pre Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 108 existing NSPS statutory definition of modification, EPA had already adopted and had been administering regulations and policy under the NSPS program related to the meaning of the term " modification." Our rules and policy provided that certain significant activities did not constitute physical or operational changes under the NSPS program prior to 1977 ( or, for that matter, under the NSPS program as administered today). In addition to the gas turbine example provided above, perhaps the best indication that EPA did not consider the terms " modification" or " change" to cover everything other than de minimis activities is the exclusion for production rate increases under the NSPS program. 40 C. F. R.

Section 60.14( e)( 2).

Under this provision, projects valued at tens of millions of dollars can be implemented   with no limitations on the nature of the project   without triggering applicable NSPSs. For example, up to 10 percent of the asset value of affected operations at a kraft pulp mill can be invested in a project without triggering the applicable NSPS, 40 C. F. R.

Part 60 Subpart BB. The affected facilities at a kraft pulp mill typically are valued in excess of $ 100 million. Cite.

Therefore, an owner or operator can implement projects costing tens of millions of dollars without triggering the applicable NSPS. This holds true regardless of the nature Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 109 of the project   it can be a " like kind" replacement of the kind addressed by today's rule or it can result in a substantial change in the nature of the operation. Thus,

under the NSPS program that existed when Congress enacted NSR and incorporated into NSR the applicable NSPS definitions, projects of substantial cost that result in substantial change in affected facilities were not considered " changes." The same is true under the NSPS program as it stands today.

We recognize that the Agency previously has not specifically asserted that our interpretation of " change"

and the exemptionsexclusions from new source reviewNSR are based on an exercise of Chevron discretion. In some instances, such as in a decision of the EAB [ cite TVA], In re: Tennessee Valley Authority, 9 E. A. D. 357 ( EAB 2000), and in briefs in various enforcement related cases, and ( as noted below) in briefs in the WEPCO litigation, we have previously interpreted " change" such that all changes, even trivial ones, are encompassed by the Act, and thus we generally interpreted the exclusion as being limited to de minimis circumstances. However, EPA does have the authority to interpret these key terms through rulemaking. Upon further consideration of the history of our actions, the statute, and its legislative history, EPA believes that a different view is permissible, and, for policy reasons Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 11 We have taken positions in numerous court filings concerning the proper interpretation and usage of key statutory terms, such as " physical change" and " any physical change." These positions were based on reasonable statutory interpretations of which the regulated community had fair notice, and continue to be the law governing prior activities at covered facilities. We now, however, are using our Chevron authority to define key terms for future activities at covered facilities because the terms have multiple meanings and we now believe the new definitions are most appropriate for the Clean Air Act regulatory regime going forward. Accordingly, we only intend to apply our new definitions, and supporting rationale, to activities at covered facilities that occur after the effective date of this regulation.

12 We note that the word " any" is simply a modifier that does not change the meaning of the word it modifies. For example, using the term " any" to modify the word " car" does not somehow change or expand the meaning of the word " car." " Any" simply means that, once you have decided what a car is, then all objects meeting the definition are encompassed.

110 discussed above, more appropriate. Therefore, we adopt this view prospectively. 11 The argument that our authority to exclude certain activities from being modifications under new source review can only be based on a de minimis rationale sometimes relies on the word " any" used to modify " physical change" and " change in the method of operation," pointing to the word " any" in the definition of " modification" as a signal from Congress that the term " change" must be interpreted as encompassing the broadest possible sense of the term. Such an interpretation is not compelled by the language and legislative history of the statute, as demonstrated by the manner in which we have interpreted the word " change" under both the NSPS and the NSR programs. 12 Nothing in the appellate caselaw directly disposes of Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 111 this issue in a manner that prevents a new interpretation today. Two cases, Alabama Power and Wisconsin Electric Power Co. v. Reilly, 893 F. 2d 901 ( 7th Cir. 1990) (" WEPCO"), are relied on by some commenters to assert that EPA must interpret " modification" and " change" expansively and base all exclusions on a de minimis rationale. However, in Alabama Power, the issue before the court was the emissions increase portion of the definition of " modification." The court would have allowed de minimis increases in emissions to be exempt from requirements applying to " modifications"

under new source review but not emissions increases equal to the thresholds set by statute for new construction. 636 F. 2d at 399  400. The court did not have before it the issue of what is a " change" and did not decide this issue.

