Rule2022-23184
Procedures for the Acquisition of Petroleum for the Strategic Petroleum Reserve
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 25, 2022
Effective
November 25, 2022
Issuing agencies
Energy Department
Abstract
The Energy Policy Act of 2005 directed the Secretary of Energy to develop procedures for the acquisition of petroleum products for the Strategic Petroleum Reserve ("SPR"). Pursuant to that direction, in 2006, the Department of Energy ("DOE" or the "Department") promulgated the Procedures for Acquisition of Petroleum for the Strategic Petroleum Reserve. Over the intervening 16 years, the existing regulations have become outdated due to changes in statutory authority, agency practice, and market dynamics. In this final rule, DOE is amending its regulations on the procedures for the acquisition of petroleum products for the SPR to: more closely align the regulatory language with the applicable statutory language; remove outdated procedures for acquisition under the royalty-in-kind program; add procedures for acquisition by exchange to better reflect petroleum product acquisition operations as conducted by the Office of Petroleum Reserves; and increase the Department's flexibility in structuring acquisitions.
Full Text
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<title>Federal Register, Volume 87 Issue 205 (Tuesday, October 25, 2022)</title>
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[Federal Register Volume 87, Number 205 (Tuesday, October 25, 2022)]
[Rules and Regulations]
[Pages 64369-64375]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-23184]
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DEPARTMENT OF ENERGY
10 CFR Part 626
RIN 1901-AB56
Procedures for the Acquisition of Petroleum for the Strategic
Petroleum Reserve
AGENCY: Office of Cybersecurity, Energy Security, and Emergency
Response, Department of Energy.
ACTION: Final rule.
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SUMMARY: The Energy Policy Act of 2005 directed the Secretary of Energy
to develop procedures for the acquisition of petroleum products for the
Strategic Petroleum Reserve (``SPR''). Pursuant to that direction, in
2006, the Department of Energy (``DOE'' or the ``Department'')
promulgated the Procedures for Acquisition of Petroleum for the
Strategic Petroleum Reserve. Over the intervening 16 years, the
existing regulations have become outdated due to changes in statutory
authority, agency practice, and market dynamics. In this final rule,
DOE is amending its regulations on the procedures for the acquisition
of petroleum products for the SPR to: more closely align the regulatory
language with the applicable statutory language; remove outdated
procedures for acquisition under the royalty-in-kind program; add
procedures for acquisition by exchange to better reflect petroleum
product acquisition operations as conducted by the Office of Petroleum
Reserves; and increase the Department's flexibility in structuring
acquisitions.
DATES: This final rule is effective November 25, 2022.
FOR FURTHER INFORMATION CONTACT: Mr. Thomas McGarry, U.S. Department of
Energy, Office of Petroleum Reserves, Office of Cybersecurity, Energy
Security, and Emergency Response, Forrestal Building, Room 3G-024, 1000
Independence Avenue SW, Washington, DC 20585; (202) 586-8197, email:
<a href="/cdn-cgi/l/email-protection#2b5f4344464a580546484c4a5959526b435a054f444e054c445d"><span class="__cf_email__" data-cfemail="65110d0a0804164b0806020417171c250d144b010a004b020a13">[email protected]</span></a>; or Mr. Edward Toyozaki, U.S. Department of
Energy, Office of the General Counsel, Forrestal Building, Room 6D-033,
1000 Independence Avenue SW, Washington, DC 20585; (202) 586-0126,
email: <a href="/cdn-cgi/l/email-protection#660302110714024812091f091c070d0f260e174802090348010910"><span class="__cf_email__" data-cfemail="2d48495a4c5f490359425442574c46446d455c03494248034a425b">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background and Introduction
II. Discussion of Final Rule and Response to Comments
A. Summary of the Final Rule
B. Response to Comments
III. Regulatory Review
IV. Congressional Notification
V. Approval of the Office of the Secretary
I. Background and Introduction
The SPR was established by the Energy Policy and Conservation Act
(``EPCA''), (Pub. L. 94-163), to store petroleum products to diminish
the impact of disruptions on petroleum supplies and to carry out the
obligations of the United States under the International Energy
Program. (42 U.S.C. 6231 et seq.) Section 160 of EPCA authorizes the
Secretary of Energy to acquire petroleum products for the SPR.
Subsequently, the Energy Policy Act of 2005, (Pub. L. 109-58), amended
EPCA and directed the Secretary of Energy to develop, with the
opportunity for public notice and comment, procedures for the
acquisition of petroleum products for the SPR. (42 U.S.C. 6240) The
principal method for acquiring SPR petroleum products is by purchase,
but SPR petroleum may also be acquired via exchange. (42 U.S.C.
