Notices. Correction to notice and request for comments

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A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

BILLING CODE 4830-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service Proposed Collection; Comment Request for Revenue Procedure 2006-54; Correction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Correction to notice and request for comments. SUMMARY: This document contains a correction to a notice and request for comments(Revenue Procedure 2006-54) that was published in the **Federal Register** on Monday, January 29, 2007 (72 FR 4061) inviting the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections. FOR FURTHER INFORMATION CONTACT: Larnice Mack,

(202)622-3179 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background The notice and request for comments that is the subject of the correction is required by the Paperwork Reduction Act of 1995, Public Law 104-13(44 U.S.C. 3506(c)(2)(A)). Need for Correction As published, the comment request for Revenue Procedure 2006-54 contains an error that may prove to be misleading and is in need of clarification. Correction of Publication Accordingly, the publication of the comment request for Revenue Procedure 2006-54, which was the subject of FR Doc. E7-1301, is corrected as follows: On page 4061, column 1, in the preamble, under the caption “Summary”, fourth line from bottom of the paragraph, the language “Revenue Procedure 2006-49,” is corrected to read “Revenue Procedure 2006-54,”. LaNita Van Dyke, Chief, Publications and Regulations Branch, Legal Processing Division,Associate Chief Counsel, (Procedure and Administration). [FR Doc. E7-2141 Filed 2-8-07; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF VETERANS AFFAIRS Privacy Act of 1974 AGENCY: Department of Veterans Affairs. ACTION: Notice of establishment of new system of records. SUMMARY: The Privacy Act of 1974 (5 U.S.C. 552(e)(4)) requires that all agencies publish in the **Federal Register** a notice of the existence and character of their systems of records. Notice is hereby given that the Department of Veterans Affairs

(VA)is establishing a new system of records entitled Department of Veterans Affairs Federal Docket Management System (VAFDMS) (140VA00REG). DATES: Comments on this new system of records must be received no later than March 12, 2007. If no public comment is received, the new system will become effective March 12, 2007. ADDRESSES: Written comments may be submitted through *http://www.Regulations.gov;* by mail or hand-delivery to the Director, Regulations Management (00REG), Department of Veterans Affairs, 810 Vermont Ave., NW., Room 1068, Washington, DC 20420; or by fax to

(202)273-9026. Copies of comments received will be available for public inspection in the Office of Regulation Policy and Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m. Monday through Friday (except holidays). Please call

(202)273-9515 for an appointment. In addition, comments are available online through the Federal Docket Management System (FDMS). FOR FURTHER INFORMATION CONTACT: John Lawson, Privacy Officer, or Janet Coleman, Office of Regulation Policy and Management (00REG), Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420,

(202)273-9515. SUPPLEMENTARY INFORMATION: I. Description of the Proposed System of Records The Department of Veterans Affairs Federal Docket Management System (VAFDMS) permits the Department of Veterans Affairs

(VA)to identify individuals, who have submitted comments in response to VA rulemaking documents or notices so that communications or other actions, as appropriate and necessary, can be effected, such as to seek clarification of the comment, to directly respond to a comment, and for other activities associated with the rulemaking or notice process. Identification is possible only if the individual voluntarily provides identifying information when submitting a comment. If such information is not furnished, the submitted comments and/or supporting documentation cannot be linked to an individual. FDMS permits members of the public to search the public comments received by name of the individual submitting the comment. Unless the individual submits the comment anonymously, a name search will result in the comment being displayed for view. Comments may be searched by other means whether submitted anonymously or by an identified individual. If the comment is submitted electronically using FDMS, the viewed comment will not include the name of the submitter or any other identifying information about the individual except that, which the submitter has opted to include as part of his or her general comments. If a comment is submitted by an individual on his or her own behalf, in writing, that has been scanned and uploaded into FDMS, unless the individual submits the comment anonymously, the submitter's name will be on the comment, but other personally identifying information will be redacted before it is scanned and uploaded. Comments submitted on behalf of organizations in writing that have to be scanned and uploaded into FDMS, will not be redacted. II. Proposed Routine Use Disclosures of Data in the System Disclosure may be made to individuals, organizations, private or public agencies, or other entities or individuals with whom VA has a contract or agreement to perform such services as VA may deem practicable for the purposes of laws administered by VA, in order for the contractor, subcontractor, public or private agency, or other entity or individual with whom VA has an agreement or contract to perform the services of the contract or agreement. This routine use includes disclosures by the individual or entity performing the service for VA to any secondary entity or individual to perform an activity that is necessary for individuals, organizations, private or public agencies, or other entities or individuals with whom VA has a contract or agreement to provide the service to VA. VA may disclose information contained in this system of records, as necessary, to comply with the requirements of the Administrative Procedure Act

(APA)that comments are available for public review if submitted in response to VA's solicitation of public comments as part of the Agency's notice and rulemaking activities under the APA. However, VA will not release individually-identifiable personal information, such as an individual's home telephone number, under this routine-use except where VA determines that release of this information is integral to the public's understanding of the comment submitted. VA may disclose, on its own initiative, any information in this system, except the names and home addresses of veterans and their dependents, which is relevant to a suspected or reasonably imminent violation of law, whether civil, criminal or regulatory in nature and whether arising by general or program statute or by regulation, rule or order issued pursuant thereto, to a Federal, State, local, tribal, or foreign agency, charged with the responsibility of investigating or prosecuting such violation, or charged with enforcing or implementing the statute, regulation, rule or order. On its own initiative, VA may also disclose the names and addresses of veterans and their dependents to a Federal agency charged with the responsibility of investigating or prosecuting civil, criminal or regulatory violations of law, or charged with enforcing or implementing the statute, regulation, rule or order issued pursuant thereto. VA may disclose information in this System of Records to the Department of Justice (DoJ), either on VA's initiative or in response to DoJ's request for the information, after either VA or DoJ determines that such information is relevant to DoJ's representation of the United States or any of its components in legal proceedings before a court or adjudicative body, provided that, in each case, the agency also determines prior to disclosure that disclosure of the records to the Department of Justice is a use of the information contained in the records that is compatible with the purpose for which VA collected the records. VA, on its own initiative, may disclose records in this system of records in legal proceedings before a court or administrative body after determining that the disclosure of the records to the court or administrative body is a use of the information contained in the records that is compatible with the purpose for which VA collected the records. III. Compatibility of the Proposed Routine Uses Release of information from these records, pursuant to routine uses, will be made only in accordance with the provisions of the Privacy Act of 1974. The Privacy Act of 1974 permits agencies to disclose information about individuals, without their consent, for a routine use when the information will be used for a purpose that is compatible with the purpose for which the information was collected. In the routine-use disclosures proposed for this new VA system of records, VA will disclose individually-identified information for the following purposes: in connection with VA's administrative notice and rulemaking process; to contractors to perform a function associated with that process; for law-enforcement activities; and in administrative and judicial proceedings. VA has determined that the disclosure of information for the above purposes is a proper and necessary use of the information collected by the VAFDMS system, and is compatible with the purpose for which VA collected the information. The notice of intent to publish an advance copy of the system notice has been sent to the appropriate Congressional Committees and to the Director of the Office of Management and Budget (OMB), as required by 5 U.S.C. 552a(r ) (Privacy Act), as amended, and guidelines issued by OMB (65 FR 77677), December 12, 2000. Approved: January 11, 2007. Gordon H. Mansfield, Deputy Secretary of Veterans Affairs. 140VA00REG SYSTEM NAME: Department of Veterans Affairs Federal Docket Management System (VAFDMS) SYSTEM LOCATION: Primary location: Electronic records are kept at the U.S. Environmental Protection Agency, Research Triangle Park, NC 27711-0001. Secondary location: Paper records are kept at Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420. CATEGORIES OF INDIVIDUALS COVERED BY THE SYSTEM: Individuals who voluntarily provide personal contact information when submitting a public comment and/or supporting materials in response to a Department of Veterans Affairs rulemaking document or notice. CATEGORIES OF RECORDS IN THE SYSTEM: Full name, postal address, e-mail address, phone and fax numbers of the individual submitting comments, the name of the organization or individual that the individual represents (if any), and the comments, as well as other supporting documentation, furnished by the individual. Comments may include personal information about the commenter. AUTHORITY FOR MAINTENANCE OF THE SYSTEM: 44 U.S.C. 3501, Note; Pub. L. 107-347, sec. 206(d); Note; 5 U.S.C. 301, and 553. PURPOSE: To permit the Department of Veterans Affairs

(VA)to identify individuals who have submitted comments in response to VA rulemaking documents or notices, so that communications or other actions, as appropriate and necessary, can be effected, such as to seek clarification of the comment, to directly respond to a comment, and for other activities associated with the rulemaking or notice process. ROUTINE USES OF RECORDS MAINTAINED IN THE SYSTEM, INCLUDING CATEGORIES OF USERS AND THE PURPOSES OF SUCH USES: 1. Disclosure may be made to individuals, organizations, private or public agencies, or other entities or individuals with whom VA has a contract or agreement to perform such services as VA may deem practicable for the purposes of laws administered by VA, in order for the contractor, subcontractor, public or private agency, or other entity or individual with whom VA has an agreement or contract to perform the services of the contract or agreement. This routine use includes disclosures by the individual or entity performing the service for VA to any secondary entity or individual to perform an activity that is necessary for individuals, organizations, private or public agencies, or other entities or individuals with whom VA has a contract or agreement to provide the service to VA. 2. VA may disclose information contained in this System of Records, as necessary, to comply with the requirements of the Administrative Procedure Act

(a)STORAGE: Records are maintained on electronic storage media and paper.

(b)RETRIEVABILITY: Records are retrieved by various data elements and key word searches, among which are by: Name, Agency, Docket Type, Docket Sub-Type, Agency Docket ID, Docket Title, Docket Category, Document Type, CFR Part, Date Comment Received, and **Federal Register** Published Date.

(c)SAFEGUARDS: Electronic records are maintained in a secure, password protected, electronic system that utilizes security hardware and software to include: multiple firewalls, active intruder detection, and role-based access controls. Paper records are maintained in a controlled facility, where physical entry is restricted by the use of locks, guards, and/or administrative procedures. Access to records is limited to those officials who require the records to perform their official duties consistent with the purpose for which the information was collected. All personnel whose official duties require access to the information are trained in the proper safeguarding and use of the information.

(d)RETENTION AND DISPOSAL: Records will be maintained, and disposed of, in accordance with records disposition authority, approved by the Archivist of the United States. SYSTEM MANAGER(S) AND ADDRESSES: John Lawson, Privacy Officer, Office of Regulation Policy and Management (00REG), Department of Veterans Affairs, 810 Vermont Ave., NW., Washington, DC 20420; telephone

(202)273-9515. NOTIFICATION PROCEDURES: Individuals seeking to determine whether this System of Records contains information about themselves should address written inquiries to the Office of Regulation Policy and Management (00REG), Department of Veterans Affairs, 810 Vermont Ave., NW., Washington, DC 20420. Requests should contain the full name, address and telephone number of the individual making the inquiry. RECORD ACCESS PROCEDURE: Individuals seeking to access or contest the contents of records about themselves, contained in this System of Records, should address a written request, including full name, address and telephone number to the Office of Regulation Policy and Management (00REG), Department of Veterans Affairs, 810 Vermont Ave., NW., Washington, DC 20420. CONTESTING RECORD PROCEDURE: (See Record Access Procedure above.) RECORD SOURCE CATEGORIES: Individual. EXEMPTIONS CLAIMED FOR THE SYSTEM: There are no exemptions being claimed for this system. [FR Doc. E7-2135 Filed 2-8-07; 8:45 am] BILLING CODE 8320-01-P 72 27 Friday, February 9, 2007 Proposed Rules Part II Environmental Protection Agency 40 CFR Part 60 Air Pollution; Standards of Performance for New Stationary Sources: Fossil-Fuel-Fired Steam Generators and Electric Utility and Industrial-Commercial-Institutional Steam Generating Units; Reconsideration, etc.; Proposed Rule ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 60 [EPA-HQ-OAR-2005-0031; FRL-8275-9] RIN 2060-AN97 Standards of Performance for Fossil-Fuel-Fired Steam Generators for Which Construction Is Commenced After August 17, 1971; Standards of Performance for Electric Utility Steam Generating Units for Which Construction Is Commenced After September 18, 1978; Standards of Performance for Industrial-Commercial-Institutional Steam Generating Units; and Standards of Performance for Small Industrial-Commercial-Institutional Steam Generating Units; Reconsideration and Amendments AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: EPA is proposing to amend the new source performance standards

(NSPS)for electric utility steam generating units and industrial-commercial-institutional steam generating units. On February 27, 2006, EPA promulgated amendments to the NSPS for steam generating units. EPA is proposing to amend specific provisions in the NSPS for steam generating units to resolve issues and questions raised by petitioners for reconsideration of the promulgated amendments, and to correct technical and editorial errors that have been identified since promulgation. In addition, the proposed rule would update the grammatical style of the four NSPS steam generating unit subparts to be consistent across all of the subparts. DATES: *Comments* . Comments must be received on or before March 12, 2007, unless a public hearing is requested by February 20, 2007. If a timely hearing request is submitted, the public hearing will be held on February 26, 2007 and we must receive written comments on or before March 26, 2007. ADDRESSES: *Comments* . Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2005-0031, by one of the following methods: • *http://www.regulations.gov* . Follow the on-line instructions for submitting comments. • *E-mail: a-and-r-docket@epa.gov* . • *By Facsimile:*

(202)566-1741. • *Mail:* Air and Radiation Docket, U.S. EPA, Mail Code 6102T, 1200 Pennsylvania Ave., NW., Washington, DC 20460. Please include a total of two copies. EPA requests a separate copy also be sent to the contact person identified below (see FOR FURTHER INFORMATION CONTACT ). • *Hand Delivery:* EPA Docket Center, Docket ID Number EPA-HQ-OAR-2005-0031, EPA West Building, 1301 Constitution Ave., NW., Room 3334, Washington, DC, 20004. Such deliveries are accepted only during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. *Instructions:* Direct your comments to Docket ID No. EPA-HQ-OAR-2005-0031. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *http://www.regulations.gov* , including any personal information provided, unless the comment includes information claimed to be Confidential Business Information

(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through regulations.gov or e-mail. The *www.regulations.gov* Web site is an “anonymous access” systems, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through *www.regulations.gov* , your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket visit the EPA Docket Center homepage at *http://www.epa.gov/epahome/dockets.htm* . *Docket:* All documents in the docket are listed in the *www.regulations.gov* index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in *http://www.regulations.gov* or in hard copy at the Air and Radiation Docket EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is

(202)566-1744, and the telephone number for the Air and Radiation Docket is

(202)566-1742. FOR FURTHER INFORMATION CONTACT: Mr. Christian Fellner, Energy Strategies Group, Sector Policies and Programs Division (D243-01), U.S. EPA, Research Triangle Park, NC 27711, telephone number

(919)541-4003, facsimile number

(919)541-5450, electronic mail (e-mail) address: *fellner.christian@epa.gov* . SUPPLEMENTARY INFORMATION: *Entities Table* . Entities potentially affected by this proposed action include, but are not limited to, the following: Category NAICS code 1 Examples of potentially regulated entities Industry 221112 Fossil fuel-fired electric utility steam generating units. Federal Government 22112 Fossil fuel-fired electric utility steam generating units owned by the Federal Government. State/local/tribal government 22112 Fossil fuel-fired electric utility steam generating units owned by municipalities. 921150 Fossil fuel-fired electric utility steam generating units located in Indian Country. Any industrial, commercial, or institutional facility using a steam generating unit as defined in 60.40b or 60.40c 211 Extractors of crude petroleum and natural gas. 321 Manufacturers of lumber and wood products. 322 Pulp and paper mills. 325 Chemical manufacturers. 324 Petroleum refiners and manufacturers of coal products. 316, 326, 339 Manufacturers of rubber and miscellaneous plastic products. 331 Steel works, blast furnaces. 332 Electroplating, plating, polishing, anodizing, and coloring. 336 Manufacturers of motor vehicle parts and accessories. 221 Electric, gas, and sanitary services. 622 Health services. 611 Educational Services. 1 North American Industry Classification System (NAICS) code. This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by the proposed rule. To determine whether your facility is regulated by the proposed rule, you should examine the applicability criteria in § 60.40a, § 60.40b, or § 60.40c of 40 CFR part 60. If you have any questions regarding the applicability of the proposed rule to a particular entity, contact the person listed in the preceding FOR FURTHER INFORMATION CONTACT section. *World Wide Web (WWW)* . Following the Administrator's signature, a copy of the proposed amendments will be posted on the Technology Transfer Network's

(TTN)policy and guidance page for newly proposed or promulgated rules at *http://www.epa.gov/ttn/oarpg* . The TTN provides information and technology exchange in various areas of air pollution control. *Public Hearing* . If a public hearing is requested, it will be held at 10 a.m. at the EPA Facility Complex in Research Triangle Park, North Carolina or at an alternate site nearby. Contact Mr. Christian Fellner at 919-541-4003 to request a hearing, to request to speak at a public hearing, to determine if a hearing will be held, or to determine the hearing location. *Outline* . The information presented in this preamble is organized as follows: I. Background II. Proposed Amendments A. Proposed Substantive Amendments to Subpart D B. Proposed Substantive Amendments to Subpart Da C. Proposed Substantive Amendments to Subpart Db D. Proposed Substantive Amendments to Subpart Dc III. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review B. Paper Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer Advancement Act Background EPA promulgated amendments to the new source performance standards for steam generating units on February 27, 2006 (71 FR 9866). The amendments added new emissions limits and compliance requirements applicable to units constructed, modified, or reconstructed after February 28, 2005, for electric utility steam generating units in 40 CFR part 60, subpart Da; industrial-commercial-institutional steam generating units in 40 CFR part 60, subpart Db; and small industrial-commercial-institutional steam generating units in 40 CFR part 60, subpart Dc. In addition, an alternative sulfur dioxide (SO 2 ) emissions limit was added to subparts Db and Dc for steam generating units for which construction, modification, or reconstruction was commenced prior to February 28, 2005. Petitions for reconsideration of the amendments were filed by the Utility Air Regulatory Group and the Council of Industrial Boiler Owners. The EPA has decided to grant reconsideration to the amendments to the extent specified in the proposed rule. The amendments proposed by this action address issues for which the petitioners requested reconsideration 1 (see docket entries EPA-HQ-OAR-2005-0031-0224 and EPA-HQ-OAR-2005-0031-0225). 1 An issue EPA is not granting reconsideration on is UARG's request “EPA should also clarify that PM CEMS data would not be ‘credible evidence’ of a violation of the applicable PM standard for a source during a period for which the source has not otped to use PM CEMS to determine compliance.” As part of this action, EPA is also proposing to amend other rule language to correct technical omissions, typographical errors, cross-reference errors, grammatical errors, and various other issues that have been identified since promulgation. The proposed amendments would not significantly change EPA's original projections for the rule's compliance costs, environmental benefits, burden on industry, or the number of affected facilities. Finally, as part of the February 28, 2005, proposal to the steam generating unit NSPS, EPA proposed several amendments designed to minimize the continuous emission monitoring systems

(CEMS)burden for sources subject to both the NSPS under 40 CFR part 60 and the acid rain regulations under 40 CFR part 75 (70 FR 9720). The intent of these proposed amendments is to address the inconsistent and duplicative CEM requirements in the two rules while still maintaining the integrity of the separate NSPS and acid rain programs. EPA received five comment letters on these proposed amendments. The comments were generally supportive of the amendments, but due to the need for additional internal EPA review, EPA did not include the CEM protocol amendments with the other steam generating unit NSPS amendments that were promulgated on February 27, 2006. EPA intends to include the final CEM requirement amendments with the final action of this reconsideration. A detailed description of the proposed amendments to the CEM requirements is available in the docket. II. Proposed Amendments EPA is proposing to amend 40 CFR part 60, subparts D, Da, Db, and Dc to clarify the intent for applying and implementing specific rule requirements and to correct unintentional technical omissions and editorial errors. A summary of the proposed substantive amendments to the NSPS for steam generating units and the rationale for these amendments are presented below. In addition, EPA is proposing to republish 40 CFR 60.17 (Incorporations by reference) and subparts D, Da, Db, and Dc in their entirety. The proposed amendments include updating 40 CFR 60.17 to be consistent with the recent formatting style used in subpart KKKK of 40 CFR part 60 and revising the wording and writing style to be more consistent across all the NSPS subparts applicable to steam generating units. EPA does not intend for these editorial revisions to substantively change any of the technical or administrative requirements of the subparts and has concluded that these do not do so. The various subparts were promulgated at different times and, therefore, vary somewhat in style. EPA has concluded that it is appropriate at this time to reconcile these various styles in order to provide consistency across the subparts. To the extent that the editorial revisions do effect any unintended substantive changes, EPA will correct the problem in taking final action on the proposed rule. The docket for this rulemaking (Docket ID No. EPA-HQ-OAR-2005-0031) contains complete redline/strike-out versions of each subpart, which allows direct comparison of all of the proposed amended rule text with the existing rule text. A. Proposed Substantive Amendments to Subpart D 1. Alternative Emissions Standards Subpart D of 40 CFR part 60 establishes nitrogen oxides (NO X ), SO 2 , and PM emission standards for steam generating units that began construction between August 17, 1971 and September 18, 1978. Continuous compliance with these emissions standards is determined by comparison of the applicable emissions limit to the actual NO X and SO 2 emissions measured by CEMS and averaged over three contiguous 1-hour periods. When subpart D was originally developed, the NO X standards were achievable with the use of available combustion controls, and the SO 2 standards were achievable by burning low-sulfur fuels. EPA has concluded some of the electric utility steam generating units presently subject to subpart D will install additional post-combustion controls because they are subject to NO X and SO 2 emissions standards implemented by other air programs after subpart D was promulgated. In many cases, compliance with these other NO X and SO 2 standards is based on 30-day or longer rolling averages instead of the 3-hour averaging period used for the subpart D standards. For example, a coal-fired electric utility steam generating unit subject to both the subpart D NSPS and the Regional Haze Regulations must meet:

(1)A 3-hour average SO 2 emission of 1.2 pounds per million Btu of heat input (lb/MMBtu) and

(2)the Best Available Retrofit Technology

(BART)presumptive 30-day rolling average SO 2 emissions limit of 0.15 lb/MMBtu or 95 percent reduction in potential emissions. This requires the owners and operators of the units subject to both subpart D and BART to collect and record data and perform compliance determinations for two different averaging periods. EPA is proposing to allow owners and operators of steam generating units subject to subpart D to elect to comply with the NO X and SO 2 standards for modified units under subpart Da. These standards are based on 30-day rolling averages and would be an alternative to meeting the existing applicable 3-hour average NO X and SO 2 standards in subpart D. Adding these alternative 30-day average NO X and SO 2 standards to subpart D would simplify the compliance requirements and add fuel choice flexibility. Since averaging time is an important consideration when selecting the numerical level for an emissions standard, the limits EPA is proposing as an alternative to the existing 3-hour average based standards are significantly lower and represent emissions levels achieved by electric utility steam generating units retrofitted with post-combustion controls. As an alternative to the existing 3-hour average subpart D SO 2 standard of 0.8 or 1.2 lb/MMBtu (depending on fuel type burned), EPA is proposing to allow a SO 2 fuel neutral emissions limit of 1.4 pounds per megawatts hour of output (lb/MWh), 0.15 lb/MMBtu, or 90 percent reduction of potential SO 2 emissions based on a 30-day rolling average. This emissions limit could be applied to any electric utility steam generating unit subject to subpart D regardless of the type of fuel burned. For the NO X emissions limit, EPA is proposing a fuel neutral 30-day rolling average emissions limit of 1.4 lb/MWh or 0.15 lb/MMBtu as an alternative to the existing subpart D 3-hour NO X emissions limits of 0.2 to 0.8 lb/MMBtu (depending on the type of fuel burned). To use the alternative standards, an owner or operator would request permission from the EPA Administrator for the affected source to begin complying with the alternative 30-day average NO X and SO 2 standards. After demonstrating initial compliance with the 30-day average standards, the 30-day average standards would apply to the source for the remainder of the operating life of the unit. The decision to comply with the alternative 30-day average NO X and SO 2 emissions standards would be a one-time and irreversible decision, i.e., an owner or operator would not be allowed to switch between complying with the 3-hour average standards and the 30-day rolling average standards. For owners and operators who decide to continue to demonstrate compliance based on the 3-hour rolling average standards, demonstrating that a unit achieved the 30-day average standards does not remove the obligation to demonstrate continuous compliance with the 3-hour average based standards. 2. Alternative PM CEMS Monitoring The amendments to subpart Da in 40 CFR part 60, promulgated on February 27, 2006, allow affected owners and operators of electric utility steam generating units subject to subpart Da to install and operate a CEMS that measures PM as an alternative to continuously monitoring opacity. EPA is proposing that the same alternative monitoring provisions be added to subpart D. EPA has concluded that since PM CEMS measure the pollutant of primary interest they provide adequate assurance of PM control device performance, and continuous opacity monitoring is an unnecessary burden to affected sources using PM CEMS. 3. Alternate Carbon Monoxide Monitoring for Oil-Fired Steam Generating Units Under subpart D, all affected electric utility steam generating units (including those that only burn natural gas) are subject to PM and visible emissions limit standards. Steam generating units burning gaseous fuels do not require a continuous opacity monitoring system (COMS), but all other affected facilities burning liquid or solid fuels are required to continuously monitor opacity. Opacity readings from the COMS are not only used to determine compliance with the opacity standard, but also serve as a continuous indicator of PM emission levels. Elevated opacity levels are often indications of operating problems with the PM control device and/or poor combustion. In general, the level of filterable PM emissions from oil-fired steam generating units is a function of the completeness of fuel combustion as well as the ash content in the oil. Distillate oil contains negligible ash content, so the filterable PM emissions from distillate oil-fired steam generating units are primarily comprised of carbon particles resulting from incomplete combustion of the oil. Residual oil contains larger amounts of ash (as much as 0.2 percent) and additional PM results from the formation of coke, black smoke (soot), and sulfates. Coke is comprised of larger particles and results from poor atomization of the fuel; soot results from incomplete fuel combustion. The larger coke particles comprise the majority of the mass of PM emissions, but are not highly visible. Smaller black smoke particles are comprised of fine particulate carbon and have relatively little mass, but have maximum visibility (opacity) impacts. Therefore, opacity for oil-fired steam generating units is not always a reliable indicator of the total mass of PM emissions. Carbon monoxide

(CO)emissions from oil-fired steam generating units depend on the combustion efficiency of the fuel. The presence of CO in the exhaust gases from an oil-fired steam generating unit results principally from incomplete fuel combustion, and is an indicator of the levels of both PM and organic compound emissions, and that a unit is being operated improperly or not being well maintained. Furthermore, the PM emissions from oil-fired steam generating units are related to the sulfur content of the oil. Naturally low sulfur crude oil and desulfurized oils are higher quality fuels and exhibit lower viscosity and reduced asphaltene, ash, and sulfur content, which results in better atomization and improved overall combustion properties. To provide additional flexibility and decrease the compliance burden on affected facilities, EPA is requesting comments on whether oil-fired steam generating units should be permitted to continuously monitoring CO as an alternative to continuously monitoring opacity. Many oil-fired steam generating units subject to subpart D are able to achieve the PM emissions limit without the use of post-combustion PM controls ( *e.g.* , electrostatic precipitator