In WEPCO, both parties advanced the view that the statute was clear on its face. EPA advanced the view that the term " modification" is necessarily broad, and that only de minimis departures are appropriate. WEPCO asserted that the plain meaning of the term " physical change" allowed for the five large scale rehabilitation projects it contemplated at its Port Washington plant. The WEPCO court held that the rehabilitation projects at issue were too large to reasonably conclude that they should not be treated as physical changes. The court's holding that the statute did not require the interpretation advanced by WEPCO does not Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 13As pointed out above, we note that the U. S. District Court for the Southern District of Ohio recently issued an opinion in the Agency's NSR enforcement case against Ohio Edison. ( cite) The case included a series of projects with absolute and relative costs well below those at issue in WEPCO. The court determined, again at our urging, that these projects did not qualify for the existing RMRR exclusion. The Agency asserted in that case that the then existing RMRR exclusion should be applied in a narrow fashion such that only de minimis projects should be excluded under that rule. The Agency sought and received from the court broad deference with regard to the Agency's interpretation of the CAA and the relevant EPA rules. EPA today is adopting for future purposes a new interpretation of the CAA and is finalizing a revision to the RMRR regulation. The decision in Ohio Edison does not preclude the interpretation and regulation finalized in today's action.

112 deny EPA the discretion to decide to adopt a different,

reasonable interpretation of the term " modification."

While the Court in WEPCO decided that the projects in that case were physical changes, the decision in WEPCO does not answer the question of where to draw the line between activities that should and should not be considered " changes." Nevertheless, contrary to the suggestions of several commenters, the projects at issue in WEPCO would have cost more than the 20% 20 percent of replacement cost threshold selected today and, barring other applicable exclusions, would have been subject to case by case review in the PSD program. See section III. D,. above, in today's notice.

13 Some commenters argued that, to further the purposes of Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 113 the statute, any interpretation must result in the eventual elimination of so called " grandfathered" facilities. We recognize the need to reduce emissions from many existing plants   regardless of whether they are " grandfathered"

( because they have never gone through NSR) or whether they have previously gone through NSR but can further reduce their emissions. EPA and States have issued regulations under a variety of statutory provisions to accomplish this goal in the past, and we will continue to do so in the future. We do not believe, however, the modification provisions of the Act should be interpreted to ensure that all major facilities eventually trigger NSR. In fact, such an interpretation cannot be squared with the plain language of the Act.

An existing source   whether grandfathered or not   triggers NSR only if it makes a physical or operational change that results in an emissions increase. Thus, a facility can conceivably continue to operate indefinitely without triggering NSR   making as many physical or operational changes as it desires   as long as the changes do not result in emissions increases. This outcome is an unavoidable consequence of the plain statutory language and is at odds with the notion that Congress intended that every major source would eventually trigger NSR. Moreover, there is nothing in the legislative history of the 1977 Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 114 Amendments, which created the NSR program, to suggest that Congress intended to force all then existing sources to go through NSR. To the extent that some members of Congress expressed that view during the debate over the 1990 amendments, such statements are not probative of what Congress meant in 1977. Central Bank of Denver, N. A. v.

First Interstate Bank of Denver, N. A., 511 U. S. 164, 185

86 ( 1994), and cases cite) d.