6240(a)) On November 8, 2006, and pursuant to EPCA, as amended by the
Energy Policy Act of 2005, DOE established procedures for the
acquisition of SPR petroleum at 10 CFR part 626. 71 FR 65376 (``2006
final rule''). The 2006 final rule included provisions regarding the
direct purchase, exchange, and transfer of royalty oil from the
Department of the Interior (``DOI'').
Subsequent to DOE promulgating the 2006 final rule, the Government
Accountability Office and the DOI Inspector General published several
reports between 2008 and 2009 on the shortcomings of and personnel
misconduct related to the royalty-in-kind program, and, as a result,
the DOI terminated its royalty-in-kind program in 2010. Then, in 2013,
with section 306(a) of the Bipartisan Budget Act of 2013, (Pub. L. 113-
67), Congress repealed DOE's authority to conduct SPR acquisitions
under the royalty-in-kind program that was incorporated into the 2006
final rule.
Prior to this final rule, 10 CFR part 626 had not been updated
since it was promulgated by DOE in the 2006 final rule, and, thus, did
not reflect the intervening changes to the authorizing statutory
authority. Additionally, over the last few decades, DOE has conducted
numerous exchanges, mostly in an emergency exchange capacity; however,
part 626 did not clearly outline those exchange procedures. Lastly,
under the original iteration of part 626, the Department found itself
less able to structure acquisition contracts in response to recent
changing petroleum product market dynamics.
Accordingly, considering these circumstances, DOE has determined
that a revision to these regulations to provide more clarity; better
reflect the underlying statutory authorities, operational practices,
and realities; and provide additional flexibility in structuring
acquisitions is warranted.
On August 4, 2022, DOE published the notice of proposed rulemaking
(``NOPR'' or ``proposed rule'') to amend its regulations at part 626.
(87 FR 47652) Publication of the NOPR began a 30-day public comment
period that ended on September 6, 2022. DOE received five comments:
four of which were outside the scope of the proposed rule and a fifth
that was in support of DOE's proposed rule. The NOPR and comments
received on the NOPR can be accessed at: <a href="https://www.regulations.gov/document/DOE-HQ-2022-0022-0001">https://www.regulations.gov/document/DOE-HQ-2022-0022-0001</a>.
II. Discussion of Final Rule and Response to Comments
A. Summary of the Final Rule
The final rule revises 10 CFR part 626 in several respects. First,
the final rule updates language throughout part 626 to more closely
align with the statutory language found in section 160 of EPCA. This
includes updating the definitions for ``DOE'', ``Exchange'', and
``Strategic Petroleum Reserve'', while adding new definitions for
``Premium'', ``Requestor'', and ``Solicitation''. The definition
pertaining to ``DOI'' is also struck. These changes provide more
clarity and maintain continuity throughout the part while supporting
other changes.
Second, because Congress repealed DOE's authority to acquire
``crude oil which the United States is entitled to receive in kind as
royalties from production on Federal lands'' in 2013, all references to
the royalty-in-kind program in part 626 have been removed. This
includes removal of the procedures for acquisition under the royalty-
in-kind program previously found at 10 CFR 626.7.
Third, the final rule codifies procedures for the exchange of
petroleum products at the revised 10 CFR 626.7 and adds references to
``exchange'' throughout part 626, as appropriate. These changes are
intended to reflect current operational practices of the SPR. Since
1996, in accordance with statutory authority in sections 159 and 160 of
EPCA, DOE has conducted over a dozen emergency exchanges with private
industry. In these emergency exchanges, upon request from refiners and
verification of the request by DOE, the SPR provides emergency barrels
of petroleum product to refiners; in return, the requesting refiners
later provide the SPR the original number of barrels plus extra barrels
called a ``premium.'' In
[[Page 64370]]
addition to the emergency exchanges by request, since 2000 and most
recently in 2021, DOE has twice utilized the exchange authority to
conduct solicitations for exchange, whereby the general public was
permitted to bid to contract to accept barrels of SPR petroleum
products in the present and return those barrels plus a premium in the
future. DOE is now codifying these long-standing procedures into the
acquisition regulations.
Fourth, the final rule amends 10 CFR 626.5 and 626.6 to increase
flexibility for DOE to enter into contracts for the purchase of
petroleum products, consistent with the requirements and objectives of
section 160 of EPCA. These changes ensure that DOE continues to acquire
petroleum products in accordance with the competitive principles of the
Federal Acquisition Regulation and the DOE Acquisition Regulation,
while providing DOE the flexibility to use either fixed-price or index-
priced contracts for future petroleum product acquisitions. DOE is
proposing these changes because the current acquisition regulations,
including the requirement that DOE acquire oil in accordance with the
Federal Acquisition Regulation and the requirement to use a price index
to set purchase prices, unnecessarily restrict DOE's flexibility to
procure petroleum products using fixed-price contracts, notwithstanding
the fact that there may be circumstances in which a fixed-price
acquisition would better meet the statutory objectives of EPCA.
