[Federal Register: May 7, 2003 (Volume 68, Number 88)]
[Rules and Regulations]
[Page 24595-24603]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07my03-21]
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Part III
Department of Agriculture
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Commodity Credit Corporation
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7 CFR Part 1424
Bioenergy Program; Final Rule
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DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
7 CFR Part 1424
RIN 0560-AG84
Bioenergy Program
AGENCY: Commodity Credit Corporation, USDA.
ACTION: Final rule.
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SUMMARY: This rule finalizes a proposed rule to amend the existing
regulations of the Commodity Credit Corporation (CCC) Bioenergy Program
(program) in order to implement section 9010 of the Farm Security and
Rural Investment Act of 2002 (the 2002 Act). These changes include:
modifying the definitions for biodiesel, eligible commodities, and
ethanol; extending the program beyond Fiscal Year (FY) 2002; and
allowing producers to enter into multi-year agreements for program
payments. Additional changes, based on comments received on the
proposed rule, include: modifying the conversion factor provisions,
making biodiesel payments on a soybean basis, making biodiesel payments
on all biodiesel production, basing program payments on market prices
as of the 10th business day before the production quarter, and
establishing a target notification period for changes to conversion
factors. Under the rule, CCC will pay incentives to ethanol producers
to increase their use of eligible agricultural commodities in an FY as
compared to the corresponding period in the prior FY. For biodiesel,
CCC will pay incentives to biodiesel producers for FY 2003 through FY
2005 on all biodiesel production from eligible agricultural
commodities. For FY 2006, CCC will pay biodiesel producers incentives
only on their increased biodiesel production.
DATES: Effective October 1, 2002. The FY 2003 and beyond sign-up period
will end June 6, 2003.
FOR FURTHER INFORMATION CONTACT: Jim Goff, Warehouse and Inventory
Division, Farm Service Agency (FSA), United States Department of
Agriculture (USDA), STOP 0553, 1400 Independence Avenue, SW.,
Washington, D.C. 20250-0553, telephone (202) 720-5396 or e-mail
address: BioenergyProgram@wdc.fsa.usda.gov. Persons with disabilities
who require alternative means of communication (braille, large print,
audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600
(voice and TDD).
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This rule has been determined to be significant for the purposes of
Executive Order 12866 and therefore has been reviewed by the Office of
Management and Budget (OMB). A summary of the cost-benefit assessment
is included in the Background section explaining the 2002 Actions this
rule will take.
Small Business Regulatory Enforcement Fairness Act
This rule will be submitted to Congress as required by the Small
Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 (5 U.S.C.
801 et seq.) The rule has been determined not to be a major regulatory
action. Thus, the 60-day delay required by section 801 of SBREFA for
Congressional review is not applicable.
Regulatory Flexibility Act
The Regulatory Flexibility Act is not applicable to this rule
because CCC is not required by 5 U.S.C. 553 or any other law to publish
a notice of proposed rule making for the subject matter of this rule.
Executive Order 12372
This program is not subject to Executive Order 12372, which
requires intergovernmental consultation with State and local officials.
See the notice related to 7 CFR part 3015, subpart V, published at 48
FR 29115 (June 24, 1983).
Environmental Assessment
The environmental impacts of this rule have been considered in
accordance with the provisions of the National Environmental Policy Act
of 1969 (NEPA), 42 U.S.C. 4321 et seq.; the regulations of the Council
on Environmental Quality (40 CFR parts 1500-1508); and FSA's
regulations for compliance with NEPA, 7 CFR part 799. FSA has concluded
that the rule will not have any significant impacts upon the human
environment as documented through the completion of a final
environmental assessment (FEW) that is on file and available to the
public in the Administrative Record at the address specified above by
contacting the official named above. The FEW is also available
electronically at http://www.fsa.usda.gov/dafp/cepd/epb/nepa.htm.
Executive Order 12988
This rule has been reviewed in accordance with Executive Order
12988, Civil Justice Reform. The rule specifies that production will be
eligible retroactively beginning October 1, 2002. The administrative
appeal provisions published at 7 CFR parts 11 and 780 must be exhausted
before bringing any action for judicial review.
Executive Order 12612
The Federalism implications of this rule are not sufficient to
warrant preparation of a Federalism Assessment. This rule will not have
a substantial direct effect on States or their political subdivisions
or on the distribution of power and responsibilities among the various
levels of Government.
Unfunded Mandates Reform Act of 1995
This Rule contains no Federal mandates as defined in Title II of
the Unfunded Mandates Reform Act of 1995 (UMRA) for State, local, and
tribal governments or the private sector. Therefore, this rule is not
subject to sections 202 and 205 of UMRA.
Paperwork Reduction Act
The information collection reporting and recordkeeping requirements
associated with this rulemaking have been approved by OMB and assigned
control number 0560-0207. The proposed rule contained a notice for this
information collection (67 FR 61565, October 1, 2002) as required by 5
CFR 1320.8 (d) (1). Two comments were received supporting the FY 2002
recordkeeping burden.
Discussion of the Final Rule
In November of 2000, USDA implemented a Bioenergy Program. The 2002
Act extended the program through FY 2006 and made several changes to
the program. A proposed rule addressing these changes was published in
the Federal Register on October 1, 2002 (67 FR 61565). Comments were
accepted on the proposed rule until October 31, 2002.
