[Federal Register Volume 83, Number 81 (Thursday, April 26, 2018)]
[Proposed Rules]
[Pages 18248-18255]
[FR Doc No: 2018-08623]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R08-OAR-2010-0406; FRL-9976-56--Region 8]

Approval and Promulgation of Air Quality Implementation Plans;
North Dakota; Regional Haze State Implementation Plan

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing to
approve certain portions of a State Implementation Plan (SIP) revision
to address regional haze submitted by the Governor of North Dakota on
March 3, 2010, along with SIP Supplement No. 1 submitted on July 27,
2010, SIP Amendment No. 1 submitted on July 28, 2011 and SIP Supplement
No. 2 submitted on January 2, 2013 (collectively, ``the Regional Haze
SIP''). Specifically, the EPA is proposing to approve the nitrogen
oxides (NOX) Best Available Retrofit Technology (BART)
determination for Coal Creek Station included in SIP Supplement No. 2.
Coal Creek Station is owned and operated by Great River Energy (GRE)
and is located near Underwood, North Dakota. This Regional Haze SIP was
submitted to address the requirements of the Clean Air Act (CAA or
``the Act'') and our rules that require states to develop and implement
air quality protection plans to reduce visibility impairment in
mandatory Class I areas caused by emissions of air pollutants from
numerous sources located over a wide geographic area (also referred to
as the ``regional haze program''). States are required to assure
reasonable progress toward the national goal of achieving natural
visibility conditions in Class I areas. The EPA is taking this action
pursuant to section 110 of the CAA.

DATES: Written comments must be received on or before May 29, 2018.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R08-
OAR-2010-0406 at https://www.regulations.gov. Follow the online
instructions for submitting comments. Once submitted, comments cannot
be edited or removed from www.regulations.gov. The EPA may publish any
comment received to the public docket. Do not submit electronically any
information you consider to be Confidential Business Information (CBI)
or other information, the disclosure of which is restricted by statute.
Multimedia submissions (audio, video, etc.) must be accompanied by a
written comment. The written comment is considered the official comment
and should include discussion of all points you wish to make. The EPA
will generally not consider comments or comment contents located
outside of the primary submission (i.e., on the web, cloud, or other
file sharing system). For additional submission methods, the full EPA
public comment policy, information about CBI or multimedia submissions,
and general guidance on making effective comments, please visit

https://www.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: Aaron Worstell, Air Program, EPA,
Region 8, Mailcode 8P-AR, 1595 Wynkoop Street, Denver, Colorado 80202-
1129,<PHONE_NUMBER>, [email protected].

I. Background

A. Requirements of the Clean Air Act and the EPA's Regional Haze Rule

    In CAA section 169A, added in the 1977 Amendments to the Act,
Congress created a program for protecting visibility in the nation's
national parks and wilderness areas. This section of the CAA
establishes ``as a national goal the prevention of any future, and the
remedying of any existing, impairment of visibility in mandatory Class
I Federal areas which impairment results from manmade air pollution.''
\1\ On December 2, 1980, the EPA promulgated regulations to address
visibility impairment in Class I areas that is ``reasonably
attributable'' to a single source or small group of sources, otherwise
known as reasonably attributable visibility impairment.\2\ These
regulations represented the first phase in addressing visibility
impairment. The EPA deferred action on regional haze that emanates from
a variety of sources until monitoring, modeling, and scientific
knowledge about the relationships between pollutants and visibility
impairment were improved.
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    \1\ 42 U.S.C. 7491(a). Areas designated as mandatory Class I
Federal areas consist of national parks exceeding 6000 acres,
wilderness areas and national memorial parks exceeding 5000 acres,
and all international parks that were in existence on August 7,
1977. 42 U.S.C. 7472(a). In accordance with section 169A of the CAA,
EPA, in consultation with the Department of Interior, promulgated a
list of 156 areas where visibility is identified as an important
value. 44 FR 69122 (November 30, 1979). The extent of a mandatory
Class I area includes subsequent changes in boundaries, such as park
expansions. 42 U.S.C. 7472(a). Although states and tribes may
designate as Class I additional areas which they consider to have
visibility as an important value, the requirements of the visibility
program set forth in section 169A of the CAA apply only to
``mandatory Class I Federal areas.'' Each mandatory Class I Federal
area is the responsibility of a ``Federal Land Manager.'' 42 U.S.C.
7602(i). When we use the term ``Class I area'' in this section, we
mean a ``mandatory Class I Federal area.''
    \2\ 45 FR 80084 (December 2, 1980) (codified at 40 CFR part 51,
subpart P).
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    Congress added section 169B to the CAA in 1990 to address regional
haze issues. The EPA promulgated a rule to address regional haze on
July 1, 1999.\3\ The Regional Haze Rule (RHR) revised the existing
visibility regulations to integrate provisions addressing regional haze
and established a comprehensive visibility protection program for Class
I areas. The requirements for regional haze, found at 40 CFR 51.308 and
51.309, are included in the EPA's visibility protection regulations at
40 CFR 51.300-51.309. The EPA revised the RHR on January 10, 2017.\4\
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    \3\ 64 FR 35714 (July 1, 1999) (amending 40 CFR part 51, subpart
P).
    \4\ 82 FR 3078 (January 10, 2017).
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    The CAA requires each state to develop a SIP to meet various air
quality requirements, including protection of visibility.\5\ Regional
haze SIPs must assure reasonable progress toward the national goal of
achieving natural visibility conditions in Class I areas. A state must
submit its SIP and SIP revisions to the EPA for approval. Once
approved, a SIP is enforceable by the EPA and citizens under the CAA;
that is, the SIP is federally enforceable. If a state fails to make a
required SIP submittal, or if we find that a state's required submittal
is incomplete or not approvable, then we must promulgate a Federal
Implementation Plan (FIP) to fill this regulatory gap, unless the state
corrects the deficiency.\6\
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    \5\ CAA sections 110(a), 169A, and 169B, 42 U.S.C. 7410(a),
7491, and 7492(a).
    \6\ CAA section 110(c)(1), 42 U.S.C. 7410(c)(1).
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B. Best Available Retrofit Technology (BART)

    Section 169A of the CAA directs the EPA to require states to
evaluate the use of retrofit controls at certain larger, often
uncontrolled, older stationary sources in order to address visibility
impacts from these sources. Specifically, section 169A(b)(2)(A) of the
CAA and the RHR require states' implementation plans to contain such
measures as may be necessary to make reasonable progress toward the
natural visibility goal, including a requirement that certain
categories of existing major stationary sources built between 1962 and
1977 procure, install, and operate the ``Best Available Retrofit
Technology'' as determined by the states. Under the RHR, states are
directed to conduct BART determinations for such ``BART-eligible''
sources that may reasonably be anticipated to cause or contribute to
any visibility impairment in a Class I area.
    On July 6, 2005, the EPA published the Guidelines for BART
Determinations under the Regional Haze Rule (the ``BART Guidelines'')
to assist states in determining which sources should be subject to the
BART requirements and the appropriate emission limits for each covered
source.\7\ The process of establishing BART emission limitations
follows three steps: First, identify the sources that meet the
definition of ``BART-eligible source'' set forth in 40 CFR 51.301; \8\
second, determine which of these sources ``emits any air pollutant
which may reasonably be anticipated to cause or contribute to any
impairment of visibility in any such area'' (a source which fits this
description is ``subject to BART''); and third, for each source subject
to BART, identify the best available type and level of control for
reducing emissions. Section 169A(g)(1) of the CAA requires that states
must consider the following five factors in making BART determinations:
(1) The costs of compliance; (2) the energy and non-air quality
environmental impacts of compliance; (3) any existing pollution control
technology in use at the source; (4) the remaining useful life of the
source; and (5) the degree of improvement in visibility which may
reasonably be anticipated to result from the use of such technology.
States must address all visibility-impairing pollutants emitted by a
source in the BART determination process. The most significant
visibility impairing pollutants are sulfur dioxide (SO2),
NOX, and particulate matter (PM).
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    \7\ 70 FR 39104; 40 CFR part 51, appendix Y.
    \8\ BART-eligible sources are those sources that have the
potential to emit 250 tons or more of a visibility-impairing air
pollutant, were not in operation prior to August 7, 1962, but were
in existence on August 7, 1977, and whose operations fall within one
or more of 26 specifically listed source categories. 40 CFR 51.301.
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    A SIP addressing regional haze must include source-specific BART
emission limits and compliance schedules for each source subject to
BART. In lieu of requiring source-specific BART controls, states also
have the flexibility to adopt alternative measures, as long as the
alternative provides greater reasonable progress towards natural
visibility conditions than BART (i.e., the alternative must be ``better
than BART'').\9\ Once a state has made a BART determination, the BART
controls must be installed and operated as expeditiously as
practicable, but no later than 5 years after the date of the EPA's
approval of the final SIP.\10\ In addition to what is required by the
RHR, general SIP requirements mandate that the SIP include all
regulatory requirements related to monitoring, recordkeeping and
reporting for the BART emission limitations. See CAA section 110(a); 40
CFR part 51, subpart K.
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    \9\ 40 CFR 51.308(e)(2) and (3).
    \10\ CAA section 169A(g)(4); 40 CFR 51.308(e)(1)(iv).
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C. Reasonable Progress Requirements