Lastly, the final rule adds 10 CFR 626.9 to implement subsection
(f) of section 160 of EPCA. (42 U.S.C. 6240(f)) This final change has
been included because, while the Department has had the statutory
authority to suspend previously announced or contracted acquisitions of
petroleum products or divert the injection of petroleum products into
the SPR when there is a perceived imminent severe energy supply
interruption, until now, this authority has not been incorporated into
any existing regulations.
B. Response to Comments
The Department received five comments on the proposed revisions to
10 CFR part 626. Of those, four comments were outside the scope of the
proposed rule; the single responsive comment supported the proposed
rule. The comments received on the NOPR can be accessed at: <a href="https://www.regulations.gov/document/DOE-HQ-2022-0022-0001/comment">https://www.regulations.gov/document/DOE-HQ-2022-0022-0001/comment</a>.
The single positive comment was submitted by Employ America. Employ
America stated that given the negative impact that volatile oil prices
have on inflation, ``the rule is an important step to reduce the
volatility of oil prices over the short and medium term, improve our
nation's energy security, and a necessary step to ensure that
acquisition procedures more fully align with the [SPR]'s governing
statute.'' Employ America indicated they ``urge the DOE to ensure the
final rule allows [the Department] to utilize fixed-price contracts
with sufficient flexibility to achieve the objectives and procedural
needs defined in the SPR's governing statute.'' That said, Employ
America noted that fixed-price contracts should not always be used, but
``given that the SPR must balance several objectives, it needs a
toolkit that can be deployed as necessary to meet the entire set of
objectives.'' Finally, Employ America concluded that ``[s]hould the
proposed rule be finalized, the DOE will have the ability to realign
its storage capabilities to better support and insure domestic
producers against the risk of price crashes that have otherwise left
them reluctant to invest.''
DOE has properly considered the comment and agrees with the intent
and substance of the comment. Therefore, for the reasons discussed in
the preamble and the proposed rule (87 FR 47652; Aug. 4, 2022), the
Department is publishing the rulemaking as proposed.
III. Regulatory Review
A. Executive Order 12866
This final rule has been determined to not be 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 that Executive order by the Office of
Information and Regulatory Affairs (``OIRA'') of the Office of
Management and Budget (``OMB'').
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires the
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. The Department
has made its procedures and policies available on the Office of General
Counsel's website: <a href="http://www.energy.gov/gc/office-general-counsel">www.energy.gov/gc/office-general-counsel</a>.
The final rule updates the procedures DOE utilizes for the
acquisition of petroleum products for the SPR, changes definitions, and
removes references to the repealed royalty-in-kind program. DOE has
reviewed the changes under the provisions of the Regulatory Flexibility
Act and the procedures and policies published on February 19, 2003.
These changes are procedural and not designed to set the terms or
conditions of an acquisition and apply only to entities that are
engaged in the sale of petroleum products to the Strategic Petroleum
Reserve. Historically, Strategic Petroleum Reserve acquisitions have
typically been large volume acquisitions, and usually filled by larger
entities operating in the petroleum industry. Therefore, these
procedures are unlikely to directly affect small businesses or other
small entities. For these reasons, DOE certifies that this final rule
would not have a significant economic impact on a substantial number of
small entities. Accordingly, DOE has not prepared a regulatory
flexibility analysis for this rulemaking. DOE's certification and
supporting statement of factual basis will be provided to the Chief
Counsel for Advocacy of the Small Business Administration for review
under 5 U.S.C. 605(b).
C. Paperwork Reduction Act of 1995
The final rule does not impose any 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 of 1969
Per 10 CFR 1021.410(a), DOE has determined that promulgation of
these regulations fall into a class of actions that does not
individually or cumulatively have a significant impact on the human
environment as set forth under DOE's regulations implementing the
National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).
Furthermore, this rulemaking is covered under the Categorical Exclusion
found in DOE's National Environmental Policy Act regulations at
paragraph A6 of appendix A to subpart D, 10 CFR part 1021, which
applies to rulemakings that are strictly procedural. Accordingly,
neither an EIS nor an EA is required.