Comments on the Proposed Rule
Responses to the proposed rule were received from 1,994 interested
parties representing five different sectors as follows: 1,521 from
individuals; 194 comments from 137 companies; 186 comments from 119
cooperatives; 48 comments from 44 trade organizations and special
interest groups--mainly representing the American Soybean Association
and the National Renderers Association; and 45 from State and local
Governments. Most respondents made multiple comments.
How Payments Are Determined
Soybean or Soybean Oil Basis
CCC received 2,131 comments expressing concern about how CCC
proposed to base program payments on
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biodiesel production on soybean oil prices instead of on a raw soybean
basis. A large majority, 1,635 respondents, wanted the program to
increase rather than decrease payments; 296 opposed lowering the
payment; 60 supported the proposed change; one stated payments should
not be changed until after FY 2003; one supported higher overall
payments for all biodiesel payments; and one suggested equal payment
for all commodities based on soy oil. Related to the soybean payment
issue, 197 respondents wanted increased program payments on animal fats
and oils. The majority of respondents opposed proposed changes that
revised biodiesel payment calculations, resulting in lower subsidy
payments. Many respondents argued that the reduced biodiesel payments
would not provide sufficient support to ensure biodiesel's
affordability and maintain industry growth. Some also argued that CCC's
Bioenergy Program was the primary federal program providing support to
the biodiesel industry and was largely responsible for biodiesel
becoming one of the fastest growing alternative energy sources. A
number of respondents argued that changes in the proposed rule
contradicted the intent of Congress and the stated goal of increasing
bioenergy production.
CCC agrees with many of the respondents' comments on several
factors: Program biodiesel payments should be increased not reduced;
payments on production from animal fats and oils should be increased;
and all biodiesel payments should be based on the FY 2002 soybean
payment formula. Therefore, in the final rule, 7 CFR 1424.3 has been
adjusted. Also, the proposed language in 7 CFR 1424.8(e) related to
gross payable units has been moved to 7 CFR 1424.7. CCC will base all
biodiesel payments on a soybean conversion and price, adjusted further
by comparing the applicable oil or grease (animal fats and oils) price
to the soy oil price. These changes will provide additional support to
the biodiesel industry, maintain former payment levels for production
from soybeans, and raise payments on production from animal fats and
oils. This will reduce disparities between commodities in program
payments for biodiesel production. The following table demonstrates how
biodiesel payments will be determined taking into account the size-
adjustment factor for large and small plants (which is statutory) and
accounting for differences in feedstock to produce the eligible
biodiesel.
Example:
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Animal fats
Item Soybeans and oils Mustard seed
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Gross Payable Units (Bushels)........................................ 714.30 ..............
Size Factor (2.5 if under 65 million gallons per year total capacity 2.50 .............. ............
or 3.5).............................................................
Adjusted Bushels (Gross Bushels/Size Factor)......................... 285.7 .............. ............
Soybean PCP, Macon County, Illinois \1\.............................. $5.59 .............. ............
Soybean Gross Payment (Soybean PCP x Adjusted Bushels)............... $1,597 $1,597 $1,597
Soy Oil Price, Cents per pound \1\................................... ........... 22.59 22.59
Feedstock Price, Cents per pound \1\................................. ........... 10.00 12.30
Feedstock Factor (Feedstock Price/Soy Oil Price)..................... ........... 0.44 0.54
Gross Program Payment (Soybean Gross Payment x Feedstock Factor)..... $1,597 $707 $869
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\1\ Price on November 1, 2002.
No change is being made to the proposed rule's ethanol provisions
in this area because there does not appear to be a similar need for
adjustment.
Volume Basis for Payments
Forty-six respondents suggested program payments be made on all
biodiesel production--base production (the previous FY volume) plus
increased production this FY. One respondent suggested a two-tier
payment with different payment rates used for base and increased
biodiesel production, and another suggested a higher payment
specifically for biodiesel. Respondents indicated that the biodiesel
industry needs higher levels of support to maintain or increase
industry growth.
CCC agrees with respondents that the biodiesel industry needs
additional program support through higher payments. Consistent with the
previous program, the 2002 Act requires the Secretary to make payments
on the quantity of bioenergy produced during an FY that exceeds the
quantity of bioenergy produced in the prior FY to date. Payment on
increased production within a given FY may not provide sufficient
incentives for long-term investments in the biodiesel industry.
Currently, biodiesel is not cost-competitive with conventional diesel.
The payment on FY to FY increases therefore implicitly subsidizes base
production of biodiesel, making it cost-competitive. As a result, each
successive FY that a producer participates in the program, the level of
implicit support for biodiesel production declines as the base
production grows larger relative to the yearly increase in production.
Furthermore, this may create a potential inequity in the market as
newer producers may receive implicitly higher subsidies and, as a
result, be more cost-competitive than established producers. This
suggests that previous provisions carried forward by reference,
arguably, in the new legislation may, if continued without amendment,
promote instability, which would impede the goal of fostering growth in
the industry. This situation does not apply to the ethanol industry
with its more mature market and other Federal and State support
programs. In addition, basing a payment only on increased year-to-year
biodiesel production may encourage participants to frustrate the goals
of the program by increasing production one year, dropping it the next,
then increasing it the following year in order to qualify for higher
program payments. To avoid that result, CCC will use its original and
continuing authority under section 5 of the CCC Charter Act, 15 U.S.C.