    In addition to BART requirements, as mentioned previously, each
regional haze SIP must contain measures as necessary to make reasonable
progress

towards the national visibility goals. As part of determining what
measures are necessary to make reasonable progress, the SIP must first
identify anthropogenic sources of visibility impairment that are to be
considered in developing the long-term strategy for addressing
visibility impairment.\11\ States must then consider the four statutory
reasonable progress factors in selecting control measures for inclusion
in the long-term strategy--the costs of compliance, the time necessary
for compliance, the energy and non-air quality environmental impacts of
compliance, and the remaining useful life of potentially affected
sources.\12\ Finally, the SIP must establish reasonable progress goals
(RPGs) for each Class I area within the state for the plan
implementation period (or ``planning period''), based on the measures
included in the long-term strategy. If an RPG provides for a slower
rate of improvement in visibility than the rate needed to attain the
national goal by 2064, the SIP must demonstrate, based on the four
reasonable progress factors, why the rate to attain the national goal
by 2064 is not reasonable and the RPG is reasonable.\13\
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    \11\ 40 CFR 51.308(d)(3)(iv).
    \12\ See CAA section 169A(g)(1), 42 U.S.C. 7491(g)(1) (defining
the reasonable progress factors); 40 CFR 51.308(d)(1)(i)(A).
    \13\ 40 CFR 51.308(d)(1)(ii).
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D. Consultation With Federal Land Managers (FLMs)

    The RHR requires that a state consult with FLMs before adopting and
submitting a required SIP or SIP revision.\14\ States must provide FLMs
an opportunity for in-person consultation at least 60 days before
holding any public hearing on the SIP. This consultation must include
the opportunity for the FLMs to discuss their assessment of impairment
of visibility in any Class I area and to offer recommendations on the
development of the RPGs and on the development and implementation of
strategies to address visibility impairment. Further, a state must
include in its SIP a description of how it addressed any comments
provided by the FLMs. Finally, a SIP must provide procedures for
continuing consultation between the state and FLMs regarding the
implementation of the state's visibility protection program, including
development and review of SIP revisions, 5-year progress reports, and
the implementation of other programs having the potential to contribute
to impairment of visibility in Class I areas.
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    \14\ 40 CFR 51.308(i).
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E. Regulatory and Legal History of the North Dakota Regional Haze SIP

    The Governor of North Dakota originally submitted a Regional Haze
SIP to the EPA on March 3, 2010, followed by SIP Supplement No. 1
submitted on July 27, 2010, and SIP Amendment No. 1 submitted on July
28, 2011. The EPA initially acted on North Dakota's Regional Haze SIP
on April 6, 2012.\15\ Among other things, the Regional Haze SIP
included a BART emission limit for NOX for Units 1 and 2 at
Coal Creek Station of 0.17 lb/MMBtu averaged across the two units (on a
30-day rolling average) \16\, represented by modified and additional
separated overfire air (SOFA), close-coupled overfire air (COFA), and
low NOX burners (LNB) (collectively referred to as
LNC3+).\17\ When considering the next most stringent control option,
selective non-catalytic reduction (SNCR; in addition to the existing
LNC3), North Dakota took into account the potential for ammonia from
the SNCR to contaminate the fly ash, which is a marketable product sold
by GRE. Ultimately, the State concluded that ``[b]ecause of the
potential for lost sales of fly ash, the negative environmental effects
of having to dispose of the fly ash instead of recycling it into
concrete, and the very small amount of visibility improvement from the
use of SNCR, this option is rejected as BART.'' \18\ The State's
Regional Haze SIP was submitted to meet the requirements of the
regional haze program for the first planning period of 2008 through
2018.
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    \15\ 77 FR 20894.
    \16\ Throughout, 30-day rolling average emission limits are
based on boiler operating days.
    \17\ In the 2013 SIP supplement, modified and additional SOFA,
COFA, and LNB are referred to as LNC3+. Hereinafter in this proposed
rule, this combination of controls will also be referred to as
LNC3+. By contrast, the existing controls, SOFA (unmodified), COFA,
and LNB are referred to as LNC3.
    \18\ Regional Haze SIP, Appendix D.2, BART Determination for
Coal Creek Station Units 1 and 2, 12/1/2009, p. 20.
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    During our previous review of North Dakota's NOX BART
analysis for Coal Creek Station in 2012, the EPA identified an error in
the costs associated with lost fly ash sales.\19\ At our request, and
after submitting the Regional Haze SIP in 2010, North Dakota obtained
additional supporting information from GRE for lost fly ash revenue and
for the potential cost of fly ash ammonia mitigation. The supporting
information included an updated cost analysis from GRE noting that the
correct sales price for fly ash was $5/ton instead of $36/ton. The
updated analysis included corrected fly ash revenue data and ammonia
mitigation costs. That analysis, dated June 16, 2011, indicated that
the cost effectiveness for SNCR at Coal Creek Station Units 1 and 2
would be $2,318/ton of NOX emissions reductions rather than
the original estimate of $8,551/ton. Because the State's cost of
compliance analysis was based upon fundamentally flawed and greatly
inflated cost estimates regarding lost fly ash revenue, we concluded
that the SIP submittal failed to properly consider the cost of
compliance in any meaningful sense as required by 40 CFR
51.308(e)(1)(ii)(A). We also concluded that GRE could avoid
contaminating the fly ash by proper management of the ammonia injection
rate; and thereby avoid losing fly ash sales altogether. Therefore, we
disapproved the NOX BART determination for the Coal Creek
Station.\20\
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    \19\ 76 FR 58603; 77 FR 20921.
    \20\ 77 FR 20894 (Apr. 6, 2012).
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    In the same action, we promulgated a FIP that included a
NOX BART emission limit for Units 1 and 2 at the Coal Creek
Station of 0.13 lb/MMBtu averaged across the two units (30-day rolling
average), which GRE could meet by installing SNCR plus LNC3+.\21\ This
emission limit was based on the EPA's independent BART analysis,
including the updated costs of compliance.
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    \21\ The FIP also included: A reasonable progress determination
and NOX emission limit for Antelope Valley Station Units
1 and 2 of 0.17 lb/MMBtu that applies singly to each of these units
on a 30 -day rolling average, and a requirement that the owner/
operator meet the limit as expeditiously as practicable, but no
later than July 31, 2018; monitoring, record-keeping, and reporting
requirements for the Coal Creek Station and Antelope Valley Station
units to ensure compliance with the emission limitations; RPGs
consistent with the approved SIP emission limits approved and the
final FIP limits; and LTS elements that reflect the other aspects of
the finalized FIP. Please refer to the EPA's final FIP rule for
further information on the FIP requirements. 77 FR 20894 (Apr. 6,
2012).
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    Subsequently, several petitioners challenged various aspects of the
EPA's final rule in the Eighth Circuit Court of Appeals. Pertinent to
this proposal, the State and GRE, the owner of the Coal Creek Station,
challenged the EPA's disapproval of the State's determination that
LNC3+ with an emission limit of 0.17lb/MMBtu averaged across the two
units (30-day rolling average) is BART for Coal Creek Station. These
same petitioners also challenged the EPA's determination that SNCR plus
LNC3+ with an emission limit of 0.13lb/MMBtu averaged across the two
units (30-day rolling average) is BART for the Coal Creek Station.
    On January 2, 2013, North Dakota submitted Supplement No. 2 to the
SIP, which was primarily intended to correct