[[Page 64371]]
E. Executive Order 13132
Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 10,
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
to carefully assess the necessity for such actions. DOE examined this
final rule and determined that it would not preempt State law and would
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. Executive Order 13175
Executive Order 13175, ``Consultation and Coordination with Indian
Tribal Governments,'' 65 FR 67249 (November 9, 2000), applies to agency
regulations that have Tribal implications, that is, regulations that
have substantial direct effects on one or more Indian tribes, on the
relationship between the Federal Government and Indian Tribes, or on
the distribution of power and responsibilities between the Federal
Government and Indian Tribes. The final rule has been analyzed in
accordance with the principles and criteria contained in Executive
Order 13175. Because this final rule will not significantly or uniquely
affect the communities of the Indian tribal governments or impose
substantial direct compliance costs on them, the funding and
consultation requirements of Executive Order 13175 do not apply.
G. 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
its 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 its 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, the final rule meets the relevant standards of
Executive Order 12988.
H. Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (``UMRA'')
(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. For a regulatory action likely to result in a rule
that may cause the expenditure by State, local, and tribal governments,
in the aggregate, or by the private sector of $100 million or more in
any one year (adjusted annually for inflation), section 202 of UMRA
requires a Federal agency to publish a written statement that estimates
the resulting costs, benefits, and other effects on the national
economy (2 U.S.C. 1532(a) and (b)). UMRA 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 ``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 UMRA (62 FR 12820) (also available
at <a href="http://www.energy.gov/gc/office-general-counsel">www.energy.gov/gc/office-general-counsel</a>). DOE examined this final
rule according to UMRA and its statement of policy and has determined
that the rule contains neither an intergovernmental mandate nor a
mandate that may result in the expenditure of $100 million or more in
any year by State, local, and tribal governments, in the aggregate, or
by the private sector. Accordingly, no further assessment or analysis
is required under UMRA.
I. Treasury and General Government Appropriations Act of 1999
Section 654 of the Treasury and General Government Appropriations
Act of 1999 (Pub. L. 105-277) requires Federal agencies to issue a
Family Policymaking Assessment for any rule that may affect family
well-being. This final rule will 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.
J. Treasury and General Government Appropriations Act, 2001
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 the
final rule under the OMB and DOE guidelines and has concluded that it
is consistent with applicable policies in those guidelines.
K. 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 OIRA
and OMB, a Statement of Energy Effects for any 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)(i) is a significant regulatory action under
Executive Order 12866, or any successor order; and (ii) is likely to
have a significant adverse effect on the supply, distribution, or use
of energy, or (2) is designated by the Administrator of OIRA as a
significant energy action. For any 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. This final rule updates DOE's
acquisition of petroleum product procedures for the SPR to align the
regulatory language more closely with existing statutory language and
current practice. Accordingly, the final rule also updates definitions,
as appropriate, for the newly aligned regulatory language.
[[Page 64372]]
This final rule, therefore, does not meet any of the three criteria
listed above and would not have a significant adverse effect on the
supply, distribution, or use of energy and is therefore not a
significant regulatory action. Accordingly, DOE has not prepared a
Statement of Energy Effects.
IV. Congressional Notification
As required by 5 U.S.C. 801, DOE will report to Congress on the
promulgation of this final rule prior to its effective date. The report
will state that it has been determined that the final rule is not a
``major rule'' as defined by 5 U.S.C. 804(2).
V. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of this final
rule.
List of Subjects in 10 CFR Part 626
Government contracts, Oil and gas reserves, Strategic and critical
materials.
Signing Authority
This document of the Department of Energy was signed on October 19,
2022, by Puesh Kumar, Director for Cybersecurity, Energy Security, and
Emergency Response, pursuant to delegated authority from the Secretary
of Energy. That document with the original signature and date is
maintained by DOE. For administrative purposes only, and in compliance
with requirements of the Office of the Federal Register, the
undersigned DOE Federal Register Liaison Officer has been authorized to
sign and submit the document in electronic format for publication, as
an official document of the Department of Energy. This administrative
process in no way alters the legal effect of this document upon
publication in the Federal Register.
Signed in Washington, DC, on October 20, 2022.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.
0
For reasons stated in the preamble, DOE revises part 626 in chapter II
of title 10 of the Code of Federal Regulations as set forth below:
PART 626--PROCEDURES FOR ACQUISITION OF PETROLEUM FOR THE STRATEGIC
PETROLEUM RESERVE
Sec.
626.1 Purpose.
626.2 Definitions.
626.3 Applicability.
626.4 General acquisition strategy.
626.5 Acquisition procedures--general.
626.6 Acquiring petroleum products by purchase.
626.7 Acquiring petroleum products by exchange.
626.8 Deferrals of contractually scheduled deliveries.
626.9 Suspension and pre-drawdown diversion.
Authority: 42 U.S.C. 6240(c); 42 U.S.C. 7101, et seq.