714c, as needed, and the program funding provided by the 2002 Act to
make biodiesel production eligible for the program that would not be
eligible solely under the bioenergy provisions of the 2002 Act by
allowing payments on all of a producer's production and not just the
increase in one year as compared with the preceding year. This support
will be reduced each FY of the program to encourage industry
independence from program payments. In no event will program funding
exceed the $150 million per FY funding provided by the 2002 Act.
Accordingly, among other changes, 7 CFR 1424.7 as added in the final
rule provides that biodiesel may receive payments in the normal manner
on production eligible under the 2002 Act (year-to-year increases) plus
a payment on the remaining production at 50 percent of that rate in FY
2003, 30 percent in FY
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2004, 15 percent in FY 2005, and 0 percent in FY 2006. No change is
being made to the rules for ethanol in this regard because there is not
the same need.
Definition of Biodiesel
CCC received 194 comments that supported the proposed change in the
biodiesel definition and supported additional feedstocks being eligible
for biodiesel production. Three respondents suggested adding an
American Society for Testing and Materials standard as a requirement to
the biodiesel definition. Four comments supported eligibility for all
biodiesel uses, whether for fuel or not, and expansion of the biodiesel
definition to include other bio-oil/solvent products. Finally, two
respondents suggested the program make payments on lower grades of bio
fuels that are used for industrial uses.
Section 9010(b)(3)(A) of the 2002 Act specifically defines
biodiesel as ``a monoalkyl ester that meets the requirements of an
appropriate American Society for Testing and Materials standard.'' The
language of the 2002 Act indicates that the intent of Congress was that
eligible biodiesel be that used for fuel use only. Therefore, no change
is made to the biodiesel definition.
Plant Capacity Conversion Factor
Two respondents suggested that the program change from using 2.5 to
1.1 as a divisor for producers with total plant capacity of under 65
million gallons per year and from using 3.5 to 2.1 for producers with
total plant capacity of 65 million gallons or more per year. However,
sections 9010(b)(3)(B)(i) and (ii) of the 2002 Act specifically provide
for use of the 2.5 and 3.5 factors, respectively. The regulations
follow the statute.
Refunds of Overpayments
One respondent, in addressing the program's requirement for refunds
when increased production is not maintained for the entire FY,
suggested that the program should ``not force production of baseline if
market cannot support the demand.''
Section 9010(b)(5) of the 2002 Act specifically states, ``If the
total amount of payments that an eligible producer receives for an FY
under this section exceeds the amount that the eligible producer should
have received under this subsection, the eligible producer shall repay
the amount of the overpayment to the Secretary, with interest (as
determined by the Secretary).'' Accordingly, no change is made in this
area. However, the change made with regard to basing program payments
on all biodiesel production should minimize the impact of this
requirement on program biodiesel participants.
Determining Commodity Market Price
One respondent suggested that the program, when making payment
calculations, use the average commodity price for the production
quarter rather than the price as of the last business day of the
quarter in which production occurred. This issue, although it was the
subject of one comment on this rule, has been an issue in program
administration in both FY 2001 and FY 2002. Program participants in
those years complained that their actual feedstock costs were
established before production, not after, and that knowing the program
payment rate earlier would help them price their contracts. To address
this concern, without compromising the purpose of the program to try to
approximate actual conditions, 7 CFR 1424.8(d)(2) has been changed to
adopt for use the price of the commodity on the 10th business day
before the start of the production quarter to establish program
payments.
Conversion Factors
The rule resulted in 3,471 comments being received concerning
conversion factors for eligible commodities. Of those, 1,829
respondents requested conversion factors be issued more timely, more
predictably, and with more sensitivity toward the potential impact of
changes after they are announced. An additional 1,640 respondents
suggested that conversion factors be more predictable, not be subject
to annual change, and codified in the regulations. One respondent
recommended the conversion factor for all eligible commodities be
codified in the regulations, and one respondent generally opposed
removing conversion factors from the regulations.
These comments may have resulted from the proposed rule's suggested
adoption of a new biodiesel soybean conversion factor. With the
exception of the disparity in program payments for biodiesel made from
soybeans and soy oil versus animal fats and oils, no complaints had
been received in FY 2001 or FY 2002 on the program's conversion factors
and no general discontent was expressed by participants about the
factors used in those years. The broad list of potential program
eligible commodities, many currently not used in bioenergy production,
makes publication of a conversion factor for every eligible commodity
unrealistic. In addition, as manufacturing processes improve and
industry conversion factors improve, CCC needs to be able to reflect
the bioenergy producer's true costs of production in a more timely
fashion than that allowed by notice and comment rulemaking. From a
review of the comments, it appears the real goal is for producers to be
able to accurately estimate program payments when they contract future
sales prices. To address that, 7 CFR 1424.8(e) has been changed to
state, ``After FY 2003, changes to established conversion factors shall
be announced in a press release issued by CCC 90 calendar days before
the applicable FY's sign-up, to the extent practicable.'' This should
give program participants a 120-day notification (90 days before sign-
up plus 30-day sign-up period) before applicable production is
produced. Conversion factors, as they are established, will also be
posted to the program's Internet website.
Source Used for Fats and Oil Market Prices
Fifty-one respondents commented on this aspect of the program.
Fifty suggested that CCC use the ``Jacobsen Fats and Oils Bulletin''
for oil feedstock prices without applicable Posted County Prices; one
suggested CCC use the Chicago Board of Trade for all virgin crude oil
prices with 5-year trade adjustments from that for cottonseed oil, corn
oil, and canola oil prices. Respondents expressed the belief that the
``Jacobsen Fats and Oils Bulletin'' provided a more accurate market
price for animal fats and oils than the USDA's ``Weekly National Carlot
Meat Report,'' which was used by the program in FY 2002.