the error in the costs of compliance for SNCR plus LNC3+ related to
lost fly ash sales. SIP Supplement No. 2 includes a revised five-factor
BART evaluation for Coal Creek Station that largely replaces the five-
factor evaluation contained in the Regional Haze SIP that was submitted
in 2010 and 2011. SIP Supplement No. 2 affirms the State's earlier BART
determination of 0.17 lb/MMBtu averaged across the two units (30-day
rolling average) to be met with LNC3+. SIP Supplement No. 2 was
submitted after the EPA took final action on the Regional Haze SIP in
2012, and is the focus of this proposed rule.
    On September 23, 2013, the Eighth Circuit concluded that the EPA
properly disapproved portions of the State's Regional Haze SIP,
including the State's NOX BART determination for the Coal
Creek Station.\22\ In particular, the court ruled that the EPA's role
in reviewing the State's SIP was not merely ministerial, and that the
EPA acted properly in disapproving the State's NOX BART
determination for the Coal Creek Station that was based on erroneous
costs of compliance. However, the court vacated the EPA's FIP
promulgating an emission limit of 0.13 lb/MMbtu (30-day rolling
average), holding that the EPA had failed to consider existing
pollution control technology \23\ in use at the Coal Creek Station.
More specifically, the court found that the EPA's refusal to consider
DryFining\TM\ as an existing pollution control because it had been
voluntarily installed after the regional haze baseline date was
arbitrary and capricious. DryFining\TM\ is an innovative technology
developed by GRE that reduces moisture and refines lignite coal,
increasing the efficiency and performance of the fuel while reducing
emissions.
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    \22\ North Dakota v. United States EPA, 730 F.3d 750 (8th Cir.
2013), cert. denied, 134 S. Ct. 2662 (2014).
    \23\ Pursuant to Section 169A(g)(1) of the CAA, ``any existing
pollution control technology in use at the source'' is one of the
five factors that must be considered when making a BART
determination.
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II. Coal Creek Station--NOX BART Determination

    Coal Creek Station is a mine-mouth electrical generating plant,
consisting primarily of two steam generators (each with a 550 MW
capacity) and associated coal and ash handling systems. The units are
identical Combustion Engineering boilers that tangentially fire
pulverized lignite coal. Since at least 1999, both units have been
equipped with the following combustion controls: SOFA, COFA, and LNB.
These combustion controls are collectively referred to as LNC3. In
addition, DryFining\TM\ was fully installed on both units by mid-2010.
    The State analyzed the impact of Coal Creek on visibility in Class
I areas, and found that the source was subject to BART
requirements.\24\
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    \24\ Regional Haze SIP, Section 7.3.1; 76 FR 58553.
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A. North Dakota's NOX BART Determination

    To address the EPA's disapproval of the NOX BART
determination for Coal Creek Station, North Dakota submitted SIP
Supplement No. 2 to the EPA on January 2, 2013. Because the two Coal
Creek boilers are identical, the State performed a single BART analysis
that is relevant to both units. The State's supplemental evaluation is
provided in Appendix B.2.1 of SIP Supplement No. 2. The supplemental
evaluation is informed by GRE's refined BART analysis of April 5, 2012,
updated June 6, 2012, and found in Appendix C.2.1 of SIP Supplement No.
2.
    The State considered only LNC3+, SNCR (with existing LNC3), and
SNCR plus LNC3+ as technically feasible control options. Both the State
and the EPA have previously determined that selective catalytic
reduction and low temperature oxidation are not required as BART.\25\
In addition, because the State found that ammonia slip from SNCR has
the potential to negatively impact fly ash sales, it evaluated three
different scenarios for the SNCR and SNCR plus LNC3+ control options:
0% lost fly ash sales, 30% lost fly ash sales, and 100% lost fly ash
sales. The State determined a control effectiveness for LNC3+ of 23.9%,
for SNCR of 24.9% (with existing LNC3), and for SNCR plus LNC3+ of
39.3%.
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    \25\ Regional Haze SIP, Appendix B.2; 76 FR 58622-23.
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    A summary of the State's NOX BART analysis is provided
in Table 1. Note that costs are provided in 2011 dollars.

                                     Table 1--Summary of Coal Creek NOX BART Analysis for Unit 1 and Unit 2 Boilers
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                                                                                Annual                        Incremental     Visibility
                                                              Control         Annual         emission          Cost            cost           benefit
                   Control option \a\                     efficiency (%)   emission rate    reductions     effectiveness   effectiveness    (delta dv)
                                                                            (lb/MMBtu)       (tons/yr)        ($/ton)       ($/ton) \b\        \c,d\
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                                                                     SNCR plus LNC3+
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100% Lost Fly Ash Sales.................................            39.3           0.122           1,998           4,444          10,350           1.623
30% Lost Fly Ash Sales..................................            39.3           0.122           1,998           3,305           7,449           1.623
0% Lost Fly Ash Sales...................................            39.3           0.122           1,998           2,195           4,619           1.623
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                                                                 SNCR with existing LNC3
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100% Lost Fly Ash Sales.................................            24.9           0.151           1,265           7,194         163,471           1.529
30% Lost Fly Ash Sales..................................            24.9           0.151           1,265           5,396         118,863           1.529
0% Lost Fly Ash Sales...................................            24.9           0.151           1,265           3,643          75,373           1.529
                                                         -----------------------------------------------------------------------------------------------
LNC3+...................................................            23.9           0.153           1,214             629              NA           1.463
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 \a\ DryFining\TM\ is common to each of the control options.
 \b\ The incremental costs listed for SNCR plus LNC3+ are for between SNCR plus LNC3+ and LNC3+.
 \c\ The visibility modeling that GRE performed for Coal Creek Units 1 and 2 included SO2 controls in addition to the noted NOX control. Accordingly,
  the modeling results summarized above reflect the chosen SO2 BART control, scrubber modifications, in addition to the noted NOX control option. Thus,
  these values do not reflect the distinct visibility benefit from each NOX control option, but do provide the incremental benefit between the NOX
  control options.
 \d\ The visibility improvement described in this table represents the change in the maximum 98th percentile impact over the modeled 3-year
  meteorological period (2001-2003) at the highest impacted Class I area, Theodore Roosevelt, relative to a pre-controlled baseline. Refer to the
  spreadsheet created by EPA titled ``CALPUFF Modeling Results from GRE Supplemental Analysis of 4-5-2012.xlsx''.