In deciding to incorporate by reference the statutory definition of " modification" in section 111, Congress's intent cannot have been to preclude us from adopting an interpretation of " modification" or " change" that differs from one that sweeps in all activities at a source. Under the NSPS program, this interpretation did not apply at the time of the 1977 amendments. When the NSPS definition of " modification" was adopted as part of the NSR program in 1977, the Congressional Record explained that this provision, "[ i] mplements conference agreement to cover " modification" as well as " construction" by defining " construction" in part C to conform to usage in other parts of the Act." 123 Cong. Rec. 36331 ( Nov. 1, 1977)( emphasis added). Although we do not assert that the NSPS interpretation is the only one we could have adopted for PSD/ NNSRNSR purposes ( we followed quite a different Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 115 interpretation from 1980 2002), at the very least it delineates a zone of discretion within which EPA may operate.

Our interpretation today of physical or operational change in a flexible way furthers the purposes of the statute. Congress made it clear that the CAA in general,

and the NSR program in particular, should be administered in a manner that protects the environment and promotes the productive capacity of the nation. CAA Section 101( b)( 1).

The Chevron Court noted, " Congress sought to accommodate the conflict between the economic interest in permitting capital improvements to continue and the environmental interest in improving air quality" when it established the NSR program.

Chevron, 467 U. S. at 851. Generally, we believe that these goals are best accomplished by providing state and local governments with as much flexibility as possible to make decisions as to what emissions reductions are needed in their jurisdictions to attain and maintain good air quality.

See CAA Section 101( a)( 3).

It is now clear that many power plants and industrial facilities must substantially reduce their emissions in order to allow States to meet the stringent federal air quality standards that the Supreme Court upheld in 2002. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 116 Under the Clean Air Act, Congress designed a number of regulatory programs that will collectively achieve the necessary reductions. Although the NSR program will effectively limit emissions from new and modified sources,

it was not designed to achieve emission reductions from every existing source.

IV. Administrative Requirements for This Rule A. Executive Order 12866  Regulatory Planning and Review Under Executive Order 12866 [ 58 Federal Register 51,735 ( October 4, 1993)], we must determine whether the regulatory action is " significant" and therefore subject to review by the Office of Management and Budget ( OMB) and the requirements of the Executive Order. The Executive Order defines " significant regulatory action" as one that is likely to result in a rule that may:

( 1) Have an annual effect on the economy of $ 100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition,

jobs, the environment, public health or safety, or State,

local, or tribal governments or communities;

( 2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

( 3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs, or the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 117 rights and obligations of recipients thereof; or ( 4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

Pursuant to the terms of Executive Order 12866, OMB has notified us that it considers this an " economically significant regulatory action" within the meaning of the Executive Order. We have submitted this action to OMB for review. Changes made in response to OMB suggestions or recommendations will be documented in the public record.

All written comments from OMB to EPA and any written EPA response to any of those comments are included in the docket listed at the beginning of this notice under ADDRESSES. In addition, consistent with Executive Order 12866, we consulted extensively with the State, local and tribal agencies that will be affected by this rule. We have also sought involvement from industry and public interest groups.

B. Executive Order 13132  Federalism Executive Order 13132, entitled " Federalism" ( 64 FR 43255, August 10, 1999), requires us to develop an accountable process to ensure " meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications."

" Policies that have federalism implications" are defined in the Executive Order to include regulations that have Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 118 " substantial direct effects on the States, on the relationship between the national government and the States,

or on the distribution of power and responsibilities among the various levels of government."

This final rule does not have federalism implications.

Nevertheless, in developing this rule, we consulted with affected parties and interested stakeholders, including State and local authorities, to enable them to provide timely input in the development of this rule. A summary of stakeholder involvement appears above in section II. D. of this notice. This rule will not have substantial direct effects on the States, on the relationship between the national government and the State and local programs, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. While this rule will result in some expenditures by the States, we expect those expenditures to be limited to $ 580,160 for the estimated 112 affected reviewing authorities. This figure includes the small increase in burden imposed upon reviewing authorities in order for them to revise the State's State Implementation Plan ( SIP). However, this revision provides sources permitted by the States greater certainty in application of the program, which should in turn reduce the overall burden Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 119 of the program on State and local authorities. Thus, the requirements of Executive Order 13132 do not apply to this rule.