The program's regulations do not specify the source CCC will use
for feedstock prices for eligible commodities without a Posted County
Price--only that the market price will be ``as determined by CCC.'' For
FY 2002, CCC used the U.S. Department of Agriculture's Agricultural
Marketing Service's ``Springfield Report'' for corn oil prices and the
USDA's ``Weekly National Carlot Meat Report'' for animal fats and oils
prices. However, based on comments received, CCC has reviewed the data
provided by the ``Jacobsen Fats and Oils Bulletin'' and has determined
it does provide an accurate regional price for animal fats and oils.
Therefore, CCC will use the ``Jacobsen Fats and Oils Bulletin'' to the
extent possible for oil feedstock prices without a Posted County Price.
This policy will also be announced in the FY 2003 sign-up press release
announcement. 7 CFR 1424.8(d)(2)(ii) is changed to indicate that as a
step in the final calculation of payments the biodiesel gross payment
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will be determined for biodiesel made from eligible commodities that
have a corresponding oil or grease market price, using the Posted
County Price for soybeans for the county where the plant is located. If
the biodiesel is made from soybeans or soy oil, this is the gross
payment without a further feedstock adjustment (but subject to other
possible adjustments). For biodiesel made from other than soy oil or
soybeans, the applicable feedstock's oil or yellow grease (for animal
fats and oils) market price, as determined by CCC, will be divided by
the soy oil price published in the Agricultural Marketing Service's
weekly ``Soybean Crush Report (Central Illinois (Decatur, Macon County,
Illinois))'' for the applicable date. The resulting percentage will be
multiplied by the soybean gross payment to determine the producer's
gross payment eligibility subject to such other adjustments as provided
in the regulations.
Eligible Commodities and Fuels
The proposed rule elicited 53 comments in this area. Of these, 50
supported the addition of animal fats and oils as program eligible
commodities. Also, three suggested that CCC allow producers to use
different eligible commodities during the same FY and not make
producers commit at sign-up to which feedstocks will be used in
bioenergy production.
CCC recognizes the difficulty producers have in forecasting which
feedstocks will be used a year ahead of actual production. However,
potential program payments must be estimated after that FY's sign-up is
concluded to determine if a payment factor will be required to keep
program expenditures within budgetary authority during the FY. CCC also
recognizes that program projections for FY 2001 and FY 2002 were
excessive compared to actual production. To address this, the bioenergy
agreements will continue to request the maximum possible production by
eligible commodity but will separately request the maximum total
production increase. Producers will separately list the estimated
production by eligible commodity and the total maximum increase from
all eligible commodities. The total maximum increase reported will no
longer be tied to the estimated production by eligible commodity. When
added, the estimated production by commodity may now exceed the total
maximum increase reported. This will allow producers to switch
production between eligible commodities while still providing CCC the
data necessary to project program costs based on eligible commodities
being used.
Producer Eligibility
Fifty-four respondents felt that program payments should only be
made to bona fide producers--not marketers. FSA reviews each applicant
thoroughly for eligibility before they are approved for the program. To
be eligible, a producer must have, among other requirements, risk of
loss during the production process. A producer need not own the
facility producing the fuel. All program payments are monitored and
thorough, on-site examinations are conducted of all program
participants' operations to verify program compliance. If noncompliance
or over payments are discovered, repayments are required. In addition,
program provisions are only applicable to a producer's bioenergy
production activities--not to other business activities that producer
may be involved in. However, to address this issue and also the issue
of producers moving production between different plants between FY's to
gain larger program payments, 7 CFR 1424.7(c) has been updated to state
that there can only be one producer per plant and that when producers
transfer all of their operations to a different plant, their prior FY's
production will be the greater of the production at the plants they
operated in the prior FY or the prior FY production at plants they are
taking over in the next FY. Also, to help insure that the program
accomplishes its goals, the rule provides that ``Otherwise, for
purposes of computing whether a producer has increased production in
the current year from the previous year, the determination will be made
by comparing for the current year the producer's production figures
from all locations in which the producer has an interest with, for the
previous year the sum of (i) production at those locations by any
person including, but not limited to, the producer, and (ii) additional
production by the producer at any other location in that year. Also, as
needed to avoid frustrating the goals of the program, the Executive
Vice President of CCC may treat producers with common interests, common
ownership, or common facilities or arrangements as the same producer.
These provisions mirror provisions in the current rule and are provided
for additional clarity.
Although FY 2003 sign-up will be held after October 1, 2002, FY
2003 bioenergy production beginning October 1, 2002 will be eligible
for FY 2003 program payments.
Miscellaneous Comments
Twelve miscellaneous comments were received, with nine of those
stating general support for the program. However, responses to the
biodiesel issue also seem to indicate that those respondents would
support the program even if biodiesel payments are reduced by the final
rule. Another two respondents supported the program's current
recordkeeping or paperwork burden. One respondent urged CCC to remove
all support for continuance of current bioenergy programs and instead
provide greater attention to supporting on farm fuel production for use
in food production crops. The 2002 Act requires CCC to continue the
program through FY 2006.