(ESP)or fabric filter). For these units, opacity levels are primarily determined by the combustion efficiency of the steam generating units. Since CO emissions are also a direct function of the combustion efficiency, EPA has concluded that either opacity or CO emissions can be used as reliable indicators of PM emissions levels from oil-fired steam generating units not using PM or CO post-combustion controls. Additionally, in situations where an oil-fired steam generating unit is using a wet scrubber and opacity monitoring using COMS is not feasible due to the water vapor in the gas stream exiting the control device, continuous CO monitoring provides an alternative means for monitoring PM emissions. The alternative would not apply to oil-fired steam generating units using an ESP or fabric filter for PM control or a CO catalyst to reduce CO emissions. Opacity can be used by operators to identify problems with the PM control equipment, and post-combustion PM and CO controls alter the relationship between CO and PM emissions. If this alternative is added to subpart D, owners and operators of affected oil-fired steam generating units without post-combustion technologies to reduce PM, SO 2 , or CO (except a wet scrubber) would be able to elect to install and operate a CO CEMS in place of a COMS. The owner or operator would be required to periodically review the CO emissions measurements from the CEMS. If the CO emissions level exceeds a specified threshold or action level, the owner or operator would need to initiate investigation of the relevant combustion controls or equipment upon first discovery of the elevated CO emissions incident and, if necessary, take corrective action to adjust or repair the combustion controls or equipment to return the steam generating unit operation to CO emissions levels below the action level. To select a CO value for the action value, EPA reviewed CO emissions data and CO emissions limits established by State air permits and for existing oil-fired steam generating units. Based on this review, EPA concluded that daily average CO emissions levels below 0.15 lb/MMBtu are representative of the levels of CO emissions achievable by properly operated and maintained oil-fired steam generating units. Thus, for this alternative EPA proposes to use a daily average CO emissions level of 0.15 lb/MMBtu as the action level above which corrective action would be required. EPA is requesting comment on whether this is an appropriate level or whether a different level and/or averaging time should be used. The fuel characteristics of distillate oil and low sulfur oils result in inherently lower PM emissions. EPA is proposing the CO monitoring alternative be restricted to only those steam generating units burning distillate oil and residual oil that contains no more than 0.30 percent sulfur. As another option, since distillate oil containing no more than 0.05 weight percent sulfur (500 parts per million

(ppm)S) has relatively low emissions, should steam generating units burning 500 ppm S distillate oil exclusively or in combination with gaseous fuels be exempt from the COMS requirement, while all other oil-fired facilities would still be required to install COMS? Finally, should the CO level of 0.15 lb/MMBtu be established as a CO emissions limit or as a deviation that triggers corrective action? If exceeding the CO level is a deviation requiring the owner or operator to take corrective action, what percent of the time should an affected source be allowed to exceed the CO action level before it is considered a potential violation? As an alternative, since monitoring CO provides equivalent or superior protection to the environment as monitoring opacity, would it be appropriate to exempt oil-fired steam generating units monitoring CO emissions from the opacity standard completely? If oil-fired steam generating units were exempt from the opacity standard, the CO level would be established as a CO emissions limit and any exceedance above the level during operation would be a potential violation. Draft language EPA is considering is available in the docket. B. Proposed Substantive Amendments to Subpart Da 1. Applicability EPA is proposing language to clarify the applicability of subpart Da to electric utility steam generating units to clearly state the intent of the amendments published on February 27, 2006. EPA is revising 40 CFR 60.40Da to clarify that integrated gasification combined cycle

(IGCC)facilities are subject to subpart Da, and not the stationary combustion turbine NSPS, subpart KKKK, 40 CFR part 60. 2. Compliance Procedures Compliance with the PM emissions limits in subpart Da is determined by conducting performance tests, unless the owner or operator elects to demonstrate compliance using PM CEMS. During the performance test, the owner or operator also establishes opacity and appropriate control device operating parameter limits based on the actual values measured during the test. Following the performance test, the owner or operator continuously monitors opacity and the selected operating parameters with respect to the established limits. An owner or operator of an affected steam generating unit using an ESP must monitor voltage and secondary current; while affected sources using a fabric filter must install and monitor bag leak detectors. If the threshold values are exceeded, the owner or operator is required to perform a new performance test to demonstrate that the affected source is still in compliance with the applicable emissions limit. The PM not collected by an ESP and emitted in the ESP exhaust gas stream has a relatively constant size distribution, which does not change significantly as the ESP performance changes. Consequently, ESP opacity variations from the baseline established during the performance test reflect changes in PM mass emissions. For fabric filters, the opacity and PM relationship is not as constant. An increase in PM emissions from a fabric filter can occur from holes developing in the bags. This results in a size distribution change of the particles being emitted in the fabric filter exhaust gas stream. Since the particles going through the holes are the same size distribution as the inlet particles (not just the fine diameter particles that escape capture and pass through the bag filter material) PM mass emissions from a fabric filter can increase substantially with little impact on opacity. For fabric filters, bag leak detectors are more sensitive to increases in PM emissions than opacity. EPA is soliciting comment on whether opacity, in conjunction with either monitoring ESP parameters or using fabric filter bag leak detectors, are adequate and the appropriate monitoring parameters for demonstrating continuous proper operation of the PM control device. If not, what parameters should be monitored, and what percent deviation from the baseline is appropriate? EPA is specifically asking if the 110 percent of the baseline opacity value measured during the performance test is an appropriate indicator of the need for a new performance test. Would it be appropriate to add a 5 percent allowable deviation (on a 30-day rolling average) above the baseline opacity or set a lower indicator limit of 5 percent per clock hour regardless of the opacity value measured during the PM performance test? Since facilities using fabric filters generally have low opacity emissions, an hourly opacity limit of 5 percent would apply for them. In contrast, facilities using ESP to control PM emissions tend to have higher opacity emissions, and would still be able to establish a baseline opacity. To monitor the performance of an ESP, are voltage and secondary current appropriate additional parameters to monitor, and is the 10 percent deviation from the baseline an appropriate amount of variation to trigger a new performance test? As an alternative to establishing a baseline voltage and secondary current, should daily use of an ESP predictive performance computer model be required? One advantage of using a predictive ESP model is that ESP performance is impacted by the properties of the ash. Without using a model that accounts for both the ash characteristics (amount and resistivity) and the ESP operating parameters, voltage and secondary current cannot be directly correlated to PM emissions. If use of a predictive ESP model was added, an affected facility would be required to establish the model parameters during each performance test and then use daily average ash characteristics and ESP parameters to determine if a new performance test has been triggered. Also, since ash characteristics vary significantly even within the same coal type, EPA is considering requiring that the baseline be re-determined (or model parameters adjusted) each time the affected facility changes the ratio of fuels used or takes delivery from a new coal mine or supplier. In addition, to monitor the performance of a fabric filter, is a 5 percent bag leak detector alarm rate on a 30-day rolling basis an appropriate trigger for a performance test? EPA is also proposing to shorten the time period required to conduct the “triggered” performance test from 60 days to 45 operating days. Should the period be further shortened to 30 operating days from the day of the initial exceedance, or is 60 operating days appropriate? 3. Alternate Carbon Monoxide Monitoring for Oil-Fired Steam Generating Units One technical error EPA is correcting is the continuous opacity monitoring requirements for oil-fired steam generating units subject to subparts Da, Db, and Dc. Affected industrial, commercial, and institutional steam generating units burning only low sulfur oil have relatively low filterable particulate matter

(PM)emissions and are exempt from the PM standard, but still must continuously monitor opacity. For these units, opacity serves both as an emissions limit on visible emissions and as an indicator that the steam generating unit and associated air pollution controls are being properly maintained and operated. The intent of the amendments was to maintain the PM exemption for affected facilities burning low sulfur oil and therefore not require an initial PM performance test. It was not the intent of the amendments to eliminate continuous opacity monitoring for these facilities without first requesting public comment. Subpart Da requires all affected existing oil-fired steam generating units to demonstrate compliance with the PM standard through a performance test and installation of a COMS to monitor visible emissions. Similar to subpart D, EPA is requesting comment on whether affected steam generating units burning distillate oil containing less than 0.05 weight percent sulfur (500 ppm S) should be exempt from the COMS requirement. As an alternative, should EPA permit low sulfur oil-fired subpart Da affected facilities without PM, SO 2 , or CO post-combustion controls (except a wet scrubber) to be allowed to use the same CO monitoring alternative for steam generating units subject to subpart D as discussed in Section A.3 of this notice instead of using a COMS? If EPA adopts this provision, the affected source using a CO CEMS in place of a COMS would be subject to the same daily CO action level of 0.15 lb/MMBtu as would be applied to affected sources subject to subpart D. Similar to units with PM CEMS, the 20 percent opacity standard would still apply to the source, but opacity would not be required to be continuously monitored. Since residual oil-fired steam generating units generally require post-combustion controls to achieve the PM standard in subpart Da, in practice EPA would expect that only owners and operators of distillate oil-fired units and residual oil-fired units using wet scrubbers would elect to use this alternative. 4. Alternative PM CEMS Monitoring For owners and operators of affected electric utility steam generating units electing to use PM CEMS to demonstrate continuous compliance with the applicable PM emissions limit, EPA is proposing a phased data availability requirement. Initially, PM CEMS hourly averages would be required to be obtained for a minimum of 75 percent of all operating hours on a 30-day rolling average basis. Beginning on January 1, 2012, valid PM CEMS hourly averages would be required for a minimum of 90 percent of all operating hours on a 30-day rolling average basis; this value is consistent with the recently amended 90 percent data availability requirement in subpart Da for NO X and SO 2 CEMS. EPA is also requesting comments on the proper emissions averaging time for units electing to use PM CEMS. EPA is proposing to maintain that PM emissions be averaged over each operating day, but is requesting comments on whether, alternatively, this average should be on an 8-hour, 24-hour, 30-day, or other appropriate rolling average period. Longer averaging times allow for more stable emission rates and tend toward a lower standard. Shorter averaging times introduce more variability in emission rates and tend toward higher standards. EPA requests that each commenter provide an appropriate emission standard for use with any suggested alternate averaging time. C. Proposed Substantive Amendments to Subpart Db 1. Emissions Standards EPA is proposing that steam generating units subject to subpart Db that burn natural gas or coke oven gas

(COG)be exempt from the PM emissions standard. Both natural gas and COG-fired steam generating units do not use post-combustion PM controls, and have inherently low PM emissions. As a result, the PM performance test results in limited environmental benefit. EPA is also proposing to revise the procedure used to grant site-specific NO X limits under 40 CFR 60.44b. Only a limited number of site-specific limits have been granted under this provision in the past 20 years. Currently, EPA amends subpart Db by a formal notice and comment rulemaking when granting a site-specific limit. To simplify the procedure and reduce administrative burden, EPA is proposing to grant site-specific NO X limits by sending a letter to the facility owner or operator detailing the site-specific limit and publishing that letter in EPA's applicability determination index. 2. Units Burning Coke Oven Gas Because of the specific characteristics of the steel industry, EPA is proposing to allow a 30-day exceedance per year from the SO 2 emission limit for steam generating units burning COG exclusively or in combination with other gaseous fuels or distillate oil. COG desulfurization facilities require periodic maintenance, but the coking process continues during this time, and it is cost prohibitive to store the COG. Coke-making facilities would either have to install a second desulfurization unit or flare the COG and burn natural gas during the maintenance period. Of these two options, the least cost option would be to flare the COG and use natural gas during the annual maintenance. This would result in both increased cost to the steel industry and NO X emissions without achieving any reductions in SO 2 . State permitting authorities have recognized this and have included similar exemptions in their permits. 3. Compliance Procedures EPA is proposing to amend 40 CFR 60.49b(r) to add a detailed procedure for affected facilities complying with the fuel based limit. 4. Alternate Opacity Monitoring Since COG-fired steam generating units have filterable PM emissions similar to natural gas, EPA is proposing to exempt industrial-commercial-institutional steam generating units burning COG from the COM requirement. Under subpart Db, 40 CFR part 60, affected facilities burning coal (except COG), wood, and oil (other than very low sulfur oil) are subject to the PM standard. All coal (except COG), wood, and oil-fired affected facilities are subject to the opacity standard, and are required to install a COMS. Consistent with the CO monitoring alternative for steam generating units subject to subparts D or Da as discussed in Section A.3 of this notice, EPA is proposing to exempt affected industrial-commercial-institutional steam generating units not using post-combustion technology to reduce SO 2 or PM emissions and burning only distillate oil containing no greater than 0.05 weight percent (500 ppm) sulfur and low sulfur gasified fuels (desulfurized gasified coal and gasified wood) from the COMS requirements in subpart Db. The filterable PM emissions from sources burning low sulfur distillate are inherently low (less than 0.02 lb/MMBtu), and this change would provide flexibility for natural gas-fired steam generating units to burn distillate oil as a backup fuel without having to install and operate a COMS. As an alternative, should EPA permit low sulfur (less than 0.30 weight percent sulfur) affected oil-fired units not using post-combustion technology (except a wet scrubber) to reduce emissions of SO 2 , PM, or CO to install a CO CEMS in place of a COMS? EPA is considering using the same daily CO action level of 0.15 lb/MMBtu as would be applied to affected sources subject to subpart D or Da. The industrial boiler MACT requires new oil-fired units to monitor CO; allowing this alternate monitoring would reduce the burden on the regulated community while still providing adequate environmental protection. D. Proposed Substantive Amendments to Subpart Dc 1. Emissions Standards EPA is proposing that industrial-commercial-institutional steam generating units subject to subpart Dc that burn natural gas or low-sulfur oil be exempt from the PM emissions standard. This amendment reflects EPA's intent for applying the PM emissions limits to industrial-commercial-institutional steam generating units subject to subpart Dc, and would be consistent with the exemption from the PM emissions limits allowed for units subject to Dc that were constructed before February 28, 2005. 2. Compliance Procedures EPA is proposing to clarify the fuel recordkeeping requirements in 40 CFR 60.48c(g). Owners or operators of steam generating units combusting only natural gas, wood, and distillate oil containing less than 0.5 weight percent sulfur may elect to record fuel usage amounts on a monthly instead of daily basis. In addition, owners or operators of steam generating units with maximum heat input capacities of less than 30 MMBtu/hr and combusting coal and residual oil may elect to record the amounts of fuels combusted each calendar month. EPA has concluded that allowing monthly fuel usage monitoring for these steam generating units provides adequate assurance of compliance, as well as minimizing the burden to affected facilities. EPA is considering and requesting comments on whether owners or operators of multiple steam generating units located on a contiguous property facility where the only fuels combusted in any steam generating unit located on that property are natural gas, wood, and distillate oil containing no more than 0.50 weight percent sulfur should have the option to elect to only record the total amounts of fuels delivered to the property each calendar month instead of the amount combusted at each affected facility. Draft language EPA is requesting comment on for a potential 40 CFR 60.48c(g)(3) is as follows: “(3) As an alternative to meeting the requirements of paragraph (g)(1) of this section, the owner or operator of an affected facility or multiple affected facilities located on a contiguous property unit where the only fuels combusted in any steam generating unit (including steam generating units not subject to this subpart) at that property are natural gas, wood, distillate oil meeting the most current requirements in § 60.42c to use fuel certification to demonstrate compliance with the SO 2 standard, and/or fuels, excluding coal and residual oil, not subject to an emissions standard (excluding opacity) may elect to record and maintain records of the total amount of each steam generating unit fuel delivered to that property during each calendar month.” This alternative would be restricted to properties where no coal or residual oil is combusted in any steam generating unit located at that property. In addition, the alternative would require that all distillate oil-fired steam generating units located on the property (including those not subject to subpart Dc) only combust distillate oil containing no more than 0.50 weight percent sulfur. If subpart Dc is amended in the future to require the use of lower sulfur distillate oil, all steam generating units located at that property would have to switch to the lower sulfur distillate oil for the owner or operator to elect to use this alternative. 3. Alternate Opacity Monitoring Under subpart Dc, 40 CFR part 60, affected steam generating units burning coal, wood, and oil containing more than 0.5 weight percent sulfur are subject to the PM standard. All coal, wood, and oil-fired affected facilities are subject to the opacity standard, but affected facilities burning distillate oil containing less than 0.5 weight percent sulfur are exempt from the COM requirement. EPA is proposing that owners and operators of affected steam generating units burning desulfurized gasified coal and gasified wood and not using post-combustion PM or SO 2 controls be exempt from continuously monitoring opacity. Should the exemption be limited to fuels with potential SO 2 emissions less than 26 nanograms per Joule heat input (0.06 lb/MMBtu), or should a different potential sulfur limit be required? Sources supporting this exemption should provide emissions data demonstrating that uncontrolled PM emissions are consistently below 0.030 lb/MMBtu. These facilities would still be subject to the PM emission limit and opacity standard, but exempt from the COMS requirement. Finally, should affected steam generating units burning residual oil containing less than 0.5 weight percent sulfur and/or desulfurized gasified coal and gasified wood have the option of monitoring CO emissions in place of opacity consistent with the CO monitoring alternative for steam generating units subject to subpart D as discussed in Section A.3 of this notice? EPA is requesting comment on whether residual oil-fired steam generating units subject to subpart Dc should be able to elect to install a CO CEMS and maintain daily average CO emission below a level of 0.15 lb/MMBtu in place of the COMS requirement. This would reduce the compliance burden for sources already monitoring CO emissions (due to the boiler MACT or other regulation) and still provide adequate environmental protection. III. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review This action is not a “significant regulatory action” under the terms of Executive Order

(EO)12866 (58 FR 51735, October 4, 1993) and is, therefore, not subject to review under the EO. EPA has concluded that the amendments EPA is requesting additional comments on will not change the costs or benefits of the rule. B. Paperwork Reduction Act This action does not impose any new information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 *et seq.* The proposed amendments result in no changes to the information collection requirements of the existing standards of performance and would have no impact on the information collection estimate of projected cost and hour burden made and approved by the Office of Management and Budget

(OMB)during the development of the existing standards of performance. Therefore, the information collection requests have not been amended. OMB has previously approved the information collection requirements contained in the existing standards of performance (40 CFR part 60, subparts Da, Db, and Dc) under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 *et seq.* , at the time the standards were promulgated on June 11, 1979 (40 CFR part 60, subpart Da, 44 FR 33580), November 25, 1986 (40 CFR part 60, subpart Db, 51 FR 42768), and September 12, 1990 (40 CFR part 60, subpart Dc, 55 FR 37674). OMB assigned OMB control numbers 2060-0023 (ICR 1053.07) for 40 CFR part 60, subpart Da, 2060-0072 (ICR 1088.10) for 40 CFR part 60, subpart Db, 2060-0202 (ICR 1564.06) for 40 CFR part 60, subpart Dc. Copies of the information collection request document(s) may be obtained from Susan Auby by mail at U.S. EPA, Office of Environmental Information, Collection. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. C. Regulatory Flexibility Act The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of the proposed amendments on small entities, small entity is defined as:

(1)A small business as defined by the Small Business Administration's regulations at 13 CFR 121.201;

(2)a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and

(3)a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. After considering the economic impacts of this proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. Although this proposed rule will not have a significant economic impact on a substantial number of small entities, EPA nonetheless has tried to reduce the impact of this rule on small entities. EPA is proposing to reduce the fuel usage recordkeeping requirement for subpart Dc facilities. In addition, EPA is taking comment on minimizing the continuous opacity monitoring requirements for oil-fired facilities. EPA has, therefore, concluded that this proposed rule will relieve regulatory burden for all affected small entities. EPA continues to be interested in the potential impacts of the proposed rule on small entities and welcome comments on issues related to such impacts. D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements. EPA has determined that the proposed amendments will contain no Federal mandates that may result in expenditures of $100 million or more for State, local, and tribal governments, in the aggregate, or the private sector in any 1 year. Thus, the proposed amendments are not subject to the requirements of section 202 and 205 of the UMRA. In addition, EPA determined that the proposed amendments contain no regulatory requirements that might significantly or uniquely affect small governments because the burden is small and the regulation does not unfairly apply to small governments. Therefore, the proposed amendments are not subject to the requirements of section 203 of the UMRA. E. Executive Order 13132: Federalism Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” The proposed amendments do not have federalism implications. They will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. The proposed amendments will not impose substantial direct compliance costs on State or local governments; it will not preempt State law. Thus, Executive Order 13132 does not apply to the proposed amendments. F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” The proposed amendments do not have tribal implications, as specified in Executive Order 13175. The proposed amendments will not have substantial direct effects on tribal governments, 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. Thus, Executive Order 13175 does not apply to the proposed amendments. G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any rule that:

(1)Is determined to be “economically significant” as defined under Executive Order 12866, and

(2)concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. This proposed action is not subject to the Executive Order because it is not economically significant as defined under Executive Order 12866, and because EPA interprets Executive Order 13045 as applying only to those regulatory actions that are based on health or safety risks, such that the analysis required under section 5-501 of the Order has the potential to influence the regulation. The proposed amendments are based on technology performance and not on health or safety risks and, therefore, are not subject to Executive Order 13045. H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This proposed action is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) because it is not a significant regulatory action under Executive Order 12866. I. National Technology Transfer Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, Section 12(d) (15 U.S.C. 272 note) directs us to use voluntary consensus standards in our regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., material specifications, test methods, sampling procedures, business practices) developed or adopted by one or more voluntary consensus bodies. The NTTAA directs us to provide Congress, through OMB, explanations when EPA decides not use available and applicable voluntary consensus standards. This action does not involve any new technical standards or the incorporation by reference of existing technical standards. Therefore, the consideration of voluntary consensus standards is not relevant to this action. List of Subjects in 40 CFR Part 60 Environmental protection, Administrative practice and procedure, Air pollution control, Intergovernmental relations, Reporting and recordkeeping requirements. Dated: January 31, 2007. Stephen L. Johnson, Administrator. For the reasons stated in the preamble, title 40, chapter I, part 60, of the Code of the Federal Regulations is proposed to be amended as follows: PART 60—[AMENDED] 1. The authority citation for part 60 continues to read as follows: Authority: 42 U.S.C. 7401, *et seq.* Subpart A—[Amended] 2. Section 60.17 is amended by revising paragraph

(a)to read as follows: § 60.17 Incorporation by Reference

(a)The following materials are available for purchase from at least one of the following addresses: American Society for Testing and Materials (ASTM), 100 Barr Harbor Drive, Post Office Box C700, West Conshohocken, PA 19428-2959; or ProQuest, 300 North Zeeb Road, Ann Arbor, MI 48106.

(1)ASTM A99-76, 82 (Reapproved 1987), Standard Specification for Ferromanganese, incorporation by reference

(IBR)approved for § 60.261.

(2)ASTM A100-69, 74, 93, Standard Specification for Ferrosilicon, IBR approved for § 60.261.

(3)ASTM A101-73, 93, Standard Specification for Ferrochromium, IBR approved for § 60.261.

(4)ASTM A482-76, 93, Standard Specification for Ferrochromesilicon, IBR approved for § 60.261.

(5)ASTM A483-64, 74 (Reapproved 1988), Standard Specification for Silicomanganese, IBR approved for § 60.261.

(6)ASTM A495-76, 94, Standard Specification for Calcium-Silicon and Calcium Manganese-Silicon, IBR approved for § 60.261.

(7)ASTM D86-78, 82, 90, 93, 95, 96, Distillation of Petroleum Products, IBR approved for §§ 60.562-2(d), 60.593(d), and 60.633(h).

(8)ASTM D129-64, 78, 95, 00, Standard Test Method for Sulfur in Petroleum Products (General Bomb Method), IBR approved for §§ 60.106(j)(2), 60.335(b)(10)(i), and Appendix A: Method 19, 12.5.2.2.3.

(9)ASTM D129-00 (Reapproved 2005), Standard Test Method for Sulfur in Petroleum Products (General Bomb Method), IBR approved for § 60.4415(a)(1)(i).

(10)ASTM D240-92, Standard Test Method for Heat of Combustion of Liquid Hydrocarbon Fuels by Bomb Calorimeter, IBR approved for § 60.46(c).

(11)ASTM D240-76, 92, Standard Test Method for Heat of Combustion of Liquid Hydrocarbon Fuels by Bomb Calorimeter, IBR approved for § 60.296(b) and Appendix A: Method 19, Section 12.5.2.2.3.

(12)ASTM D270-65, 75, Standard Method of Sampling Petroleum and Petroleum Products, IBR approved for Appendix A: Method 19, Section 12.5.2.2.1.

(13)ASTM D323-82, 94, Test Method for Vapor Pressure of Petroleum Products (Reid Method), IBR approved for §§ 60.111(l), 60.111a(g), 60.111b(g), and 60.116b(f)(2)(ii).

(14)ASTM D388-99 (Reapproved 2004) ε 1 , Standard Specification for Classification of Coals by Rank, IBR approved for §§ 60.41(g) of subpart D of this part, 60.45(f)(4)(i), 60.45(f)(4)(ii), 60.45(f)(4)(vi), 60.41Da of subpart Da of this part, and 60.41b of subpart Db of this part, 60.41c of subpart Dc of this part.

(15)ASTM D388-77, 90, 91, 95, 98a, Standard Specification for Classification of Coals by Rank, IBR approved for 60.251(b) and

(c)of subpart Y of this part.

(16)ASTM D388-77, 90, 91, 95, 98a, 99 (Reapproved 2004) ε 1 , Standard Specification for Classification of Coals by Rank, IBR approved for §§ 60.24(h)(8), and 60.4102.

(17)ASTM D396-98, Standard Specification for Fuel Oils, IBR approved for §§ 60.41b of subpart Db of this part and 60.41c of subpart Dc of this part.

(18)ASTM D396-78, 89, 90, 92, 96, 98, Standard Specification for Fuel Oils, IBR approved for 60.111(b) of subpart K of this part and 60.111a(b) of subpart Ka of this part.

(19)ASTM D975-78, 96, 98a, Standard Specification for Diesel Fuel Oils, IBR approved for §§ 60.111(b) of subpart K of this part and 60.111a(b) of subpart Ka of this part.

(20)ASTM D1072-80, 90 (Reapproved 1994), Standard Test Method for Total Sulfur in Fuel Gases, IBR approved for § 60.335(b)(10)(ii).

(21)ASTM D1072-90 (Reapproved 1999), Standard Test Method for Total Sulfur in Fuel Gases, IBR approved for § 60.4415(a)(1)(ii).

(22)ASTM D1137-75, Standard Method for Analysis of Natural Gases and Related Types of Gaseous Mixtures by the Mass Spectrometer, IBR approved for § 60.45(f)(5)(i).

(23)ASTM D1193-77, 91, Standard Specification for Reagent Water, IBR approved for Appendix A: Method 5, Section 7.1.3; Method 5E, Section 7.2.1; Method 5F, Section 7.2.1; Method 6, Section 7.1.1; Method 7, Section 7.1.1; Method 7C, Section 7.1.1; Method 7D, Section 7.1.1; Method 10A, Section 7.1.1; Method 11, Section 7.1.3; Method 12, Section 7.1.3; Method 13A, Section 7.1.2; Method 26, Section 7.1.2; Method 26A, Section 7.1.2; and Method 29, Section 7.2.2.

(24)ASTM D1266-87, 91, 98, Standard Test Method for Sulfur in Petroleum Products (Lamp Method), IBR approved for §§ 60.106(j)(2) and 60.335(b)(10)(i).

(25)ASTM D1266-98 (Reapproved 2003) ε 1 , Standard Test Method for Sulfur in Petroleum Products (Lamp Method), IBR approved for § 60.4415(a)(1)(i).

(26)ASTM D1475-60 (Reapproved 1980), 90, Standard Test Method for Density of Paint, Varnish Lacquer, and Related Products, IBR approved for § 60.435(d)(1), Appendix A: Method 24, Section 6.1; and Method 24A, Sections 6.5 and 7.1.

(27)ASTM D1552-83, 95, 01, Standard Test Method for Sulfur in Petroleum Products (High-Temperature Method), IBR approved for §§ 60.106(j)(2), 60.335(b)(10)(i), and Appendix A: Method 19, Section 12.5.2.2.3.