    The State considered each of the five statutory BART factors when
making its NOX BART determination for Coal Creek Station as
described below.
Costs of Compliance
    When the State began development of its regional haze program in
2006, it established costs of compliance thresholds for both cost
effectiveness and incremental cost effectiveness above which costs are
considered excessive.\26\ When adjusted to 2011 dollars, the threshold
for cost effectiveness is $4,100/ton, while the threshold for
incremental cost effectiveness is $7,300/ton. The cost effectiveness of
LNC3+, $629/ton, is very reasonable by this standard.\27\ The State
found that SNCR, with the existing LNC3 combustion controls, is clearly
an inferior option to LNC3+ because this control option presents only
marginally more control effectiveness at much higher cost per ton
values in comparison to LNC3+. In addition, the State found that the
incremental cost between these two options to be excessive regardless
of what percentage of fly ash sales are lost. For the remaining control
option, SNCR plus LNC3+, the State found that whether the costs of
compliance were reasonable depends on the percentage of fly ash sales
that may be lost. If no fly ash sales are lost, the State found that
neither the cost effectiveness, $2,195/ton, or incremental cost
effectiveness relative to LNC3+, $4,619/ton, would be deemed excessive
when using the State's criteria. However, if 30% of the fly ash sales
are lost, the State found that the incremental cost effectiveness
relative to LNC3+ of $7,449/ton exceeds the relevant threshold. If all
of the fly ash sales are lost, then the State found that both
thresholds are exceeded. Moreover, if none of the fly ash can be sold,
the State found that $31 million of existing fly ash handling equipment
would be rendered useless with likely no opportunity to retrieve the
resources invested. The State concluded that it is likely that some fly
ash sales will be lost. However, because it is difficult to know
precisely how much of the fly ash sales will be lost, the State found
that the costs of compliance are uncertain.
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    \26\ Refer to Appendix E of the Regional Haze SIP.
    \27\ Incremental cost effectiveness for LNC3+ is not calculable
because it is the least effective control option considered.
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Energy and Non-Air Quality Environmental Impacts
    When evaluating the environmental and non-air quality impacts, the
State emphasized that recycling the fly ash and keeping this material
out of a landfill is important. The State expressed concerns that the
use of SNCR may prevent the recycling of fly ash.
Any Existing Pollution Controls in Use at the Source
    Regarding any existing pollution control in use at the source, the
State noted that SOFA, COFA, and LNB (collectively referred to as LNC3)
had been in place at the facility for some time, until combustion
controls on Unit 2 were upgraded to LNC3+ in 2007. Unit 1 has not been
similarly modified. Also, both units were equipped with DryFining\TM\
in 2010. Unlike in the original BART evaluation, the State's 2013
supplemental BART evaluation recognizes the NOX emission
reduction that can be attributed to DryFining\TM\. When North Dakota
submitted the Regional Haze SIP in 2010, it based the BART analysis on
a historical baseline emission rate of 0.22 lb/MMBtu (annual average,
2000-2004) that reflected NOX reductions achieved with the
existing combustion controls (LNC3). At that time, although it had been
installed, the effect of DryFining\TM\ on NOX emissions was
uncertain. Since then, the State has found that the technology can
reduce NOX emissions by about 0.02 lb/MMBtu. The State has
also determined that, because LNC3+ had been installed on Unit 2 for
the purpose of meeting BART, it was inappropriate for the baseline to
reflect the additional reduction achieved by LNC3+ relative to LNC3.
Accordingly, the State used a revised baseline emission rate of 0.201
lb/MMBtu in SIP Supplement No. 2 that reflects the use of both LNC3 and
DryFining\TM\.
Remaining Useful Life of the Source
    The State noted that the source is expected to have a remaining
useful life of at least 20 years.\28\ The State has used this value in
the calculations of cost effectiveness. Otherwise, the remaining useful
life did not have an impact on the State's selection of NOX
BART.
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    \28\ Regional Haze SIP, Appendix D.2, BART Determination for
Coal Creek Station Units 1 and 2, 12/1/2009, p. 12.
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Degree of Improvement in Visibility
    The State evaluated visibility impacts (and improvement) at the two
affected Class I areas: Theodore Roosevelt National Park (NP) and
Lostwood Wilderness Area. The visibility impacts were provided in GRE's
April 5, 2012, submittal to the State, and were based on CALPUFF
modeling.\29\ At the most impacted Class I area, Theodore Roosevelt NP,
the State found that the incremental visibility improvement for SNCR
plus LNC3+ versus LNC3+ is 0.106 dv for the 98th percentile, and this
improvement was considered negligible by the State. As such, the State
concluded that the visibility improvement does not warrant the
selection of SNCR plus LNC3+ as BART.\30\ Finally, because the costs of
compliance cannot be determined precisely due to the uncertainty
surrounding lost fly ash sales, the State chose to weigh the visibility
benefits heavily in its BART determination.
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    \29\ Refer to Appendix A.1 of the Regional Haze SIP regarding
the CALPUFF modeling methodology.
    \30\ The State calculated the incremental visibility benefit
between SNCR plus LNC3+ and LNC3+ (both with scrubber upgrades for
SO2) as the difference between the respective modeled
visibility impacts, or 1.623 dv-1.529 dv = 0.106 dv.
---------------------------------------------------------------------------

    After evaluating the five BART factors, and for the reasons stated
above, North Dakota determined that BART should be based on the
installation of LNC3+. The State's BART analysis used an annual
emission rate for LNC3+ of 0.153 lb/MMBtu, reflecting the performance
demonstrated at Unit 2. However, the State noted that the shorter
averaging period of the BART emission limit, 30 days, requires a
slightly higher value.\31\ Accordingly, the State established an
emission limit of 0.17 lb/MMBtu averaged across the two units (30-day
rolling average). The State required that compliance with the emission
limit be as expeditiously as practicable but in no event later than 5
years after the EPA approves the BART requirements for Coal Creek
Station. Further, the State required that compliance be demonstrated
within 180 days of initial startup of the equipment required to meet
the BART limits, but no later than 5 years after the EPA approves the
BART requirements for the Coal Creek Station.
---------------------------------------------------------------------------

    \31\ North Dakota found that 30-day rolling average emission
rates are expected to be at least 5-15% higher than the annual
average emission rate. For example, see Appendix B.1 of SIP, page
16.
---------------------------------------------------------------------------

B. EPA's Evaluation of North Dakota's NOX BART Determination

    In our evaluation of the State's NOX BART determination
for Coal Creek Station, we seek to address two deficiencies that relate
to our disapproval of the State's 2010 NOX BART
determination and resultant FIP. First, we intend to revisit the
State's NOX BART determination in light of the fact that SIP
Supplement No. 2 addresses the error related to lost fly ash sales in
the estimation of the costs of compliance. Second, we intend to re-
evaluate the State's BART determination for Coal Creek in consideration
the

Eighth Circuit's decision as it relates to any existing pollution
controls.
    As described earlier, in 2012, the EPA disapproved the State's BART
determination in part because of an error in the sales price for fly
ash that affected the State's consideration of the costs of compliance.
GRE used a sales price of $36/ton for fly ash in calculating the cost
effectiveness for SNCR. The State in turn relied on these values in
support of its 2010 BART determination. In 2011, GRE indicated the
correct sales price for fly ash was $5/ton instead of $36/ton.
Subsequently, when commenting on EPA's 2011 proposed rule,\32\ GRE
indicated that, rather than $5/ton, the lost fly ash sales revenue
should be based on the 2010 average per ton freight on board (FOB)
price of $41.00, with 30% ($12.30/ton) of the sale price going to GRE
as revenue. The remainder of the revenue, $28.79/ton, goes to
Headwaters Resources, Inc. (HRI), GRE's partner in the sale and
distribution of fly ash. In our 2012 final rule, we responded that we
were not convinced that such an increase (over the $5/ton price) would
be appropriate because GRE did not provide any detail on the basis for
the increased price. However, in GRE's revised BART analysis of April
5, 2012, the company clarified that $5/ton figure represented what GRE
received as a portion of the FOB price before December of 2011. GRE
also reaffirmed the then-current ash sales contract (as of April 2012)
required payments to GRE that total 30% of the price. GRE points out
that HRI has ``invested heavily into fly ash sales infrastructure
including terminals and storage facilities, conveying equipment, scales
and train car shuttles'' and that HRI ``financed GRE's portion of the
infrastructure through a per ton payment on fly ash sales.'' \33\
Accordingly, we find that the revised cost effectiveness value for SNCR
plus LNC3+, as well as the incremental cost effectiveness value of SNCR
plus LNC3+ compared to LNC3+, in SIP Supplement No. 2 are reliable
because they are based on an established contractual sales price for
fly ash.
---------------------------------------------------------------------------

    \32\ 76 FR 58570 (Sep. 21, 2011).
    \33\ GRE's refined BART analysis of April 5, 2012, p. 17.
---------------------------------------------------------------------------

    In the 2011 proposed FIP, the EPA agreed that use of SNCR might
result in lost ash sales and the need to landfill fly ash due to
ammonia contamination. These additional costs were included in our cost
analysis supporting the proposed FIP. However, we also invited comment
on the assumption that use of SNCR would result in lost fly ash sales
and on the availability of ammonia mitigation techniques.\34\ We
received responsive comments on both sides of the issue. Ultimately, we
concluded that it is possible to control ammonia slip from SNCR to
within the range of 2 ppm or less, and that it is widely accepted that
ammonia at this level does not impact the potential sales and use of
fly ash in concrete. Accordingly, we concluded that charges for lost
fly ash sales should not be applied to the SNCR cost analysis and that
SNCR can be successfully deployed at the Coal Creek Station in a cost-
effective manner. Specifically, we calculated a cost effectiveness of
$1,313/ton.\35\ In consideration of the costs of compliance, and the
remaining BART factors, we concluded that BART is represented by SNCR
plus LNC3+.
---------------------------------------------------------------------------

    \34\ 76 FR 58620.
    \35\ 77 FR 20925.
---------------------------------------------------------------------------

    In its SIP Supplement No. 2, North Dakota contested the lost ash
sales analysis reflected in the EPA's final rule, citing studies that,
according to the State, supported its assertions. North Dakota
contended that ``EPA's assertion that no ash sales will be lost is
speculative.'' \36\
---------------------------------------------------------------------------

    \36\ Supplemental Evaluation of NOX BART
Determination for Coal Creek Station Units 1 and 2, at 10-11.
---------------------------------------------------------------------------

