DEPARTMENT OF ENERGY

 

10 CFR Part 625

RIN Number:  1901-AB15

 

Price Competitive Sale of Strategic Petroleum Reserve Petroleum; Standard Sales Provisions

 

AGENCY:      Department of Energy

ACTION:       Final rule; revised appendix.

 

SUMMARY:   On December 21, 1983, the Department of Energy (DOE) published in the Federal Register a final rule governing the price competitive sales of petroleum from the Strategic Petroleum Reserve (SPR) in the event that the SPR is drawn down to respond to a severe energy supply interruption or to meet obligations of the United States under the Agreement on an International Energy Program.  The final rule provides for the publication and periodic update, as an appendix to the rule, of Standard Sales Provisions (SSPs) containing or describing contract clauses, terms and conditions of sale, and performance and financial responsibility measures, which may be used for particular sales of SPR petroleum.  First published in interim final form on January 20, 1984, the SSPs have since been updated several times, with the latest version published in the Federal Register on October 8, 1998 (63 FR 54196).  As provided in the rule, DOE is now issuing revised SSPs for use in an SPR drawdown.

 

EFFECTIVE DATE:   As of July 7, 2005 these SSPs are adopted for use in the price competitive sale of SPR petroleum.

 

FOR FURTHER INFORMATION CONTACT:

 

Thomas H. McGarry

U.S. Department of Energy

Strategic Petroleum Reserve

FE-43, Room 3G-070

1000 Independence Ave., SW

Washington, DC 20585-0340

Phone: (202) 586-8197

Fax: (202) 586-7919

Email: Thomas.McGarry@hq.doe.gov

 

Kelly. Gele, FE-4451

U.S. Department of Energy

Strategic Petroleum Reserve

Project Management Office

900 Commerce Road East

New Orleans, LA 70123

Phone: (504) 734-4343

Fax: (504) 818-5343

Email: Kelly.Gele@spr.doe.gov

 

Diane J. Stubbs

U.S. Department of Energy

          Office of Assistant General Counsel for Legislation and Regulatory Law

GC-71, Room 6E-042

1000 Independence Ave., SW

Washington, DC 20585-0103

Phone: (202) 586-4297

Fax: (202) 586-0971

Email: diane.stubbs@hq.doe.gov

 

SUPPLEMENTARY INFORMATION:

 

I.          Background

 

A.  The Strategic Petroleum Reserve Drawdown Plan and Sales Rule

 

            B.  General Sales Procedures

 

II.          The Revised Standard Sales Provisions

 

III.         Procedural Requirements

      A.  Review Under Executive Order 12866

B.  Review Under Regulatory Flexibility Act

C.  Review Under the Paperwork Reduction Act

D.  Review Under the National Environmental Policy Act

E.  Review Under Executive Order 13132

F.  Review Under Executive Order 12988

G.  Review Under the Unfunded Mandates Reform Act of 1995

H.  Review Under the Treasury and General Government  Appropriations Act, 1999

I.  Review Under the Treasury and General Government Appropriations Act, 2001

J.  Review Under Executive Order 13211

K.  Congressional Notification

 

 

I.          Background

 

A. The Strategic Petroleum Reserve Drawdown Plan and Sales Rule

 

The Strategic Petroleum Reserve (SPR) was established by the Energy Policy and Conservation Act of 1975 (EPCA), P.L. 94-163, to store petroleum to diminish the impact of disruptions on petroleum supplies and to carry out the obligations of the United States under the International Energy Program.   EPCA required the preparation of a "SPR Plan" detailing proposals for the development of the SPR.  The SPR Plan was to include a Distribution Plan setting forth the methods for drawing down and distributing the SPR in the event of an emergency.  In 1979, a detailed Distribution Plan was transmitted to Congress as Amendment No. 3 to the SPR Plan.  This Distribution Plan set out a number of alternative distribution methods, ranging from allocation to price competitive sales.

 

In the Energy Emergency Preparedness Act of 1982, P.L. 97-229, Congress required a new "Drawdown" (Distribution) Plan.  The new plan, SPR Plan Amendment No. 4, was transmitted to Congress on December 1, 1982, and provided that the principal method of distributing SPR oil would be price competitive sale.