(28)ASTM D1552-03, Standard Test Method for Sulfur in Petroleum Products (High-Temperature Method), IBR approved for § 60.4415(a)(1)(i).

(29)ASTM D1826-94, Standard Test Method for Calorific Value of Gases in Natural Gas Range by Continuous Recording Calorimeter, IBR approved for §§ 60.45(f)(5)(ii) and 60.46(c)(2).

(30)ASTM D1826-77, 94, Standard Test Method for Calorific Value of Gases in Natural Gas Range by Continuous Recording Calorimeter, IBR approved for § 60.296(b)(3) and Appendix A: Method 19, Section 12.3.2.4.

(31)ASTM D1835-03a, Standard Specification for Liquefied Petroleum

(LP)Gases, IBR approved for § 60.41Da of subpart Da of this part, 60.41b of subpart Db of this part, and 60.41c of subpart Dc of this part.

(32)ASTM D1945-96, Standard Method for Analysis of Natural Gas by Gas Chromatography, IBR approved for § 60.45(f)(5)(i).

(33)ASTM D1946-77, 90 (Reapproved 1994), Standard Method for Analysis of Reformed Gas by Gas Chromatography, IBR approved for §§ 60.18(f)(3), 60.564(f)(1), 60.614(e)(2)(ii), 60.614(e)(4), 60.664(e)(2)(ii), 60.664(e)(4), 60.704(d)(2)(ii), and 60.704(d)(4).

(34)ASTM D1946-90 (Reapproved 1994), Standard Method for Analysis of Reformed Gas by Gas Chromatography, IBR approved for § 60.45(f)(5)(i).

(35)ASTM D2013-72, 86, Standard Method of Preparing Coal Samples for Analysis, IBR approved for Appendix A: Method 19, Section 12.5.2.1.3.

(36)ASTM D2015-96, Standard Test Method for Gross Calorific Value of Solid Fuel by the Adiabatic Bomb Calorimeter, IBR approved for §§ 60.45(f)(5)(ii) and 60.46(c)(2).

(37)ASTM D2015-77 (Reapproved 1978), 96, Standard Test Method for Gross Calorific Value of Solid Fuel by the Adiabatic Bomb Calorimeter, IBR approved for Appendix A: Method 19, Section 12.5.2.1.3.

(38)ASTM D2016-74, 83, Standard Test Methods for Moisture Content of Wood, IBR approved for Appendix A: Method 28, Section 16.1.1.

(39)ASTM D2234-76, 96, 97b, 98, Standard Methods for Collection of a Gross Sample of Coal, IBR approved for Appendix A: Method 19, Section 12.5.2.1.1.

(40)ASTM D2369-81, 87, 90, 92, 93, 95, Standard Test Method for Volatile Content of Coatings, IBR approved for Appendix A: Method 24, Section 6.2.

(41)ASTM D2382-76, 88, Heat of Combustion of Hydrocarbon Fuels by Bomb Calorimeter (High-Precision Method), IBR approved for §§ 60.18(f)(3), 60.485(g)(6), 60.564(f)(3), 60.614(e)(4), 60.664(e)(4), and 60.704(d)(4).

(42)ASTM D2504-67, 77, 88 (Reapproved 1993), Noncondensable Gases in C3 and Lighter Hydrocarbon Products by Gas Chromatography, IBR approved for § 60.485(g)(5).

(43)ASTM D2584-68 (Reapproved 1985), 94, Standard Test Method for Ignition Loss of Cured Reinforced Resins, IBR approved for § 60.685(c)(3)(i).

(44)ASTM D2597-94 (Reapproved 1999), Standard Test Method for Analysis of Demethanized Hydrocarbon Liquid Mixtures Containing Nitrogen and Carbon Dioxide by Gas Chromatography, IBR approved for § 60.335(b)(9)(i).

(45)ASTM D2622-87, 94, 98, Standard Test Method for Sulfur in Petroleum Products by Wavelength Dispersive X-Ray Fluorescence Spectrometry,” IBR approved for §§ 60.106(j)(2) and 60.335(b)(10)(i).

(46)ASTM D2622-05, Standard Test Method for Sulfur in Petroleum Products by Wavelength Dispersive X-Ray Fluorescence Spectrometry,” IBR approved for § 60.4415(a)(1)(i).

(47)ASTM D2879-83, 96, 97, Test Method for Vapor Pressure-Temperature Relationship and Initial Decomposition Temperature of Liquids by Isoteniscope, IBR approved for §§ 60.111b(f)(3), 60.116b(e)(3)(ii), 60.116b(f)(2)(i), and 60.485(e)(1).

(48)ASTM D2880-78, 96, Standard Specification for Gas Turbine Fuel Oils, IBR approved for §§ 60.111(b), 60.111a(b), and 60.335(d).

(49)ASTM D2908-74, 91, Standard Practice for Measuring Volatile Organic Matter in Water by Aqueous-Injection Gas Chromatography, IBR approved for § 60.564(j).

(50)ASTM D2986-71, 78, 95a, Standard Method for Evaluation of Air, Assay Media by the Monodisperse DOP (Dioctyl Phthalate) Smoke Test, IBR approved for Appendix A: Method 5, Section 7.1.1; Method 12, Section 7.1.1; and Method 13A, Section 7.1.1.2.

(51)ASTM D3173-73, 87, Standard Test Method for Moisture in the Analysis Sample of Coal and Coke, IBR approved for Appendix A: Method 19, Section 12.5.2.1.3.

(52)ASTM D3176-89, Standard Method for Ultimate Analysis of Coal and Coke, IBR approved for § 60.45(f)(5)(i).

(53)ASTM D3176-74, 89, Standard Method for Ultimate Analysis of Coal and Coke, IBR approved for Appendix A: Method 19, Section 12.3.2.3.

(54)ASTM D3177-75, 89, Standard Test Method for Total Sulfur in the Analysis Sample of Coal and Coke, IBR approved for Appendix A: Method 19, Section 12.5.2.1.3.

(55)ASTM D3178-89, Standard Test Methods for Carbon and Hydrogen in the Analysis Sample of Coal and Coke, IBR approved for § 60.45(f)(5)(i).

(56)ASTM D3246-81, 92, 96, Standard Test Method for Sulfur in Petroleum Gas by Oxidative Microcoulometry, IBR approved for § 60.335(b)(10)(ii).

(57)ASTM D3246-05, Standard Test Method for Sulfur in Petroleum Gas by Oxidative Microcoulometry, IBR approved for § 60.4415(a)(1)(ii).

(58)ASTM D3270-73T, 80, 91, 95, Standard Test Methods for Analysis for Fluoride Content of the Atmosphere and Plant Tissues (Semiautomated Method), IBR approved for Appendix A: Method 13A, Section 16.1.

(59)ASTM D3286-85, 96, Standard Test Method for Gross Calorific Value of Coal and Coke by the Isoperibol Bomb Calorimeter, IBR approved for Appendix A: Method 19, Section 12.5.2.1.3.

(60)ASTM D3370-76, 95a, Standard Practices for Sampling Water, IBR approved for § 60.564(j).

(61)ASTM D3792-79, 91, Standard Test Method for Water Content of Water-Reducible Paints by Direct Injection into a Gas Chromatograph, IBR approved for Appendix A: Method 24, Section 6.3.

(62)ASTM D4017-81, 90, 96a, Standard Test Method for Water in Paints and Paint Materials by the Karl Fischer Titration Method, IBR approved for Appendix A: Method 24, Section 6.4.

(63)ASTM D4057-81, 95, Standard Practice for Manual Sampling of Petroleum and Petroleum Products, IBR approved for Appendix A: Method 19, Section 12.5.2.2.3.

(64)ASTM D4057-95 (Reapproved 2000), Standard Practice for Manual Sampling of Petroleum and Petroleum Products, IBR approved for § 60.4415(a)(1).

(65)ASTM D4084-82, 94, Standard Test Method for Analysis of Hydrogen Sulfide in Gaseous Fuels (Lead Acetate Reaction Rate Method), IBR approved for § 60.334(h)(1).

(66)ASTM D4084-05, Standard Test Method for Analysis of Hydrogen Sulfide in Gaseous Fuels (Lead Acetate Reaction Rate Method), IBR approved for §§ 60.4360 and 60.4415(a)(1)(ii).

(67)ASTM D4177-95, Standard Practice for Automatic Sampling of Petroleum and Petroleum Products, IBR approved for Appendix A: Method 19, Section 12.5.2.2.1.

(68)ASTM D4177-95 (Reapproved 2000), Standard Practice for Automatic Sampling of Petroleum and Petroleum Products, IBR approved for § 60.4415(a)(1).

(69)ASTM D4239-85, 94, 97, Standard Test Methods for Sulfur in the Analysis Sample of Coal and Coke Using High Temperature Tube Furnace Combustion Methods, IBR approved for Appendix A: Method 19, Section 12.5.2.1.3.

(70)ASTM D4294-02, Standard Test Method for Sulfur in Petroleum and Petroleum Products by Energy-Dispersive X-Ray Fluorescence Spectrometry, IBR approved for § 60.335(b)(10)(i).

(71)ASTM D4294-03, Standard Test Method for Sulfur in Petroleum and Petroleum Products by Energy-Dispersive X-Ray Fluorescence Spectrometry, IBR approved for § 60.4415(a)(1)(i).

(72)ASTM D4442-84, 92, Standard Test Methods for Direct Moisture Content Measurement in Wood and Wood-base Materials, IBR approved for Appendix A: Method 28, Section 16.1.1.

(73)ASTM D4444-92, Standard Test Methods for Use and Calibration of Hand-Held Moisture Meters, IBR approved for Appendix A: Method 28, Section 16.1.1.

(74)ASTM D4457-85 (Reapproved 1991), Test Method for Determination of Dichloromethane and 1, 1, 1-Trichloroethane in Paints and Coatings by Direct Injection into a Gas Chromatograph, IBR approved for Appendix A: Method 24, Section 6.5.

(75)ASTM D4468-85 (Reapproved 2000), Standard Test Method for Total Sulfur in Gaseous Fuels by Hydrogenolysis and Rateometric Colorimetry, IBR approved for §§ 60.335(b)(10)(ii) and 60.4415(a)(1)(ii).

(76)ASTM D4629-02, Standard Test Method for Trace Nitrogen in Liquid Petroleum Hydrocarbons by Syringe/Inlet Oxidative Combustion and Chemiluminescence Detection, IBR approved for §§ 60.49b(e) and 60.335(b)(9)(i).

(77)ASTM D4809-95, Standard Test Method for Heat of Combustion of Liquid Hydrocarbon Fuels by Bomb Calorimeter (Precision Method), IBR approved for §§ 60.18(f)(3), 60.485(g)(6), 60.564(f)(3), 60.614(d)(4), 60.664(e)(4), and 60.704(d)(4).

(78)ASTM D4810-88 (Reapproved 1999), Standard Test Method for Hydrogen Sulfide in Natural Gas Using Length of Stain Detector Tubes, IBR approved for §§ 60.4360 and 60.4415(a)(1)(ii).

(79)ASTM D5287-97 (Reapproved 2002), Standard Practice for Automatic Sampling of Gaseous Fuels, IBR approved for § 60.4415(a)(1).

(80)ASTM D5403-93, Standard Test Methods for Volatile Content of Radiation Curable Materials, IBR approved for Appendix A: Method 24, Section 6.6.

(81)ASTM D5453-00, Standard Test Method for Determination of Total Sulfur in Light Hydrocarbons, Motor Fuels and Oils by Ultraviolet Fluorescence, IBR approved for § 60.335(b)(10)(i).

(82)ASTM D5453-05, Standard Test Method for Determination of Total Sulfur in Light Hydrocarbons, Motor Fuels and Oils by Ultraviolet Fluorescence, IBR approved for § 60.4415(a)(1)(i).

(83)ASTM D5504-01, Standard Test Method for Determination of Sulfur Compounds in Natural Gas and Gaseous Fuels by Gas Chromatography and Chemiluminescence, IBR approved for §§ 60.334(h)(1) and 60.4360.

(84)ASTM D5762-02, Standard Test Method for Nitrogen in Petroleum and Petroleum Products by Boat-Inlet Chemiluminescence, IBR approved for § 60.335(b)(9)(i).

(85)ASTM D5865-98, Standard Test Method for Gross Calorific Value of Coal and Coke, IBR approved for § 60.45(f)(5)(ii), 60.46(c)(2), and Appendix A: Method 19, Section 12.5.2.1.3.

(86)ASTM D6216-98, Standard Practice for Opacity Monitor Manufacturers to Certify Conformance with Design and Performance Specifications, IBR approved for Appendix B, Performance Specification 1.

(87)ASTM D6228-98, Standard Test Method for Determination of Sulfur Compounds in Natural Gas and Gaseous Fuels by Gas Chromatography and Flame Photometric Detection, IBR approved for § 60.334(h)(1).

(88)ASTM D6228-98 (Reapproved 2003), Standard Test Method for Determination of Sulfur Compounds in Natural Gas and Gaseous Fuels by Gas Chromatography and Flame Photometric Detection, IBR approved for §§ 60.4360 and 60.4415.

(89)ASTM D6348-03, Standard Test Method for Determination of Gaseous Compounds by Extractive Direct Interface Fourier Transform Infrared

(FTIR)Spectroscopy, IBR approved for table 7 of Subpart IIII of this part.

(90)ASTM D6366-99, Standard Test Method for Total Trace Nitrogen and Its Derivatives in Liquid Aromatic Hydrocarbons by Oxidative Combustion and Electrochemical Detection, IBR approved for § 60.335(b)(9)(i).

(91)ASTM D6522-00, Standard Test Method for Determination of Nitrogen Oxides, Carbon Monoxide, and Oxygen Concentrations in Emissions from Natural Gas-Fired Reciprocating Engines, Combustion Turbines, Boilers, and Process Heaters Using Portable Analyzers, IBR approved for § 60.335(a).

(92)ASTM D6667-01, Standard Test Method for Determination of Total Volatile Sulfur in Gaseous Hydrocarbons and Liquefied Petroleum Gases by Ultraviolet Fluorescence, IBR approved for § 60.335(b)(10)(ii).

(93)ASTM D6667-04, Standard Test Method for Determination of Total Volatile Sulfur in Gaseous Hydrocarbons and Liquefied Petroleum Gases by Ultraviolet Fluorescence, IBR approved for § 60.4415(a)(1)(ii).

(94)ASTM D6784-02, Standard Test Method for Elemental, Oxidized, Particle-Bound and Total Mercury in Flue Gas Generated from Coal-Fired Stationary Sources (Ontario Hydro Method), IBR approved for Appendix B to part 60, Performance Specification 12A, Section 8.6.2.

(95)ASTM E168-67, 77, 92, General Techniques of Infrared Quantitative Analysis, IBR approved for §§ 60.593(b)(2) and 60.632(f).

(96)ASTM E169-63, 77, 93, General Techniques of Ultraviolet Quantitative Analysis, IBR approved for §§ 60.593(b)(2) and 60.632(f).

(97)ASTM E260-73, 91, 96, General Gas Chromatography Procedures, IBR approved for §§ 60.593(b)(2) and 60.632(f). Subpart D—[Amended] 3. Part 60 is amended by revising subpart D to read as follows: Subpart D—Standards of Performance for Fossil-Fuel-Fired Steam Generators for Which Construction is Commenced After August 17, 1971 Sec. 60.40 Applicability and designation of affected facility. 60.41 Definitions. 60.42 Standard for particulate matter (PM). 60.43 Standard for sulfur dioxide (SO 2 ). 60.44 Standard for nitrogen oxides (NO X ). 60.45 Emission and fuel monitoring. 60.46 Test methods and procedures. Subpart D—Standards of Performance for Fossil-Fuel-Fired Steam Generators for Which Construction Is Commenced After August 17, 1971 § 60.40 Applicability and designation of affected facility.

(a)The affected facilities to which the provisions of this subpart apply are:

(1)Each fossil-fuel-fired steam generating unit of more than 73 megawatts

(MW)heat input rate (250 million British thermal units per hour (MMBtu/hr)).

(2)Each fossil-fuel and wood-residue-fired steam generating unit capable of firing fossil fuel at a heat input rate of more than 73 MW (250 MMBtu/hr).

(b)Any change to an existing fossil-fuel-fired steam generating unit to accommodate the use of combustible materials, other than fossil fuels as defined in this subpart, shall not bring that unit under the applicability of this subpart.

(c)Except as provided in paragraph

(d)of this section, any facility under paragraph

(a)of this section that commenced construction or modification after August 17, 1971, is subject to the requirements of this subpart.

(d)The requirements of §§ 60.44 (a)(4), (a)(5),

(b)and (d), and 60.45(f)(4)(vi) are applicable to lignite-fired steam generating units that commenced construction or modification after December 22, 1976.

(e)Any facility covered under subpart Da is not covered under this subpart. § 60.41 Definitions. As used in this subpart, all terms not defined herein shall have the meaning given them in the Act, and in subpart A of this part. *Boiler operating day* means a 24-hour period between 12 midnight and the following midnight during which any fuel is combusted at any time in the steam-generating unit. It is not necessary for fuel to be combusted the entire 24-hour period. *Fossil-fuel fired steam generating unit* means a furnace or boiler used in the process of burning fossil fuel for the purpose of producing steam by heat transfer. *Fossil fuel* means natural gas, petroleum, coal, and any form of solid, liquid, or gaseous fuel derived from such materials for the purpose of creating useful heat. *Coal refuse* means waste-products of coal mining, cleaning, and coal preparation operations (e.g. culm, gob, etc.) containing coal, matrix material, clay, and other organic and inorganic material. *Fossil fuel and wood residue-fired steam generating unit* means a furnace or boiler used in the process of burning fossil fuel and wood residue for the purpose of producing steam by heat transfer. *Wood residue* means bark, sawdust, slabs, chips, shavings, mill trim, and other wood products derived from wood processing and forest management operations. *Coal* means all solid fuels classified as anthracite, bituminous, subbituminous, or lignite by ASTM D388 (incorporated by reference, see § 60.17). § 60.42 Standard for particulate matter (PM).

(a)On and after the date on which the performance test required to be conducted by § 60.8 is completed, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility any gases that:

(1)Contain PM in excess of 43 nanograms per joule (ng/J) heat input (0.10 lb/MMBtu) derived from fossil fuel or fossil fuel and wood residue.

(2)Exhibit greater than 20 percent opacity except for one six-minute period per hour of not more than 27 percent opacity. (b)(1) On or after December 28, 1979, no owner or operator shall cause to be discharged into the atmosphere from the Southwestern Public Service Company's Harrington Station #1, in Amarillo, TX, any gases which exhibit greater than 35 percent opacity, except that a maximum of 42 percent opacity shall be permitted for not more than 6 minutes in any hour.

(2)Interstate Power Company shall not cause to be discharged into the atmosphere from its Lansing Station Unit No. 4 in Lansing, IA, any gases which exhibit greater than 32 percent opacity, except that a maximum of 39 percent opacity shall be permitted for not more than six minutes in any hour. § 60.43 Standard for sulfur dioxide (SO 2 ).

(1)340 ng/J heat input (0.80 lb/MMBtu) derived from liquid fossil fuel or liquid fossil fuel and wood residue.

(2)520 ng/J heat input (1.2 lb/MMBtu) derived from solid fossil fuel or solid fossil fuel and wood residue, except as provided in paragraph

(e)of this section.

(b)When different fossil fuels are burned simultaneously in any combination, the applicable standard (in ng/J) shall be determined by proration using the following formula: EP09FE07.000 Where: PS SO 2 = Prorated standard for SO 2 when burning different fuels simultaneously, in ng/J heat input derived from all fossil fuels; y = Percentage of total heat input derived from liquid fossil; and z = Percentage of total heat input derived from solid fossil fuel.

(c)Compliance shall be based on the total heat input from all fossil fuels burned, including gaseous fuels.

(d)As an alternate to reporting excess emissions every 3 contiguous one hour periods as required under paragraphs

(a)and

(b)of this section, an owner or operator can petition the Administrator (in writing) to comply with § 60.43Da(i)(3) of subpart Da of this part. If the Administrator grants the petition, the source will from then on (unless the unit is modified or reconstructed in the future) have to comply with the requirements in § 60.43Da(i)(3) of subpart Da of this part.

(e)Units 1 and 2 (as defined in appendix G of this part) at the Newton Power Station owned or operated by the Central Illinois Public Service Company will be in compliance with paragraph (a)(2) of this section if Unit 1 and Unit 2 individually comply with paragraph (a)(2) of this section or if the combined emission rate from Units 1 and 2 does not exceed 470 ng/J (1.1 lb/MMBtu) combined heat input to Units 1 and 2. § 60.44 Standard for nitrogen oxides (NO X ).

(1)86 ng/J heat input (0.20 lb/MMBtu) derived from gaseous fossil fuel.

(2)129 ng/J heat input (0.30 lb/MMBtu) derived from liquid fossil fuel, liquid fossil fuel and wood residue, or gaseous fossil fuel and wood residue.

(3)300 ng/J heat input (0.70 lb/MMBtu) derived from solid fossil fuel or solid fossil fuel and wood residue (except lignite or a solid fossil fuel containing 25 percent, by weight, or more of coal refuse).

(4)260 ng/J heat input (0.60 lb MMBtu) derived from lignite or lignite and wood residue (except as provided under paragraph (a)(5) of this section).

(5)340 ng/J heat input (0.80 lb MMBtu) derived from lignite which is mined in North Dakota, South Dakota, or Montana and which is burned in a cyclone-fired unit.

(b)Except as provided under paragraphs

(c)and

(d)of this section, when different fossil fuels are burned simultaneously in any combination, the applicable standard (in ng/J) is determined by proration using the following formula: EP09FE07.001 Where: PS NO X = Prorated standard for NO X when burning different fuels simultaneously, in ng/J heat input derived from all fossil fuels fired or from all fossil fuels and wood residue fired; w = Percentage of total heat input derived from lignite; x = Percentage of total heat input derived from gaseous fossil fuel; y = Percentage of total heat input derived from liquid fossil fuel; and z = Percentage of total heat input derived from solid fossil fuel (except lignite).

(c)When a fossil fuel containing at least 25 percent, by weight, of coal refuse is burned in combination with gaseous, liquid, or other solid fossil fuel or wood residue, the standard for NO X does not apply.

(d)Cyclone-fired units which burn fuels containing at least 25 percent of lignite that is mined in North Dakota, South Dakota, or Montana remain subject to paragraph (a)(5) of this section regardless of the types of fuel combusted in combination with that lignite.

(e)As an alternate to reporting excess emissions every 3 contiguous one hour periods as required under paragraphs

(a)and

(b)of this section, an owner or operator can petition the Administrator (in writing) to comply with § 60.44Da(e)(3) of subpart Da of this part. If the Administrator grants the petition, the source will from then on (unless the unit is modified or reconstructed in the future) have to comply with the requirements in § 60.44Da(e)(3) of subpart Da of this part. § 60.45 Emission and fuel monitoring.

(a)Each owner or operator shall install, calibrate, maintain, and operate continuous emissions monitoring systems

(CEMS)for measuring the opacity of emissions, SO 2 emissions, NO X emissions, and either oxygen (O 2 ) or carbon dioxide (CO 2 ) except as provided in paragraph

(b)of this section.

(b)Certain of the CEMS requirements under paragraph

(a)of this section do not apply to owners or operators under the following conditions:

(1)For a fossil fuel-fired steam generator that burns only gaseous fossil fuel and that does not use post combustion technology to reduce emissions of SO 2 or PM, CEMS for measuring the opacity of emissions and SO 2 emissions are not required.

(2)For a fossil fuel-fired steam generator that does not use a flue gas desulfurization device, a CEMS for measuring SO 2 emissions is not required if the owner or operator monitors SO 2 emissions by fuel sampling and analysis.

(3)Notwithstanding § 60.13(b), installation of a CEMS for NO X may be delayed until after the initial performance tests under § 60.8 have been conducted. If the owner or operator demonstrates during the performance test that emissions of NO X are less than 70 percent of the applicable standards in § 60.44, a CEMS for measuring NO X emissions is not required. If the initial performance test results show that NO X emissions are greater than 70 percent of the applicable standard, the owner or operator shall install a CEMS for NO X within one year after the date of the initial performance tests under § 60.8 and comply with all other applicable monitoring requirements under this part.

(4)If an owner or operator does not install any CEMS for sulfur oxides and NO X , as provided under paragraphs (b)(1) and (b)(3) or paragraphs (b)(2) and (b)(3) of this section a CEMS for measuring either O 2 or CO 2 is not required.

(5)An owner or operator may petition the Administrator (in writing) to install a PM CEMS as an alternative to the CEMS for monitoring opacity emissions.

(c)For performance evaluations under § 60.13(c) and calibration checks under § 60.13(d), the following procedures shall be used:

(1)Methods 6, 7, and 3B of appendix A of this part, as applicable, shall be used for the performance evaluations of SO 2 and NO X continuous monitoring systems. Acceptable alternative methods for Methods 6, 7, and 3B of appendix A of this part are given in § 60.46(d).

(2)Sulfur dioxide or nitric oxide, as applicable, shall be used for preparing calibration gas mixtures under Performance Specification 2 of appendix B to this part.

(3)For affected facilities burning fossil fuel(s), the span value for a continuous monitoring system measuring the opacity of emissions shall be 80, 90, or 100 percent and for a continuous monitoring system measuring sulfur oxides or NO X the span value shall be determined as follows: [In parts per million] Fossil fuel Span value for SO 2 Span value for NO X Gas ( 1 ) 500 Liquid 1,000 500 Solid 1,500 1,000 Combinations 1,000y + 1,000z 500 (x + y) + 1,000z 1 Not applicable. Where: x = Fraction of total heat input derived from gaseous fossil fuel; y = Fraction of total heat input derived from liquid fossil fuel; and z = Fraction of total heat input derived from solid fossil fuel.

(4)All span values computed under paragraph (c)(3) of this section for burning combinations of fossil fuels shall be rounded to the nearest 500 ppm.

(5)For a fossil fuel-fired steam generator that simultaneously burns fossil fuel and nonfossil fuel, the span value of all CEMS shall be subject to the Administrator's approval.

(d)[Reserved]

(e)For any CEMS installed under paragraph

(a)of this section, the following conversion procedures shall be used to convert the continuous monitoring data into units of the applicable standards (ng/J, lb/MMBtu):

(1)When a CEMS for measuring O 2 is selected, the measurement of the pollutant concentration and O 2 concentration shall each be on a consistent basis (wet or dry). Alternative procedures approved by the Administrator shall be used when measurements are on a wet basis. When measurements are on a dry basis, the following conversion procedure shall be used: EP09FE07.002 Where E, C, F, and %O 2 are determined under paragraph

(f)of this section.

(2)When a CEMS for measuring CO 2 is selected, the measurement of the pollutant concentration and CO 2 concentration shall each be on a consistent basis (wet or dry) and the following conversion procedure shall be used: EP09FE07.003 Where E, C, F c and %CO 2 are determined under paragraph

(f)of this section.

(f)The values used in the equations under paragraphs

(1)and

(2)of this section are derived as follows:

(1)E = pollutant emissions, ng/J (lb/MMBtu).

(2)C = pollutant concentration, ng/dscm (lb/dscf), determined by multiplying the average concentration

(ppm)for each one-hour period by 4.15 × 10 4 M ng/dscm per ppm (2.59 × 10 −9 M lb/dscf per ppm) where M = pollutant molecular weight, g/g-mole (lb/lb-mole). M = 64.07 for SO 2 and 46.01 for NO X .

(3)%O 2 , %CO 2 = O 2 or CO 2 volume (expressed as percent), determined with equipment specified under paragraph

(a)of this section.