    Given the importance of assumptions about lost fly ash sales in
assessing the costs of compliance, and in consideration of more than
five years having passed since we originally established BART for the
Coal Creek Station, it is appropriate that we investigate and analyze
this issue further. Accordingly, we once again invite comment in
relation to the following: (1) Whether ammonia slip from the SNCR can
be controlled to levels sufficient enough to prevent unacceptable
ammonia contamination of the fly ash; (2) what levels of ammonia
contamination are acceptable to fly ash marketers and end-users; and
(3) availability, applicability, and cost of applying ammonia
mitigation techniques to fly ash derived from lignite coal.
    On the matter of any existing controls, the State's BART evaluation
now relies on a baseline NOX emission rate of 0.201 lb/MMBtu
(annual) that reflects the use of DryFining\TM\. As noted earlier, this
baseline emission rate incorporates the 0.02 lb/MMBtu reduction that is
achieved with the technology. As a result, the State's BART analysis
reasonably considers ``any existing pollution control technology in use
at the source,'' consistent with the Eighth Circuit decision.\37\
---------------------------------------------------------------------------

    \37\ 77 FR at 20925; see also North Dakota, 730 F.3d at 764.
---------------------------------------------------------------------------

    With these two issues appropriately addressed by the State's SIP
Supplement No. 2, and because we have not identified any further
deficiencies, we conclude that North Dakota has reasonably considered
the five statutory BART factors in making its BART determination for
the Coal Creek Station in accordance with the CAA and RHR. Therefore,
we propose to approve the State's NOX BART emission limit of
0.17 lb/MMBtu averaged across the two units (30-day rolling average),
which is based on LNC3+.

III. Coordination With FLMs

    Theodore Roosevelt National Park is managed by the National Park
Service (NPS), while the Lostwood Wilderness Area is managed by the
U.S. Fish and Wildlife Service (FWS). As described in section I.D of
this proposed rule, the Regional Haze Rule grants the FLMs a special
role in the review of regional haze SIPs. Under 40 CFR 51.308(i)(2),
North Dakota was obligated to provide the FLMs with an opportunity for
consultation in development of the State's proposed SIP revisions. By
written correspondence dated August 8, 2012, North Dakota provided the
FLMs the opportunity to comment on the draft SIP Supplement No. 2.\38\
The FWS submitted comments to North Dakota in a letter dated October
29, 2012, and the State responded to those comments in its response to
public comments.\39\ No other FLMs commented. The EPA considers the
State's obligation to consult with the FLMs on the SIP revision to be
fulfilled.
---------------------------------------------------------------------------

    \38\ Refer to Appendix J.3.4 of the SIP Supplement.
    \39\ Refer to Appendix F.8.1 of the SIP Supplement.
---------------------------------------------------------------------------

IV. The EPA's Proposed Action

    In this action, the EPA is proposing to approve certain portions of
North Dakota's Regional Haze SIP. Specifically, the EPA is proposing to
approve the NOX BART determination for the Coal Creek
Station, included in SIP Supplement No. 2, of 0.17 lb/MMBtu averaged
across the two units (30-day rolling average). Refer to the final
action of April 6, 2012, regarding EPA's disapproval or approval of
other elements of North Dakota's Regional Haze SIP.
    In addition, the EPA plans to remove from the Code of Federal
Regulations the FIP requirements for Coal Creek Station that the Eighth
Circuit vacated in the North Dakota decision and are therefore not
enforceable as a matter of

law. We are not inviting public comment on this portion of our action.

V. Incorporation by Reference

    In this rule, the EPA is proposing to include, in a final EPA rule,
regulatory text that includes incorporation by reference. In accordance
with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by
reference the amendments described in section II. The EPA has made, and
will continue to make, these materials generally available through
www.regulations.gov and at the EPA Region 8 Office (please contact the
person identified in the For Further Information Contact section of
this preamble for more information).

VI. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP
submission that complies with the provisions of the Act and applicable
federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in
reviewing SIP submissions, the EPA's role is to approve state choices,
provided that they meet the criteria of the CAA. Accordingly, this
action merely proposes to approve state law as meeting federal
requirements and does not impose additional requirements beyond those
imposed by state law. 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 an Executive Order 13771 (82 FR 9339, February 2,
2017) regulatory action because SIP approvals are exempted 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 this action does not involve technical standards; and
     Does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, the SIP is not proposed to apply on any Indian
reservation land or in any other area where the EPA or an Indian tribe
has demonstrated that a tribe has jurisdiction. In those areas of
Indian country, the rule does not have tribal implications and will not
impose substantial direct costs on tribal governments or preempt tribal
law as specified by Executive Order 13175 (65 FR 67249, November 9,
2000).

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by
reference, Intergovernmental relations, Nitrogen dioxide, Particulate
matter, Sulfur oxides.

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

    Dated: April 13, 2018.
Douglas Benevento,
Regional Administrator, Region 8.

    40 CFR part 52 is proposed to be 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 JJ--North Dakota

0
2. Section 52.1820 in paragraph (d) is amended by revising the table
entry ``PTC10005'' under the centered heading ``Coal Creek Station
Units 1 and 2'' to read as follows:

Sec.  52.1820   Identification of plan.

* * * * *
    (d) * * *

----------------------------------------------------------------------------------------------------------------
                                                 State       EPA effective      Final rule
        Rule No.             Rule title     effective date       date         citation/date         Comments
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------
                                        Coal Creek Station Units 1 and 2.
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
PTC10005...............  Air pollution            12/20/12         5/29/18  [Insert Federal    Only: NOX BART
                          control permit                                     Register           emissions limits
                          to construct for                                   citation], 4/26/   for Units 1 and
                          best available                                     18.                2 and
                          retrofit                                                              corresponding
                          technology                                                            monitoring,
                          (BART).                                                               recordkeeping,
                                                                                and reporting
                                                                                requirements.

                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

* * * * *
0
3. Section 52.1825 is amended by revising paragraphs (a), (c)(1) and
(d) to read as follows:

Sec.  52.1825  Federal implementation plan for regional haze.

    (a) Applicability. This section applies to each owner and operator
of the following coal-fired electric generating units (EGUs) in the
State of North Dakota: Antelope Valley Station, Units 1 and 2.
* * * * *
    (c) Emissions limitations. (1) The owners/operators subject to this
section shall not emit or cause to be emitted NOX in excess
of the following

limitations, in pounds per million British thermal units (lb/MMBtu),
averaged over a rolling 30-day period:

------------------------------------------------------------------------
                                                           NOX Emission
                                                            limit  (lb/
                       Source name                            MMBtu)

------------------------------------------------------------------------
Antelope Valley Station, Unit 1.........................            0.17
Antelope Valley Station, Unit 2.........................            0.17
------------------------------------------------------------------------

    (2) * * *
    (d) Compliance date. The owners and operators of Antelope Valley
Station shall comply with the emissions limitations and other
requirements of this section as expeditiously as practicable, but no
later than July 31, 2018, unless otherwise indicated in specific
paragraphs.
* * * * *
[FR Doc. 2018-08623 Filed 4-25-18; 8:45 am]
 BILLING CODE 6560-50-P


[Federal Register Volume 84, Number 200 (Wednesday, October 16, 2019)]
[Notices]
[Pages 55362-55366]
[FR Doc No: 2019-22480]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87258; File No. SR-FICC-2019-004]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving a Proposed Rule Change To Amend the GSD Rulebook To
Establish a Process To Address Liquidity Needs in Certain Situations in
the GCF Repo and CCIT Services and Make Other Changes

October 9, 2019.
    On August 9, 2019, Fixed Income Clearing Corporation (``FICC'')
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\ proposed rule change SR-
FICC-2019-004 to make changes to how FICC processes tri-party repo
market transactions, specifically GCF Repo transactions and CCIT
transactions.\3\ The proposed rule change

was published for comment in the Federal Register on August 29,
2019,\4\ and the Commission has received no comments regarding the
changes proposed in the proposed rule change.\5\ For the reasons
discussed below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On August 9, 2019, FICC also filed the proposal contained in
the proposed rule change as advance notice SR-FICC-2019-801 with the
Commission pursuant to Section 806(e)(1) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act entitled the Payment,
Clearing, and Settlement Supervision Act of 2010 (``Clearing
Supervision Act''), 12 U.S.C. 5465(e)(1), and Rule 19b-4(n)(1)(i) of
the Act, 17 CFR 240.19b-4(n)(1)(i). Notice of Filing of the Advance
Notice was published for comment in the Federal Register on
September 10, 2019. Securities Exchange Act Release No. 34-86876
(September 5, 2019), 84 FR 47618 (September 10, 2019) (File No. SR-
FICC-2019-801).
    \4\ Securities Exchange Act Release No. 86745 (August 23, 2019),
84 FR 45608 (August 29, 2019). (``Notice of Filing'').
    \5\ As the proposal contained in the proposed rule change was
also filed as an advance notice, all public comments received on the
proposal are considered regardless of whether the comments are
submitted on the proposed rule change or the advance notice.
---------------------------------------------------------------------------