Cost-Benefit Assessment
The 2002 Act authorizes bioenergy program funding of up to $150
million per year for FY's 2003 through 2006. Section 743 of the
Consolidated Appropriations Resolution, 2003, Public Law 108-7, limits
FY 2003 payments to eligible bioenergy producers to 77 percent of the
amount that those producers would otherwise earn under the program. The
President's Budget for FY 2004 also proposes to limit the program to
$100 million in FY 2004. The program was first implemented during FY
2001 and funded for FY 2001 and FY 2002 at $150 million each year.
Payments have been well under the annual funding levels--FY 2001
payments totaled $40.7 million; FY 2002 payments totaled $78.7 million.
The list of eligible commodities is expanded to include cottonseed and
any animal byproduct (in addition to oils, fats, and greases) that may
be used to produce bioenergy. However, because payments have been made
only on corn, grain sorghum, wheat, soybeans, and animal fats and oils,
it is difficult to forecast additional payments on the newly eligible
commodities. Assuming that some of the new commodities do enter the
program, the volume is likely to be small, and the outlay effects
negligible. The number of participants receiving payments is expected
to increase only slightly. Because of very strong incentives to
increase ethanol production independent of the bioenergy program, FY
2003-ethanol production and payments are projected to increase sharply
from FY's 2001 and 2002. Program payments for ethanol are expected to
be highest in FY 2003 and then decline, because the rate of increase in
production is projected to slow as California completes the transition
to ethanol. Thus, the cost of the program is expected to be higher
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initially than in FY's 2001 and 2002. Soybeans have been the
predominant commodity for biodiesel payments to date. This is not
likely to change substantially due to the expansion in eligible
commodities. However, revisions in payment calculations will raise
payment rates for animal fats and oils. This will increase incentives
to use these commodities for biodiesel production.
List of Subjects in 7 CFR Part 1424
Administrative practice and procedure, Energy--bioenergy, Fuel
additives, Gasohol, Oils and fats, Oilseeds, Reporting and
recordkeeping requirements.
0
For the reasons set out in the preamble, 7 CFR part 1424 is amended as
set forth below:
PART 1424--BIOENERGY PROGRAM
0
1. Part 1424 is revised to read as follows:
PART 1424--BIOENERGY PROGRAM
Sec.
1424.1 Applicability.
1424.2 Administration.
1424.3 Definitions.
1424.4 General eligibility rules.
1424.5 Agreement process.
1424.6 Payment application process.
1424.7 Gross payable units.
1424.8 Payment amounts.
1424.9 Reports required.
1424.10 Succession and control of facilities and production.
1424.11 Maintenance and inspection of records.
1424.12 Appeals.
1424.13 Misrepresentation and scheme or device.
1424.14 Offsets, assignments, interest and waivers.
Authority: 7 U.S.C. 8108, 15 U.S.C. 714b and 714c.
Sec. 1424.1 Applicability.
This part sets out regulations for the Bioenergy Program (program).
It sets forth, subject to the availability of funds as provided herein,
or as may be limited by law, the terms and conditions a bioenergy
producer must meet to obtain payments under this program and part from
the Commodity Credit Corporation (CCC) for eligible bioenergy
production. Additional terms and conditions may be set forth in the
document required to request program benefits and in the program
contract or agreement prescribed by CCC. This program is effective
October 1, 2002, through September 30, 2006.
Sec. 1424.2 Administration.
This part shall be administered by the Executive Vice President,
CCC, under the general direction and supervision of the Executive Vice
President or designee. The Executive Vice President or a designee may
authorize a waiver or modification of deadlines and other program
requirements in cases where lateness or failure to meet such other
requirements does not adversely affect the operation of the program,
and may set such additional requirements as will facilitate the
operation of the program. The funds available for the program shall be
limited as set by this rule, otherwise announced by the Executive Vice
President, CCC, or limited by law.
Sec. 1424.3 Definitions.
The definitions set forth in this section shall be applicable for
all purposes of program administration under this subpart.
Agreement means the Bioenergy Program Agreement or other form
prescribed by CCC that must be executed for participation in the
program.
Application means the application form prescribed by CCC or another
form that contains the same terms, conditions, and information
required.
ATF means the Bureau of Alcohol, Tobacco, Firearms, and Explosives
of the United States Department of Justice.
Base production means a biodiesel producer's current FY's biodiesel
production from eligible commodities that is not an increase over
biodiesel production in the previous FY to date.
Biodiesel means a mono alkyl ester manufactured in the United
States and its territories that meets the requirements of an
appropriate American Society for Testing and Materials Standard.
Biodiesel producer means a producer that produces and sells
biodiesel who is also registered and in compliance with section 211 (b)
of the Environmental Protection Agency Clean Air Act Amendment of 1990.
Bioenergy means ethanol and biodiesel produced from eligible
commodities.
Conversion factor means:
(1) For ethanol production, a factor that converts the number of
ethanol gallons back to commodity units as determined in the manner
announced by CCC;
(2) For biodiesel production, the factor that will treat 1.4
gallons of biodiesel produced as having involved the consumption of one
bushel of soybeans in any case when the feedstock was an eligible
commodity that has a corresponding oil or grease market price; if there
is none, then the factor shall be as determined and announced by CCC.
Eligible commodity means barley; corn; grain sorghum; oats; rice;
wheat; soybeans; cotton seed; sunflower seed; canola; crambe; rapeseed;
safflower; sesame seed; flaxseed; mustard seed; cellulosic crops, such
as switchgrass and hybrid poplars; fats, oils, and greases (including
recycled fats, oils and greases) derived from an agricultural product;
and any animal byproduct (in addition to oils, fats and greases) that
may be used to produce bioenergy, as CCC determines, that is produced
in the United States and its territories.