(4)F, F c = a factor representing a ratio of the volume of dry flue gases generated to the calorific value of the fuel combusted (F), and a factor representing a ratio of the volume of CO 2 generated to the calorific value of the fuel combusted (F c ), respectively. Values of F and F c are given as follows:

(i)For anthracite coal as classified according to ASTM D388 (incorporated by reference, see § 60.17), F = 2,723 × 10 −17 dscm/J (10,140 dscf/MMBtu and F c = 0.532 × 10 −17 scm CO 2 /J (1,980 scf CO 2 /MMBtu).

(ii)For subbituminous and bituminous coal as classified according to ASTM D388 (incorporated by reference, see § 60.17), F = 2.637 × 10 −7 dscm/J (9,820 dscf/MMBtu) and F c = 0.486 × 10 −7 scm CO 2 /J (1,810 scf CO 2 /MMBtu).

(iii)For liquid fossil fuels including crude, residual, and distillate oils, F = 2.476 × 10 −7 dscm/J (9,220 dscf/MMBtu) and F c = 0.384 × 10 −7 scm CO 2 /J (1,430 scf CO 2 /MMBtu).

(iv)For gaseous fossil fuels, F = 2.347 × 10 −7 dscm/J (8,740 dscf/MMBtu). For natural gas, propane, and butane fuels, F c = 0.279 × 10 −7 scm CO 2 /J (1,040 scf CO 2 /MMBtu) for natural gas, 0.322 × 10 −7 scm CO 2 /J (1,200 scf CO 2 /MMBtu) for propane, and 0.338 × M 10 −7 scm CO 2 /J (1,260 scf CO 2 /MMBtu) for butane.

(v)For bark F = 2.589 × 10 −7 dscm/J (9,640 dscf/MMBtu) and F c = 0.500 × 10 −7 scm CO 2 /J (1,840 scf CO 2 /MMBtu). For wood residue other than bark F = 2.492 × 10 −7 dscm/J (9,280 dscf/MMBtu) and F c = 0.494 × 10 −7 scm CO 2 /J (1,860 scf CO 2 /MMBtu).

(vi)For lignite coal as classified according to ASTM D388 (incorporated by reference, see § 60.17), F = 2.659 × 10 −7 dscm/J (9,900 dscf/MMBtu) and F c = 0.516× 10 −7 scm CO 2 /J (1,920 scf CO 2 /MMBtu).

(5)The owner or operator may use the following equation to determine an F factor (dscm/J or dscf/MMBtu) on a dry basis (if it is desired to calculate F on a wet basis, consult the Administrator) or F c factor (scm CO 2 /J, or scf CO 2 /MMBtu) on either basis in lieu of the F or F c factors specified in paragraph (f)(4) of this section: EP09FE07.004 EP09FE07.005 EP09FE07.006 EP09FE07.007 EP09FE07.008

(i)%H, %C, %S, %N, and %O are content by weight of hydrogen, carbon, sulfur, nitrogen, and O 2 (expressed as percent), respectively, as determined on the same basis as GCV by ultimate analysis of the fuel fired, using ASTM D3178 or D3176 (solid fuels), or computed from results using ASTM D1137, D1945, or D1946 (gaseous fuels) as applicable. (These five methods are incorporated by reference, see § 60.17.)

(ii)GVC is the gross calorific value (kJ/kg, Btu/lb) of the fuel combusted determined by the ASTM test methods D2015 or D5865 for solid fuels and D1826 for gaseous fuels as applicable. (These two methods are incorporated by reference, see § 60.17.)

(iii)For affected facilities which fire both fossil fuels and nonfossil fuels, the F or F c value shall be subject to the Administrator's approval.

(6)For affected facilities firing combinations of fossil fuels or fossil fuels and wood residue, the F or Fc factors determined by paragraphs (f)(4) or (f)(5) of this section shall be prorated in accordance with the applicable formula as follows: EP09FE07.009 Where: X i = Fraction of total heat input derived from each type of fuel (e.g. natural gas, bituminous coal, wood residue, etc.); F i or(F c ) i = Applicable F or F c factor for each fuel type determined in accordance with paragraphs (f)(4) and (f)(5) of this section; and n = Number of fuels being burned in combination.

(g)Excess emission and monitoring system performance reports shall be submitted to the Administrator semiannually for each six-month period in the calendar year. All semiannual reports shall be postmarked by the 30th day following the end of each six-month period. Each excess emission and MSP report shall include the information required in § 60.7(c). Periods of excess emissions and monitoring systems

(MS)downtime that shall be reported are defined as follows:

(1)*Opacity.* Excess emissions are defined as any six-minute period during which the average opacity of emissions exceeds 20 percent opacity, except that one six-minute average per hour of up to 27 percent opacity need not be reported.

(i)For sources subject to the opacity standard of § 60.42(b)(1), excess emissions are defined as any six-minute period during which the average opacity of emissions exceeds 35 percent opacity, except that one six-minute average per hour of up to 42 percent opacity need not be reported.

(ii)For sources subject to the opacity standard of § 60.42(b)(2), excess emissions are defined as any six-minute period during which the average opacity of emissions exceeds 32 percent opacity, except that one six-minute average per hour of up to 39 percent opacity need not be reported.

(2)*Sulfur dioxide.* Excess emissions for affected facilities are defined as:

(i)Any three-hour period during which the average emissions (arithmetic average of three contiguous one-hour periods) of SO 2 as measured by a CEMS exceed the applicable standard under § 60.43, or

(ii)Any 30 operating day period during which the average emissions (arithmetic average of all one-hour periods during the 30 operating days) of SO 2 as measured by a CEMS exceed the applicable standard under § 60.43. Facilities complying with the 30-day SO 2 standard shall use the most current associated SO 2 compliance and monitoring requirements in §§ 60.48Da and 60.49Da of subpart Da of this part.

(3)*Nitrogen oxides.* Excess emissions for affected facilities using a CEMS for measuring NO X are defined as:

(i)Any three-hour period during which the average emissions (arithmetic average of three contiguous one-hour periods) exceed the applicable standards under § 60.44, or

(ii)Any 30 operating day period during which the average emissions (arithmetic average of all one-hour periods during the 30 operating days) of NO X as measured by a CEMS exceed the applicable standard under § 60.43. Facilities complying with the 30-day NO X standard shall use the most current associated NO X compliance and monitoring requirements in §§ 60.48Da and 60.49Da of subpart Da of this part.

(4)*Particulate matter.* Excess emissions for affected facilities using a CEMS for measuring PM are defined as any boiler operating day period during which the average emissions (arithmetic average of all operating one-hour periods) exceed the applicable standards under § 60.43. Affected facilities using PM CEMS in lieu of a CEMS for monitoring opacity emissions must follow the most current applicable compliance and monitoring provisions in §§ 60.48Da and 60.49Da of subpart Da of this part. § 60.46 Test methods and procedures.

(a)In conducting the performance tests required in § 60.8, and subsequent performance tests as requested by the EPA Administrator, the owner or operator shall use as reference methods and procedures the test methods in appendix A of this part or other methods and procedures as specified in this section, except as provided in § 60.8(b). Acceptable alternative methods and procedures are given in paragraph

(d)of this section.

(b)The owner or operator shall determine compliance with the PM, SO 2 , and NO X standards in §§ 60.42, 60.43, and 60.44 as follows:

(1)The emission rate

(E)of PM, SO 2 , or NO X shall be computed for each run using the following equation: EP09FE07.010 E = Emission rate of pollutant, ng/J (lb/million Btu); C = Concentration of pollutant, ng/dscm (lb/dscf); %O 2 = O 2 concentration, percent dry basis; and F d = Factor as determined from Method 19 of appendix A of this part.

(2)Method 5 of appendix A of this part shall be used to determine the PM concentration

(C)at affected facilities without wet flue-gas-desulfurization

(FGD)systems and Method 5B of appendix A of this part shall be used to determine the PM concentration

(C)after FGD systems.

(i)The sampling time and sample volume for each run shall be at least 60 minutes and 0.85 dscm (30 dscf). The probe and filter holder heating systems in the sampling train shall be set to provide an average gas temperature of 160 ± 14 °C (320 ± 25 °F).

(ii)The emission rate correction factor, integrated or grab sampling and analysis procedure of Method 3B of appendix A of this part shall be used to determine the O 2 concentration (%O 2 ). The O 2 sample shall be obtained simultaneously with, and at the same traverse points as, the particulate sample. If the grab sampling procedure is used, the O 2 concentration for the run shall be the arithmetic mean of the sample O 2 concentrations at all traverse points.

(iii)If the particulate run has more than 12 traverse points, the O 2 traverse points may be reduced to 12 provided that Method 1 of appendix A of this part is used to locate the 12 O 2 traverse points.

(3)Method 9 of appendix A of this part and the procedures in § 60.11 shall be used to determine opacity.

(4)Method 6 of appendix A of this part shall be used to determine the SO 2 concentration.

(i)The sampling site shall be the same as that selected for the particulate sample. The sampling location in the duct shall be at the centroid of the cross section or at a point no closer to the walls than 1 m (3.28 ft). The sampling time and sample volume for each sample run shall be at least 20 minutes and 0.020 dscm (0.71 dscf). Two samples shall be taken during a 1-hour period, with each sample taken within a 30-minute interval.

(ii)The emission rate correction factor, integrated sampling and analysis procedure of Method 3B of appendix A of this part shall be used to determine the O 2 concentration (%O 2 ). The O 2 sample shall be taken simultaneously with, and at the same point as, the SO 2 sample. The SO 2 emission rate shall be computed for each pair of SO 2 and O 2 samples. The SO 2 emission rate

(E)for each run shall be the arithmetic mean of the results of the two pairs of samples.

(5)Method 7 of appendix A of this part shall be used to determine the NO X concentration.

(i)The sampling site and location shall be the same as for the SO 2 sample. Each run shall consist of four grab samples, with each sample taken at about 15-minute intervals.

(ii)For each NO X sample, the emission rate correction factor, grab sampling and analysis procedure of Method 3B of appendix A of this part shall be used to determine the O 2 concentration (%O 2 ). The sample shall be taken simultaneously with, and at the same point as, the NO X sample.

(iii)The NO X emission rate shall be computed for each pair of NO X and O 2 samples. The NO X emission rate

(E)for each run shall be the arithmetic mean of the results of the four pairs of samples.

(c)When combinations of fossil fuels or fossil fuel and wood residue are fired, the owner or operator (in order to compute the prorated standard as shown in §§ 60.43(b) and 60.44(b)) shall determine the percentage (w, x, y, or z) of the total heat input derived from each type of fuel as follows:

(1)The heat input rate of each fuel shall be determined by multiplying the gross calorific value of each fuel fired by the rate of each fuel burned.

(2)ASTM Methods D2015, or D5865 (solid fuels), D240 (liquid fuels), or D1826 (gaseous fuels) (all of these methods are incorporated by reference, see § 60.17) shall be used to determine the gross calorific values of the fuels. The method used to determine the calorific value of wood residue must be approved by the Administrator.

(3)Suitable methods shall be used to determine the rate of each fuel burned during each test period, and a material balance over the steam generating system shall be used to confirm the rate.

(d)The owner or operator may use the following as alternatives to the reference methods and procedures in this section or in other sections as specified:

(1)The emission rate

(E)of PM, SO 2 and NO X may be determined by using the F c factor, provided that the following procedure is used:

(i)The emission rate

(E)shall be computed using the following equation: EP09FE07.011 Where: E = Emission rate of pollutant, ng/J (lb/MMBtu); C = Concentration of pollutant, ng/dscm (lb/dscf); %CO 2 = CO 2 concentration, percent dry basis; and F c = Factor as determined in appropriate sections of Method 19 of appendix A of this part.

(ii)If and only if the average F c factor in Method 19 of appendix A of this part is used to calculate E and either E is from 0.97 to 1.00 of the emission standard or the relative accuracy of a continuous emission monitoring system is from 17 to 20 percent, then three runs of Method 3B of appendix A of this part shall be used to determine the O 2 and CO 2 concentration according to the procedures in paragraph

(b)(2)(ii), (4)(ii), or (5)(ii) of this section. Then if F o (average of three runs), as calculated from the equation in Method 3B of appendix A of this part, is more than ±3 percent than the average F o value, as determined from the average values of F d and F c in Method 19 of appendix A of this part, i.e., F oa = 0.209 (F da / F ca ), then the following procedure shall be followed:

(A)When F o is less than 0.97 F oa , then E shall be increased by that proportion under 0.97 F oa , e.g., if F o is 0.95 F oa , E shall be increased by 2 percent. This recalculated value shall be used to determine compliance with the emission standard.

(B)When F o is less than 0.97 F oa and when the average difference

(d)between the continuous monitor minus the reference methods is negative, then E shall be increased by that proportion under 0.97 F oa , e.g., if F o is 0.95 F oa , E shall be increased by 2 percent. This recalculated value shall be used to determine compliance with the relative accuracy specification.

(C)When F o is greater than 1.03 F oa and when the average difference d is positive, then E shall be decreased by that proportion over 1.03 F oa , e.g., if F o is 1.05 F oa , E shall be decreased by 2 percent. This recalculated value shall be used to determine compliance with the relative accuracy specification.

(2)For Method 5 or 5B of appendix A of this part, Method 17 of appendix A of this part may be used at facilities with or without wet FGD systems if the stack gas temperature at the sampling location does not exceed an average temperature of 160 °C (320 °F). The procedures of sections 2.1 and 2.3 of Method 5B of appendix A of this part may be used with Method 17 of appendix A of this part only if it is used after wet FGD systems. Method 17 of appendix A of this part shall not be used after wet FGD systems if the effluent gas is saturated or laden with water droplets.

(3)Particulate matter and SO 2 may be determined simultaneously with the Method 5 of appendix A of this part train provided that the following changes are made:

(i)The filter and impinger apparatus in sections 2.1.5 and 2.1.6 of Method 8 of appendix A of this part is used in place of the condenser (section 2.1.7) of Method 5 of appendix A of this part.

(ii)All applicable procedures in Method 8 of appendix A of this part for the determination of SO 2 (including moisture) are used:

(4)For Method 6 of appendix A of this part, Method 6C of appendix A of this part may be used. Method 6A of appendix A of this part may also be used whenever Methods 6 and 3B of appendix A of this part data are specified to determine the SO 2 emission rate, under the conditions in paragraph (d)(1) of this section.

(5)For Method 7 of appendix A of this part, Method 7A, 7C, 7D, or 7E of appendix A of this part may be used. If Method 7C, 7D, or 7E of appendix A of this part is used, the sampling time for each run shall be at least 1 hour and the integrated sampling approach shall be used to determine the O 2 concentration (%O 2 ) for the emission rate correction factor.

(6)For Method 3 of appendix A of this part, Method 3A or 3B of appendix A of this part may be used.

(7)For Method 3B of appendix A of this part, Method 3A of appendix A of this part may be used. Subpart Da—[Amended] 4. Subpart Da is revised as follows: Subpart Da—Standards of Performance for Electric Utility Steam Generating Units for Which Construction Is Commenced After September 18, 1978 Sec. 60.40Da Applicability and designation of affected facility. 60.41Da Definitions. 60.42Da Standard for particulate matter (PM). 60.43Da Standard for sulfur dioxide (SO 2 ). 60.44Da Standard for nitrogen oxides (NO X ). 60.45Da Standard for mercury (Hg). 60.46Da [Reserved] 60.47Da Commercial demonstration permit. 60.48Da Compliance provisions. 60.49Da Emission monitoring. 60.50Da Compliance determination procedures and methods. 60.51Da Reporting requirements. 60.52Da Recordkeeping requirements. Subpart Da—Standards of Performance for Electric Utility Steam Generating Units for Which Construction Is Commenced After September 18, 1978 § 60.40Da Applicability and designation of affected facility.

(a)The affected facility to which this subpart applies is each electric utility steam-generating unit:

(1)That is capable of combusting more than 73 megawatts

(MW)(250 million British thermal units per hour (MMBtu/hr)) heat input of fossil fuel (either alone or in combination with any other fuel); and

(2)For which construction, modification, or reconstruction is commenced after September 18, 1978.

(b)Combined cycle gas turbines (both the stationary combustion turbine and any associated duct burners) are subject to this part and not subject to subpart GG or KKKK of this part if:

(1)The combined cycle gas turbine is capable of combusting more than 73 MW (250 MMBtu/hr) heat input of fossil fuel (either alone or in combination with any other fuel); and

(2)The combined cycle gas turbine is designed and intended to burn fuels containing 50 percent (by heat input) or more solid-derived fuel not meeting the definition of natural gas on a 12-month rolling average basis; and

(3)The combined cycle gas turbine commenced construction, modification, or reconstruction after February 28, 2005.

(4)This subpart will continue to apply to all other electric utility combined cycle gas turbines that are capable of combusting more than 73 MW (250 MMBtu/hr) heat input of fossil fuel in the heat recovery steam generator. If the heat recovery steam generator is subject to this subpart and the stationary combustion turbine is subject to either subpart GG or KKKK of this part, only emissions resulting from combustion of fuels in the steam-generating unit are subject to this subpart. (The stationary combustion turbine emissions are subject to subpart GG or KKKK, as applicable, of this part).

(c)Any change to an existing fossil-fuel-fired steam generating unit to accommodate the use of combustible materials, other than fossil fuels, shall not bring that unit under the applicability of this subpart.

(d)Any change to an existing steam generating unit originally designed to fire gaseous or liquid fossil fuels, to accommodate the use of any other fuel (fossil or nonfossil) shall not bring that unit under the applicability of this subpart. § 60.41Da Definitions. As used in this subpart, all terms not defined herein shall have the meaning given them in the Act and in subpart A of this part. *Anthracite* means coal that is classified as anthracite according to the American Society of Testing and Materials in ASTM D388 (incorporated by reference, see § 60.17). *Available purchase power* means the lesser of the following:

(a)The sum of available system capacity in all neighboring companies.

(b)The sum of the rated capacities of the power interconnection devices between the principal company and all neighboring companies, minus the sum of the electric power load on these interconnections.

(c)The rated capacity of the power transmission lines between the power interconnection devices and the electric generating units (the unit in the principal company that has the malfunctioning flue gas desulfurization system and the unit(s) in the neighboring company supplying replacement electrical power) less the electric power load on these transmission lines. *Available system capacity* means the capacity determined by subtracting the system load and the system emergency reserves from the net system capacity. *Biomass* means plant materials and animal waste. *Bituminous coal* means coal that is classified as bituminous according to the American Society of Testing and Materials in ASTM D388 (incorporated by reference, see § 60.17). *Boiler operating day* for units constructed, reconstructed, or modified on or before February 28, 2005, means a 24-hour period during which fossil fuel is combusted in a steam-generating unit for the entire 24 hours. For units constructed, reconstructed, or modified after February 28, 2005, *boiler operating day* means a 24-hour period between 12 midnight and the following midnight during which any fuel is combusted at any time in the steam-generating unit. It is not necessary for fuel to be combusted the entire 24-hour period. *Coal* means all solid fuels classified as anthracite, bituminous, subbituminous, or lignite by the American Society of Testing and Materials in ASTM D388 (incorporated by reference, see § 60.17) and coal refuse. Synthetic fuels derived from coal for the purpose of creating useful heat, including but not limited to solvent-refined coal, gasified coal, coal-oil mixtures, and coal-water mixtures are included in this definition for the purposes of this subpart. *Coal-fired electric utility steam generating unit* means an electric utility steam generating unit that burns coal, coal refuse, or a synthetic gas derived from coal either exclusively, in any combination together, or in any combination with other fuels in any amount. *Coal refuse* means waste products of coal mining, physical coal cleaning, and coal preparation operations (e.g. culm, gob, etc.) containing coal, matrix material, clay, and other organic and inorganic material. *Cogeneration, also known as “combined heat and power,”* means a steam-generating unit that simultaneously produces both electric (or mechanical) and useful thermal energy from the same primary energy source. *Combined cycle gas turbine* means a stationary turbine combustion system where heat from the turbine exhaust gases is recovered by a steam generating unit. *Dry flue gas desulfurization technology* or *dry FGD* means a sulfur dioxide control system that is located downstream of the steam generating unit and removes sulfur oxides (SO 2 ) from the combustion gases of the steam generating unit by contacting the combustion gases with an alkaline slurry or solution and forming a dry powder material. This definition includes devices where the dry powder material is subsequently converted to another form. Alkaline slurries or solutions used in dry FGD technology include, but are not limited to, lime and sodium. *Duct burner* means a device that combusts fuel and that is placed in the exhaust duct from another source, such as a stationary gas turbine, internal combustion engine, kiln, etc., to allow the firing of additional fuel to heat the exhaust gases before the exhaust gases enter a heat recovery steam generating unit. *Electric utility combined cycle gas turbine* means any combined cycle gas turbine used for electric generation that is constructed for the purpose of supplying more than one-third of its potential electric output capacity and more than 219,000 megawatt hour

(MWh)net electrical output to any utility power distribution system for sale. Any steam distribution system that is constructed for the purpose of providing steam to a steam electric generator that would produce electrical power for sale is also considered in determining the electrical energy output capacity of the affected facility. *Electric utility company* means the largest interconnected organization, business, or governmental entity that generates electric power for sale (e.g., a holding company with operating subsidiary companies). *Electric utility steam-generating unit* means any steam electric generating unit that is constructed for the purpose of supplying more than one-third of its potential electric output capacity and more than 219,000 MWh net-electrical output to any utility power distribution system for sale. Also, any steam supplied to a steam distribution system for the purpose of providing steam to a steam-electric generator that would produce electrical energy for sale is considered in determining the electrical energy output capacity of the affected facility. *Electrostatic precipitator* or *ESP* means an add-on air pollution control device used to capture particulate matter

(PM)by charging the particles using an electrostatic field, collecting the particles using a grounded collecting surface, and transporting the particles into a hopper. *Emergency condition* means that period of time when:

(1)The electric generation output of an affected facility with a malfunctioning flue gas desulfurization system cannot be reduced or electrical output must be increased because:

(i)All available system capacity in the principal company interconnected with the affected facility is being operated, and

(ii)All available purchase power interconnected with the affected facility is being obtained, or

(2)The electric generation demand is being shifted as quickly as possible from an affected facility with a malfunctioning flue gas desulfurization system to one or more electrical generating units held in reserve by the principal company or by a neighboring company, or

(3)An affected facility with a malfunctioning flue gas desulfurization system becomes the only available unit to maintain a part or all of the principal company's system emergency reserves and the unit is operated in spinning reserve at the lowest practical electric generation load consistent with not causing significant physical damage to the unit. If the unit is operated at a higher load to meet load demand, an emergency condition would not exist unless the conditions under paragraph

(1)of this definition apply. *Emission limitation* means any emissions limit or operating limit. *Emission rate period* means any calendar month included in a 12-month rolling average period. *Federally enforceable* means all limitations and conditions that are enforceable by the Administrator, including the requirements of 40 CFR parts 60 and 61, requirements within any applicable State implementation plan, and any permit requirements established under 40 CFR 52.21 or under 40 CFR 51.18 and 51.24. *Fossil fuel* means natural gas, petroleum, coal, and any form of solid, liquid, or gaseous fuel derived from such material for the purpose of creating useful heat. *Gaseous fuel* means any fuel derived from coal or petroleum that is present as a gas at standard conditions and includes, but is not limited to, refinery fuel gas, process gas, coke-oven gas, synthetic gas, and gasified coal. *Gross output* means the gross useful work performed by the steam generated. For units generating only electricity, the gross useful work performed is the gross electrical output from the turbine/generator set. For cogeneration units, the gross useful work performed is the gross electrical or mechanical output plus 75 percent of the useful thermal output measured relative to ISO conditions that is not used to generate additional electrical or mechanical output (i.e., steam delivered to an industrial process). *24-hour period* means the period of time between 12:01 a.m. and 12 midnight. *Integrated gasification combined cycle electric utility steam generating unit* or *IGCC* means a coal-fired electric utility steam generating unit that burns a synthetic gas derived from coal in a combined-cycle gas turbine. No coal is directly burned in the unit during operation. *Interconnected* means that two or more electric generating units are electrically tied together by a network of power transmission lines, and other power transmission equipment. *ISO conditions* means a temperature of 288 Kelvin, a relative humidity of 60 percent, and a pressure of 101.3 kilopascals. *Lignite* means coal that is classified as lignite A or B according to the American Society of Testing and Materials in ASTM D388 (incorporated by reference, see § 60.17). *Natural gas* means:

(1)A naturally occurring mixture of hydrocarbon and nonhydrocarbon gases found in geologic formations beneath the earth's surface, of which the principal constituent is methane; or

(2)Liquid petroleum gas, as defined by the American Society of Testing and Materials in ASTM D1835 (incorporated by reference, see § 60.17); or

(3)A mixture of hydrocarbons that maintains a gaseous state at ISO conditions. Additionally, natural gas must either be composed of at least 70 percent methane by volume or have a gross calorific value between 34 and 43 megajoules

(MJ)per standard cubic meter (910 and 1,150 Btu per standard cubic foot). *Neighboring company* means any one of those electric utility companies with one or more electric power interconnections to the principal company and which have geographically adjoining service areas. *Net-electric output* means the gross electric sales to the utility power distribution system minus purchased power on a calendar year basis. *Net system capacity* means the sum of the net electric generating capability (not necessarily equal to rated capacity) of all electric generating equipment owned by an electric utility company (including steam generating units, internal combustion engines, gas turbines, nuclear units, hydroelectric units, and all other electric generating equipment) plus firm contractual purchases that are interconnected to the affected facility that has the malfunctioning flue gas desulfurization system. The electric generating capability of equipment under multiple ownership is prorated based on ownership unless the proportional entitlement to electric output is otherwise established by contractual arrangement. *Noncontinental area* means the State of Hawaii, the Virgin Islands, Guam, American Samoa, the Commonwealth of Puerto Rico, or the Northern Mariana Islands. *Petroleum* means crude oil or petroleum or a fuel derived from crude oil or petroleum, including, but not limited to, distillate oil, residual oil, and petroleum coke. *Potential combustion concentration* means the theoretical emissions (nanograms per joule (ng/J), lb/MMBtu heat input) that would result from combustion of a fuel in an uncleaned state without emission control systems) and:

(1)For particulate matter

(PM)is:

(i)3,000 ng/J (7.0 lb/MMBtu) heat input for solid fuel; and

(ii)73 ng/J (0.17 lb/MMBtu) heat input for liquid fuels.

(2)For sulfur dioxide (SO 2 ) is determined under § 60.50Da(c).