C. Executive Order 13175  Consultation and Coordination with Indian Tribal Governments Executive Order 13175, entitled " Consultation and Coordination with Indian Tribal Governments" ( 65 FR 67249,

November 6, 2000), requires EPA to develop an accountable process to ensure " meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications." We believe that this rule does not have tribal implications as specified in Executive Order 13175. Thus, Executive Order 13175 does not apply.

The purpose of today's final rule is to add greater flexibility to the existing major NSR regulations. These changes will benefit reviewing authorities and the regulated community, including any major source owned by a tribal government or located in or near tribal land, by providing increased certainty as to when the requirements of the major NSR program apply. Taken as a whole, today's rule should result in no added burden or compliance costs and should not substantially change the level of environmental performance achieved under the previous rules and guidance.

We anticipate that initially these changes will result in a small increase in the burden imposed upon reviewing Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 120 authorities in order for them to be included in the State's SIP. Nevertheless, these options and revisions will ultimately provide greater operational flexibility to sources permitted by the States, which will in turn reduce the overall burden on the program on State and local authorities by reducing the number of required permit modifications. In comparison, no tribal government currently has an approved Tribal Implementation Plan ( TIP)

under the CAA to implement the NSR program. The Federal government is currently the NSR reviewing authority in Indian country. Thus, tribal governments should not experience added burden, nor should their laws be affected with respect to implementation of this rule. Additionally,

although major stationary sources affected by today's rule could be located in or near Indian country and/ or be owned or operated by tribal governments, such affected sources would not incur additional costs or compliance burdens as a result of this rule. Instead, the only effect on such sources should be the benefit of the added certainty and flexibility provided by the rule.

The EPA recognizes the importance of including tribal outreach as part of the rulemaking process. In addition to affording tribes an opportunity to comment on this rule through the proposal, on which two tribes did submit Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 121 comments, we have also alerted tribes of this action through our website and quarterly newsletter. To this point we have not specifically consulted with tribal officials on this rule, but we are committed to work with any tribal government to resolve any issues that we may have overlooked in today's rules and that may have an adverse impact in Indian country.

D. Executive Order 13045  Protection of Children from Environmental Health Risks and Safety Risks Executive Order 13045, " Protection of Children from Environmental Health Risks and Safety Risks" ( 62 FR 19885,

April 23, 1997) applies to any rule that ( 1) is determined to be " economically significant" as defined under Executive Order 12866, and ( 2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, we must evaluate the environmental health or safety effects of the planned rule on children and explain why the planned regulation is preferable to other potentially effective and reasonable alternatives that we considered.

This rule is not subject to Executive Order 13045,

because we do not have reason to believe the environmental health or safety risks addressed by this action present a disproportionate risk to children. We believe that, based Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 122 on our analysis of electric utilities, this rule as a whole will result in equal or better environmental protection than currently provided by the existing regulations, and do so in a more streamlined and effective manner.

E. Paperwork Reduction Act FE. Regulatory Flexibility Act ( RFA), as Amended by the Small Business Regulatory Enforcement Fairness Act of 1996 ( SBREFA), 5 U. S. C. 601 et seq.

We determined it is not necessary to prepare a regulatory flexibility analysis in connection with this final rule. We have also determined that this rule will not have a significant economic impact on a substantial number of small entities. For purposes of assessing the impacts of today's rule on small entities, small entity is defined as:

( 1) any small business employing fewer than 500 employees;

( 2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and ( 3) a small organization that is any not for profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of today's rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 123 small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, since the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives " which minimize any significant economic impact of this rule on small entities."

5 U. S. C. Sections 603 and 604. Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule.

Today's rule will not have a significant economic impact on a substantial number of small entities because it will decrease the regulatory burden of the existing regulations and have a positive effect on all small entities subject to the rule. This rule improves operational flexibility for owners and operators of major stationary sources and clarifies applicable requirements for determining if a change qualifies as a major modification. We have therefore concluded that today's rule will relieve regulatory burden for all small entities.