I. Description of the Proposed Rule Change

    The proposals reflected in the proposed rule change would make
changes to how FICC's Government Securities Division (``GSD'')
processes tri-party repo transactions, specifically GCF Repo
transactions \6\ and CCIT transactions.\7\ First, the proposals would
establish new deadlines and associated late fees for FICC members to
satisfy their obligations in connection with such transactions, i.e.,
to deliver cash or securities. Second, the proposed rule change would
establish a process for FICC to access liquidity in situations where a
member with a net cash delivery obligation in GCF Repo/CCIT activity,
that is otherwise in good standing,\8\ is either (1) delayed in
satisfying its cash delivery obligation or (2) unable to satisfy, in
whole or in part, such obligation. More specifically, this process
would allow FICC to access liquidity from either (i) the GCF Clearing
Agent Bank \9\ in the form of overnight financing, which would be
subject to the GCF Clearing Agent Bank's discretion, and/or (ii) end-
of-day borrowing of Clearing Fund cash,\10\ subject to specified
limits. Further, if those liquidity sources are insufficient to cover
the affected member's outstanding cash delivery obligations, the
proposal would enable FICC to obtain additional liquidity by entering
into overnight repos with those members to whom cash is owed by the
member with the unsatisfied net cash delivery obligations. Third, the
proposed rule change would make a clarification and several technical
changes and corrections to FICC's rules.\11\
---------------------------------------------------------------------------

    \6\ ``GCF Repo transactions'' are tri-party repo transactions
through FICC's general collateral finance repo (``GCF Repo'')
service (``GCF Repo Service''). The GCF Repo Service enables dealers
to trade general collateral repos, based on rate, term, and
underlying product, throughout the day without requiring intra-day,
trade-for-trade settlement on a Delivery-versus-Payment basis. See
generally GCF Repo (DTCC description of the service), available at
http://www.dtcc.com/clearing-services/ficc-gov/gcf-repo (last
visited August 13, 2019).
    \7\ ``CCIT'' means Centrally Cleared Institutional Triparty.
``CCIT transactions'' are tri-party repo transactions in GCF Repo
securities between members that participate in the GCF Repo Service
and CCIT members, which are institutional counterparties (other than
registered investment companies (``RICs'') under the Investment
Company Act of 1940, as amended) and are the cash lenders in the
transactions. See generally Securities Exchange Act Release No.
80361 (April 3, 2017), 82 FR 17053, 17054 (April 7, 2017) (SR-FICC-
2017-803) (notice of filing of the advance notice regarding creating
the CCIT service).
    \8\ A member in good standing is a member for which FICC has not
ceased to act for the member (in which case FICC's close-out rules
would apply) or has not restricted the member's access to services.
    \9\ The GCF Clearing Agent Bank settles the repo transaction on
its books. Currently, the only GCF Clearing Agent Bank is The Bank
of New York Mellon.
    \10\ The Clearing Fund is an aggregate of all members' margin
deposits to FICC designed to account for the costs associated with a
member defaulting to FICC.
    \11\ The FICC GSD Rulebook (``Rules'') is available at http://www.dtcc.com/legal/rules-and-procedures. Capitalized terms not
defined herein are defined in the Rules.
---------------------------------------------------------------------------

    A. New Deadlines and Late Fees for Satisfaction of Obligations in
GCF Repo and CCIT Transactions
1. Securities Delivery Obligations
    Under FICC's current Rules, a Netting Member must meet its
securities delivery obligations in connection with its GCF Repo and/or
CCIT transactions within the timeframes established by FICC.\12\
Currently, FICC has set two deadlines by which Netting Members are
required to meet their securities delivery obligations: 4:30 p.m. and
6:00 p.m.\13\ If a Netting Member fails to satisfy a securities
delivery obligation by 4:30 p.m., it is subject to a late fee of
$500.\14\ If the Netting Member delivers the securities after the 6:00
p.m. deadline, no additional late fee applies, but FICC cannot
guarantee that it would be able to settle the transaction. Instead,
FICC will only process such late transactions if FICC is able to
contact both affected Netting Members and they agree to settle the
transaction.
---------------------------------------------------------------------------

    \12\ Rule 20, Section 3, supra note 11.
    \13\ The close of the Fedwire Funds Service at 6:30 p.m. is the
final cutoff point at which a Netting Member's failure to deliver
securities would be deemed by FICC to result in a failed
transaction. In that scenario, the Netting Member would not be
entitled to receive the funds borrowed, and would instead owe
interest on the funds.
    \14\ Fee Structure, supra note 11.
---------------------------------------------------------------------------

    In the proposed rule change, FICC proposes to eliminate the 6:00
p.m. deadline. The 4:30 p.m. deadline would remain in place. If a
Netting Member fails to satisfy a securities delivery obligation by
4:30 p.m., it would remain subject to the $500 late fee. But if the
Netting Member delivers the securities after 4:30 p.m., FICC would only
process the transaction if it is able to contact both affected Netting
Members and they agree to settle the transaction.
2. Cash Delivery Obligations
    FICC's Rules do not currently contain a deadline for a Netting
Member's or CCIT Member's satisfaction of cash delivery obligations in
the GCF Repo and CCIT Services. FICC proposes to establish 4:30 p.m.,
or, if later, one hour after the close of the Fedwire Securities
Service reversals, as the deadline for a ``Net Funds Payor'' \15\ to
satisfy its cash delivery obligations. FICC also proposes to establish
late fees, subject to progressive increases. Specifically, the late
fees would apply as follows for occurrences within the same 30 calendar
day period: (a) $500 for the first occurrence, (b) $1,000 for the
second occurrence, (c) $2,000 for the third occurrence, and (d) $3,000
for the fourth occurrence or additional occurrences. The late fee would
not apply if FICC determines that failure to meet this timeframe is not
the fault of the Net Funds Payor.\16\
---------------------------------------------------------------------------

    \15\ FICC's proposal would add ``Net Funds Payor'' as a new
defined term, meaning a Netting Member or CCIT Member with cash
delivery obligations.
    \16\ This determination would be made by FICC Product Management
based on input from the GCF Clearing Agent Bank, internal FICC
Operations staff and the Netting Member.
---------------------------------------------------------------------------

    In addition, FICC proposes to establish additional late fees that
would be imposed on Net Funds Payors that fail to meet their cash
delivery obligation by the close of the Fedwire Funds Service.\17\
These fees would be in addition to the late fees described in the
preceding paragraph, and FICC would impose both fees in the event that
a Net Funds Payor did not satisfy its cash delivery obligations by the
close of the Fedwire Funds Service. Specifically, these late fees would
apply as follows for occurrences within the same 90 calendar day
period: (a) 100 basis points on the unsatisfied cash delivery
obligation amount for the first occurrence,\18\ (b) 200 basis points on
the unsatisfied cash delivery obligation amount for the second
occurrence, (c) 300 basis points on the unsatisfied cash delivery
obligation amount for the third

occurrence, and (d) 400 basis points on the unsatisfied cash delivery
obligation amount for the fourth occurrence or any additional
occurrences. The late fees would not apply if FICC determines that the
failure to meet this timeframe is not primarily the fault of the Net
Funds Payor.\19\
---------------------------------------------------------------------------

    \17\ See Fedwire Services Operating Hours, available at https://www.frbservices.org/resources/financial-services/wires/operating-hours.html (last visited September 2, 2019).
    \18\ The late fee is based on the ACT/360 day count convention,
where ``ACT'' represents the actual number of days in the period.
For example, assuming a first occurrence unsatisfied cash delivery
obligation of $100 million, the late fee would be $100 million *
100/3600000 = $2,777.78. This example uses the first occurrence
amount. This calculation would apply to the rest of the proposed
late fees in this section.
    \19\ The determination would be made by FICC Product Management
based on input from the GCF Clearing Agent Bank, internal FICC
Operations staff and the Netting Member.
---------------------------------------------------------------------------