(3)For nitrogen oxides (NO X ) is:

(i)290 ng/J (0.67 lb/MMBtu) heat input for gaseous fuels;

(ii)310 ng/J (0.72 lb/MMBtu) heat input for liquid fuels; and

(iii)990 ng/J (2.30 lb/MMBtu) heat input for solid fuels. *Potential electrical output capacity* means 33 percent of the maximum design heat input capacity of the steam generating unit, divided by 3,413 Btu/KWh, divided by 1,000 kWh/MWh, and multiplied by 8,760 hr/yr (e.g., a steam generating unit with a 100 MW (340 MMBtu/hr) fossil-fuel heat input capacity would have a 289,080 MWh 12 month potential electrical output capacity). For electric utility combined cycle gas turbines the potential electrical output capacity is determined on the basis of the fossil-fuel firing capacity of the steam generator exclusive of the heat input and electrical power contribution by the gas turbine. *Principal company* means the electric utility company or companies which own the affected facility. *Resource recovery unit* means a facility that combusts more than 75 percent non-fossil fuel on a quarterly (calendar) heat input basis. *Responsible official* means responsible official as defined in 40 CFR 70.2. *Solid-derived fuel* means any solid, liquid, or gaseous fuel derived from solid fuel for the purpose of creating useful heat and includes, but is not limited to, solvent refined coal, liquified coal, synthetic gas, gasified coal, gasified petroleum coke, gasified biomass, and gasified tire derived fuel. *Spare flue gas desulfurization system module* means a separate system of SO 2 emission control equipment capable of treating an amount of flue gas equal to the total amount of flue gas generated by an affected facility when operated at maximum capacity divided by the total number of nonspare flue gas desulfurization modules in the system. *Spinning reserve* means the sum of the unutilized net generating capability of all units of the electric utility company that are synchronized to the power distribution system and that are capable of immediately accepting additional load. The electric generating capability of equipment under multiple ownership is prorated based on ownership unless the proportional entitlement to electric output is otherwise established by contractual arrangement. *Steam generating unit* means any furnace, boiler, or other device used for combusting fuel for the purpose of producing steam (including fossil-fuel-fired steam generators associated with combined cycle gas turbines; nuclear steam generators are not included). *Subbituminous coal* means coal that is classified as subbituminous A, B, or C according to the American Society of Testing and Materials in ASTM D388 (incorporated by reference, see § 60.17). *System emergency reserves* means an amount of electric generating capacity equivalent to the rated capacity of the single largest electric generating unit in the electric utility company (including steam generating units, internal combustion engines, gas turbines, nuclear units, hydroelectric units, and all other electric generating equipment) which is interconnected with the affected facility that has the malfunctioning flue gas desulfurization system. The electric generating capability of equipment under multiple ownership is prorated based on ownership unless the proportional entitlement to electric output is otherwise established by contractual arrangement. *System load* means the entire electric demand of an electric utility company's service area interconnected with the affected facility that has the malfunctioning flue gas desulfurization system plus firm contractual sales to other electric utility companies. Sales to other electric utility companies (e.g., emergency power) not on a firm contractual basis may also be included in the system load when no available system capacity exists in the electric utility company to which the power is supplied for sale. *Wet flue gas desulfurization technology* or *wet FGD* means a SO 2 control system that is located downstream of the steam generating unit and removes sulfur oxides from the combustion gases of the steam generating unit by contacting the combustion gases with an alkaline slurry or solution and forming a liquid material. This definition applies to devices where the aqueous liquid material product of this contact is subsequently converted to other forms. Alkaline reagents used in wet FGD technology include, but are not limited to, lime, limestone, and sodium. § 60.42Da Standard for particulate matter (PM).

(a)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility for which construction, reconstruction, or modification commenced before or on February 28, 2005, any gases that contain PM in excess of:

(1)13 ng/J (0.03 lb/MMBtu) heat input derived from the combustion of solid, liquid, or gaseous fuel;

(2)1 percent of the potential combustion concentration (99 percent reduction) when combusting solid fuel; and

(3)30 percent of potential combustion concentration (70 percent reduction) when combusting liquid fuel.

(b)On and after the date the initial PM performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility any gases which exhibit greater than 20 percent opacity (6-minute average), except for one 6-minute period per hour of not more than 27 percent opacity.

(c)Except as provided in paragraph

(d)of this section, on and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification after February 28, 2005 shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of either:

(1)18 ng/J (0.14 lb/MWh) gross energy output; or

(2)6.4 ng/J (0.015 lb/MMBtu) heat input derived from the combustion of solid, liquid, or gaseous fuel.

(d)As an alternative to meeting the requirements of paragraph

(c)of this section, the owner or operator of an affected facility for which construction, reconstruction, or modification commenced after February 28, 2005, may elect to meet the requirements of this paragraph. On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility shall cause to be discharged into the atmosphere from that affected facility for which construction, reconstruction, or modification commenced after February 28, 2005, any gases that contain PM in excess of:

(1)13 ng/J (0.03 lb/MMBtu) heat input derived from the combustion of solid, liquid, or gaseous fuel, and

(2)0.1 percent of the combustion concentration determined according to the procedure in § 60.48Da(o)(5) (99.9 percent reduction) for an affected facility for which construction or reconstruction commenced after February 28, 2005 when combusting solid, liquid, or gaseous fuel, or

(3)0.2 percent of the combustion concentration determined according to the procedure in § 60.48Da(o)(5) (99.8 percent reduction) for an affected facility for which modification commenced after February 28, 2005 when combusting solid, liquid, or gaseous fuel. § 60.43Da Standard for sulfur dioxide (SO 2 ).

(a)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility which combusts solid fuel or solid-derived fuel and for which construction, reconstruction, or modification commenced before or on February 28, 2005, except as provided under paragraphs (c), (d),

(f)or

(h)of this section, any gases that contain SO 2 in excess of:

(1)520 ng/J (1.20 lb/MMBtu) heat input and 10 percent of the potential combustion concentration (90 percent reduction); or

(2)30 percent of the potential combustion concentration (70 percent reduction), when emissions are less than 260 ng/J (0.60 lb/MMBtu) heat input.

(b)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility which combusts liquid or gaseous fuels (except for liquid or gaseous fuels derived from solid fuels and as provided under paragraphs

(e)or

(h)of this section) and for which construction, reconstruction, or modification commenced before or on February 28, 2005, any gases that contain SO 2 in excess of:

(1)340 ng/J (0.80 lb/MMBtu) heat input and 10 percent of the potential combustion concentration (90 percent reduction); or

(2)100 percent of the potential combustion concentration (zero percent reduction) when emissions are less than 86 ng/J (0.20 lb/MMBtu) heat input.

(c)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility which combusts solid solvent refined coal (SRC-I) any gases that contain SO 2 in excess of 520 ng/J (1.20 lb/MMBtu) heat input and 15 percent of the potential combustion concentration (85 percent reduction) except as provided under paragraph

(f)of this section; compliance with the emission limitation is determined on a 30-day rolling average basis and compliance with the percent reduction requirement is determined on a 24-hour basis.

(d)Sulfur dioxide emissions are limited to 520 ng/J (1.20 lb/MMBtu) heat input from any affected facility which:

(1)Combusts 100 percent anthracite;

(2)Is classified as a resource recovery unit; or

(3)Is located in a noncontinental area and combusts solid fuel or solid-derived fuel.

(e)Sulfur dioxide emissions are limited to 340 ng/J (0.80 lb/MMBtu) heat input from any affected facility which is located in a noncontinental area and combusts liquid or gaseous fuels (excluding solid-derived fuels).

(f)The emission reduction requirements under this section do not apply to any affected facility that is operated under an SO 2 commercial demonstration permit issued by the Administrator in accordance with the provisions of § 60.47Da.

(g)Compliance with the emission limitation and percent reduction requirements under this section are both determined on a 30-day rolling average basis except as provided under paragraph

(c)of this section.

(h)When different fuels are combusted simultaneously, the applicable standard is determined by proration using the following formula:

(1)If emissions of SO 2 to the atmosphere are greater than 260 ng/J (0.60 lb/MMBtu) heat input. EP09FE07.012

(2)If emissions of SO 2 to the atmosphere are equal to or less than 260 ng/J (0.60 lb/MMBtu) heat input: EP09FE07.013 Where: E s = Prorated SO 2 emission limit (ng/J heat input); %P s = Percentage of potential SO 2 emission allowed; x = Percentage of total heat input derived from the combustion of liquid or gaseous fuels (excluding solid-derived fuels); and y = Percentage of total heat input derived from the combustion of solid fuel (including solid-derived fuels).

(i)Except as provided in paragraphs

(j)and

(k)of this section, on and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification commenced after February 28, 2005 shall cause to be discharged into the atmosphere from that affected facility, any gases that contain SO 2 in excess of the applicable emission limitation specified in paragraphs (i)(1) through

(3)of this section.

(1)For an affected facility for which construction commenced after February 28, 2005, any gases that contain SO 2 in excess of either:

(i)180 ng/J (1.4 lb/MWh) gross energy output on a 30-day rolling average basis; or

(ii)5 percent of the potential combustion concentration (95 percent reduction) on a 30-day rolling average basis.

(2)For an affected facility for which reconstruction commenced after February 28, 2005, any gases that contain SO 2 in excess of either:

(i)180 ng/J (1.4 lb/MWh) gross energy output on a 30-day rolling average basis;

(ii)65 ng/J (0.15 lb/MMBtu) heat input on a 30-day rolling average basis; or

(iii)5 percent of the potential combustion concentration (95 percent reduction) on a 30-day rolling average basis.

(3)For an affected facility for which modification commenced after February 28, 2005, any gases that contain SO 2 in excess of either:

(i)180 ng/J (1.4 lb/MWh) gross energy output on a 30-day rolling average basis;

(ii)65 ng/J (0.15 lb/MMBtu) heat input on a 30-day rolling average basis; or

(iii)10 percent of the potential combustion concentration (90 percent reduction) on a 30-day rolling average basis.

(j)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification commenced after February 28, 2005, and that burns 75 percent or more (by heat input) coal refuse on a 12-month rolling average basis, shall caused to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of the applicable emission limitation specified in paragraphs (j)(1) through

(3)of this section.

(1)For an affected facility for which construction commenced after February 28, 2005, any gases that contain SO 2 in excess of either:

(i)180 ng/J (1.4 lb/MWh) gross energy output on a 30-day rolling average basis; or

(ii)6 percent of the potential combustion concentration (94 percent reduction) on a 30-day rolling average basis.

(2)For an affected facility for which reconstruction commenced after February 28, 2005, any gases that contain SO 2 in excess of either:

(i)180 ng/J (1.4 lb/MWh) gross energy output on a 30-day rolling average basis;

(ii)65 ng/J (0.15 lb/MMBtu) heat input on a 30-day rolling average basis; or

(iii)6 percent of the potential combustion concentration (94 percent reduction) on a 30-day rolling average basis.

(3)For an affected facility for which modification commenced after February 28, 2005, any gases that contain SO 2 in excess of either:

(i)180 ng/J (1.4 lb/MWh) gross energy output on a 30-day rolling average basis;

(ii)65 ng/J (0.15 lb/MMBtu) heat input on a 30-day rolling average basis; or

(iii)10 percent of the potential combustion concentration (90 percent reduction) on a 30-day rolling average basis.

(k)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility located in a noncontinental area that commenced construction, reconstruction, or modification commenced after February 28, 2005, shall cause to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of the applicable emission limitation specified in paragraphs (k)(1) and

(2)of this section.

(1)For an affected facility that burns solid or solid-derived fuel, the owner or operator shall not cause to be discharged into the atmosphere any gases that contain SO 2 in excess of 520 ng/J (1.2 lb/MMBtu) heat input on a 30-day rolling average basis.

(2)For an affected facility that burns other than solid or solid-derived fuel, the owner or operator shall not cause to be discharged into the atmosphere any gases that contain SO 2 in excess of if the affected facility or 230 ng/J (0.54 lb/MMBtu) heat input on a 30-day rolling average basis. § 60.44Da Standard for nitrogen oxides (NO X ).

(a)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility, except as provided under paragraphs (b), (d), (e), and

(f)of this section, any gases that contain NO X (expressed as NO 2 ) in excess of the following emission limits, based on a 30-day rolling average basis, except as provided under § 60.48Da(j)(1):

(1)NO X emission limits. Fuel type Emission limit for heat input ng/J lb/MMBtu Gaseous fuels: Coal-derived fuels 210 0.50 All other fuels 86 0.20 Liquid fuels: Coal-derived fuels 210 0.50 Shale oil 210 0.50 All other fuels 130 0.30 Solid fuels: Coal-derived fuels 210 0.50 Any fuel containing more than 25%, by weight, coal refuse 1 Any fuel containing more than 25%, by weight, lignite if the lignite is mined in North Dakota, South Dakota, or Montana, and is combusted in a slag tap furnace 2 340 0.80 Any fuel containing more than 25%, by weight, lignite not subject to the 340 ng/J heat input emission limit 2 260 0.60 Subbituminous coal 210 0.50 Bituminous coal 260 0.60 Anthracite coal 260 0.60 All other fuels 260 0.60 1 Exempt from NO X standards and NO X monitoring requirements. 2 Any fuel containing less than 25%, by weight, lignite is not prorated but its percentage is added to the percentage of the predominant fuel.

(2)*NO* X *reduction requirement.* Fuel type Percent reduction of potential combustion concentration Gaseous fuels 25 Liquid fuels 30 Solid fuels 65

(b)The emission limitations under paragraph

(a)of this section do not apply to any affected facility which is combusting coal-derived liquid fuel and is operating under a commercial demonstration permit issued by the Administrator in accordance with the provisions of § 60.47Da.

(c)Except as provided under paragraphs (d), (e), and

(f)of this section, when two or more fuels are combusted simultaneously, the applicable standard is determined by proration using the following formula: EP09FE07.014 Where: E n = Applicable standard for NO X when multiple fuels are combusted simultaneously (ng/J heat input); w = Percentage of total heat input derived from the combustion of fuels subject to the 86 ng/J heat input standard; x = Percentage of total heat input derived from the combustion of fuels subject to the 130 ng/J heat input standard; y = Percentage of total heat input derived from the combustion of fuels subject to the 210 ng/J heat input standard; z = Percentage of total heat input derived from the combustion of fuels subject to the 260 ng/J heat input standard; and v = Percentage of total heat input delivered from the combustion of fuels subject to the 340 ng/J heat input standard. (d)(1) On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction after July 9, 1997, but before or on February 28, 2005 shall cause to the atmosphere any gases that contain NO X (expressed as NO 2 ) in excess of 200 ng/J (1.6 lb/MWh) gross energy output, based on a 30-day rolling average basis, except as provided under § 60.48Da(k).

(2)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of affected facility for which reconstruction commenced after July 9, 1997, but before or on February 28, 2005 shall cause to be discharged into the atmosphere any gases that contain NO X (expressed as NO 2 ) in excess of 65 ng/J (0.15 lb/MMBtu) heat input, based on a 30-day rolling average basis.

(e)Except for an IGCC meeting the requirements of paragraph

(f)of this section, on and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification after February 28, 2005 shall cause to be discharged into the atmosphere from that affected facility any gases that contain NO X (expressed as NO 2 ) in excess of the applicable emission limitation specified in paragraphs (e)(1) through

(3)of this section.

(1)For an affected facility for which construction commenced after February 28, 2005, the owner or operator shall not cause to be discharged into the atmosphere any gases that contain NO X (expressed as NO 2 ) in excess of 130 ng/J (1.0 lb/MWh) gross energy output on a 30-day rolling average basis, except as provided under § 60.48Da(k).

(2)For an affected facility for which reconstruction commenced after February 28, 2005, the owner or operator shall not cause to be discharged into the atmosphere any gases that contain NO X (expressed as NO 2 ) in excess of either:

(i)130 ng/J (1.0 lb/MWh) gross energy output on a 30-day rolling average basis; or

(ii)47 ng/J (0.11 lb/MMBtu) heat input on a 30-day rolling average basis.

(3)For an affected facility for which modification commenced after February 28, 2005, the owner or operator shall not cause to be discharged into the atmosphere any gases that contain NO X (expressed as NO 2 ) in excess of either:

(i)180 ng/J (1.4 lb/MWh) gross energy output on a 30-day rolling average basis; or

(ii)65 ng/J (0.15 lb/MMBtu) heat input on a 30-day rolling average basis.

(f)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an IGCC subject to the provisions of this subpart that burns liquid fuel as a supplemental fuel and for which construction, reconstruction, or modification commenced after February 28, 2005, shall meet the requirements specified in paragraphs (f)(1) through

(3)of this section.

(1)The owner or operator shall not cause to be discharged into the atmosphere any gases that contain NO X (expressed as NO 2 ) in excess of 130 ng/J (1.0 lb/MWh) gross energy output on a 30-day rolling average basis, except as provided for in paragraphs (f)(2) and

(3)of this section.

(2)When burning liquid fuel exclusively or in combination with solid-derived fuel such that the liquid fuel contributes 50 percent or more of the total heat input to the combined cycle combustion turbine, the owner or operator shall not cause to be discharged into the atmosphere any gases that contain NO X (expressed as NO 2 ) in excess of 190 ng/J (1.5 lb/MWh) gross energy output on a 30-day rolling average basis.

(3)In cases when during a 30-day rolling average compliance period liquid fuel is burned in such a manner to meet the conditions in paragraph (f)(2) of this section for only a portion of the clock hours in the 30-day period, the owner or operator shall not cause to be discharged into the atmosphere any gases that contain NO X (expressed as NO 2 ) in excess of the computed weighted-average emissions limit based on the proportion of gross energy output (in MWh) generated during the compliance period for each of emissions limits in paragraphs (f)(1) and

(2)of this section. § 60.45Da Standard for mercury (Hg).

(a)For each coal-fired electric utility steam generating unit other than an IGCC electric utility steam generating unit, on and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility for which construction, modification, or reconstruction commenced after January 30, 2004, any gases that contain mercury

(Hg)emissions in excess of each Hg emissions limit in paragraphs (a)(1) through

(5)of this section that applies to you. The Hg emissions limits in paragraphs (a)(1) through

(5)of this section are based on a 12-month rolling average basis using the procedures in § 60.50Da(h).

(1)For each coal-fired electric utility steam generating unit that burns only bituminous coal, you must not discharge into the atmosphere any gases from a new affected source that contain Hg in excess of 20 × 10 −6 pound per megawatt hour (lb/MWh) or 0.020 lb/gigawatt-hour

(GWh)on an output basis. The International System of Units

(SI)equivalent is 0.0025 ng/J.

(2)For each coal-fired electric utility steam generating unit that burns only subbituminous coal:

(i)If your unit is located in a county-level geographical area receiving greater than 25 inches per year (in/yr) mean annual precipitation, based on the most recent publicly available U.S. Department of Agriculture 30-year data, you must not discharge into the atmosphere any gases from a new affected source that contain Hg in excess of 66 × 10 −6 lb/MWh or 0.066 lb/GWh on an output basis. The SI equivalent is 0.0083 ng/J.

(ii)If your unit is located in a county-level geographical area receiving less than or equal to 25 in/yr mean annual precipitation, based on the most recent publicly available U.S. Department of Agriculture 30-year data, you must not discharge into the atmosphere any gases from a new affected source that contain Hg in excess of 97 × 10 −6 lb/MWh or 0.097 lb/GWh on an output basis. The SI equivalent is 0.0122 ng/J.

(3)For each coal-fired electric utility steam generating unit that burns only lignite, you must not discharge into the atmosphere any gases from a new affected source that contain Hg in excess of 175 × 10 −6 lb/MWh or 0.175 lb/GWh on an output basis. The SI equivalent is 0.0221 ng/J.

(4)For each coal-burning electric utility steam generating unit that burns only coal refuse, you must not discharge into the atmosphere any gases from a new affected source that contain Hg in excess of 16 × 10 −6 lb/MWh or 0.016 lb/GWh on an output basis. The SI equivalent is 0.0020 ng/J.

(5)For each coal-fired electric utility steam generating unit that burns a blend of coals from different coal ranks (i.e., bituminous coal, subbituminous coal, lignite) or a blend of coal and coal refuse, you must not discharge into the atmosphere any gases from a new affected source that contain Hg in excess of the unit-specific Hg emissions limit established according to paragraph (a)(5)(i) or

(ii)of this section, as applicable to the affected unit.

(i)If you operate a coal-fired electric utility steam generating unit that burns a blend of coals from different coal ranks or a blend of coal and coal refuse, you must not discharge into the atmosphere any gases from a new affected source that contain Hg in excess of the computed weighted Hg emissions limit based on the Btu, MWh, or MJ contributed by each coal rank burned during the compliance period and its applicable Hg emissions limit in paragraphs (a)(1) through

(4)of this section as determined using Equation 1 in this section. For each affected source, you must comply with the weighted Hg emissions limit calculated using Equation 1 in this section based on the total Hg emissions from the unit and the total Btu, MWh, or MJ contributed by all fuels burned during the compliance period. EP09FE07.015 Where: EL b = Total allowable Hg in lb/MWh that can be emitted to the atmosphere from any affected source being averaged according to this paragraph. EL i = Hg emissions limit for the subcategory i (coal rank) that applies to affected source, lb/MWh; HH i = For each affected source, the Btu, MWh, or MJ contributed by the corresponding subcategory i (coal rank) burned during the compliance period; and n = Number of subcategories (coal ranks) being averaged for an affected source.

(ii)If you operate a coal-fired electric utility steam generating unit that burns a blend of coals from different coal ranks or a blend of coal and coal refuse together with one or more non-regulated, supplementary fuels, you must not discharge into the atmosphere any gases from a new affected source that contain Hg in excess of the computed weighted Hg emission limit based on the Btu, MWh, or MJ contributed by each coal rank burned during the compliance period and its applicable Hg emissions limit in paragraphs (a)(1) through

(b)For each IGCC electric utility steam generating unit, on and after the date on which the initial performance test required to be conducted under § 60.8 is completed, no owner or operator subject to the provisions of this subpart shall cause to be discharged into the atmosphere from any affected facility for which construction, modification, or reconstruction commenced after January 30, 2004, any gases that contain Hg emissions in excess of 20 × 10 −6 lb/MWh or 0.020 lb/GWh on an output basis. The SI equivalent is 0.0025 ng/J. This Hg emissions limit is based on a 12-month rolling average basis using the procedures in § 60.50Da(h). § 60.46Da [Reserved] § 60.47Da Commercial demonstration permit.

(a)An owner or operator of an affected facility proposing to demonstrate an emerging technology may apply to the Administrator for a commercial demonstration permit. The Administrator will issue a commercial demonstration permit in accordance with paragraph

(e)of this section. Commercial demonstration permits may be issued only by the Administrator, and this authority will not be delegated.

(b)An owner or operator of an affected facility that combusts solid solvent refined coal (SRC-I) and who is issued a commercial demonstration permit by the Administrator is not subject to the SO 2 emission reduction requirements under § 60.43Da(c) but must, as a minimum, reduce SO 2 emissions to 20 percent of the potential combustion concentration (80 percent reduction) for each 24-hour period of steam generator operation and to less than 520 ng/J (1.20 lb/MMBtu) heat input on a 30-day rolling average basis.

(c)An owner or operator of a fluidized bed combustion electric utility steam generator (atmospheric or pressurized) who is issued a commercial demonstration permit by the Administrator is not subject to the SO 2 emission reduction requirements under § 60.43Da(a) but must, as a minimum, reduce SO 2 emissions to 15 percent of the potential combustion concentration (85 percent reduction) on a 30-day rolling average basis and to less than 520 ng/J (1.20 lb/MMBtu) heat input on a 30-day rolling average basis.

(d)The owner or operator of an affected facility that combusts coal-derived liquid fuel and who is issued a commercial demonstration permit by the Administrator is not subject to the applicable NO X emission limitation and percent reduction under § 60.44Da(a) but must, as a minimum, reduce emissions to less than 300 ng/J (0.70 lb/MMBtu) heat input on a 30-day rolling average basis.

(e)Commercial demonstration permits may not exceed the following equivalent MW electrical generation capacity for any one technology category, and the total equivalent MW electrical generation capacity for all commercial demonstration plants may not exceed 15,000 MW. Technology Pollutant Equivalent Electrical Capacity (MW electrical output) Solid solvent refined coal (SCR I) SO 2 6,000-10,000 Fluidized bed combustion (atmospheric) SO 2 400-3,000 Fluidized bed combustion (pressurized) SO 2 400-1,200 Coal liquification NO X 750-10,000 Total allowable for all technologies 15,000 § 60.48Da Compliance provisions.

(a)Compliance with the PM emission limitation under § 60.42Da(a)(1) constitutes compliance with the percent reduction requirements for PM under § 60.42Da(a)(2) and (3).

(b)Compliance with the NO X emission limitation under § 60.44Da(a)(1) constitutes compliance with the percent reduction requirements under § 60.44Da(a)(2).

(c)The PM emission standards under § 60.42Da, the NO X emission standards under § 60.44Da, and the Hg emission standards under § 60.45Da apply at all times except during periods of startup, shutdown, or malfunction.

(d)During emergency conditions in the principal company, an affected facility with a malfunctioning flue gas desulfurization system may be operated if SO 2 emissions are minimized by:

(1)Operating all operable flue gas desulfurization system modules, and bringing back into operation any malfunctioned module as soon as repairs are completed,

(2)Bypassing flue gases around only those flue gas desulfurization system modules that have been taken out of operation because they were incapable of any SO 2 emission reduction or which would have suffered significant physical damage if they had remained in operation, and

(3)Designing, constructing, and operating a spare flue gas desulfurization system module for an affected facility larger than 365 MW (1,250 MMBtu/hr) heat input (approximately 125 MW electrical output capacity). The Administrator may at his discretion require the owner or operator within 60 days of notification to demonstrate spare module capability. To demonstrate this capability, the owner or operator must demonstrate compliance with the appropriate requirements under paragraph under § 60.43Da(a), (b), (d), (e), and

(h)for any period of operation lasting from 24 hours to 30 days when:

(i)Any one flue gas desulfurization module is not operated,

(ii)The affected facility is operating at the maximum heat input rate,

(iii)The fuel fired during the 24-hour to 30-day period is representative of the type and average sulfur content of fuel used over a typical 30-day period, and

(iv)The owner or operator has given the Administrator at least 30 days notice of the date and period of time over which the demonstration will be performed.

(e)After the initial performance test required under § 60.8, compliance with the SO 2 emission limitations and percentage reduction requirements under § 60.43Da and the NO X emission limitations under § 60.44Da is based on the average emission rate for 30 successive boiler operating days. A separate performance test is completed at the end of each boiler operating day after the initial performance test, and a new 30 day average emission rate for both SO 2 and NO X and a new percent reduction for SO 2 are calculated to show compliance with the standards.

(f)For the initial performance test required under § 60.8, compliance with the SO 2 emission limitations and percent reduction requirements under § 60.43Da and the NO X emission limitation under § 60.44Da is based on the average emission rates for SO 2 , NO X , and percent reduction for SO 2 for the first 30 successive boiler operating days. The initial performance test is the only test in which at least 30 days prior notice is required unless otherwise specified by the Administrator. The initial performance test is to be scheduled so that the first boiler operating day of the 30 successive boiler operating days is completed within 60 days after achieving the maximum production rate at which the affected facility will be operated, but not later than 180 days after initial startup of the facility.

(g)The owner or operator of an affected facility subject to emission limitations in this subpart shall determine compliance as follows:

(1)Compliance with applicable 30-day rolling average SO 2 and NO X emission limitations is determined by calculating the arithmetic average of all hourly emission rates for SO 2 and NO X for the 30 successive boiler operating days, except for data obtained during startup, shutdown, malfunction (NO X only), or emergency conditions (SO 2 only).

(2)Compliance with applicable SO 2 percentage reduction requirements is determined based on the average inlet and outlet SO 2 emission rates for the 30 successive boiler operating days.

(3)Compliance with applicable daily average PM emission limitations is determined by calculating the arithmetic average of all hourly emission rates for PM each boiler operating day, except for data obtained during startup, shutdown, and malfunction. Averages are not calculated for boiler operating days with less than 18 hours of valid data. Instead, the valid hourly emission rates are averaged with the immediately following boiler operating day emission rates to determine compliance.

(h)If an owner or operator has not obtained the minimum quantity of emission data as required under § 60.49Da of this subpart, compliance of the affected facility with the emission requirements under §§ 60.43Da and 60.44Da of this subpart for the day on which the 30-day period ends may be determined by the Administrator by following the applicable procedures in section 7 of Method 19 of appendix A of this part.

(i)*Compliance provisions for sources subject to § 60.44Da(d)(1), (e)(1), (e)(2)(i), (e)(3)(i), or (f).* The owner or operator of an affected facility subject to § 60.44Da(d)(1), (e)(1), (e)(2)(i), (e)(3)(i), or

(f)shall calculate NO X emissions by multiplying the average hourly NO X output concentration, measured according to the provisions of § 60.49Da(c), by the average hourly flow rate, measured according to the provisions of § 60.49Da(l), and dividing by the average hourly gross energy output, measured according to the provisions of § 60.49Da(k).