GF. Unfunded Mandates Reform Act of 1995 Title II of the Unfunded Mandates Reform Act of 1995 ( UMRA), Public Law 104 4, establishes requirements for Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 124 Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of UMRA, we generally must prepare a written statement, including a cost benefit analysis, for proposed and final rules with " Federal mandates" that may result in expenditures to State, local,

and tribal governments, in the aggregate, or to the private sector of $ 100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires us to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover,

section 205 allows us to adopt an alternative other than the least costly, most cost effective, or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted.

Before we establish any regulatory requirements that may significantly or uniquely affect small governments,

including tribal governments, we must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 125 governments, enabling officials of affected small governments to have meaningful and timely input in the development of our regulatory proposals with significant Federal intergovernmental mandates, and informing,

educating, and advising small governments on compliance with the regulatory requirements.

We believe these rule changes will actually reduce the regulatory burden associated with the major NSR program by improving the operational flexibility of owners and operators and clarifying the requirements. Because the program changes provided in the rule are not expected to result in any increases in the expenditure by State, local,

and tribal governments, or the private sector, we have not prepared a budgetary impact statement or specifically addressed the selection of the least costly, most costeffective or least burdensome alternative. Because small governments will not be significantly or uniquely affected by this rule, we are not required to develop a plan with regard to small governments. Therefore, this rule is not subject to the requirements of section 203 of the UMRA.

HG. National Technology Transfer and Advancement Act of 1995 Section 12( d) of the National Technology Transfer and Advancement Act of 1995 ( NTTAA), Public Law No. 104 113,

section 12( d) ( 15 U. S. C. 272 note) directs us to use Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 126 voluntary consensus standards ( VCS) in our regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. VCS are technical standards ( for example, materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs us to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable VCS.

Although this rule does involve the use of technical standards, it does not preclude the State, local, and tribal reviewing agencies from using VCS. Today's rule is an improvement of the existing NSR permitting program. As such, it only ensures that promulgated technical standards are considered and appropriate controls are installed, prior to the construction of major sources of air emissions.

Therefore, we are not considering the use of any VCS in today's rule.

IH. Executive Order 13211  Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This rule is not a " significant energy action" as defined in Executive Order 13211, " Actions Concerning Regulations That Significantly Affect Energy Supply, Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 127 Distribution, or Use" ( 66 FR 28355 ( May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution or use of energy.

Today's rule improves the ability of sources to maintain the reliability of production facilities, and effectively utilize and improve existing capacity.

JI. Executive Order 12988  Civil Justice Reform This final rule does not have any preemptive or retroactive effect. This action meets applicable standards in sections 3( a) and 3( b)( 2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity,

and reduce burden.

V. Effective Date for Today's Requirements Today's rule revises the Federal PSD program located at 40 CFR Part 52.21 to include the new equipment replacement provision of the RMRR exclusion. The part 52 regulations governing Federal permitting programs include the Federal PSD rule at 40 CFR Part 52.21 as well as the various sections of subparts C through DDD of part 52 that incorporate the Federal permitting program by reference for those jurisdictions where EPA applies part 52.21 as a Federal Implementation Plan because such jurisdictions lack an approved SIP to implement the PSD program. Because today's final rule adds additional paragraphs to the part 52.21 rules, we will be revising the references in subparts Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 128 C through DDD to appropriately reflect the program that applies. This final action will be taken in a separate Federal Register notice and will not change the effective date of today's final changes.

VI. Statutory Authority The statutory authority for this action is provided by sections 101, 111, 114, 116, and 301 of the CAA as amended ( 42 U. S. C. 7401, 7411, 7414, 7416, and 7601). This rulemaking is also subject to section 307( d) of the CAA ( 42 U. S. C. 7407( d)). Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 15, 2003 129 RMRR   Page ?? of ??(?)

LIST OF SUBJECTS 40 CFR Parts 51 and 52 Environmental protection, Administrative practices and procedures, Air pollution control, Intergovernmental relations.