Eligible producer means a bioenergy producer who meets all
requirements for program payments.
Ethanol means anhydrous ethyl alcohol manufactured in the United
States and its territories and sold either:
(1) For fuel use, rendered unfit for beverage use, produced at a
facility and in a manner approved by ATF for the production of ethanol
for fuel; or
(2) As denatured ethanol used by blenders and refiners and rendered
unfit for beverage use.
Ethanol producer means a person authorized by ATF to produce
ethanol.
FSA means the Farm Service Agency, USDA.
FY means the fiscal year beginning each October 1 and ending
September 30 of the following calendar year.
KCCO means the FSA, Kansas City Commodity Office.
Posted County Price means the same Posted County Price for
different locations as is used under other CCC commodity programs for
marketing loan gains and other matters.
Producer is a legal entity (individual, partnership, cooperative,
or corporation, etc.) who is a commercial bioenergy producer making
application or otherwise involved under this program.
Quarter means the respective time periods of October 1 through
December 31, January 1 through March 31, April 1 through June 30, and
July 1 through September 30 of each FY, as applicable.
Sign-up period means the time period announced by CCC during which
CCC will accept program agreements.
USDA means the United States Department of Agriculture.
Sec. 1424.4 General eligibility rules.
(a) An applicant must be determined eligible by KCCO and be
assigned an agreement number.
(b) To be eligible for program payments, a producer must maintain
records indicating for all relevant FY's and FY quarters:
(1) The use of eligible commodities in bioenergy production;
(2) The quantity of bioenergy produced from an eligible commodity
by location;
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(3) The quantity of eligible commodity used by location to produce
the bioenergy referred to in paragraph (b)(2) of this section; and
(4) All other records, needed, or required by the agreement to
establish program eligibility and compliance.
(c) A producer must allow verification by CCC of all information
provided. Refusal to allow CCC or any other agency of USDA to verify
any information provided will result in a producer being determined not
eligible.
(d) For producers not purchasing raw commodity inputs, the
production must equal or exceed that amount of production that would be
calculated using the raw commodity inputs and the conversion factor set
out in Sec. 1424.3. A producer that purchases soy oil from a soybean
crushing plant for further refinement into biodiesel must be able to
prove to CCC's satisfaction both soy oil purchases and biodiesel
production for the applicable quarter. Any special conversion factors
needed will be the province of CCC and CCC alone and CCC's decision
will be final.
(e) A producer must meet all other conditions set out in these
regulations, in the agreement, or in other program documents.
Sec. 1424.5 Agreement process.
(a) To participate, an eligible producer must submit a signed
agreement during the FY sign-up period. Agreements may be for single or
multiple FY's. However, multiple FY agreements require producers to
submit annual production estimate reports during each applicable FY
sign-up period. Such reports must comply with the terms of the
agreement and this part. In all cases, the accounting for compliance
will be made on a per FY basis.
(b) Sign-up each FY will be held for 30 calendar days beginning
for:
(1) FY 2003 on the date of publication of this rule;
(2) FY 2004 and beyond on August 1 of the FY before the applicable
FY.
(c) After agreements are submitted:
(1) If determined eligible by KCCO, an agreement number will be
assigned, and a notification will be mailed to the producer;
(2) If additional information is needed for KCCO to determine
eligibility, the producer will be contacted as soon as practicable and
requested to provide additional supporting documentation;
(3) If determined ineligible by KCCO, producers will be notified in
writing that their agreement was rejected and the reason for the
determination.
Sec. 1424.6 Payment application process.
(a) To apply for payments under this program during an FY, an
eligible producer must:
(1) Submit an application or eligibility report for each quarter.
Submit the last quarterly application or report of the FY within 30
calendar days of the end of the FY for which payment is requested. If
the actual deadline is a non-workday, the deadline will be the next
business day;
(2) Certify with respect to the accuracy and truthfulness of the
information provided;
(3) Furnish CCC such certification, and access to such records, as
CCC considers necessary to verify compliance with program provisions;
and
(4) Provide documentation as requested by CCC of both the
producer's net purchases of eligible commodities and net production of
bioenergy compared to such production at all locations during the
relevant periods. CCC may adjust the formulaic payments otherwise
payable to the producer if there is a difference between the amount
actually used and certified and the amount of increased commodity use
calculated under the formula.
(b) After applications or reports are submitted, eligible
producers:
(1) Shall submit such additional supporting documentation as
requested by KCCO when additional information is needed to determine
eligibility;
(2) Will be notified in writing of their ineligibility and reason
for the determination, when the application is determined ineligible by
KCCO; and
(3) Shall promptly refund payments when a refund to CCC is due. If
a refund is not made promptly, CCC may establish a claim.
Sec. 1424.7 Gross payable units.
(a) For ethanol, producers will be eligible for payments on gross
payable units for only their ethanol production from eligible inputs
that exceeds, for the program year to date, their total comparable
production at all locations as compared to the comparable portion of
the previous year. Producers of ethanol are not eligible for base
production payments. Producers shall not be paid twice for the same
increase and any decline in relative production between quarters will
require a comparable refund. For example, if at the end of the first
quarter, a producer were to be paid for an increase of 500 gallons of
ethanol, but at the end of the second quarter, that producer's year-to-
date production was down to a net increase for the year of 450 gallons,
then a refund would be due for the loss of the corresponding 50 gallons
of net extra production. Repayment rates shall be based on previous
payment rates. Unless otherwise determined by CCC, the extra ethanol
production from eligible inputs will be converted to gross payable
units by dividing the gallons of increased ethanol by the applicable
conversion factor.