Sec. 626.1 Purpose.
This part establishes the procedures for acquiring petroleum
products for, and deferring contractually scheduled deliveries to, the
Strategic Petroleum Reserve. The procedures do not represent actual
terms and conditions to be contained in the contracts for the
acquisition of SPR petroleum products.
Sec. 626.2 Definitions.
Backwardation means a market situation in which prices are
progressively lower in succeeding delivery months than in earlier
months.
Contango means a market situation in which prices are progressively
higher in the succeeding delivery months than in earlier months.
Contract means the agreement under which DOE acquires SPR petroleum
products, consisting of the solicitation, the contract form signed by
both parties, the successful offer, and any subsequent modifications,
including those granting requests for deferrals.
Contracting Officer means a person with the authority to enter
into, administer, and/or terminate contracts and make related
determinations and findings, including entering into sales contracts on
behalf of the Government. The term includes certain authorized
representatives of the Contracting Officer acting within the limits of
their authority as delegated by the Contracting Officer.
DEAR means the Department of Energy Acquisition Regulation.
Deferral means a process whereby petroleum products scheduled for
delivery to the SPR in a specific contract period is rescheduled for
later delivery, outside of that period, and encompasses the future
delivery of the originally scheduled quantity plus an in-kind premium.
DOE means the Department of Energy and includes any of its
subsidiary offices, such as the Office of Petroleum Reserves (OPR) and
the Strategic Petroleum Reserve Program Management Office.
Exchange means a process whereby petroleum products owned by or due
to the SPR are provided to an entity or requestor in return for
petroleum products of comparable quality plus a premium quantity of
petroleum products (in barrels)--or another form of premium as
permitted by law--delivered to the SPR in the future, or when SPR
petroleum products are traded for petroleum products of a different
quality preferred by DOE for operational reasons based on the relative
values of the quantities traded.
FAR means the Federal Acquisition Regulation.
Government means the United States Government and includes DOE as
its representative.
OPR means the Office of Petroleum Reserves within DOE, whose
responsibilities include the operation of the Strategic Petroleum
Reserve.
Petroleum products means crude oil, residual fuel oil, or any
refined product (including any natural gas liquid, and any natural gas
liquid product) owned, or contracted for, by DOE and in storage in any
permanent SPR facility, or temporarily stored in other storage
facilities.
Premium means the additional amount of petroleum product (in
barrels)--or another form of payment as permitted by law--that must be
delivered to the SPR above the principal amount of petroleum product
owed to SPR in the case of an exchange or a deferred contractually
scheduled delivery. The premium may include a calculation based on a
rate set by DOE and duration of time until the SPR receives the
petroleum product.
Requestor is an entity that makes an emergency request under Sec.
626.7(b).
Secretary means the Secretary of Energy.
Solicitation means the written request by DOE for submission of
offers or quotations to DOE for the acquisition of petroleum products.
Strategic Petroleum Reserve or SPR means the reserve for the
storage of up to 1 billion barrels of petroleum products established by
Title I, Part B, of the Energy Policy and Conservation Act, 42 U.S.C.
6201 et seq.
Sec. 626.3 Applicability.
The procedures in this part apply to the acquisition of petroleum
products by DOE for the Strategic Petroleum Reserve through purchase or
exchange, as well as to deferrals of contractually scheduled
deliveries.
Sec. 626.4 General acquisition strategy.
(a) Criteria for commencing acquisition. DOE shall consider the
following factors prior to commencing acquisition of petroleum products
for the SPR:
(1) The current inventory of the SPR;
(2) The current level of private inventories;
[[Page 64373]]
(3) Days of net import protection;
(4) Current price levels for petroleum products and related
commodities, the ability to minimize costs and avoid incurring
excessive costs in acquisition, and the possible effect on consumer and
market prices of any SPR acquisition;
(5) The outlook for international and domestic production levels;
(6) Existing or potential disruptions in supply or refining
capability;
(7) The level of market volatility;
(8) Futures market price differentials for petroleum products and
related commodities;
(9) The need to protect national security; and
(10) Any other factor the Secretary deems necessary or appropriate
to consider.
(b) Review of rate of acquisition. DOE shall review the appropriate
rate of petroleum product acquisition each time an open market
acquisition has been suspended for more than three months.
(c) Acquisition through other Federal agencies. DOE may enter into
arrangements with another Federal agency for that agency to acquire
petroleum products for the SPR on behalf of DOE.
Sec. 626.5 Acquisition procedures--general.