(j)*Compliance provisions for duct burners subject to § 60.44Da(a)(1).* To determine compliance with the emissions limits for NO X required by § 60.44Da(a) for duct burners used in combined cycle systems, either of the procedures described in paragraph (j)(1) or

(2)of this section may be used:

(1)The owner or operator of an affected duct burner shall conduct the performance test required under § 60.8 using the appropriate methods in appendix A of this part. Compliance with the emissions limits under § 60.44Da(a)(1) is determined on the average of three (nominal 1-hour) runs for the initial and subsequent performance tests. During the performance test, one sampling site shall be located in the exhaust of the turbine prior to the duct burner. A second sampling site shall be located at the outlet from the heat recovery steam generating unit. Measurements shall be taken at both sampling sites during the performance test; or

(2)The owner or operator of an affected duct burner may elect to determine compliance by using the continuous emission monitoring system

(CEMS)specified under § 60.49Da for measuring NO X and oxygen (O 2 ) and meet the requirements of § 60.49Da. Data from a CEMS certified (or recertified) according to the provisions of 40 CFR 75.20, meeting the QA and QC requirements of 40 CFR 75.21, and validated according to 40 CFR 75.23 may be used. The sampling site shall be located at the outlet from the steam generating unit. The NO X emission rate at the outlet from the steam generating unit shall constitute the NO X emission rate from the duct burner of the combined cycle system.

(k)*Compliance provisions for duct burners subject to § 60.44Da(d)(1) or (e)(1).* To determine compliance with the emission limitation for NO X required by § 60.44Da(d)(1) or (e)(1) for duct burners used in combined cycle systems, either of the procedures described in paragraphs (k)(1) and

(2)of this section may be used:

(1)The owner or operator of an affected duct burner used in combined cycle systems shall determine compliance with the applicable NO X emission limitation in § 60.44Da(d)(1) or (e)(1) as follows:

(i)The emission rate

(E)of NO X shall be computed using Equation 2 in this section: EP09FE07.016 Where: E = Emission rate of NO X from the duct burner, ng/J (lb/MWh) gross output; C sg = Average hourly concentration of NO X exiting the steam generating unit, ng/dscm (lb/dscf); C te = Average hourly concentration of NO X in the turbine exhaust upstream from duct burner, ng/dscm (lb/dscf); Q sg = Average hourly volumetric flow rate of exhaust gas from steam generating unit, dscm/hr (dscf/hr); Q te = Average hourly volumetric flow rate of exhaust gas from combustion turbine, dscm/hr (dscf/hr); O sg = Average hourly gross energy output from steam generating unit, J (MWh); and h = Average hourly fraction of the total heat input to the steam generating unit derived from the combustion of fuel in the affected duct burner.

(ii)Method 7E of appendix A of this part shall be used to determine the NO X concentrations (C sg and C te ). Method 2, 2F or 2G of appendix A of this part, as appropriate, shall be used to determine the volumetric flow rates (Q sg and Q te ) of the exhaust gases. The volumetric flow rate measurements shall be taken at the same time as the concentration measurements.

(iii)The owner or operator shall develop, demonstrate, and provide information satisfactory to the Administrator to determine the average hourly gross energy output from the steam generating unit, and the average hourly percentage of the total heat input to the steam generating unit derived from the combustion of fuel in the affected duct burner.

(iv)Compliance with the applicable NO X emission limitation in § 60.44Da(d)(1) or (e)(1) is determined by the three-run average (nominal 1-hour runs) for the initial and subsequent performance tests.

(2)The owner or operator of an affected duct burner used in a combined cycle system may elect to determine compliance with the applicable NO X emission limitation in § 60.44Da(d)(1) or (e)(1) on a 30-day rolling average basis as indicated in paragraphs (k)(2)(i) through

(iv)of this section.

(i)The emission rate

(E)of NO X shall be computed using Equation 3 in this section: EP09FE07.017 Where: E = Emission rate of NO X from the duct burner, ng/J (lb/MWh) gross output; C sg = Average hourly concentration of NO X exiting the steam generating unit, ng/dscm (lb/dscf); Q sg = Average hourly volumetric flow rate of exhaust gas from steam generating unit, dscm/hr (dscf/hr); and O cc = Average hourly gross energy output from entire combined cycle unit, J (MWh).

(ii)The CEMS specified under § 60.49Da for measuring NO X and O 2 shall be used to determine the average hourly NO X concentrations (C sg ). The continuous flow monitoring system specified in § 60.49Da(l) shall be used to determine the volumetric flow rate (Q sg ) of the exhaust gas. The sampling site shall be located at the outlet from the steam generating unit. Data from a continuous flow monitoring system certified (or recertified) following procedures specified in 40 CFR 75.20, meeting the quality assurance and quality control requirements of 40 CFR 75.21, and validated according to 40 CFR 75.23 may be used.

(iii)The continuous monitoring system specified under § 60.49Da(k) for measuring and determining gross energy output shall be used to determine the average hourly gross energy output from the entire combined cycle unit (O cc ), which is the combined output from the combustion turbine and the steam generating unit.

(iv)The owner or operator may, in lieu of installing, operating, and recording data from the continuous flow monitoring system specified in § 60.49Da(l), determine the mass rate (lb/hr) of NO X emissions by installing, operating, and maintaining continuous fuel flowmeters following the appropriate measurements procedures specified in appendix D of part 75 of this chapter. If this compliance option is selected, the emission rate

(E)of NO X shall be computed using Equation 4 in this section: EP09FE07.018 Where: E = Emission rate of NO X from the duct burner, ng/J (lb/MWh) gross output; ER sg = Average hourly emission rate of NO X exiting the steam generating unit heat input calculated using appropriate F factor as described in Method 19 of appendix A of this part, ng/J (lb/MMBtu); H cc = Average hourly heat input rate of entire combined cycle unit, J/hr (MMBtu/hr); and O cc = Average hourly gross energy output from entire combined cycle unit, J (MWh).

(3)When an affected duct burner steam generating unit utilizes a common steam turbine with one or more affected duct burner steam generating units, the owner or operator shall either:

(i)Determine compliance with the applicable NO X emissions limits by measuring the emissions combined with the emissions from the other unit(s) utilizing the common steam turbine; or

(ii)Develop, demonstrate, and provide information satisfactory to the Administrator on methods for apportioning the combined gross energy output from the steam turbine for each of the affected duct burners. The Administrator may approve such demonstrated substitute methods for apportioning the combined gross energy output measured at the steam turbine whenever the demonstration ensures accurate estimation of emissions regulated under this part.

(l)*Compliance provisions for sources subject to § 60.45Da.* The owner or operator of an affected facility subject to § 60.45Da (new sources constructed or reconstructed after January 30, 2004) shall calculate the Hg emission rate (lb/MWh) for each calendar month of the year, using hourly Hg concentrations measured according to the provisions of § 60.49Da(p) in conjunction with hourly stack gas volumetric flow rates measured according to the provisions of § 60.49Da(l) or (m), and hourly gross electrical outputs, determined according to the provisions in § 60.49Da(k). Compliance with the applicable standard under § 60.45Da is determined on a 12-month rolling average basis.

(m)*Compliance provisions for sources subject to § 60.43Da(i)(1)(i), (i)(2)(i), (i)(3)(i), (j)(1)(i), (j)(2)(i), or (j)(3)(i).* The owner or operator of an affected facility subject to § 60.43Da(i)(1)(i), (i)(2)(i), (i)(3)(i), (j)(1)(i), (j)(2)(i),or (j)(3)(i) shall calculate SO 2 emissions by multiplying the average hourly SO 2 output concentration, measured according to the provisions of § 60.49Da(b), by the average hourly flow rate, measured according to the provisions of § 60.49Da(l), and divided by the average hourly gross energy output, measured according to the provisions of § 60.49Da(k).

(n)*Compliance provisions for sources subject to § 60.42Da(c)(1).* The owner or operator of an affected facility subject to § 60.42Da(c)(1) shall calculate PM emissions by multiplying the average hourly PM output concentration, measured according to the provisions of § 60.49Da(t), by the average hourly flow rate, measured according to the provisions of § 60.49Da(l), and divided by the average hourly gross energy output, measured according to the provisions of § 60.49Da(k). Compliance with the emission limit is determined by calculating the arithmetic average of the hourly emission rates computed for each boiler operating day.

(o)*Compliance provisions for sources subject to § 60.42Da(c)(2) or (d).* Except as provided for in paragraph

(p)of this section, the owner or operator of an affected facility for which construction, reconstruction, or modification commenced after February 28, 2005, shall demonstrate compliance with each applicable emission limit according to the requirements in paragraphs (o)(1) through (o)(5) of this section.

(1)Conduct an initial performance test according to the requirements in § 60.50Da to demonstrate compliance by the applicable date specified in § 60.8(a) and, thereafter, conduct subsequent performance test within 365 calendar days of the prior test, and

(2)An owner or operator must use opacity monitoring equipment as an indicator of continuous PM control device performance and demonstrate compliance with § 60.42Da(b). In addition, baseline parameters shall be established as the highest clock hour opacity average (average of 10 6-minute measurements) measured by the continuous opacity monitoring system during the PM performance test. If any clock hour average opacity measurement is more than 110 percent of the baseline level, the owner or operator will conduct another performance test within 45 operating days to demonstrate compliance. A new baseline is established during each PM performance test. The new baseline shall not exceed the opacity limit specified in § 60.42Da(b), and

(3)An owner or operator using an ESP to comply with the applicable emission limits shall use voltage and secondary current monitoring equipment to measure voltage and secondary current to the ESP. Baseline parameters shall be established as average rates measured during the performance test. If a 3-hour average voltage and secondary current average deviates more than 10 percent from the baseline level, the owner or operator will conduct another performance test within 45 operating days to demonstrate compliance. A new baseline is established during each PM performance test, and

(4)An owner or operator using a fabric filter to comply with the applicable emission limits shall install, calibrate, maintain, and continuously operate a bag leak detection system according to paragraphs (o)(4)(i) through

(viii)of this section.

(i)Install and operate a bag leak detection system for each exhaust stack of the fabric filter.

(ii)Each bag leak detection system must be installed, operated, calibrated, and maintained in a manner consistent with the manufacturer's written specifications and recommendations and in accordance with the “Fabric Filter Bag Leak Detection Guidance” (EPA 454/R-98-015, September 1997). This document is available from the U.S. Environmental Protection Agency (U.S. EPA); Office of Air Quality Planning and Standards; Sector Policies and Programs Division; Measurement Policy Group (D243-02), Research Triangle Park, NC 27711. This document is also available on the Technology Transfer Network

(TTN)under Emission Measurement Center Continuous Emission Monitoring.

(iii)The bag leak detection system must be certified by the manufacturer to be capable of detecting PM emissions at concentrations of 10 milligrams per actual cubic meter or less.

(iv)The bag leak detection system sensor must provide output of relative or absolute PM loadings.

(v)The bag leak detection system must be equipped with a device to continuously record the output signal from the sensor.

(vi)The bag leak detection system must be equipped with an alarm system that will sound automatically when an increase in relative PM emissions over a preset level is detected. The alarm must be located where it is easily heard by plant operating personnel. Corrective actions must be initiated within 1 hour of a bag leak detection system alarm. If the alarm is engaged for more than 5 percent of the total operating time on a 30-day rolling average basis, a performance test must be performed within 45 operating days to demonstrate compliance.

(vii)For positive pressure fabric filter systems that do not duct all compartments of cells to a common stack, a bag leak detection system must be installed in each baghouse compartment or cell.

(viii)Where multiple bag leak detectors are required, the system's instrumentation and alarm may be shared among detectors, and

(5)An owner or operator of a modified affected source electing to meet the emission limitations in § 60.42Da(d) shall determine the percent reduction in PM by using the emission rate for PM determined by the performance test conducted according to the requirements in paragraph (o)(1) of this section and the ash content on a mass basis of the fuel burned during each performance test run as determined by analysis of the fuel as fired.

(p)As an alternative to meeting the compliance provisions specified in paragraph

(o)of this section, an owner or operator may elect to install, certify, maintain, and operate a CEMS measuring PM emissions discharged from the affected facility to the atmosphere and record the output of the system as specified in paragraphs (p)(1) through (p)(8) of this section.

(1)The owner or operator shall submit a written notification to the Administrator of intent to demonstrate compliance with this subpart by using a CEMS measuring PM. This notification shall be sent at least 30 calendar days before the initial startup of the monitor for compliance determination purposes. The owner or operator may discontinue operation of the monitor and instead return to demonstration of compliance with this subpart according to the requirements in paragraph

(o)of this section by submitting written notification to the Administrator of such intent at least 30 calendar days before shutdown of the monitor for compliance determination purposes.

(2)Each CEMS shall be installed, certified, operated, and maintained according to the requirements in § 60.49Da(v).

(3)The initial performance evaluation shall be completed no later than 180 days after the date of initial startup of the affected facility, as specified under § 60.8 of subpart A of this part or within 180 days of the date of notification to the Administrator required under paragraph (p)(1) of this section, whichever is later.

(4)Compliance with the applicable emissions limit shall be determined based on the 24-hour daily (block) average of the hourly arithmetic average emissions concentrations using the continuous monitoring system outlet data. The 24-hour block arithmetic average emission concentration shall be calculated using EPA Reference Method 19 of appendix A of this part, section 4.1.

(5)At a minimum, valid CEMS hourly averages shall be obtained for 75 percent of all operating hours on a 30-day rolling average basis. Beginning on January 1, 2012, valid CEMS hourly averages shall be obtained for 90 percent of all operating hours on a 30-day rolling average basis.

(i)At least two data points per hour shall be used to calculate each 1-hour arithmetic average.

(ii)[Reserved]

(6)The 1-hour arithmetic averages required shall be expressed in ng/J, MMBtu/hr, or lb/MWh and shall be used to calculate the boiler operating day daily arithmetic average emission concentrations. The 1-hour arithmetic averages shall be calculated using the data points required under § 60.13(e)(2) of subpart A of this part.

(7)All valid CEMS data shall be used in calculating average emission concentrations even if the minimum CEMS data requirements of paragraph (j)(5) of this section are not met.

(8)When PM emissions data are not obtained because of CEMS breakdowns, repairs, calibration checks, and zero and span adjustments, emissions data shall be obtained by using other monitoring systems as approved by the Administrator or EPA Reference Method 19 of appendix A of this part to provide, as necessary, valid emissions data for a minimum of 90 percent (only 75 percent is required prior to January 1, 2012) of all operating hours per 30-day rolling average. § 60.49Da Emission monitoring.

(a)Except as provided for in paragraphs

(t)and

(u)of this section, the owner or operator of an affected facility, shall install, calibrate, maintain, and operate a CEMS, and record the output of the system, for measuring the opacity of emissions discharged to the atmosphere. If opacity interference due to water droplets exists in the stack (for example, from the use of an FGD system), the opacity is monitored upstream of the interference (at the inlet to the FGD system). If opacity interference is experienced at all locations (both at the inlet and outlet of the SO 2 control system), alternate parameters indicative of the PM control system's performance and/or good combustion are monitored (subject to the approval of the Administrator).

(b)The owner or operator of an affected facility shall install, calibrate, maintain, and operate a CEMS, and record the output of the system, for measuring SO 2 emissions, except where natural gas is the only fuel combusted, as follows:

(1)Sulfur dioxide emissions are monitored at both the inlet and outlet of the SO 2 control device.

(2)For a facility that qualifies under the numerical limit provisions of § 60.43Da(d), (i), (j), or

(k)SO 2 emissions are only monitored as discharged to the atmosphere.

(3)An “as fired” fuel monitoring system (upstream of coal pulverizers) meeting the requirements of Method 19 of appendix A of this part may be used to determine potential SO 2 emissions in place of a continuous SO 2 emission monitor at the inlet to the SO 2 control device as required under paragraph (b)(1) of this section. (c)(1) The owner or operator of an affected facility shall install, calibrate, maintain, and operate a CEMS, and record the output of the system, for measuring NO X emissions discharged to the atmosphere; or

(2)If the owner or operator has installed a NO X emission rate CEMS to meet the requirements of part 75 of this chapter and is continuing to meet the ongoing requirements of part 75 of this chapter, that CEMS may be used to meet the requirements of this section, except that the owner or operator shall also meet the requirements of § 60.51Da. Data reported to meet the requirements of § 60.51Da shall not include data substituted using the missing data procedures in subpart D of part 75 of this chapter, nor shall the data have been bias adjusted according to the procedures of part 75 of this chapter.

(d)The owner or operator of an affected facility shall install, calibrate, maintain, and operate a CEMS, and record the output of the system, for measuring the O 2 or carbon dioxide (CO 2 ) content of the flue gases at each location where SO 2 or NO X emissions are monitored.

(e)The CEMS under paragraphs (b), (c), and

(d)of this section are operated and data recorded during all periods of operation of the affected facility including periods of startup, shutdown, malfunction or emergency conditions, except for CEMS breakdowns, repairs, calibration checks, and zero and span adjustments. (f)(1) For units that began construction, reconstruction, or modification on or before February 28, 2005, the owner or operator shall obtain emission data for at least 18 hours in at least 22 out of 30 successive boiler operating days. If this minimum data requirement cannot be met with CEMS, the owner or operator shall supplement emission data with other monitoring systems approved by the Administrator or the reference methods and procedures as described in paragraph

(h)of this section.

(2)For units that began construction, reconstruction, or modification after February 28, 2005, the owner or operator shall obtain emission data for at least 90 percent of all operating hours for each 30 successive boiler operating days. If this minimum data requirement cannot be met with a CEMS, the owner or operator shall supplement emission data with other monitoring systems approved by the Administrator or the reference methods and procedures as described in paragraph

(h)of this section.

(g)The 1-hour averages required under paragraph § 60.13(h) are expressed in ng/J (lb/MMBtu) heat input and used to calculate the average emission rates under § 60.48Da. The 1-hour averages are calculated using the data points required under § 60.13(b). At least two data points must be used to calculate the 1-hour averages.

(h)When it becomes necessary to supplement CEMS data to meet the minimum data requirements in paragraph

(f)of this section, the owner or operator shall use the reference methods and procedures as specified in this paragraph. Acceptable alternative methods and procedures are given in paragraph

(j)of this section.

(1)Method 6 of appendix A of this part shall be used to determine the SO 2 concentration at the same location as the SO 2 monitor. Samples shall be taken at 60-minute intervals. The sampling time and sample volume for each sample shall be at least 20 minutes and 0.020 dscm (0.71 dscf). Each sample represents a 1-hour average.

(2)Method 7 of appendix A of this part shall be used to determine the NO X concentration at the same location as the NO X monitor. Samples shall be taken at 30-minute intervals. The arithmetic average of two consecutive samples represents a 1-hour average.

(3)The emission rate correction factor, integrated bag sampling and analysis procedure of Method 3B of appendix A of this part shall be used to determine the O 2 or CO 2 concentration at the same location as the O 2 or CO 2 monitor. Samples shall be taken for at least 30 minutes in each hour. Each sample represents a 1-hour average.

(4)The procedures in Method 19 of appendix A of this part shall be used to compute each 1-hour average concentration in ng/J (1b/MMBtu) heat input.

(i)The owner or operator shall use methods and procedures in this paragraph to conduct monitoring system performance evaluations under § 60.13(c) and calibration checks under § 60.13(d). Acceptable alternative methods and procedures are given in paragraph

(j)of this section.

(1)Methods 3B, 6, and 7 of appendix A of this part shall be used to determine O 2 , SO 2 , and NO X concentrations, respectively.

(2)SO 2 or NO X (NO), as applicable, shall be used for preparing the calibration gas mixtures (in N 2 , as applicable) under Performance Specification 2 of appendix B of this part.

(3)For affected facilities burning only fossil fuel, the span value for a CEMS for measuring opacity is between 60 and 80 percent and for a CEMS measuring NO X is determined as follows: Fossil fuel Span values for NO X

(ppm)Gas 500 Liquid 500 Solid 1,000 Combination 500(x + y) + 1,000z Where: x = Fraction of total heat input derived from gaseous fossil fuel, y = Fraction of total heat input derived from liquid fossil fuel, and z = Fraction of total heat input derived from solid fossil fuel.

(4)All span values computed under paragraph (i)(3) of this section for burning combinations of fossil fuels are rounded to the nearest 500 ppm.

(5)For affected facilities burning fossil fuel, alone or in combination with non-fossil fuel, the span value of the SO 2 CEMS at the inlet to the SO 2 control device is 125 percent of the maximum estimated hourly potential emissions of the fuel fired, and the outlet of the SO 2 control device is 50 percent of maximum estimated hourly potential emissions of the fuel fired.

(j)The owner or operator may use the following as alternatives to the reference methods and procedures specified in this section:

(1)For Method 6 of appendix A of this part, Method 6A or 6B (whenever Methods 6 and 3 or 3B of appendix A of this part data are used) or 6C of appendix A of this part may be used. Each Method 6B of appendix A of this part sample obtained over 24 hours represents 24 1-hour averages. If Method 6A or 6B of appendix A of this part is used under paragraph

(i)of this section, the conditions under § 60.48Da(d)(1) apply; these conditions do not apply under paragraph

(h)of this section.

(2)For Method 7 of appendix A of this part, Method 7A, 7C, 7D, or 7E of appendix A of this part may be used. If Method 7C, 7D, or 7E of appendix A of this part is used, the sampling time for each run shall be 1 hour.

(3)For Method 3 of appendix A of this part, Method 3A or 3B of appendix A of this part may be used if the sampling time is 1 hour.

(4)For Method 3B of appendix A of this part, Method 3A of appendix A of this part may be used.

(k)The procedures specified in paragraphs (k)(1) through

(3)of this section shall be used to determine gross output for sources demonstrating compliance with the output-based standard under § 60.44Da(d)(1).

(1)The owner or operator of an affected facility with electricity generation shall install, calibrate, maintain, and operate a wattmeter; measure gross electrical output in MWh on a continuous basis; and record the output of the monitor.

(2)The owner or operator of an affected facility with process steam generation shall install, calibrate, maintain, and operate meters for steam flow, temperature, and pressure; measure gross process steam output in joules per hour (or Btu per hour) on a continuous basis; and record the output of the monitor.

(3)For affected facilities generating process steam in combination with electrical generation, the gross energy output is determined from the gross electrical output measured in accordance with paragraph (k)(1) of this section plus 75 percent of the gross thermal output (measured relative to ISO conditions) of the process steam measured in accordance with paragraph (k)(2) of this section.

(l)The owner or operator of an affected facility demonstrating compliance with an output-based standard under § 60.42Da, § 60.43Da, § 60.44Da, or § 60.45Da shall install, certify, operate, and maintain a continuous flow monitoring system meeting the requirements of Performance Specification 6 of appendix B and procedure 1 of appendix F of this part, and record the output of the system, for measuring the flow of exhaust gases discharged to the atmosphere; or

(m)Alternatively, data from a continuous flow monitoring system certified according to the requirements of 40 CFR 75.20, meeting the applicable quality control and quality assurance requirements of 40 CFR 75.21, and validated according to appendix B of part 75 of this chapter, may be used.

(n)Gas-fired and oil-fired units. The owner or operator of an affected unit that qualifies as a gas-fired or oil-fired unit, as defined in 40 CFR 72.2, may use, as an alternative to the requirements specified in either paragraph

(l)or

(m)of this section, a fuel flow monitoring system certified and operated according to the requirements of appendix D of part 75 of this chapter.

(o)The owner or operator of a duct burner, as described in § 60.41Da, which is subject to the NO X standards of § 60.44Da(a)(1), (d)(1), or (e)(1) is not required to install or operate a CEMS to measure NO X emissions; a wattmeter to measure gross electrical output; meters to measure steam flow, temperature, and pressure; and a continuous flow monitoring system to measure the flow of exhaust gases discharged to the atmosphere.

(p)The owner or operator of an affected facility demonstrating compliance with an Hg limit in § 60.45Da shall install and operate a CEMS to measure and record the concentration of Hg in the exhaust gases from each stack according to the requirements in paragraphs (p)(1) through (p)(3) of this section. Alternatively, for an affected facility that is also subject to the requirements of subpart I of part 75 of this chapter, the owner or operator may install, certify, maintain, operate and quality-assure the data from a Hg CEMS according to § 75.10 of this chapter and appendices A and B to part 75 of this chapter, in lieu of following the procedures in paragraphs (p)(1) through (p)(3) of this section.

(1)The owner or operator must install, operate, and maintain each CEMS according to Performance Specification 12A in appendix B to this part.

(2)The owner or operator must conduct a performance evaluation of each CEMS according to the requirements of § 60.13 and Performance Specification 12A in appendix B to this part.

(3)The owner or operator must operate each CEMS according to the requirements in paragraphs (p)(3)(i) through

(iv)of this section.

(i)As specified in § 60.13(e)(2), each CEMS must complete a minimum of one cycle of operation (sampling, analyzing, and data recording) for each successive 15-minute period.

(ii)The owner or operator must reduce CEMS data as specified in § 60.13(h).

(iii)The owner or operator shall use all valid data points collected during the hour to calculate the hourly average Hg concentration.

(iv)The owner or operator must record the results of each required certification and quality assurance test of the CEMS.

(4)Mercury CEMS data collection must conform to paragraphs (p)(4)(i) through

(iv)of this section.

(i)For each calendar month in which the affected unit operates, valid hourly Hg concentration data, stack gas volumetric flow rate data, moisture data (if required), and electrical output data (i.e., valid data for all of these parameters) shall be obtained for at least 75 percent of the unit operating hours in the month.

(ii)Data reported to meet the requirements of this subpart shall not include hours of unit startup, shutdown, or malfunction. In addition, for an affected facility that is also subject to subpart I of part 75 of this chapter, data reported to meet the requirements of this subpart shall not include data substituted using the missing data procedures in subpart D of part 75 of this chapter, nor shall the data have been bias adjusted according to the procedures of part 75 of this chapter.

(iii)If valid data are obtained for less than 75 percent of the unit operating hours in a month, you must discard the data collected in that month and replace the data with the mean of the individual monthly emission rate values determined in the last 12 months. In the 12-month rolling average calculation, this substitute Hg emission rate shall be weighted according to the number of unit operating hours in the month for which the data capture requirement of § 60.49Da(p)(4)(i) was not met.

(iv)Notwithstanding the requirements of paragraph (p)(4)(iii) of this section, if valid data are obtained for less than 75 percent of the unit operating hours in another month in that same 12-month rolling average cycle, discard the data collected in that month and replace the data with the highest individual monthly emission rate determined in the last 12 months. In the 12-month rolling average calculation, this substitute Hg emission rate shall be weighted according to the number of unit operating hours in the month for which the data capture requirement of § 60.49Da(p)(4)(i) was not met.

(q)As an alternative to the CEMS required in paragraph

(p)of this section, the owner or operator may use a sorbent trap monitoring system (as defined in § 72.2 of this chapter) to monitor Hg concentration, according to the procedures described in § 75.15 of this chapter and appendix K to part 75 of this chapter.

(r)For Hg CEMS that measure Hg concentration on a dry basis or for sorbent trap monitoring systems, the emissions data must be corrected for the stack gas moisture content. A certified continuous moisture monitoring system that meets the requirements of § 75.11(b) of this chapter is acceptable for this purpose. Alternatively, the appropriate default moisture value, as specified in § 75.11(b) or § 75.12(b) of this chapter, may be used.

(s)The owner or operator shall prepare and submit to the Administrator for approval a unit-specific monitoring plan for each monitoring system, at least 45 days before commencing certification testing of the monitoring systems. The owner or operator shall comply with the requirements in your plan. The plan must address the requirements in paragraphs (s)(1) through

(6)of this section.