(b) Biodiesel producers will be eligible for payments on gross
payable units for all biodiesel production from eligible inputs. For
eligibility purposes there will be two kinds of payment: additional
production payments (APP), and base production payments (BPP).
Repayment rates shall be based on previous payment rates. Unless
otherwise determined by CCC, gross payable units for biodiesel
production from eligible inputs will be calculated as follows:
(1) For APP, by dividing the gallons of increased biodiesel by the
biodiesel conversion factor of 1.4. APP payments will be made on
increases as compared with the previous FY. Producers will not be paid
twice for the same production. Failure to maintain year to date
biodiesel production increases between quarters will require a
comparable APP refund as specified below. That is, for example, if a
producer were to be paid, at the end of the first quarter, for 500
gallons of increased biodiesel production, but by the end of the second
quarter that producer's production, for the year to date, was only 450
gallons, then a refund of the APP premium would be due for the loss of
the corresponding 50 gallons of net production increase.
(2) For BPP, which will be made on production not eligible for the
APP, by dividing the base production by the biodiesel conversion factor
of 1.4 and multiplying the result by 0.5 in FY 2003, 0.3 in FY 2004,
0.15 in FY 2005, or 0.0 (zero) in FY 2006 to determine base biodiesel
production gross payable units.
(3) Adding the APP and BPP to determine biodiesel gross payable
units.
(c) There shall only be one eligible producer per plant location.
(1) When producers move production from one plant to another
between FY's, the prior FY's production for the producer for program
payment calculations tied to increases in production shall be the
greater of:
(i) The production at the plant operated by the producer in the
prior FY, or
(ii) The production in the prior FY at the plant being taken over
by the producer in the current FY.
(2) New producers who are taking over a plant with prior bioenergy
[[Page 24602]]
production shall assume that production history for program purposes.
For example: in FY 2002, Producer A produced 1,000 gallons of bioenergy
in plant 1 and Producer B produced 500,000 of bioenergy in plant 2. In
FY 2003, Producer A assumes operation of plant 2; Producer B moves to
plant 3, which was not in the program in FY 2002, but with FY 2002
production of 400,000 gallons from eligible commodities; and Producer C
assumes operations of plant 1. In FY 2003, for program purposes solely
based on these respective plants, Producer A would have a prior FY
production of 500,000 gallons; Producer B would have a prior FY
production of 500,000 gallons; and Producer C would have a prior FY
production of 1,000 gallons. These examples would apply when a producer
moves its entire operation from one plant to another. Otherwise, for
purposes of computing whether a producer has increased production in
the current year from the previous year, the determination will be made
by comparing for the current year the producer's production figures
from all locations in which the producer has an interest with, for the
previous year, the sum of:
(i) Production at those locations by any person including, but not
limited to, the producer, and
(ii) Additional production by the producer at any other location in
that year.
(3) Also, as needed to avoid frustrating the goals of the program,
the Executive Vice President of CCC may treat producers with common
interests, common ownership, or common facilities or arrangements as
the same producer.
Sec. 1424.8 Payment amounts.
(a) An eligible producer may be paid the amount specified in this
section, subject to the availability of funds. Total available funds
shall be as determined appropriate by CCC and shall not exceed $150
million in any of FY's 2003 through 2006.
(b) For agreements submitted during an FY sign-up, applicants must
project increases in production. Based on expected commodity prices,
using the formula set out in this section, submissions will be assigned
an expected payment value. When the payment value of all timely
submitted and validly executed agreements exceed available funding, CCC
may, at its discretion, prorate payments to be made under such
agreements based on total available funding.
(c) When the payment value of all timely submitted applications
exceed available funding, CCC will prorate payments based on total
available funding.
(d) Subject to this section and conditions in the agreement, a
producer's payment eligibility shall be adjusted at the end of each
quarter, and calculated as follows:
(1) Gross payable units, calculated and determined in accordance
with Sec. 1424.7, shall be converted to net payable units for
producers whose annual bioenergy production is:
(i) Less than 65 million gallons, by dividing by 2.5;
(ii) Equal to or more than 65 million gallons, by dividing by 3.5;
(2) Net payable units calculated under paragraph (d)(1) of this
section shall then be converted to a gross payment by multiplying net
payable units by the per-unit value of the commodity as of the 10th
business day before the start of the production quarter, determined as
follows:
(i) For ethanol:
(A) For those agricultural commodities with an established Posted
County Price, CCC will use the Posted County Price that CCC announces
daily for the county in which the plant is located and applicable
quality factors as CCC may establish.
(B) For agricultural commodities that CCC determines do not have
Posted County Prices, CCC will use market data CCC determines to be
appropriate for the applicable commodity.
(ii) For biodiesel made from:
(A) Soybeans or soy oil, CCC will use the Posted County Price for
soybeans for the county where the plant is located.