 

On March 16, 1983, DOE published a notice of proposed rulemaking (48 FR 11125) to establish a framework for implementing the policies and procedures set out in SPR Plan Amendment No. 4.  The final SPR sales rule (published at 48 FR 56538, December 21, 1983), adopted after consideration of public comments, provides for the establishment of Standard Sales Provisions (SSPs), containing contract terms and conditions expected to be contained in contracts for the sale of SPR petroleum.  The final SPR sales rule is at 10 CFR Part 625.  The rule calls for the publication of the SSPs in the Federal Register and the Code of Federal Regulations as an appendix to the rule (10 CFR § 625.4(a)).  The rule also provides for the periodic review and republication of the SSPs in the Federal Register, including any revisions to such provisions (10 CFR § 625.4(b)). 

 

Upon a Presidential decision to draw down the SPR, DOE would issue a Notice of Sale, announcing the amounts and types of the SPR petroleum to be sold, the delivery locations and modes, and other pertinent information.  The rule provides that the Secretary of Energy or the Secretary’s designee would specify in the Notice of Sale, by referencing the latest version of the SSPs, which of the terms and conditions in the SSPs would or would not apply to a particular sale (10 CFR §§ 625.3(a); 625.4(c)).  In addition, in the Notice of Sale, the Secretary could revise the terms and conditions, or add new ones applicable to that sale (10 CFR § 625.3(a)).  The rule provides that no contract could be awarded to an offeror who had not unconditionally agreed to all provisions made applicable by the Notice of Sale (10 CFR § 625.3(c)).

 

B.  General Sales Procedures

 

Under the SPR sales rule, the first step in the SPR competitive sales process is the issuance of a Notice of Sale which lists the volume, characteristics, and location of the petroleum for sale, delivery dates and procedures for submitting offers, as well as measures for assuring performance and financial responsibility.

 

Over the course of a drawdown, several Notices of Sale may be issued, each covering a sales period of one to two months.   Offerors may have only five days from the date a Notice of Sale is issued until offers are due, with delivery of oil commencing no later than thirty days after the Presidential direction to draw down the Reserve.  Subsequent sales periods will coordinate Notice of Sale issuance with standard industry delivery periods.  Because of the possible short initial lead-time, the Department maintains a registry of prospective offerors who will receive electronic notification of all Notices of Sale. 

 

The next step in the sales process is for prospective purchasers to submit offers, as specified in the Notice of Sale.  Offerors must unconditionally accept all terms and conditions in the Notice of Sale, and submit an offer guarantee based on potential contract value.  After submission, the offers are evaluated and "apparently successful offerors" are selected. The offer evaluation process is structured so that the offerors bidding the highest prices determine their method of delivery, up to the limits of the distribution system, with specific delivery arrangements negotiated later in the process.

 

All apparently successful offerors are required, within five business days of being notified, to provide a letter of credit as a guarantee of performance and payment of amounts due under the contract.  Upon timely receipt of the letters of credit, and a final determination by the Contracting Officer that offers are responsive and offerors responsible, the DOE issues the Notices of Award.  Deliveries then commence to the purchasers, consistent with their arrangements for commercial pipeline or marine vessel transportation. Purchasers are invoiced following crude oil deliveries.

 

 

II.         The Revised Standard Sales Provisions

 

            A. Major Revisions

 

The SSPs are being revised as contemplated by the SPR sales rule. The revisions primarily relate to the increased use of the internet as the primary means of providing SPR program information and conducting business operations.  The most significant of these revisions is the adoption by DOE of a web-based drawdown sales system for registering and communicating with potential offerors, posting sales documents and receiving offers. The new system replaces the existing registration database in its entirety, so any interested parties who had previously registered on DOE’s Sales Offerors Mailing List must complete a new registration in order to receive drawdown sales notifications and participate in a sale.  Also, due to the transference of the sales process to the internet, several former SSP exhibits, e.g., Exhibit A, “Strategic Petroleum Reserve Sales Offer Form,” have been eliminated as their functions have been superseded by the on-line program.