(a) Notice of acquisition. (1) Except when DOE has determined there
is good cause to do otherwise, DOE shall provide advance public notice
of its intent to acquire petroleum products for the SPR. The notice of
acquisition will, to the extent feasible, include the general terms and
details of DOE's petroleum products acquisition and inform the public
of DOE's overall fill goals.
(2) The notice of acquisition will generally include the:
(i) Manner of acquisition;
(ii) Time period for solicitations;
(iii) Quantity of petroleum products sought;
(iv) Minimum petroleum product quality requirements;
(v) Time period for delivery;
(vi) Acceptable delivery locations; and
(vii) Instructions for the offer process.
(b) Manner of acquisition. (1) DOE shall specify the manner of
petroleum product acquisition, either purchase or exchange, in the
notice of acquisition.
(2) DOE shall, to the greatest extent practicable, determine the
manner of petroleum product acquisition after considering:
(i) The availability of appropriated funds;
(ii) Minimization of costs;
(iii) Minimization of the Nation's vulnerability to a severe energy
supply interruption;
(iv) Minimization of the impact to supply levels and market forces;
(v) Whether the manner of acquisition would encourage competition
in the petroleum industry; and
(vi) Other considerations DOE deems to be relevant.
(c) Solicitation. (1) To secure the economic benefit and security
of a diversified base of potential suppliers of petroleum products to
the SPR, DOE shall maintain a listing, developed through online
registration, direct requests to DOE, and outreach to potential
suppliers by DOE. Upon the issuance of a solicitation, DOE shall notify
potential suppliers via their registered email addresses.
(2) DOE shall make the solicitation publicly available on the
website of the OPR: <a href="http://www.spr.doe.gov">www.spr.doe.gov</a>.
(d) Timing and duration of solicitation. (1) DOE shall determine
petroleum products requirements on nominal six-month cycles, and shall
review and update these requirements prior to each solicitation cycle.
(2) Unless termination rights are explicitly waived by DOE, DOE may
terminate any solicitations and contracts pertaining to the acquisition
or exchange of petroleum products at the convenience of the Government,
and in such event shall not be responsible for any costs incurred by
suppliers, other than costs for petroleum products delivered to the SPR
and for reasonable, customary, and applicable costs incurred by the
supplier in the performance of a valid contract for delivery before the
effective date of termination of such contract. In no event shall the
Government be liable for consequential damages or the entity's lost
profits as a result of such termination.
(e) Quality. (1) DOE shall define minimum petroleum product quality
specifications for the SPR. DOE shall include such specifications in
acquisition solicitations, and shall make them available on the website
of the OPR: <a href="http://www.spr.doe.gov">www.spr.doe.gov</a>.
(2) DOE shall periodically review the quality specifications to
ensure, to the greatest extent practicable, the petroleum product mix
in storage matches the demand of the United States refining system.
(f) Quantity. In determining the quantities of petroleum products
to be delivered to the SPR, DOE shall:
(1) Take into consideration market conditions and the availability
of transportation systems; and
(2) Seek to avoid adversely affecting other market participants or
petroleum product market fundamentals.
(g) Offer and evaluation procedures. (1) Each solicitation shall
provide necessary instructions on offer format and submission
procedures. The details of the offer, evaluation, and award procedures
may vary depending on the method of acquisition.
(2) DOE may use relative values and time differentials to manage
acquisition and delivery schedules to reduce acquisition costs.
(3) DOE may evaluate offers based on prevailing market prices of
specific petroleum products, and shall award contracts on a competitive
basis.
(4) Whether acquisition is by purchase or exchange, DOE may use a
price index to account for fluctuations in absolute and relative market
prices at the time of delivery to reduce market risk to all parties
throughout the contract term.
(h) Scheduling and delivery. (1) Except as provided in paragraph
(h)(4) of this section, DOE shall accept offers for petroleum products
delivered to specified SPR storage sites via pipeline or as waterborne
cargos delivered to the terminals serving those sites.
(2) Except as provided in paragraph (h)(4) of this section, DOE
shall generally establish schedules that allow for evenly spaced
deliveries of economically sized marine and pipeline shipments within
the constraints of SPR site and commercial facilities receipt
capabilities.
(3) DOE shall strive to maximize U.S. flag carrier utilization
through the terms of its supply contracts.
(4) DOE reserves the right to accept offers for other methods of
delivery if, in DOE's sole judgment, market conditions and logistical
constraints require such other methods.
Sec. 626.6 Acquiring petroleum products by purchase.
(a) General. For the purchase of petroleum products, DOE shall,
through certified contracting officers, conduct petroleum product
acquisitions in accordance with the competitive principles of the FAR
and the DEAR.