B. Proposed Process To Provide Liquidity

    The proposed rule change would establish a process for FICC to
access liquidity in situations where a Member with a net cash delivery
obligation in GCF Repo/CCIT activity (i.e., Net Funds Payor), that is
otherwise in good standing, is either (1) delayed in satisfying its
cash delivery obligation or (2) unable to satisfy, in whole or in part,
such obligation.\20\ Unless FICC has ceased to act for the Member (in
which case FICC's close-out rules would apply) or has restricted the
Member's access to services,\21\ the Net Funds Payor shall be permitted
to continue to submit additional tri-party repo transactions for
clearing to FICC during this process.
---------------------------------------------------------------------------

    \20\ Such delay could, for example, be due to operational issues
experienced by the Net Funds Payor. If a Netting Member with a
collateral obligation does not deliver its securities, FICC
considers it a fail. However, if a Netting Member or CCIT Member
with a cash delivery obligation is unable to deliver its cash (and
is in good standing), FICC has represented that it intends to employ
the proposed process. Notice of Filing, supra note 4 at 47620.
    \21\ See Rule 22A, supra note 11. FICC has represented that,
before it uses the proposed process, it would first evaluate whether
to recommend to the Board's Risk Committee that FICC cease to act
for such Net Funds Payor. FICC would consider, but would not be
limited to, the following factors in its evaluation: (i) The Net
Funds Payor's current financial position, (ii) the amount of the
outstanding payment, (iii) the cause of the late payment, (iv)
current market conditions, and (v) the size of the potential
overnight reverse repurchase agreements under the GCF Repo
Allocation Waterfall MRAs (as defined below) on the GSD membership.
Notice of Filing, supra note 4 at 47620. FICC already has the
authority to cease to act for a member that does not fulfill an
obligation to FICC and will continually evaluate throughout the
proposed process whether FICC will cease to act. Id.
---------------------------------------------------------------------------

    Pursuant to the proposal, once FICC determines that a Net Funds
Payor is in good standing with GSD but is experiencing an issue, such
as an operational issue, that may result in a late payment, partial
payment or non-payment of its cash delivery obligation on the
settlement date, the following process would occur. First, in the case
where the Net Funds Payor only satisfies part of its cash delivery
obligation, the GCF Clearing Agent Bank would settle the cash it
received pursuant to such GCF Clearing Agent Bank's settlement
algorithm (as is done today).
    Next, FICC would consider whether it would seek liquidity to cover
any of the Net Funds Payor's delivery shortfall amounts in one of the
two forms discussed. The two potential forms of liquidity would be (i)
end-of-day borrowing of Clearing Fund cash (``EOD Clearing Fund Cash'')
and/or (ii) GCF Clearing Agent Bank loans.\22\ The cash amount that
FICC would be able to access via the EOD Clearing Fund Cash and/or GCF
Clearing Agent Bank loans would then be applied to the unsatisfied cash
delivery obligations due to the Net Funds Receivers on a pro rata
basis, based upon the percentage due to each Net Fund Receiver out of
the total amount of all unsatisfied obligations.
---------------------------------------------------------------------------

    \22\ FICC has represented that it would not prioritize accessing
these two sources of potential liquidity because FICC's decision to
use either or both sources would be considered on a case-by-case
basis, taking into consideration factors such as the specific
circumstances at issue (i.e., the time of day and the size of the
shortfall), availability of a bank loan, market conditions (i.e.,
whether there are stress events occurring in the market), commercial
considerations (i.e., the current loan rates), and ease of
operational execution. Notice of Filing, supra note 4 at 47620.
---------------------------------------------------------------------------

    If FICC were to use GCF Clearing Agent Bank loans to provide
liquidity, any overnight financing from the GCF Clearing Agent Bank
would be subject to the GCF Clearing Agent Bank's discretion because
FICC's overnight financing arrangements with its GCF Clearing Agent
Bank are uncommitted. As such, the financing would be secured by FICC's
pledge of Clearing Fund securities subject to the GCF Clearing Agent
Bank's current haircut schedule.\23\ If FICC were to use EOD Clearing
Fund Cash to provide liquidity, such use would be subject to certain
internal limitations. Specifically, GSD would establish a cap on the
amount of EOD Clearing Fund Cash that may be used for this purpose to
the lesser of $1 billion or 20 percent of available Clearing Fund Cash.
Any resulting costs incurred by FICC in accessing EOD Clearing Fund
Cash and/or GCF Clearing Agent Bank loans would be debited from the Net
Funds Payor whose shortfall caused the liquidity need.
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    \23\ See Rule 4, Section 5, supra note 11.
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    Finally, to the extent that the amount of liquidity FICC obtains
via the Clearing Fund cash and overnight financing arrangement (if any)
is insufficient to cover the outstanding cash delivery obligations, the
relevant Net Funds Receivers would be required under FICC's Rules to
enter into overnight repurchase agreements with FICC on the Generic
CUSIP Number for which such Net Funds Payor failed to fulfill its cash
delivery obligation. This arrangement would be done pursuant to the
``GCF Repo Allocation Waterfall MRA,'' which is a committed financing
arrangement that would be added as part of this proposal to the binding
terms of FICC's rulebook.\24\ The amount FICC would seek to obtain via
this committed facility would be the remaining unsettled amount per Net
Funds Receiver, thus satisfying the outstanding amount of the Net Funds
Payor's cash delivery obligations.\25\ The associated overnight
interest of the reverse repurchase agreement would be debited from the
Net Funds Payor that did not satisfy its cash delivery obligation and
credited to the affected Net Funds Receivers in the funds-only
settlement process as a Miscellaneous Adjustment Amount.\26\
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    \24\ Such reverse repurchase agreements would be entered into
pursuant to the terms of a 1996 SIFMA Master Repurchase Agreement
(available at http://www.sifma.org/services/standard-forms-and-documentation/mra,-gmra,-msla-and-msftas/), which would be
incorporated into the Rules, subject to specific changes set forth
in the Rules.
    \25\ FICC represents that these reverse repurchase agreements
would be at a market rate, which would be the overnight par weighted
average rate at the Generic CUSIP Number level. Notice of Filing,
supra note 4 at 47621.
    \26\ See Rule 13, Section 1(m) and Rule 3B, Section 13(a)(ii),
supra note 11.
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    Any resulting costs, such as financing costs, incurred by the Net
Funds Receivers would be debited from the Net Funds Payor whose
shortfall caused the need for the reverse repurchase agreement. A Net
Funds Receiver requesting compensation in this regard would need to
submit a formal claim to FICC. Upon review and approval by FICC, the
Net Funds Receiver would receive a credit that would be processed in
the funds-only settlement process as a Miscellaneous Adjustment
Amount.\27\ The debit of the Net Funds Payor would be processed in the
same way.
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    \27\ Id.
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C. Clarification, Technical Changes and Corrections

    FICC also proposes to make certain clarifying, technical changes,
and corrections both to reflect the changes proposed in this proposed
rule change and to revise certain aspects of the Rules that FICC has
determined to be inaccurate or incorrect as related to the GCF Repo
Service. These changes include adding particular parentheticals,
changes to titles of sections, corrections to refer to the title of the
Fedwire Securities Service, updating references and descriptions,
adding new defined terms, and updating

certain defined terms. These changes are described in detail in the
Notice of Filing.\28\
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    \28\ Notice of Filing, supra note 4 at 47622.
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II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \29\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. After carefully considering the proposed rule
change, the Commission finds that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to FICC. In particular, the
Commission finds that the proposed rule change is consistent with
Section 17A(b)(3)(F) \30\ of the Act and Rule 17Ad-22(e)(7)
thereunder.\31\
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    \29\ 15 U.S.C. 78s(b)(2)(C).
    \30\ 15 U.S.C. 78q-1(b)(3)(F)
    \31\ 17 CFR 240.17Ad-22(e)(7).
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A. Consistency With Section 17A(b)(3)(F)