 

Other noteworthy revisions relate to the crude oil streams and delivery options offered during a sale.  Maya crude oil is no longer stored as a separate segregation at the SPR, resulting in the elimination of former Master Line Item 003, Bryan Mound Maya. In addition, a change has been made to the nominal definition of marine delivery line items, wherein the three sequential 10-day periods within a sales cycle for vessel or barge deliveries have been replaced by a single 30-day period which coincides with the cycle. Also, as the SPR crude oil stream assays are periodically updated according to a long-term storage cavern sampling program, the revised provisions provide an internet link to the latest assay files for each of the eight SPR crude oil streams. 

 

In accordance with subsection 161 (j) of the Energy Policy and Conservation Act (42 U.S.C. 6241 (j)), the State of Hawaii, or a State-designated eligible entity authorized to act on the State’s behalf, may submit a “binding offer” for the purchase of SPR petroleum.  A new sales provision C.7 summarizes the rights accorded to the State under that authority.

 

Finally, cash wire deposits and electronic funds transfers to the account of the U.S. Treasury are no longer acceptable methods for submission of offer guarantees.  An irrevocable standby letter of credit is now the only acceptable form of offer guarantee.  Slightly revised irrevocable standby letter of credit formats have been provided for both the offer guarantee and the payment and performance guarantee.  The instructions for the return of cash wire deposit or funds transfer offer guarantees have been eliminated.

 

The following is a provision-by-provision discussion of the noteworthy changes to the SSPs.

 

B.  Revised Provisions

 

SSP No. A.1 List of abbreviations

SSP No. A.5 Sales Notification List (SNL)

 

            These provisions make clear that the previous Sales Offeror Mailing List has been totally replaced by the new on-line Sales Notification List, and that new registration is required on the SNL.

 

            SSP No. A.2 Definitions

 

            New subparagraph (e) is the definition of an electronic signature, as recognized for the internet-based sales program.

 

            SSP A.6  Publication of the Notice of Sale

 

            This provision reinforces that such publication will primarily be accomplished by electronically notifying the SNL registrants and posting the document on identified Department of Energy websites.

 

            SSP No. B.1  Requirements for a valid offer - caution to offerors

            SSP No. B.9  Submission of offers and modification of previously submitted    offers

 

            These provisions stipulate that offers to purchase SPR petroleum must be submitted, modified or withdrawn using the internet-based sales system.

 

             SSP No. B.7  State of Hawaii Access to SPR Crude Oil

 

            The provision summarizes the rights of the State of Hawaii under its authority to submit a binding offer to purchase SPR petroleum in accordance with subsection 161 (j) of the Energy Policy and Conservation Act (42 U.S.C. 6241 (j)).

 

SSP No. B.12 Offer guarantee

 

            This provision specifies that the only acceptable offer guarantee is an irrevocable standby letter of credit, and allows an offeror to fax a properly executed copy in advance of the original document.  The issuing financial institution must be a participant in the Fedwire Deposit System Network funds transfer system.

 

SSP No. B.18 Notice of Sale line item schedule - petroleum quantity, quality, and delivery method

 

            This provision redefines marine delivery line items (tanker and barge) to be single 30-day delivery periods instead of the former three sequential 10-day delivery periods within a sales cycle.

 

            SSP No. B.22 Procedures for evaluation of offers

 

            This provision describes how DOE evaluates offers in relation to the Government’s estimates of the market values for each SPR crude oil stream offered for sale.

 

SSP No. C.21 Payment and Performance Letter of Credit

 

            The requirement that the issuing financial institution be a participant in the Fedwire Deposit System Network funds transfer system also applies to payment and performance irrevocable standby letters of credit.

 

III.        Procedural Requirements

 

A.  Review Under Executive Order 12866

 

The Office of Information and Regulatory Affairs of the Office of Management and Budget (OMB) has determined that today's regulatory action is not a "significant regulatory action" under Executive Order 12866, "Regulatory Planning and Review," 58 FR 51735 (October 4, 1993).  Accordingly, this action was not subject to review under the Executive Order.

 

B.  Review Under the Regulatory Flexibility Act

 

            The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires preparation of an initial regulatory flexibility analysis for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities.  As required by Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” 67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process (68 FR 7990).  DOE has made its procedures and policies available on the Office of General Counsel’s Web site: http://www.gc.doe.gov.  No statute or other law requires DOE to propose today’s rule for public comment.  Accordingly, the requirements of the Regulatory Flexibility Act do not apply to this rulemaking.