(b) Acquisition strategy. (1) DOE solicitations:
(i) May be either continuously open or fixed for a period of time;
and
(ii) May provide either for immediate delivery or for delivery at
future dates.
(2) DOE may alter the acquisition plan to take advantage of
differentials in prices for different qualities of petroleum products,
based on a consideration of factors, including the availability of
storage capacity in the
[[Page 64374]]
SPR sites, the logistics of changing delivery streams, and the
availability of ships, pipelines, and terminals to move and receive the
petroleum products.
(3) Based on the market analysis described in paragraph (d) of this
section, DOE may refuse offers or suspend the acquisition process on
the basis of Government estimates projecting substantially lower
petroleum product prices in the future than those contained in offers.
If DOE determines there is a high probability that the cost to the
Government can be reduced without significantly affecting national
energy security goals, DOE may either contract for delivery at a future
date or delay purchases to take advantage of the projected lower future
prices. Conversely, DOE may increase the rate of purchases if prices
fall below recent price trends or futures markets present a significant
contango and prices offer the opportunity to reduce the average cost of
petroleum product acquisitions in anticipation of higher future prices.
(4) Based on the market analysis described in paragraph (d) of this
section, DOE may refuse offers, decrease the rate of purchase, or
suspend the acquisition process if DOE determines acquisition will add
significant upward pressure to prices either regionally or on a world-
wide basis. DOE may consider recent price changes, private inventory
levels, petroleum product acquisition by other stockpiling entities,
the outlook for world petroleum products production, incipient
disruptions of supply or refining capability, logistical problems for
moving petroleum products, macroeconomic factors, and any other
considerations that may be pertinent to the balance of petroleum
product supply and demand.
(c) Fill requirements determination. DOE shall develop SPR fill
requirements for each solicitation based on an assessment of national
energy security goals, the availability of storage capacity, and the
need for specific grades and quantities of petroleum products.
(d) Market analysis. (1) DOE shall establish a market value for
each petroleum product to be acquired based on a market analysis at the
time of contract award.
(2) DOE may consider prices on futures markets, spot markets,
recent price movements, current and projected shipping rates, forecasts
by the DOE Energy Information Administration, and any other analytic
tools available to DOE to determine the most desirable purchase
profile.
(3) DOE may also consider factors including recent price changes,
private inventory levels, petroleum product acquisition by other
stockpiling entities, the outlook for world petroleum product
production, disruptions of supply or refining capability, logistical
problems for moving petroleum products, macroeconomic factors, and any
other considerations that may be pertinent relevant to the balance of
petroleum product supply and demand.
(e) Evaluation of offers. (1) DOE shall evaluate offers using:
(i) The criteria and requirements stated in the solicitation; and
(ii) The market analysis under paragraph (d) of this section.
(2) DOE shall require financial guarantees from the contracting
entity, in the form of a letter of credit or equivalent financial
assurance.
Sec. 626.7 Acquiring petroleum products by exchange.
(a) General. DOE may, through certified contracting officers,
conduct petroleum product acquisitions through the exchange of
petroleum products. Exchanges are conducted through emergency requests
or by solicitation.
(b) Emergency requests. (1) Notwithstanding the requirements of
Sec. 626.5, the requirements of this subsection shall control all
exchanges by emergency request.
(2) At any point, in the event of an emergency, a requestor may
request, in writing, for an exchange of petroleum product from the SPR.
(3) All requests shall include the following:
(i) A justification of need that describes:
(A) The emergency event,
(B) The emergency event's impact on the requestor, and
(C) The requestor's inability to acquire petroleum product from an
alternative source;
(ii) The quantity of petroleum product (in barrels) requested;
(iii) The quality specifications of petroleum product requested;
and
(iv) The anticipated duration of the emergency event.
(4) Upon receipt of an emergency request, DOE will verify the
emergency, evaluate the need, and assess the market to ensure there is
no alternative source of petroleum products available to the requester.
DOE, in its sole discretion, may approve or disapprove any emergency
request.
(5) Upon approval of an emergency request, DOE may enter into
contract negotiations with the requestor.
(6) Repayment to the SPR for an exchange by emergency request shall
be in the form of barrels of petroleum products, or another form of
repayment as permitted by law, and shall include the following to be
returned to the SPR by the contracted date:
(i) The principal amount of petroleum products provided to the
requestor;
(ii) A premium; and
(iii) Costs incurred by DOE in conducting the emergency request.