(B) Eligible commodities other than soybeans or soy oil that have a
corresponding oil or grease market price, CCC will first use the
soybeans Posted County Price for Macon County, Illinois. Then, the
applicable feedstock's oil or yellow grease (for animal fats and oils)
market price, as determined by CCC, will be divided by the soy oil
price published in the Agricultural Marketing Service's weekly
``Soybean Crush Report'' (Central Illinois (Decatur, Macon County,
Illinois)) for the applicable date. The resulting percentage will be
multiplied by the soybean gross payment to determine the producer's
gross payment.
(C) Eligible commodities that do not have a corresponding oil or
grease market price, in a manner as determined by CCC.
(3) The gross payment calculated under paragraph (d)(2) of this
section shall be reduced to a net payment by multiplying the gross
payment figure by the proration factor determined under paragraph (c)
of this section.
(4) Subject to other provisions of this section, producers shall be
paid the net current payment, if positive, determined for the quarter,
subject to the requirements and refund provisions of this part.
(5) After the first quarter, adjustments shall be made based on
changes in production. Refunds, when due, shall be due at the per unit
values at which they were paid.
(6) For an FY, no producer may receive more than 5 percent of the
available funding for this program.
(e) When the commodity's conversion factor has been established,
that factor will, as practicable, be posted on the program's website.
(1) If the commodity's conversion factor is not determined when the
sign-up is announced, the conversion factor will be provided in a
letter to producers with accepted agreements to the extent practicable.
(2) After FY 2003, changes to established conversion factors shall
be announced in a press release issued by CCC 90 calendar days before
the applicable FY's sign-up, to the extent practicable.
Sec. 1424.9 Reports required.
Once an eligible producer has submitted a payment application, that
producer shall file cumulative and per-plant information for each
relevant bioenergy producing facility quarterly through the end of the
applicable FY as specified by CCC or as otherwise needed to establish
compliance with this part.
Sec. 1424.10 Succession and control of facilities and production.
A person who obtains a facility that is under contract under this
part may request permission to succeed to the program agreement and CCC
may grant such request if it is determined that permitting such
succession would serve the purposes of the program. If appropriate, CCC
may require the consent of the original party to such succession. Also,
CCC may terminate a contract and demand full refund of payments made if
a contracting party loses control of a facility whose increased
production is the basis of a program payment or otherwise fails to
retain the ability to assure that all program obligations and
requirements will be met.
Sec. 1424.11 Maintenance and inspection of records.
For the purpose of verifying compliance with the requirements of
this part, each eligible producer shall make available at one place at
all reasonable times for examination by
[[Page 24603]]
representatives of USDA, all books, papers, records, contracts, scale
tickets, settlement sheets, invoices, written price quotations, or
other documents related to the program that is within the control of
such entity for not less than three years from the payment date.
Sec. 1424.12 Appeals.
(a) A participant subject to an adverse determination under this
part may appeal by submitting a written request to: Deputy
Administrator, Commodity Operations, Farm Service Agency, United States
Department of Agriculture, STOP 0550, 1400 Independence Avenue, SW.,
Washington, D.C. 20250-0550. The appeal must be delivered in writing to
the Deputy Administrator or postmarked within 30 days after the date
the Agency decision is mailed or otherwise provided to the participant.
The Deputy Administrator may consider a late appeal if determined
warranted by the circumstances.
(b) The regulations at 7 CFR part 11 apply to decisions made under
this part.
(c) Producers who believe they have been adversely affected by a
determination by the Agency must seek review with the Deputy
Administrator before any other review may be requested within the
Agency.
Sec. 1424.13 Misrepresentation and scheme or device.
(a) A producer shall be ineligible to receive payments under this
program if CCC determines the producer:
(1) Adopted any scheme or device that tends to defeat the purpose
of the program in this part;
(2) Made any fraudulent representation; or
(3) Misrepresented any fact affecting a program determination.
(b) Any funds disbursed pursuant to this part to a producer engaged
in a misrepresentation, scheme, or device, or to any other person as a
result of the bioenergy producer's actions, shall be refunded with
interest together with such other sums as may become due, plus damages
as may be determined by CCC.
(c) Any producer or person engaged in an act prohibited by this
section and any producer or person receiving payment under this part
shall be jointly and severally liable for any refund due under this
part and for related charges.
(d) The remedies provided in this part shall be in addition to
other civil, criminal, or administrative remedies that may apply.
(e) Late payment interest shall be assessed on all refunds in
accordance with the provisions and rates prescribed in part 1403 of
this chapter.
Sec. 1424.14 Offsets, assignments, interestand waivers.
(a) Any payment or portion thereof to any person shall be made
without regard to questions of title under State law and without regard
to any claim or lien against the bioenergy, or proceeds thereof, in
favor of the owner or any other creditor except agencies of the U.S.
Government. The regulations governing offsets and withholdings found in
part 1403 of this chapter shall be applicable to agreement payments.
(b) Any producer entitled to any payment may assign any payments in
accordance with regulations governing the assignment of payments found
at part 1404 of this chapter.
(c) Interest charged by CCC under this part shall be at the rate of
interest that the United States Treasury charges CCC for funds, as of
the date CCC made such funds available. Such interest shall accrue from
the date such payments were made available to the date of repayment or
the date interest increases as determined in accordance with applicable
regulations.
(d) CCC may waive the accrual of interest and/or damages if CCC
determines that the cause of the erroneous determination was not due to
any action of the bioenergy producer.
Signed in Washington, DC, on May 1, 2003.
James R. Little,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. 03-11359 Filed 5-5-03; 1:43 pm]
BILLING CODE 3410-01-P