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules
of a clearing agency, such as FICC, be designed to promote the prompt
and accurate clearance and settlement of securities transactions.\32\
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    \32\ 15 U.S.C. 78q-1(b)(3)(F).
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1. New Deadlines and Late Fees for Satisfaction of Obligations in GCF
Repo and CCIT Transactions
    FICC has represented that Netting Members generally meet their
securities delivery obligations by the current 4:30 p.m. securities
allocation deadline. However, according to FICC, because of the
interconnectivity between the GCF Repo market within FICC and the tri-
party repo market outside of FICC, in which obligations to deliver
securities collateral typically occur after collateral allocations at
FICC, the securities collateral that is used to settle GCF Repo
positions may subsequently be used by Netting Members to complete tri-
party repo transactions. Therefore, settling GCF Repo Service
transactions earlier in the day reduces the likelihood that an
operational issue may result in a failed or incomplete tri-party repo
transaction outside of FICC. When a Netting Member depends on the
proceeds from the GCF Repo Service transaction to satisfy its cash
obligations in its tri-party repo transactions outside of FICC, the
Netting Member could default on its obligations and transmit losses to
other market participants.
    The Commission believes that the proposed new deadlines (i.e., 4:30
p.m. for securities delivery obligations, and 4:30 p.m., or one hour
after the close of the Fedwire Securities Service, whichever is later,
for cash delivery obligations), as well as the associated late fees,
should lower the potential operational risk that could arise from
delayed GCF Repo settlements and should help FICC manage the risk of
delayed settlement. The Commission believes that these measures should
incentivize Netting Members and CCIT Members to meet their cash
delivery obligations on a timely basis, which, in turn, should help
FICC reduce its overall settlement risk. As such, the Commission
believes that the proposed deadlines and late fees would be consistent
with promoting the prompt and accurate clearance and settlement of
securities transactions as required under Section 17A(b)(3)(F) of the
Act.\33\
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    \33\ Id.
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2. Proposed Process To Provide Liquidity
    As described in Section I.B above, the proposed rule change would
also establish a process for FICC to access liquidity in situations
where a Member with a cash delivery obligation in GCF Repo/CCIT
activity, that is otherwise in good standing, is either (1) delayed in
satisfying its cash delivery obligation or (2) unable to satisfy, in
whole or in part, such obligation. The Commission believes that
establishing a process for FICC to access liquidity in these particular
circumstances is designed to provide FICC with additional sources of
liquidity and, therefore, an improved ability to manage its liquidity
risk in the event that a Netting Member cannot meet its cash delivery
obligations. In addition, the proposed process for FICC to access
liquidity in these particular circumstances should help decrease the
risk of unsettled obligations and belated settlement due to a lack of
liquidity and, therefore, avoid the potential impact that a sudden
liquidity demand could have on FICC and its Members. As such, the
proposed rule change should help ensure that, in the event of these
particular circumstances, FICC's operations would not be disrupted and
Clearing Members would not be exposed to losses that they cannot
anticipate or control because FICC would be able to access additional
liquidity resources to complete settlement. As such, the Commission
believes that these changes should promote the prompt and accurate
clearance and settlement of securities transactions, consistent with
Section 17A(b)(3)(F) of the Act.\34\
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    \34\ Id.
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3. Clarification, Technical Changes and Corrections
    As described in Section I.C above, the proposed rule change also
includes certain clarifications, technical changes, and corrections to
FICC's Rules both to reflect the changes proposed in this proposed rule
change and to revise certain aspects of the Rules that FICC has
determined to be inaccurate or incorrect as related to the GCF Repo
Service. The proposed changes are designed to provide clear and
coherent Rules regarding GCF Repo transactions for Netting Members and
CCIT Members, which should, in turn, help Netting Members and CCIT
Members better understand and remain compliant with the Rules. As such,
the Commission believes that the proposed clarifications, technical
changes, and corrections to FICC's Rules would promote the prompt and
accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act.\35\
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    \35\ Id.
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B. Consistency With Rule 17Ad-22(e)(7)(i)

    Rule 17Ad-22(e)(7) requires that a covered clearing agency
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to effectively measure, monitor, and
manage the liquidity risk that arises in or is borne by the covered
clearing agency, including measuring, monitoring, and managing its
settlement and funding flows on an ongoing and timely basis, and its
use of intraday liquidity. Specifically, Rule 17Ad-22(e)(7)(i) requires
policies and procedures for maintaining sufficient liquid resources at
the minimum in all relevant currencies to effect same-day and, where
appropriate, intraday and multiday settlement of payment obligations
with a high degree of confidence under a wide range of foreseeable
stress scenarios that includes, but is not limited to, the default of
the participant family that would generate the largest aggregate
payment obligation for the covered clearing agency in extreme but
plausible market conditions.\36\
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    \36\ 17 CFR 240.17Ad-22(e)(7)(i).
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    As described above, the proposed process for FICC to access
liquidity in the event that Netting Members will be delayed in
satisfying or cannot satisfy

their cash delivery obligations is designed to help ensure that FICC
has sufficient liquid resources available in such circumstances.
Moreover, for any outstanding liquidity obligations after the
utilization of EOD Clearing Fund cash and/or overnight financing with
the GCF Clearing Agent Bank, any transactions pursuant to the GCF Repo
Allocation Waterfall MRA would be sized based on the actual liquidity
need presented in a particular situation, which would help FICC
maintain sufficient liquid resources to settle the cash delivery
obligations of a Netting Member. Therefore, the Commission believes
that adoption of the proposed changes is consistent with Rule 17Ad-
22(e)(7)(i).\37\
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    \37\ Id.
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C. Consistency With Rule 17Ad-22(e)(7)(ii)

    Rule 17Ad-22(e)(7)(ii) requires policies and procedures for holding
qualifying liquid resources sufficient to meet the minimum liquidity
resource requirement under 17Ad-22(e)(7)(i) in each relevant currency
for which the covered clearing agency has payment obligations owed to
clearing members.\38\ Rule 17Ad-22(a)(14) defines qualifying liquid
resources to include, among other things, assets that are readily
available and convertible into cash through prearranged funding
arrangements, such as committed arrangements without material adverse
change provisions, including repurchase agreements.\39\
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    \38\ 17 CFR 240.17Ad-22(e)(7)(ii).
    \39\ 17 CFR 240.17Ad-22(a)(14).
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    As described above, the proposed process for FICC to access
liquidity in the event that Netting Members will be delayed in
satisfying or cannot satisfy their cash delivery obligations includes,
in part, the GCF Repo Allocation Waterfall MRA. This agreement would be
a committed arrangement that is a repurchase agreement and all
transactions entered into pursuant to the GCF Repo Allocation Waterfall
MRA are designed to be readily available to meet the cash delivery
obligations owed to Netting Members. This arrangement therefore
constitutes a qualifying liquid resource, as defined in Rule 17Ad-
22(a)(14), and the Commission believes, therefore, that adoption of the
proposed changes is consistent with Rule 17Ad-22(e)(7)(ii).\40\
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    \40\ 17 CFR 240.17Ad-22(e)(7)(ii).
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D. Consistency With Rule 17Ad-22(e)(7)(viii)

    Rule 17Ad-22(e)(7)(viii) requires that a covered clearing agency
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to effectively measure, monitor, and
manage the liquidity risk that arises in or is borne by the covered
clearing agency, including measuring, monitoring, and managing its
settlement and funding flows on an ongoing and timely basis, and its
use of intraday liquidity by, at a minimum, addressing foreseeable
liquidity shortfalls that would not be covered by the covered clearing
agency's liquid resources and seek to avoid unwinding, revoking, or
delaying the same-day settlement of payment obligations.\41\
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    \41\ 17 CFR 240.17Ad-22(e)(7)(viii).
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    The proposed process for FICC to access liquidity when Netting
Members are delayed in satisfying or cannot satisfy their cash delivery
obligations provides FICC with a process to address liquidity
shortfalls which may arise in such circumstances and allow FICC to
complete settlement on a timely basis. Therefore, this proposed process
should help to avoid unwinding, revoking, or delaying same-day
settlement obligations. The Commission believes, therefore, that
adoption of the proposed changes are consistent with Rule 17Ad-
22(e)(7)(viii).\42\
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    \42\ Id.
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular with the requirements of Section 17A of the Act \43\ and
the rules and regulations promulgated thereunder.
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    \43\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\44\ that proposed rule change SR-FICC-2019-004, be, and hereby is,
Approved.\45\
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    \44\ 15 U.S.C. 78s(b)(2).
    \45\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
    \46\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22480 Filed 10-15-19; 8:45 am]
 BILLING CODE 8011-01-P