____________________

Dated:

_____________________

Marianne L. Lamont Horinko,

Acting Administrator.


[Federal Register Volume 80, Number 11 (Friday, January 16, 2015)]
[Notices]
[Pages 2467-2468]
[FR Doc No: 2015-00589]

=======================================================================
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 DEPARTMENT OF TRANSPORTATION

Intelligent Transportation Systems Program Advisory Committee;
Notice of Meeting

AGENCY: ITS Joint Program Office, Office of the Assistant Secretary for
Research and Technology, U.S. Department of Transportation.

ACTION: Notice.

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    The Intelligent Transportation Systems (ITS) Program Advisory
Committee (ITSPAC) will hold a meeting on February 4, 2015, from 8:00
a.m. to 5:00 p.m. (EST) and on February 5, 2015, from 8:00 a.m. to 4:00
p.m. (EST) in the Potomac Ballroom Salon F of the Crystal City Marriott
at Reagan National Airport, 1999 Jefferson Davis Highway, Arlington,
VA.
    The ITSPAC, established under Section 5305 of Public Law 109-59,
Safe, Accountable, Flexible, Efficient Transportation Equity Act: A
Legacy for Users, August 10, 2005, and re-established under Section
53003 of Public Law 112-141, Moving Ahead for Progress in the 21st
Century, July 6, 2012, was created to advise the Secretary of
Transportation on all matters relating to the study, development, and
implementation of intelligent transportation systems. Through its
sponsor, the ITS Joint Program Office (JPO), the ITSPAC makes
recommendations to the Secretary

regarding ITS Program needs, objectives, plans, approaches, content,
and progress.
    The following is a summary of the tentative meeting agenda.
February 4: (1) Welcome and Opening Remarks, (2) Future + 10 Year--U.S.
DOT Secretary's 30-year Briefing, (3) Data Policy, (4) Multimodal
Transportation, (5) Institutional Issues, and (6) Subcommittee
Organization. February 5: (1) Connected Vehicle Update, (2)
Subcommittee Meetings, (3) Subcommittee Updates to Committee, and (4)
Discussion of Action Items and Next Meeting.
    The meeting will be open to the public, but limited space will be
available on a first-come, first-served basis. Members of the public
who wish to participate in the meeting must submit a request to: Mr.
Stephen Glasscock, the Committee Designated Federal Official, at (202)
366-9126, not later than January 28, 2015. In addition, for planning
purposes, your request must also indicate whether you wish to present
oral statements during the meeting.
    Questions about the agenda or written comments may be submitted by
U.S. Mail to: U.S. Department of Transportation, Office of the
Assistant Secretary for Research and Technology, ITS Joint Program
Office, Attention: Stephen Glasscock, 1200 New Jersey Avenue SE., HOIT,
Washington, DC 20590 or faxed to<PHONE_NUMBER>. The ITS JPO requests
that written comments be submitted not later than January 28, 2015.
    Notice of this meeting is provided in accordance with the Federal
Advisory Committee Act and the General Services Administration
regulations (41 CFR part 102-3) covering management of Federal advisory
committees.

    Issued in Washington, DC, on the 13th day of January 2015.
Stephen Glasscock,
Designated Federal Official, ITS Joint Program Office.
[FR Doc. 2015-00589 Filed 1-15-15; 8:45 am]
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[Federal Register: July 27, 2006 (Volume 71, Number 144)]
[Notices]
[Page 42692-42693]
[DOCID:fr27jy06-88]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54182; File No. SR-CBOE-2006-51]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving a Proposed Rule Change Regarding Market
Maker Appointments

July 20, 2006.