(c) Solicitation for exchange. (1) A solicitation for exchange:
(i) May be either continuously open or fixed for a period of time;
(ii) Shall advertise the quantity and quality specification of
petroleum product available for exchange;
(iii) May provide either for immediate delivery or for delivery at
future dates to a bidding entity;
(iv) May, in DOE's sole discretion, include a rate table from which
offerors may offer dates for repayment; and
(v) May require financial guarantees from offerors in the form of a
letter of credit or equivalent financial assurance to accompany their
bids.
(2) In conducting the bidding and selection process:
(i) Offerors shall follow the instructions to offerors included in
the solicitation;
(ii) DOE shall evaluate and select bids that best support national
energy security goals, the availability of petroleum products and
storage capacity, and need for specific grades and quantities of
petroleum products; and
(iii) Upon selection of a successful bid, DOE shall notify the
apparently successful offeror.
(3) Repayment to the SPR for an exchange by solicitation shall be
in the form of barrels of petroleum products or another form of
repayment as permitted by law, and may be calculated based on any rate
table, if applicable, and shall include the following:
(i) Principal amount of petroleum product owed to SPR in the case
of an exchange or a deferred contractually scheduled delivery;
(ii) Costs incurred by DOE in conducting the exchange; and
(iii) A premium for each prospective date for repayment.
(4) Based on the market analysis described in paragraph (c)(5) of
this section, DOE may refuse offers, decrease the rate of acquisition,
or suspend the exchange process if DOE determines acquisition will add
significant upward pressure to prices either regionally or on a
worldwide basis. DOE may consider recent price changes, private
inventory levels, petroleum product acquisition by other stockpiling
entities, the outlook for world petroleum products production,
incipient disruptions of supply or refining capability, logistical
problems for moving petroleum
[[Page 64375]]
products, macroeconomic factors, and any other considerations that may
be pertinent to the balance of petroleum product supply and demand.
(5) Market analysis:
(i) DOE shall establish a market value for each petroleum product
to be acquired based on a market analysis at the time of contract
award.
(ii) DOE may consider prices on futures markets, spot markets,
recent price movements, current and projected shipping rates, forecasts
by the DOE Energy Information Administration, and any other analytic
tools available to DOE to determine the most desirable purchase
profile.
(iii) DOE may also consider factors including recent price changes,
private inventory levels, petroleum product acquisition by other
stockpiling entities, the outlook for world petroleum product
production, disruptions of supply or refining capability, logistical
problems for moving petroleum products, macroeconomic factors, and any
other considerations that may be pertinent relevant to the balance of
petroleum product supply and demand.
Sec. 626.8 Deferrals of contractually scheduled deliveries.
(a) General. (1) DOE prefers to take deliveries of petroleum
products for the SPR at times scheduled under applicable contracts.
However, in the event the market is distorted by disruption to supply
or other factors, DOE may defer scheduled deliveries or consider
deferral requests from awardees.
(2) An awardee seeking to defer scheduled deliveries of petroleum
products to the SPR may submit a deferral request to DOE.
(b) Deferral criteria. DOE shall only grant a deferral request for
negotiation under paragraph (c) of this section if it determines that
DOE can receive a premium for the deferral and, based on DOE's deferral
analysis, that at least one of the following conditions exists:
(1) DOE can reduce the cost of its petroleum products acquisition
per barrel and increase the volume of petroleum products being
delivered to the SPR by means of the premium barrels required by the
deferral process;
(2) DOE anticipates private inventories are approaching a point
where unscheduled outages may occur;
(3) There is evidence that refineries are reducing their run rates
for lack of feedstock; or
(4) There is an unanticipated disruption to petroleum product
supply.
(c) Negotiating terms. (1) If DOE decides to negotiate a deferral
of deliveries, DOE shall estimate the market value of the deferral and
establish a strategy for negotiating with suppliers the minimum
percentage of the market value to be taken by the Government. During
these negotiations, if the deferral request was initiated by DOE, DOE
may consider any reasonable, customary, and applicable costs already
incurred by the supplier in the performance of a valid contract for
delivery. In no event shall such consideration account for any
consequential damages or lost profits suffered by the supplier as a
result of such deferral.
(2) DOE shall only agree to amend the contract if the negotiation
results in an agreement to give the Government a fair and reasonable
share of the market value.
Sec. 626.9 Suspension and pre-drawdown diversion.
Where the Secretary has found that a severe energy supply
interruption may be imminent, the Secretary may suspend any previously
announced or contracted acquisition of any petroleum product by the SPR
or injection of petroleum products into the SPR; or sell any petroleum
product acquired for injection into the SPR that has not yet been
injected into the SPR.
[FR Doc. 2022-23184 Filed 10-24-22; 8:45 am]
BILLING CODE 6450-01-P
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</html>Indexed from Federal Register on October 25, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.