 

C.   Review Under the Paperwork Reduction Act

 

             This rulemaking will impose no new information or record keeping requirements.  Accordingly, OMB clearance is not required under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.)

 

D.  Review Under the National Environmental Policy Act

 

DOE has determined that this rule falls into a class of actions that are categorically excluded from review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) and the Department’s implementing regulations at 10 CFR part 1021.  Specifically, this rule is strictly procedural, and, therefore, is covered by the Categorical Exclusion in paragraph A6 to subpart D, 10 CFR part 1021.  Accordingly, neither an environmental assessment nor an environmental impact statement is required.          

 

E.  Review Under Executive Order 13132

 

Executive Order 13132, "Federalism," 64 FR 43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications.  The Executive Order requires agencies to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and carefully assess the necessity for such actions.  The Executive Order also requires agencies to have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.  On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process it will follow in the development of such regulations (65 FR 13735).  DOE has examined today's rule and has determined that it does not preempt State law and does not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.  No further action is required by Executive Order 13132.

 

F.  Review Under Executive Order 12988

 

With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, "Civil Justice Reform" (61 FR 4729, February 7, 1996), imposes on Federal agencies the general duty to adhere to the following requirements:  (1) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burden reduction.  Section 3(b) of Executive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation:  (1) clearly specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General.  Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them.  DOE has completed the required review and determined that, to the extent permitted by law, this rule meets the relevant standards of Executive Order 12988.

 

G.  Review Under the Unfunded Mandates Reform Act of 1995.

 

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and tribal governments and the private sector.  With respect to a proposed regulatory action that may result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector of $100 million or more (adjusted annually for inflation), section 202 of the Act requires a Federal agency to publish estimates of the resulting costs, benefits, and other effects on the national economy (2 U.S.C. 1532(a),(b)).  The Act also requires a Federal agency to develop an effective process to permit timely input by elected officers of State, local, and tribal governments on a proposed "significant intergovernmental mandate," and requires an agency plan for giving notice and opportunity for timely input to potentially affected small governments before establishing any requirements that might significantly or uniquely affect small governments.  On March 18, 1997, DOE published a statement of policy on its process for intergovernmental consultation under the Act (62 FR 12820) (also available at http://www.gc.doe.gov).  The rule published today does not contain any Federal mandate, so these requirements do not apply.

 

H.  Review Under the Treasury and General Government Appropriations
Act, 1999

 

            Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well-being.  This rule would not have any impact on the autonomy or integrity of the family as an institution.  Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

 

I.  Review Under the Treasury and General Government Appropriations
Act, 2001

 

Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516, note) provides for agencies to review most disseminations of information to the public under guidelines established by each agency pursuant to general guidelines issued by OMB.  OMB’s guidelines were published at 67 FR 8452 (February 22, 2002), and DOE’s guidelines were published at 67 FR 62446 (October 7, 2002).  DOE has reviewed today’s notice under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines.

 

J.  Review Under Executive Order 13211

 

Executive Order 13211, "Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use," 66 FR 28355 (May 22, 2001) requires Federal agencies to prepare and submit to the Office of Information and Regulatory Affairs (OIRA), Office of Management and Budget, a Statement of Energy Effects for any proposed significant energy action.  A "significant energy action" is defined as any action by an agency that promulgated or is expected to lead to promulgation of a final rule, and that: (1) is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action.  For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use.  Today's regulatory action would not have a significant adverse effect on the supply, distribution, or use of energy and, therefore, is not a significant energy action.  Accordingly, DOE has not prepared a Statement of Energy Effects.

 

K.  Congressional Notification

 

            As required by 5 U.S.C. 801, DOE will report to Congress on the promulgation of today’s rule prior to its effective date.  The report will state that it has been determined that the rule is not a “major rule” as defined by 5 U.S.C. 804(2).

 

 

  List of Subjects in 10 CFR part 625

 

Government contracts, Oil and gas reserves, Strategic and critical materials.

 

Issued in Washington, D.C. on  May 20, 2005.

 

 

 

John D. Shages

Deputy Assistant Secretary

Petroleum Reserves