I. Introduction

    On May 19, 2006, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to make the Market-Maker
appointment process similar to the process applicable to Remote Market-
Maker (``RMM'') appointments. The proposed rule change was published
for comment in the Federal Register on June 20, 2006.\3\ The Commission
received no comments on the proposal. This order approves the proposed
rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 53975 (June 12,
2006), 71 FR 35471.
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II. Description of the Proposal

    The proposal would allow a Market-Maker to create a Virtual Trading
Crowd (``VTC'') appointment, which would confer the right to quote
electronically in an appropriate number of Hybrid 2.0 Classes (as
defined in CBOE Rule 1.1(aaa)) selected from ``tiers'' that have been
structured according to trading volume statistics. Each class within a
specific tier would be assigned an ``appointment cost'' depending upon
its tier location, which would be identical to the tiers and
appointment costs set forth in CBOE Rule 8.4(d) that have been
structured for purposes of RMM appointments.
    With respect to Hybrid Classes (as defined in CBOE Rule 1.1(aaa)),
CBOE proposes to allow a Market-Maker to quote electronically in Hybrid
Classes that are located at one trading station. CBOE proposes to
assign an appointment cost of .01 to each Hybrid Class.
    With regard to trading in open outcry, CBOE proposes to amend CBOE
Rule 8.3 to provide that a Market-Maker has an appointment to trade in
open outcry in all Hybrid and Hybrid 2.0 Classes traded on the
Exchange. A Market-Maker would be required to be physically present in
the trading crowd where an option class is located in order to trade in
open outcry in that option class. A Market-Maker would be permitted to
submit electronic quotations into any of his/her appointed Hybrid or
Hybrid 2.0 Classes while the Market-Maker is trading in open outcry.
    For non-Hybrid and non-Hybrid 2.0 Classes (collectively ``Non-
Hybrid Classes''), CBOE proposes to allow a Market-Maker to select as
his appointment one or more Non-Hybrid Classes traded on the Exchange,
which would confer the right to trade in open outcry in Non-Hybrid
Classes.
    As is the case for RMMs, each membership owned or leased by a
Market-Maker would have an appointment credit of 1.0. A Market-Maker
would be permitted to select for each Exchange membership it owns or
leases any combination of Hybrid 2.0 Classes, Hybrid Classes which are
located at one trading station, and Non-Hybrid Classes, whose aggregate
``appointment cost'' does not exceed 1.0. The Exchange would rebalance
the ``tiers'' (excluding the ``AA'' and ``A+'' tiers) set forth in
paragraph (c)(i) of CBOE Rule 8.3 once each calendar quarter, which may
result in additions or deletions to their composition. When a class
changes tiers, it would be assigned the appointment cost of that tier.
Upon rebalancing, each Market-Maker with a VTC appointment would be
required to own or lease the appropriate number of Exchange memberships
reflecting the revised appointment costs of the Hybrid and Hybrid 2.0
Classes constituting its appointment.
    In new paragraph (c)(vi) of CBOE Rule 8.3, CBOE proposes to
continue and modify slightly an existing Pilot Program in effect until
March 24, 2007, which allows a Market-Maker to quote remotely. The
existing Pilot Program provides that a Market-Maker may submit
electronic quotations in his/her appointed Hybrid and Hybrid 2.0
Classes from outside of his/her appointed trading station.\4\ Because
CBOE is proposing to allow Market-Makers to create a VTC consisting of
Hybrid 2.0 Classes, CBOE proposes to modify the Pilot Program such that
it provides Market-Makers with the ability to quote remotely away from
CBOE's trading floor in their appointed Hybrid and Hybrid 2.0 option
classes. While on the trading floor, there would be no requirement that
a Market-Maker must be present in a particular trading station in order
to stream electronic quotations into his/her appointed classes.
---------------------------------------------------------------------------

    \4\ Prior to the Pilot Program, a Market-Maker could stream
electronic quotes into an option class only when he/she was
physically present in his/her appointed trading station.
---------------------------------------------------------------------------