(1)Installation of the CEMS sampling probe or other interface at a measurement location relative to each affected process unit such that the measurement is representative of the exhaust emissions (e.g., on or downstream of the last control device);

(2)Performance and equipment specifications for the sample interface, the pollutant concentration or parametric signal analyzer, and the data collection and reduction systems;

(3)Performance evaluation procedures and acceptance criteria (e.g., calibrations, relative accuracy test audits (RATA), etc.);

(4)Ongoing operation and maintenance procedures in accordance with the general requirements of § 60.13(d) or part 75 of this chapter (as applicable);

(5)Ongoing data quality assurance procedures in accordance with the general requirements of § 60.13 or part 75 of this chapter (as applicable); and

(6)Ongoing recordkeeping and reporting procedures in accordance with the requirements of this subpart.

(t)The owner or operator of an affected facility demonstrating compliance with the output-based emissions limitation under § 60.42Da(c)(1) shall install, certify, operate, and maintain a CEMS for measuring PM emissions according to the requirements of paragraph

(v)of this section. An owner or operator of an affected source demonstrating compliance with the input-based emission limitation under § 60.42Da(c)(2) may install, certify, operate, and maintain a CEMS for measuring PM emissions according to the requirements of paragraph

(v)of this section.

(u)An owner or operator of an affected source that meets the conditions in either paragraph (u)(1) or

(2)of this section is exempted from the continuous opacity monitoring system requirements in paragraph

(a)of this section and the monitoring requirements in § 60.48Da(o).

(1)A CEMS for measuring PM emissions is used to demonstrate continuous compliance on a boiler operating day average with the emissions limitations under § 60.42Da(a)(1) or § 60.42Da(c)(2) and is installed, certified, operated, and maintained on the affected source according to the requirements of paragraph

(v)of this section; or

(2)The affected source burns only gaseous fuels and does not use a post combustion technology to reduce emissions of SO 2 or PM.

(v)The owner or operator of an affected facility using a CEMS measuring PM emissions to meet requirements of this subpart shall install, certify, operate, and maintain the CEMS as specified in paragraphs (v)(1) through (v)(3).

(1)The owner or operator shall conduct a performance evaluation of the CEMS according to the applicable requirements of § 60.13, Performance Specification 11 in appendix B of this part, and procedure 2 in appendix F of this part.

(2)During each relative accuracy test run of the CEMS required by Performance Specification 11 in appendix B of this part, PM and O 2 (or CO 2 ) data shall be collected concurrently (or within a 30-to 60-minute period) by both the CEMS and conducting performance tests using the following test methods.

(i)For PM, EPA Reference Method 5, 5B, or 17 of appendix A of this part shall be used.

(ii)For O 2 (or CO 2 ), EPA Reference Method 3, 3A, or 3B of appendix A of this part, as applicable, shall be used.

(3)Quarterly accuracy determinations and daily calibration drift tests shall be performed in accordance with procedure 2 in appendix F of this part. Relative Response Audits must be performed annually and Response Correlation Audits must be performed every 3 years. § 60.50Da Compliance determination procedures and methods.

(a)In conducting the performance tests required in § 60.8, the owner or operator shall use as reference methods and procedures the methods in appendix A of this part or the methods and procedures as specified in this section, except as provided in § 60.8(b). Section 60.8(f) does not apply to this section for SO 2 and NO X . Acceptable alternative methods are given in paragraph

(e)of this section.

(b)The owner or operator shall determine compliance with the PM standards in § 60.42Da as follows:

(1)The dry basis F factor (O 2 ) procedures in Method 19 of appendix A of this part shall be used to compute the emission rate of PM.

(2)For the particular matter concentration, Method 5 of appendix A of this part shall be used at affected facilities without wet FGD systems and Method 5B of appendix A of this part shall be used after wet FGD systems.

(i)The sampling time and sample volume for each run shall be at least 120 minutes and 1.70 dscm (60 dscf). The probe and filter holder heating system in the sampling train may be set to provide an average gas temperature of no greater than 160 ± 14 °C (320 ± 25 °F).

(ii)For each particulate run, the emission rate correction factor, integrated or grab sampling and analysis procedures of Method 3B of appendix A of this part shall be used to determine the O 2 concentration. The O 2 sample shall be obtained simultaneously with, and at the same traverse points as, the particulate run. If the particulate run has more than 12 traverse points, the O 2 traverse points may be reduced to 12, provided that Method 1 of appendix A of this part is used to locate the 12 O 2 traverse points. If the grab sampling procedure is used, the O 2 concentration for the run shall be the arithmetic mean of the sample O 2 concentrations at all traverse points.

(3)Method 9 of appendix A of this part and the procedures in § 60.11 shall be used to determine opacity.

(c)The owner or operator shall determine compliance with the SO 2 standards in § 60.43Da as follows:

(1)The percent of potential SO 2 emissions (%Ps) to the atmosphere shall be computed using the following equation: EP09FE07.019 Where: %P s = Percent of potential SO 2 emissions, percent; %R f = Percent reduction from fuel pretreatment, percent; and %R g = Percent reduction by SO 2 control system, percent.

(2)The procedures in Method 19 of appendix A of this part may be used to determine percent reduction (%R f ) of sulfur by such processes as fuel pretreatment (physical coal cleaning, hydrodesulfurization of fuel oil, etc.), coal pulverizers, and bottom and fly ash interactions. This determination is optional.

(3)The procedures in Method 19 of appendix A of this part shall be used to determine the percent SO 2 reduction (%R g ) of any SO 2 control system. Alternatively, a combination of an “as fired” fuel monitor and emission rates measured after the control system, following the procedures in Method 19 of appendix A of this part, may be used if the percent reduction is calculated using the average emission rate from the SO 2 control device and the average SO 2 input rate from the “as fired” fuel analysis for 30 successive boiler operating days.

(4)The appropriate procedures in Method 19 of appendix A of this part shall be used to determine the emission rate.

(5)The CEMS in § 60.49Da(b) and

(d)shall be used to determine the concentrations of SO 2 and CO 2 or O 2 .

(d)The owner or operator shall determine compliance with the NO X standard in § 60.44Da as follows:

(1)The appropriate procedures in Method 19 of appendix A of this part shall be used to determine the emission rate of NO X .

(2)The continuous monitoring system in § 60.49Da(c) and

(d)shall be used to determine the concentrations of NO X and CO 2 or O 2 .

(e)The owner or operator may use the following as alternatives to the reference methods and procedures specified in this section:

(1)For Method 5 or 5B of appendix A of this part, Method 17 of appendix A of this part may be used at facilities with or without wet FGD systems if the stack temperature at the sampling location does not exceed an average temperature of 160°C (320°F). The procedures of §§ 2.1 and 2.3 of Method 5B of appendix A of this part may be used in Method 17 of appendix A of this part only if it is used after wet FGD systems. Method 17 of appendix A of this part shall not be used after wet FGD systems if the effluent is saturated or laden with water droplets.

(2)The F c factor (CO 2 ) procedures in Method 19 of appendix A of this part may be used to compute the emission rate of PM under the stipulations of § 60.46(d)(1). The CO 2 shall be determined in the same manner as the O 2 concentration.

(f)Electric utility combined cycle gas turbines are performance tested for PM, SO 2 , and NO X using the procedures of Method 19 of appendix A of this part. The SO 2 and NO X emission rates from the gas turbine used in Method 19 of appendix A of this part calculations are determined when the gas turbine is performance tested under subpart GG of this part. The potential uncontrolled PM emission rate from a gas turbine is defined as 17 ng/J (0.04 lb/MMBtu) heat input.

(g)For the purposes of determining compliance with the emission limits in § 60.45Da, the owner or operator of an electric utility steam generating unit which is also a cogeneration unit shall use the procedures in paragraphs (g)(1) and

(2)of this section to calculate emission rates based on electrical output to the grid plus 75 percent of the equivalent electrical energy (measured relative to ISO conditions) in the unit's process stream.

(1)All conversions from Btu/hr unit input to MW unit output must use equivalents found in 40 CFR 60.40(a)(1) for electric utilities (i.e., 250 MMBtu/hr input to an electric utility steam generating unit is equivalent to 73 MW input to the electric utility steam generating unit); 73 MW input to the electric utility steam generating unit is equivalent to 25 MW output from the boiler electric utility steam generating unit; therefore, 250 MMBtu input to the electric utility steam generating unit is equivalent to 25 MW output from the electric utility steam generating unit).

(2)Use the Equation 5 in this section to determine the cogeneration Hg emission rate over a specific compliance period. EP09FE07.020 Where: ER cogen = Cogeneration Hg emission rate over a compliance period in lb/MWh; E = Mass of Hg emitted from the stack over the same compliance period (lb); V grid = Amount of energy sent to the grid over the same compliance period (MWh); and V process = Amount of energy converted to steam for process use over the same compliance period (MWh).

(h)The owner or operator shall determine compliance with the Hg limit in § 60.45Da according to the procedures in paragraphs (h)(1) through

(3)of this section.

(1)The initial performance test shall be commenced by the applicable date specified in § 60.8(a). The required CEMS must be certified prior to commencing the test. The performance test consists of collecting hourly Hg emission data (lb/MWh) with the CEMS for 12 successive months of unit operation (excluding hours of unit startup, shutdown and malfunction). The average Hg emission rate is calculated for each month, and then the weighted, 12-month average Hg emission rate is calculated according to paragraph (h)(2) or (h)(3) of this section, as applicable. If, for any month in the initial performance test, the minimum data capture requirement in § 60.49Da(p)(4)(i) is not met, the owner or operator shall report a substitute Hg emission rate for that month, as follows. For the first such month, the substitute monthly Hg emission rate shall be the arithmetic average of all valid hourly Hg emission rates recorded to date. For any subsequent month(s) with insufficient data capture, the substitute monthly Hg emission rate shall be the highest valid hourly Hg emission rate recorded to date. When the 12-month average Hg emission rate for the initial performance test is calculated, for each month in which there was insufficient data capture, the substitute monthly Hg emission rate shall be weighted according to the number of unit operating hours in that month. Following the initial performance test, the owner or operator shall demonstrate compliance by calculating the weighted average of all monthly Hg emission rates (in lb/MWh) for each 12 successive calendar months, excluding data obtained during startup, shutdown, or malfunction.

(2)If a CEMS is used to demonstrate compliance, follow the procedures in paragraphs (h)(2)(i) through

(iii)of this section to determine the 12-month rolling average.

(i)Calculate the total mass of Hg emissions over a month (M), in lb, using either Equation 6 in paragraph (h)(2)(i)(A) of this section or Equation 7 in paragraph (h)(2)(i)(B) of this section, in conjunction with Equation 8 in paragraph (h)(2)(i)(C) of this section.

(A)If the Hg CEMS measures Hg concentration on a wet basis, use Equation 6 below to calculate the Hg mass emissions for each valid hour: EP09FE07.021 Where: E h = Hg mass emissions for the hour, (lb); K = Units conversion constant, 6.24 × 10 −11 lb-scm/μgm-scf; C h = Hourly Hg concentration, wet basis, (μgm/scm); Q h = Hourly stack gas volumetric flow rate, (scfh); and t h = Unit operating time, i.e., the fraction of the hour for which the unit operated. For example, t h = 0.50 for a half-hour of unit operation and 1.00 for a full hour of operation.

(B)If the Hg CEMS measures Hg concentration on a dry basis, use Equation 7 below to calculate the Hg mass emissions for each valid hour: EP09FE07.022 Where: E h = Hg mass emissions for the hour, (lb); K = Units conversion constant, 6.24 × 10 −11 lb-scm/μgm-scf; C h = Hourly Hg concentration, dry basis, (μgm/dscm); Q h = Hourly stack gas volumetric flow rate, (scfh); t h = Unit operating time, i.e., the fraction of the hour for which the unit operated; and B ws = Stack gas moisture content, expressed as a decimal fraction (e.g., for 8 percent H 2 O, B ws = 0.08).

(C)Use Equation 8, below, to calculate M, the total mass of Hg emitted for the month, by summing the hourly masses derived from Equation 6 or 7 (as applicable): EP09FE07.023 Where: M = Total Hg mass emissions for the month, (lb); E h = Hg mass emissions for hour “h”, from Equation 6 or 7 of this section, (lb); and n = Number of unit operating hours in the month with valid CE and electrical output data, excluding hours of unit startup, shutdown and malfunction.

(ii)Calculate the monthly Hg emission rate on an output basis (lb/MWh) using Equation 9, below. For a cogeneration unit, use Equation 5 in paragraph

(g)of this section instead. EP09FE07.024 Where: ER = Monthly Hg emission rate, (lb/MWh); M = Total mass of Hg emissions for the month, from Equation 8, above, (lb); and P = Total electrical output for the month, for the hours used to calculate M, (MWh).

(iii)Until 12 monthly Hg emission rates have been accumulated, calculate and report only the monthly averages. Then, for each subsequent calendar month, use Equation 10 below to calculate the 12-month rolling average as a weighted average of the Hg emission rate for the current month and the Hg emission rates for the previous 11 months, with one exception. Calendar months in which the unit does not operate (zero unit operating hours) shall not be included in the 12-month rolling average. EP09FE07.025 Where: E avg = Weighted 12-month rolling average Hg emission rate, (lb/MWh); ER i = Monthly Hg emission rate, for month “i”, (lb/MWh); and n = Number of unit operating hours in month “i” with valid CEM and electrical output data, excluding hours of unit startup, shutdown, and malfunction.

(3)If a sorbent trap monitoring system is used in lieu of a Hg CEMS, as described in § 75.15 of this chapter and in appendix K to part 75 of this chapter, calculate the monthly Hg emission rates using Equations 7 through 9 of this section, except that for a particular pair of sorbent traps, C h in Equation 7 shall be the flow-proportional average Hg concentration measured over the data collection period.

(i)Daily calibration drift

(CD)tests and quarterly accuracy determinations shall be performed for Hg CEMS in accordance with Procedure 1 of appendix F to this part. For the CD assessments, you may use either elemental mercury or mercuric chloride (Hg° or HgCl 2 ) standards. The four quarterly accuracy determinations shall consist of one RATA and three measurement error

(ME)tests using HgCl 2 standards, as described in section 8.3 of Performance Specification 12-A in appendix B to this part (note: Hg° standards may be used if the Hg monitor does not have a converter). Alternatively, the owner or operator may implement the applicable daily, weekly, quarterly, and annual quality assurance

(QA)requirements for Hg CEMS in appendix B to part 75 of this chapter, in lieu of the QA procedures in appendices B and F to this part. Annual RATA of sorbent trap monitoring systems shall be performed in accordance with appendices A and B to part 75 of this chapter, and all other quality assurance requirements specified in appendix K to part 75 of this chapter shall be met for sorbent trap monitoring systems. § 60.51Da Reporting requirements.

(a)For SO 2 , NO X , PM, and Hg emissions, the performance test data from the initial and subsequent performance test and from the performance evaluation of the continuous monitors (including the transmissometer) are submitted to the Administrator.

(b)For SO 2 and NO X the following information is reported to the Administrator for each 24-hour period.

(1)Calendar date.

(2)The average SO 2 and NO X emission rates (ng/J or lb/MMBtu) for each 30 successive boiler operating days, ending with the last 30-day period in the quarter; reasons for non-compliance with the emission standards; and, description of corrective actions taken.

(3)Percent reduction of the potential combustion concentration of SO 2 for each 30 successive boiler operating days, ending with the last 30-day period in the quarter; reasons for non-compliance with the standard; and, description of corrective actions taken.

(4)Identification of the boiler operating days for which pollutant or diluent data have not been obtained by an approved method for at least 75 percent of the hours of operation of the facility; justification for not obtaining sufficient data; and description of corrective actions taken.

(5)Identification of the times when emissions data have been excluded from the calculation of average emission rates because of startup, shutdown, malfunction (NO X only), emergency conditions (SO 2 only), or other reasons, and justification for excluding data for reasons other than startup, shutdown, malfunction, or emergency conditions.

(6)Identification of “F” factor used for calculations, method of determination, and type of fuel combusted.

(7)Identification of times when hourly averages have been obtained based on manual sampling methods.

(8)Identification of the times when the pollutant concentration exceeded full span of the CEMS.

(9)Description of any modifications to CEMS which could affect the ability of the CEMS to comply with Performance Specifications 2 or 3.

(c)If the minimum quantity of emission data as required by § 60.49Da is not obtained for any 30 successive boiler operating days, the following information obtained under the requirements of § 60.48Da(h) is reported to the Administrator for that 30-day period:

(1)The number of hourly averages available for outlet emission rates (n o ) and inlet emission rates (n i ) as applicable.

(2)The standard deviation of hourly averages for outlet emission rates (s o ) and inlet emission rates (s i ) as applicable.

(3)The lower confidence limit for the mean outlet emission rate (E o *) and the upper confidence limit for the mean inlet emission rate (E i *) as applicable.

(4)The applicable potential combustion concentration.

(5)The ratio of the upper confidence limit for the mean outlet emission rate (E o *) and the allowable emission rate (E std ) as applicable.

(d)If any standards under § 60.43Da are exceeded during emergency conditions because of control system malfunction, the owner or operator of the affected facility shall submit a signed statement:

(1)Indicating if emergency conditions existed and requirements under § 60.48Da(d) were met during each period, and

(2)Listing the following information:

(i)Time periods the emergency condition existed;

(ii)Electrical output and demand on the owner or operator's electric utility system and the affected facility;

(iii)Amount of power purchased from interconnected neighboring utility companies during the emergency period;

(iv)Percent reduction in emissions achieved;

(v)Atmospheric emission rate (ng/J) of the pollutant discharged; and

(vi)Actions taken to correct control system malfunction.

(e)If fuel pretreatment credit toward the SO 2 emission standard under § 60.43Da is claimed, the owner or operator of the affected facility shall submit a signed statement:

(1)Indicating what percentage cleaning credit was taken for the calendar quarter, and whether the credit was determined in accordance with the provisions of § 60.50Da and Method 19 of appendix A of this part; and

(2)Listing the quantity, heat content, and date each pretreated fuel shipment was received during the previous quarter; the name and location of the fuel pretreatment facility; and the total quantity and total heat content of all fuels received at the affected facility during the previous quarter.

(f)For any periods for which opacity, SO 2 or NO X emissions data are not available, the owner or operator of the affected facility shall submit a signed statement indicating if any changes were made in operation of the emission control system during the period of data unavailability. Operations of the control system and affected facility during periods of data unavailability are to be compared with operation of the control system and affected facility before and following the period of data unavailability.

(g)For Hg, the following information shall be reported to the Administrator:

(1)Company name and address;

(2)Date of report and beginning and ending dates of the reporting period;

(3)The applicable Hg emission limit (lb/MWh); and

(4)For each month in the reporting period:

(i)The number of unit operating hours;

(ii)The number of unit operating hours with valid data for Hg concentration, stack gas flow rate, moisture (if required), and electrical output;

(iii)The monthly Hg emission rate (lb/MWh);

(iv)The number of hours of valid data excluded from the calculation of the monthly Hg emission rate, due to unit startup, shutdown and malfunction; and

(v)The 12-month rolling average Hg emission rate (lb/MWh); and

(5)The data assessment report

(DAR)required by appendix F to this part, or an equivalent summary of QA test results if the QA of part 75 of this chapter are implemented.

(h)The owner or operator of the affected facility shall submit a signed statement indicating whether:

(1)The required CEMS calibration, span, and drift checks or other periodic audits have or have not been performed as specified.

(2)The data used to show compliance was or was not obtained in accordance with approved methods and procedures of this part and is representative of plant performance.

(3)The minimum data requirements have or have not been met; or, the minimum data requirements have not been met for errors that were unavoidable.

(4)Compliance with the standards has or has not been achieved during the reporting period.

(i)For the purposes of the reports required under § 60.7, periods of excess emissions are defined as all 6-minute periods during which the average opacity exceeds the applicable opacity standards under § 60.42Da(b). Opacity levels in excess of the applicable opacity standard and the date of such excesses are to be submitted to the Administrator each calendar quarter.

(j)The owner or operator of an affected facility shall submit the written reports required under this section and subpart A to the Administrator semiannually for each six-month period. All semiannual reports shall be postmarked by the 30th day following the end of each six-month period.

(k)The owner or operator of an affected facility may submit electronic quarterly reports for SO 2 and/or NO X and/or opacity and/or Hg in lieu of submitting the written reports required under paragraphs (b), (g), and

(i)of this section. The format of each quarterly electronic report shall be coordinated with the permitting authority. The electronic report(s) shall be submitted no later than 30 days after the end of the calendar quarter and shall be accompanied by a certification statement from the owner or operator, indicating whether compliance with the applicable emission standards and minimum data requirements of this subpart was achieved during the reporting period. Before submitting reports in the electronic format, the owner or operator shall coordinate with the permitting authority to obtain their agreement to submit reports in this alternative format. § 60.52Da Recordkeeping requirements. The owner or operator of an affected facility subject to the emissions limitations in § 60.45Da shall provide notifications in accordance with § 60.7(a) and shall maintain records of all information needed to demonstrate compliance including performance tests, monitoring data, fuel analyses, and calculations, consistent with the requirements of § 60.7(f). Subpart Db—[Amended] 5. Subpart Db is revised to read as follows: Subpart Db—Standards of Performance for Industrial-Commercial-Institutional Steam Generating Units Sec. 60.40b Applicability and delegation of authority. 60.41b Definitions. 60.42b Standard for sulfur dioxide (SO 2 ). 60.43b Standard for particulate matter (PM). 60.44b Standard for nitrogen oxides (NO X ). 60.45b Compliance and performance test methods and procedures for sulfur dioxide. 60.46b Compliance and performance test methods and procedures for particulate matter and nitrogen oxides. 60.47b Emission monitoring for sulfur dioxide. 60.48b Emission monitoring for particulate matter and nitrogen oxides. 60.49b Reporting and recordkeeping requirements. Subpart Db—Standards of Performance for Industrial-Commercial-Institutional Steam Generating Units § 60.40b Applicability and delegation of authority.

(a)The affected facility to which this subpart applies is each steam generating unit that commences construction, modification, or reconstruction after June 19, 1984, and that has a heat input capacity from fuels combusted in the steam generating unit of greater than 29 megawatts

(MW)(100 million British thermal units per hour (MMBtu/hr)).

(b)Any affected facility meeting the applicability requirements under paragraph

(a)of this section and commencing construction, modification, or reconstruction after June 19, 1984, but on or before June 19, 1986, is subject to the following standards:

(1)Coal-fired affected facilities having a heat input capacity between 29 and 73 MW (100 and 250 MMBtu/hr), inclusive, are subject to the particulate matter

(PM)and nitrogen oxides (NO X ) standards under this subpart.

(2)Coal-fired affected facilities having a heat input capacity greater than 73 MW (250 MMBtu/hr) and meeting the applicability requirements under subpart D (Standards of performance for fossil-fuel-fired steam generators; § 60.40) are subject to the PM and NO X standards under this subpart and to the sulfur dioxide (SO 2 ) standards under subpart D (§ 60.43).

(3)Oil-fired affected facilities having a heat input capacity between 29 and 73 MW (100 and 250 MMBtu/hr), inclusive, are subject to the NO X standards under this subpart.

(4)Oil-fired affected facilities having a heat input capacity greater than 73 MW (250 MMBtu/hr) and meeting the applicability requirements under subpart D (Standards of performance for fossil-fuel-fired steam generators; § 60.40) are also subject to the NO X standards under this subpart and the PM and SO 2 standards under subpart D (§ 60.42 and § 60.43).

(c)Affected facilities that also meet the applicability requirements under subpart J (Standards of performance for petroleum refineries; § 60.104) are subject to the PM and NO X standards under this subpart and the SO 2 standards under subpart J (§ 60.104).

(d)Affected facilities that also meet the applicability requirements under subpart E (Standards of performance for incinerators; § 60.50) are subject to the NO X and PM standards under this subpart.

(e)Steam generating units meeting the applicability requirements under subpart Da (Standards of performance for electric utility steam generating units; § 60.40Da) are not subject to this subpart.

(f)Any change to an existing steam generating unit for the sole purpose of combusting gases containing total reduced sulfur

(TRS)as defined under § 60.281 is not considered a modification under § 60.14 and the steam generating unit is not subject to this subpart.

(g)In delegating implementation and enforcement authority to a State under section 111(c) of the Clean Air Act, the following authorities shall be retained by the Administrator and not transferred to a State.

(1)Section 60.44b(f).

(2)Section 60.44b(g).

(3)Section 60.49b(a)(4).

(h)Any affected facility that meets the applicability requirements and is subject to subpart Ea, subpart Eb, or subpart AAAA of this part is not covered by this subpart.

(i)Heat recovery steam generators that are associated with combined cycle gas turbines and that meet the applicability requirements of subpart GG or KKKK of this part are not subject to this subpart. This subpart will continue to apply to all other heat recovery steam generators that are capable of combusting more than 29 MW (100 MMBtu/hr) heat input of fossil fuel. If the heat recovery steam generator is subject to this subpart, only emissions resulting from combustion of fuels in the steam generating unit are subject to this subpart. (The gas turbine emissions are subject to subpart GG or KKKK, as applicable, of this part.)

(j)Any affected facility meeting the applicability requirements under paragraph

(a)of this section and commencing construction, modification, or reconstruction after June 19, 1986 is not subject to subpart D (Standards of Performance for Fossil-Fuel-Fired Steam Generators, § 60.40).