    CBOE also proposes to continue two existing Pilot Programs set
forth in CBOE Rules 8.4(c)(i) and 8.93(vii), which are in effect until
September 14, 2006, and which provide that an RMM or e-DPM in an option
class can have one Market-Maker affiliated with the RMM or e-DPM
trading in the option class. CBOE Rule 8.3(c) would continue to require
that the affiliated Market-Maker can submit electronic quotations in
any class in which the affiliated e-DPM or RMM has an appointment only
if the Market-Maker is present in the trading station where the class
is located. CBOE also notes in paragraph (c)(vii) to CBOE Rule 8.3 that
a Market-Maker and an affiliated e-DPM or affiliated RMM can operate as
multiple aggregation units under the criteria set forth in CBOE Rule
8.4(c)(ii), pursuant to a Pilot Program that expires on March 14, 2007.
    In new paragraph (c)(viii) to CBOE Rule 8.3, CBOE notes that
pursuant to a Pilot Program that expires on March 14, 2007, two
affiliated Market-Makers can hold an appointment in the same class
provided both Market-Makers operate as multiple aggregation units under
the criteria set forth in CBOE Rule 8.4(c)(ii). This provision is
consistent with current CBOE Rule 8.3(c)(iii).
    As provided in new Interpretation .01 to CBOE Rule 8.3, in the
event the total appointment cost for all of the Hybrid 2.0 Classes,
Hybrid Classes, and/or Non-Hybrid Classes, constituting a Market-
Maker's appointment on the approval date of this rule change exceed
1.0, CBOE proposes to grant the Market-Maker six months from the date
of the approval of this rule change to comply with the provisions of
CBOE Rule 8.3(c)(v) that provide a Market-Maker's appointed classes
cannot have a total appointment cost in excess of 1.0. During these six
months, any Market-Maker whose total appointment cost exceeds 1.0 would
be ineligible to request an appointment in any other option class until
the Market-Maker's total appointment cost has been reduced to less than
1.0. The preceding limited exemption to CBOE Rule 8.3(c)(v) would be
available only to those Market-Makers whose total appointment cost for
all of the Hybrid 2.0 Classes, Hybrid Classes, and/or Non-Hybrid
Classes constituting a Market-Maker's appointment would have exceeded
1.0 on April 24, 2006, if the rule had been in effect on that date.

III. Discussion

    The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of Section 6 of the Act \5\ and the rules
and regulations thereunder.\6\ The Commission specifically finds that
the proposed rule change is consistent with Section 6(b)(5) of the Act
\7\ in that it is designed to promote just and equitable principles of
trade, to remove impediments and to perfect the mechanism of a free and
open market and a national market system, and, in general, to protect
investors and the public interest. The Commission believes that the
proposal to move to VTC appointments should allow Market-Makers
additional flexibility in choosing their appointed classes.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f.
    \6\ In approving this proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission also believes that the proposed amendments to the
pilot program that would allow Market-Makers to quote remotely away
from CBOE's trading floor in their appointed Hybrid and Hybrid 2.0
option classes, instead of from outside of his/her appointed trading
station, are a reasonable extension of the pilot. The Commission notes
that RMMs and e-DPMs in an option class would continue to be permitted,
on a pilot basis, to have an affiliated Market-Maker in that class.
CBOE Rule 8.3(c) would continue to require that the affiliated Market-
Maker can submit electronic quotations in any class in which the
affiliated e-DPM or RMM has an appointment only if the Market-Maker is
present in the trading station where the class is located. The
Commission believes that requiring that the Market-Maker affiliated
with the e-DPM or RMM be present in the trading station where the class
is located is reasonable, given the allocation algorithm adopted by the
Exchange.
    The Commission also notes that Market-Makers and affiliated RMMs or
e-DPMs would continue to be permitted, on a pilot basis, to operate as
multiple aggregation units under the criteria set forth in CBOE Rule
8.4(c)(ii). In addition, the Commission notes that two affiliated
Market-Makers would continue to be permitted to hold an appointment in
the same class provided both Market-Makers operate as multiple
aggregation units under the criteria set forth in CBOE Rule 8.4(c)(ii).
However, an affiliated Market-Maker and DPM would not be permitted to
hold an appointment in the same class.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-CBOE-2006-51) is approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-11987 Filed 7-26-06; 8:45 am]

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