(k)Any affected facility that meets the applicability requirements and is subject to an EPA approved State or Federal section 111(d)/129 plan implementing subpart Cb or subpart BBBB of this part is not covered by this subpart. § 60.41b Definitions. As used in this subpart, all terms not defined herein shall have the meaning given them in the Clean Air Act and in subpart A of this part. *Annual capacity factor* means the ratio between the actual heat input to a steam generating unit from the fuels listed in § 60.42b(a), § 60.43b(a), or § 60.44b(a), as applicable, during a calendar year and the potential heat input to the steam generating unit had it been operated for 8,760 hours during a calendar year at the maximum steady state design heat input capacity. In the case of steam generating units that are rented or leased, the actual heat input shall be determined based on the combined heat input from all operations of the affected facility in a calendar year. *Byproduct/waste* means any liquid or gaseous substance produced at chemical manufacturing plants, petroleum refineries, or pulp and paper mills (except natural gas, distillate oil, or residual oil) and combusted in a steam generating unit for heat recovery or for disposal. Gaseous substances with carbon dioxide (CO 2 ) levels greater than 50 percent or carbon monoxide levels greater than 10 percent are not byproduct/waste for the purpose of this subpart. *Chemical manufacturing plants* mean industrial plants that are classified by the Department of Commerce under Standard Industrial Classification

(SIC)Code 28. *Coal* means all solid fuels classified as anthracite, bituminous, subbituminous, or lignite by the American Society of Testing and Materials in ASTM D388 (incorporated by reference, see § 60.17), coal refuse, and petroleum coke. Coal-derived synthetic fuels, including but not limited to solvent refined coal, gasified coal, coal-oil mixtures, coke oven gas, and coal-water mixtures, are also included in this definition for the purposes of this subpart. *Coal refuse* means any byproduct of coal mining or coal cleaning operations with an ash content greater than 50 percent, by weight, and a heating value less than 13,900 kJ/kg (6,000 Btu/lb) on a dry basis. *Cogeneration* , also known as combined heat and power, means a facility that simultaneously produces both electric (or mechanical) and useful thermal energy from the same primary energy source. *Coke oven gas* means the volatile constituents generated in the gaseous exhaust during the carbonization of bituminous coal to form coke. *Combined cycle system* means a system in which a separate source, such as a gas turbine, internal combustion engine, kiln, etc., provides exhaust gas to a steam generating unit. *Conventional technology* means wet flue gas desulfurization

(FGD)technology, dry FGD technology, atmospheric fluidized bed combustion technology, and oil hydrodesulfurization technology. *Distillate oil* means fuel oils that contain 0.05 weight percent nitrogen or less and comply with the specifications for fuel oil numbers 1 and 2, as defined by the American Society of Testing and Materials in ASTM D396 (incorporated by reference, see § 60.17). *Dry flue gas desulfurization technology* means a SO 2 control system that is located downstream of the steam generating unit and removes sulfur oxides from the combustion gases of the steam generating unit by contacting the combustion gases with an alkaline slurry or solution and forming a dry powder material. This definition includes devices where the dry powder material is subsequently converted to another form. Alkaline slurries or solutions used in dry flue gas desulfurization technology include but are not limited to lime and sodium. *Duct burner* means a device that combusts fuel and that is placed in the exhaust duct from another source, such as a stationary gas turbine, internal combustion engine, kiln, etc., to allow the firing of additional fuel to heat the exhaust gases before the exhaust gases enter a steam generating unit. *Emerging technology* means any SO 2 control system that is not defined as a conventional technology under this section, and for which the owner or operator of the facility has applied to the Administrator and received approval to operate as an emerging technology under § 60.49b(a)(4). *Federally enforceable* means all limitations and conditions that are enforceable by the Administrator, including the requirements of 40 CFR parts 60 and 61, requirements within any applicable State Implementation Plan, and any permit requirements established under 40 CFR 52.21 or under 40 CFR 51.18 and 51.24. *Fluidized bed combustion technology* means combustion of fuel in a bed or series of beds (including but not limited to bubbling bed units and circulating bed units) of limestone aggregate (or other sorbent materials) in which these materials are forced upward by the flow of combustion air and the gaseous products of combustion. *Fuel pretreatment* means a process that removes a portion of the sulfur in a fuel before combustion of the fuel in a steam generating unit. *Full capacity* means operation of the steam generating unit at 90 percent or more of the maximum steady-state design heat input capacity. *Gaseous fuel* means any fuel that is present as a gas at ISO conditions. *Gross output* means the gross useful work performed by the steam generated. For units generating only electricity, the gross useful work performed is the gross electrical output from the turbine/generator set. For cogeneration units, the gross useful work performed is the gross electrical or mechanical output plus 75 percent of the useful thermal output measured relative to ISO conditions that is not used to generate additional electrical or mechanical output ( *i.e.* , steam delivered to an industrial process). *Heat input* means heat derived from combustion of fuel in a steam generating unit and does not include the heat derived from preheated combustion air, recirculated flue gases, or exhaust gases from other sources, such as gas turbines, internal combustion engines, kilns, etc. *Heat release rate* means the steam generating unit design heat input capacity (in MW or Btu/hr) divided by the furnace volume (in cubic meters or cubic feet); the furnace volume is that volume bounded by the front furnace wall where the burner is located, the furnace side waterwall, and extending to the level just below or in front of the first row of convection pass tubes. *Heat transfer medium* means any material that is used to transfer heat from one point to another point. *High heat release rate* means a heat release rate greater than 730,000 J/sec-m 3 (70,000 Btu/hr-ft 3 ). *ISO Conditions* means a temperature of 288 Kelvin, a relative humidity of 60 percent, and a pressure of 101.3 kilopascals. *Lignite* means a type of coal classified as lignite A or lignite B by the American Society of Testing and Materials in ASTM D388 (incorporated by reference, see § 60.17). *Low heat release rate* means a heat release rate of 730,000 J/sec-m 3 (70,000 Btu/hr-ft 3 ) or less. *Mass-feed stoker steam generating unit* means a steam generating unit where solid fuel is introduced directly into a retort or is fed directly onto a grate where it is combusted. *Maximum heat input capacity* means the ability of a steam generating unit to combust a stated maximum amount of fuel on a steady state basis, as determined by the physical design and characteristics of the steam generating unit. *Municipal-type solid waste* means refuse, more than 50 percent of which is waste consisting of a mixture of paper, wood, yard wastes, food wastes, plastics, leather, rubber, and other combustible materials, and noncombustible materials such as glass and rock. *Natural gas* means:

(1)A naturally occurring mixture of hydrocarbon and nonhydrocarbon gases found in geologic formations beneath the earth's surface, of which the principal constituent is methane; or

(2)liquefied petroleum gas, as defined by the American Society for Testing and Materials in ASTM D1835 (incorporated by reference, see § 60.17). *Noncontinental area* means the State of Hawaii, the Virgin Islands, Guam, American Samoa, the Commonwealth of Puerto Rico, or the Northern Mariana Islands. *Oil* means crude oil or petroleum or a liquid fuel derived from crude oil or petroleum, including distillate and residual oil. *Petroleum refinery* means industrial plants as classified by the Department of Commerce under Standard Industrial Classification

(SIC)Code 29. *Potential sulfur dioxide emission rate* means the theoretical SO 2 emissions (nanograms per joule (ng/J) or lb/MMBtu heat input) that would result from combusting fuel in an uncleaned state and without using emission control systems. *Process heater* means a device that is primarily used to heat a material to initiate or promote a chemical reaction in which the material participates as a reactant or catalyst. *Pulp and paper mills* means industrial plants that are classified by the Department of Commerce under North American Industry Classification System (NAICS) Code 322 or Standard Industrial Classification

(SIC)Code 26. *Pulverized coal-fired steam generating unit* means a steam generating unit in which pulverized coal is introduced into an air stream that carries the coal to the combustion chamber of the steam generating unit where it is fired in suspension. This includes both conventional pulverized coal-fired and micropulverized coal-fired steam generating units. Residual oil means crude oil, fuel oil numbers 1 and 2 that have a nitrogen content greater than 0.05 weight percent, and all fuel oil numbers 4, 5 and 6, as defined by the American Society of Testing and Materials in ASTM D396 (incorporated by reference, see § 60.17). *Spreader stoker steam generating unit* means a steam generating unit in which solid fuel is introduced to the combustion zone by a mechanism that throws the fuel onto a grate from above. Combustion takes place both in suspension and on the grate. *Steam generating unit* means a device that combusts any fuel or byproduct/waste and produces steam or heats water or any other heat transfer medium. This term includes any municipal-type solid waste incinerator with a heat recovery steam generating unit or any steam generating unit that combusts fuel and is part of a cogeneration system or a combined cycle system. This term does not include process heaters as they are defined in this subpart. *Steam generating unit operating day* means a 24-hour period between 12:00 midnight and the following midnight during which any fuel is combusted at any time in the steam generating unit. It is not necessary for fuel to be combusted continuously for the entire 24-hour period. *Very low sulfur oil* means for units constructed, reconstructed, or modified on or before February 28, 2005, an oil that contains no more than 0.5 weight percent sulfur or that, when combusted without SO 2 emission control, has a SO 2 emission rate equal to or less than 215 ng/J (0.5 lb/MMBtu) heat input. For units constructed, reconstructed, or modified after February 28, 2005, *very low sulfur oil* means an oil that contains no more than 0.3 weight percent sulfur or that, when combusted without SO 2 emission control, has a SO 2 emission rate equal to or less than 140 ng/J (0.32 lb/MMBtu) heat input. *Wet flue gas desulfurization technology* means a SO 2 control system that is located downstream of the steam generating unit and removes sulfur oxides from the combustion gases of the steam generating unit by contacting the combustion gas with an alkaline slurry or solution and forming a liquid material. This definition applies to devices where the aqueous liquid material product of this contact is subsequently converted to other forms. Alkaline reagents used in wet flue gas desulfurization technology include, but are not limited to, lime, limestone, and sodium. *Wet scrubber system* means any emission control device that mixes an aqueous stream or slurry with the exhaust gases from a steam generating unit to control emissions of PM or SO 2 . *Wood* means wood, wood residue, bark, or any derivative fuel or residue thereof, in any form, including, but not limited to, sawdust, sanderdust, wood chips, scraps, slabs, millings, shavings, and processed pellets made from wood or other forest residues. § 60.42b Standard for sulfur dioxide (SO 2 ).

(a)Except as provided in paragraphs (b), (c), (d), or

(k)of this section, on and after the date on which the performance test is completed or required to be completed under § 60.8, whichever comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification on or before February 28, 2005, that combusts coal or oil shall cause to be discharged into the atmosphere any gases that contain SO 2 in excess of 87 ng/J (0.20 lb/MMBtu) or 10 percent (0.10) of the potential SO 2 emission rate (90 percent reduction) and the emission limit determined according to the following formula: EP09FE07.026 Where: E s = SO 2 emission limit, in ng/J or lb/MM Btu heat input; K a = 520 ng/J (or 1.2 lb/MMBtu); K b = 340 ng/J (or 0.80 lb/MMBtu); H a = Heat input from the combustion of coal, in J (MMBtu); and H b = Heat input from the combustion of oil, in J (MMBtu). Only the heat input supplied to the affected facility from the combustion of coal and oil is counted under this section. No credit is provided for the heat input to the affected facility from the combustion of natural gas, wood, municipal-type solid waste, or other fuels or heat derived from exhaust gases from other sources, such as gas turbines, internal combustion engines, kilns, etc.

(b)On and after the date on which the performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification on or before February 28, 2005, that combusts coal refuse alone in a fluidized bed combustion steam generating unit shall cause to be discharged into the atmosphere any gases that contain SO 2 in excess of 87 ng/J (0.20 lb/MMBtu) or 20 percent (0.20) of the potential SO 2 emission rate (80 percent reduction) and 520 ng/J (1.2 lb/MMBtu) heat input. If coal or oil is fired with coal refuse, the affected facility is subject to paragraph

(a)or

(d)of this section, as applicable.

(c)On and after the date on which the performance test is completed or is required to be completed under § 60.8, whichever comes first, no owner or operator of an affected facility that combusts coal or oil, either alone or in combination with any other fuel, and that uses an emerging technology for the control of SO 2 emissions, shall cause to be discharged into the atmosphere any gases that contain SO 2 in excess of 50 percent of the potential SO 2 emission rate (50 percent reduction) and that contain SO 2 in excess of the emission limit determined according to the following formula: EP09FE07.027 Where: E s = SO 2 emission limit, in ng/J or lb/MMBtu heat input; K c = 260 ng/J (or 1.2 lb/MMBtu); K d = 170 ng/J (or 0.80 lb/MMBtu); H c = Heat input from the combustion of coal, in J (MMBtu); and H d = Heat input from the combustion of oil, in J (MMBtu). Only the heat input supplied to the affected facility from the combustion of coal and oil is counted under this section. No credit is provided for the heat input to the affected facility from the combustion of natural gas, wood, municipal-type solid waste, or other fuels, or from the heat input derived from exhaust gases from other sources, such as gas turbines, internal combustion engines, kilns, etc.

(d)On and after the date on which the performance test is completed or required to be completed under § 60.8, whichever comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification on or before February 28, 2005 and listed in paragraphs (d)(1), (2), (3), or

(4)of this section shall cause to be discharged into the atmosphere any gases that contain SO 2 in excess of 520 ng/J (1.2 lb/MMBtu) heat input if the affected facility combusts coal, or 215 ng/J (0.5 lb/MMBtu) heat input if the affected facility combusts oil other than very low sulfur oil. Percent reduction requirements are not applicable to affected facilities under paragraphs (d)(1), (2),

(3)or

(4)of this section.

(1)Affected facilities that have an annual capacity factor for coal and oil of 30 percent (0.30) or less and are subject to a federally enforceable permit limiting the operation of the affected facility to an annual capacity factor for coal and oil of 30 percent (0.30) or less;

(2)Affected facilities located in a noncontinental area; or

(3)Affected facilities combusting coal or oil, alone or in combination with any fuel, in a duct burner as part of a combined cycle system where 30 percent (0.30) or less of the heat entering the steam generating unit is from combustion of coal and oil in the duct burner and 70 percent (0.70) or more of the heat entering the steam generating unit is from the exhaust gases entering the duct burner; or

(4)The affected facility burns coke oven gas alone or in combination with natural gas or very low sulfur distillate oil.

(e)Except as provided in paragraph

(f)of this section, compliance with the emission limits, fuel oil sulfur limits, and/or percent reduction requirements under this section are determined on a 30-day rolling average basis.

(f)Except as provided in paragraph (j)(2) of this section, compliance with the emission limits or fuel oil sulfur limits under this section is determined on a 24-hour average basis for affected facilities that

(1)have a federally enforceable permit limiting the annual capacity factor for oil to 10 percent or less,

(2)combust only very low sulfur oil, and

(3)do not combust any other fuel.

(g)Except as provided in paragraph

(i)of this section, the SO 2 emission limits and percent reduction requirements under this section apply at all times, including periods of startup, shutdown, and malfunction.

(h)Reductions in the potential SO 2 emission rate through fuel pretreatment are not credited toward the percent reduction requirement under paragraph

(c)of this section unless:

(1)Fuel pretreatment results in a 50 percent or greater reduction in potential SO 2 emissions and

(2)Emissions from the pretreated fuel (without combustion or post combustion SO 2 control) are equal to or less than the emission limits specified in paragraph

(c)of this section.

(i)An affected facility subject to paragraph (a), (b), or

(c)of this section may combust very low sulfur oil or natural gas when the SO 2 control system is not being operated because of malfunction or maintenance of the SO 2 control system.

(j)Percent reduction requirements are not applicable to affected facilities combusting only very low sulfur oil. The owner or operator of an affected facility combusting very low sulfur oil shall demonstrate that the oil meets the definition of very low sulfur oil by:

(1)Following the performance testing procedures as described in § 60.45b(c) or § 60.45b(d), and following the monitoring procedures as described in § 60.47b(a) or § 60.47b(b) to determine SO 2 emission rate or fuel oil sulfur content; or

(2)maintaining fuel records as described in § 60.49b(r). (k)(1) Except as provided in paragraphs (k)(2), (k)(3), and (k)(4) of this section, on and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commences construction, reconstruction, or modification after February 28, 2005, and that combusts coal, oil, natural gas, a mixture of these fuels, or a mixture of these fuels with any other fuels shall cause to be discharged into the atmosphere any gases that contain SO 2 in excess of 87 ng/J (0.20 lb/MMBtu) heat input or 8 percent (0.08) of the potential SO 2 emission rate (92 percent reduction) and 520 ng/J (1.2 lb/MMBtu) heat input.

(2)Units firing only very low sulfur oil and/or a mixture of gaseous fuels with a potential SO 2 emission rate of 140 ng/J (0.32 lb/MMBtu) heat input or less are exempt from the SO 2 emissions limit in paragraph 60.42b(k)(1).

(3)Units that are located in a noncontinental area and that combust coal or oil shall not discharge any gases that contain SO 2 in excess of 520 ng/J (1.2 lb/MMBtu) heat input if the affected facility combusts coal, or 215 ng/J (0.50 lb/MMBtu) heat input if the affected facility combusts oil.

(4)As an alternative to meeting the requirements under paragraph (k)(1) of this section, modified facilities that combust coal or a mixture of coal with other fuels shall not cause to be discharged into the atmosphere any gases that contain SO 2 in excess of 87 ng/J (0.20 lb/MMBtu) heat input or 10 percent (0.10) of the potential SO 2 emission rate (90 percent reduction) and 520 ng/J (1.2 lb/MMBtu) heat input. § 60.43b Standard for particulate matter (PM).

(a)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification on or before February 28, 2005 that combusts coal or combusts mixtures of coal with other fuels, shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of the following emission limits:

(1)22 ng/J (0.051 lb/MMBtu) heat input,

(i)If the affected facility combusts only coal, or

(ii)If the affected facility combusts coal and other fuels and has an annual capacity factor for the other fuels of 10 percent (0.10) or less.

(2)43 ng/J (0.10 lb/MMBtu) heat input if the affected facility combusts coal and other fuels and has an annual capacity factor for the other fuels greater than 10 percent (0.10) and is subject to a federally enforceable requirement limiting operation of the affected facility to an annual capacity factor greater than 10 percent (0.10) for fuels other than coal.

(3)86 ng/J (0.20 lb/MMBtu) heat input if the affected facility combusts coal or coal and other fuels and

(i)Has an annual capacity factor for coal or coal and other fuels of 30 percent (0.30) or less,

(ii)Has a maximum heat input capacity of 73 MW (250 MMBtu/hr) or less,

(iii)Has a federally enforceable requirement limiting operation of the affected facility to an annual capacity factor of 30 percent (0.30) or less for coal or coal and other solid fuels, and

(iv)Construction of the affected facility commenced after June 19, 1984, and before November 25, 1986.

(4)An affected facility burning coke oven gas alone or in combination with other fuels not subject to a PM standard under § 60.43b and not using a post combustion technology (except a wet scrubber) for reducing PM or SO 2 emissions is not subject to the PM limits under § 60.43b(a).

(b)On and after the date on which the performance test is completed or required to be completed under § 60.8, whichever comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification on or before February 28, 2005, and that combusts oil (or mixtures of oil with other fuels) and uses a conventional or emerging technology to reduce SO 2 emissions shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of 43 ng/J (0.10 lb/MMBtu) heat input.

(c)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification on or before February 28, 2005, and that combusts wood, or wood with other fuels, except coal, shall cause to be discharged from that affected facility any gases that contain PM in excess of the following emission limits:

(1)43 ng/J (0.10 lb/MMBtu) heat input if the affected facility has an annual capacity factor greater than 30 percent (0.30) for wood.

(2)86 ng/J (0.20 lb/MMBtu) heat input if

(i)The affected facility has an annual capacity factor of 30 percent (0.30) or less for wood;

(ii)Is subject to a federally enforceable requirement limiting operation of the affected facility to an annual capacity factor of 30 percent (0.30) or less for wood; and

(iii)Has a maximum heat input capacity of 73 MW (250 MMBtu/hr) or less.

(1)43 ng/J (0.10 lb/MMBtu) heat input;

(i)If the affected facility combusts only municipal-type solid waste; or

(ii)If the affected facility combusts municipal-type solid waste and other fuels and has an annual capacity factor for the other fuels of 10 percent (0.10) or less.

(2)86 ng/J (0.20 lb/MMBtu) heat input if the affected facility combusts municipal-type solid waste or municipal-type solid waste and other fuels; and

(i)Has an annual capacity factor for municipal-type solid waste and other fuels of 30 percent (0.30) or less;

(ii)Has a maximum heat input capacity of 73 MW (250 MMBtu/hr) or less;

(iii)Has a federally enforceable requirement limiting operation of the affected facility to an annual capacity factor of 30 percent (0.30) or less for municipal-type solid waste, or municipal-type solid waste and other fuels; and

(iv)Construction of the affected facility commenced after June 19, 1984, but on or before November 25, 1986.

(e)For the purposes of this section, the annual capacity factor is determined by dividing the actual heat input to the steam generating unit during the calendar year from the combustion of coal, wood, or municipal-type solid waste, and other fuels, as applicable, by the potential heat input to the steam generating unit if the steam generating unit had been operated for 8,760 hours at the maximum heat input capacity.

(f)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that combusts coal, oil, wood, or mixtures of these fuels with any other fuels shall cause to be discharged into the atmosphere any gases that exhibit greater than 20 percent opacity (6-minute average), except for one 6-minute period per hour of not more than 27 percent opacity.

(g)The PM and opacity standards apply at all times, except during periods of startup, shutdown or malfunction. (h)(1) Except as provided in paragraphs (h)(2), (h)(3), (h)(4), and (h)(5) of this section, on and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification after February 28, 2005, and that combusts coal, oil, wood, a mixture of these fuels, or a mixture of these fuels with any other fuels shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of 13 ng/J (0.030 lb/MMBtu) heat input,

(2)As an alternative to meeting the requirements of paragraph (h)(1) of this section, the owner or operator of an affected facility for which modification commenced after February 28, 2005, may elect to meet the requirements of this paragraph. On and after the date on which the initial performance test is completed or required to be completed under § 60.8, no owner or operator of an affected facility that commences modification after February 28, 2005 shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of both:

(i)22 ng/J (0.051 lb/MMBtu) heat input derived from the combustion of coal, oil, wood, a mixture of these fuels, or a mixture of these fuels with any other fuels; and

(ii)0.2 percent of the combustion concentration (99.8 percent reduction) when combusting coal, oil, wood, a mixture of these fuels, or a mixture of these fuels with any other fuels.

(3)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commences modification after February 28, 2005, and that combusts over 30 percent wood (by heat input) on an annual basis and has a maximum heat input capacity of 73 MW (250 MMBtu/h) or less shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of 43 ng/J (0.10 lb/MMBtu) heat input.

(4)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commences modification after February 28, 2005, and that combusts over 30 percent wood (by heat input) on an annual basis and has a maximum heat input capacity greater than 73 MW (250 MMBtu/h) shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of 37 ng/J (0.085 lb/MMBtu) heat input.

(5)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commences construction, reconstruction, or modification after February 28, 2005, and that combusts only oil that contains no more than 0.3 weight percent sulfur, coke oven gas, a mixture of these fuels, or either fuel (or a mixture of these fuels) in combination with other fuels not subject to a PM standard under § 60.43b and not using a post combustion technology (except a wet scrubber) to reduce SO 2 or PM emissions is subject to the PM limits under § 60.43b(h)(1). § 60.44b Standard for nitrogen oxides (NO X ).

(a)Except as provided under paragraphs

(k)and

(l)of this section, on and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that is subject to the provisions of this section and that combusts only coal, oil, or natural gas shall cause to be discharged into the atmosphere from that affected facility any gases that contain NO X (expressed as NO 2 ) in excess of the following emission limits: Fuel/steam generating unit type Nitrogen Oxide Emission Limits (expressed as NO 2 ) Heat Input ng/J lb/MMBtu

(1)Natural gas and distillate oil, except (4):

(i)Low heat release rate 43 0.10

(ii)High heat release rate 86 0.20

(2)Residual oil:

(i)Low heat release rate 130 0.30

(ii)High heat release rate 170 0.40

(3)Coal:

(i)Mass-feed stoker 210 0.50

(ii)Spreader stoker and fluidized bed combustion 260 0.60

(iii)Pulverized coal 300 0.70

(iv)Lignite, except

(v)260 0.60

(v)Lignite mined in North Dakota, South Dakota, or Montana and combusted in a slag tap furnace 340 0.80

(vi)Coal-derived synthetic fuels 210 0.50

(4)Duct burner used in a combined cycle system:

(i)Low heat release rate 86 0.20

(ii)High heat release rate 43 170 0.40

(b)Except as provided under paragraphs

(k)and

(l)of this section, on and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that simultaneously combusts mixtures of coal, oil, or natural gas shall cause to be discharged into the atmosphere from that affected facility any gases that contain NO X in excess of a limit determined by the use of the following formula: EP09FE07.028 Where: E n = NO X emission limit (expressed as NO 2 ), ng/J (lb/MMBtu); EL go = Appropriate emission limit from paragraph (a)(1) for combustion of natural gas or distillate oil, ng/J (lb/MMBtu); H go = Heat input from combustion of natural gas or distillate oil, J (MMBtu); EL ro = Appropriate emission limit from paragraph (a)(2) for combustion of residual oil, ng/J (lb/MMBtu); H ro = Heat input from combustion of residual oil, J (MMBtu); EL c = Appropriate emission limit from paragraph (a)(3) for combustion of coal, ng/J (lb/MMBtu); and H c = Heat input from combustion of coal, J (MMBtu).

(c)Except as provided under paragraph

(l)of this section, on and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that simultaneously combusts coal or oil, or a mixture of these fuels with natural gas, and wood, municipal-type solid waste, or any other fuel shall cause to be discharged into the atmosphere any gases that contain NO X in excess of the emission limit for the coal or oil, or mixtures of these fuels with natural gas combusted in the affected facility, as determined pursuant to paragraph

(a)or

(b)of this section, unless the affected facility has an annual capacity factor for coal or oil, or mixture of these fuels with natural gas of 10 percent (0.10) or less and is subject to a federally enforceable requirement that limits operation of the affected facility to an annual capacity factor of 10 percent (0.10) or less for coal, oil, or a mixture of these fuels with natural gas.

(d)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that simultaneously combusts natural gas with wood, municipal-type solid waste, or other solid fuel, except coal, shall cause to be discharged into the atmosphere from that affected facility any gases that contain NO X in excess of 130 ng/J (0.30 lb/MMBtu) heat input unless the affected facility has an annual capacity factor for natural gas of 10 percent (0.10) or less and is subject to a federally enforceable requirement that limits operation of the affected facility to an annual capacity factor of 10 percent (0.10) or less for natural gas.

(e)Except as provided under paragraph

(l)of this section, on and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that simultaneously combusts coal, oil, or natural gas with byproduct/waste shall cause to be discharged into the atmosphere any gases that contain NO X in excess of the emission limit determined by the following formula unless the affected facility has an annual capacity factor for coal, oil, and natural gas of 10 percent (0.10) or less and is subject to a federally enforceable requirement that limits operation of the affected facility to an annual capacity factor of 10 percent (0.10) or less: EP09FE07.029 Where: En = NO X emission limit (expressed as NO 2 ), ng/J (lb/MMBtu); EL go = Appropriate emission limit from paragraph (a)(1) for combustion of natural gas or distillate oil, ng/J (lb/MMBtu); H go = Heat input from combustion of natural gas, distillate oil and gaseous byproduct/waste, J (MMBtu); EL ro = Appropriate emission limit from paragraph (a)(2) for combustion of residual oil and/or byproduct/waste, ng/J (lb/MMBtu); H ro = Heat input from combustion of residual oil, J (MMBtu); EL c = Appropriate emission limit from paragraph (a)(3) for combustion of coal, ng/J (lb/MMBtu); and H c = Heat input from combustion of coal, J (MMBtu).

(f)Any owner or operator of an affected facility that combusts byproduct/waste with either natural gas or oil may petition the Administrator within 180 days of the initial startup of the affected facility to establish a NO X emission limit that shall apply specifically to that affected facility when the byproduct/waste is combusted. The petition shall include sufficient and appropriate data, as determined by the Administrator, such as NO X emissions from the affected facility, waste composition (including nitrogen content), and combustion conditions to allow the Administrator to confirm that the affected facility is unable to comply with the emission limits in paragraph

(e)of this section and to determine the appropriate emission limit for the affected facility.

(1)Any owner or operator of an affected facility petitioning for a facility-specific NO X emission limit under this section shall:

(i)Demonstrate compliance with the emission limits for natural gas and distillate oil in paragraph (a)(1) of this section or for residual oil in paragraph (a)(2) or (l)(1) of this section, as appropriate, by conducting a 30-day performance test as provided in § 60.46b(e). During the performance test only natural gas, distillate oil, or residual oil shall be combusted in the affected facility; and

(ii)Demonstrate that the affected facility is unable to comply with the emission limits for natural gas and distillate oil in paragraph (a)(1) of this section or for residual oil in paragraph (a)(2) or (l)(1) of this section, as appropriate, when gaseous or liquid byproduct/waste is combusted in the affected facility under the same conditions and using the same technological system of emission reduction applied when demonstrating compliance under paragraph (f)(1)(i) of this section.

(2)The NO X emission limits for natural gas or distillate oil in paragraph (a)(1) of this section or for residual oil in paragraph (a)(2) or (l)(1) of this section, as appropriate, shall be applicable to the affected facility until and unless the petition is approved by the Administrator. If the petition is approved by the Administrator, a facility-specific NO X emission limit will be established at the NO X emission level achievable when the affected facility is combusting oil or natural gas and byproduct/waste in a manner that the Administrator determines to be consistent with minimizing NO X emissions. In lieu of amending this subpart, a letter will be sent to the facility describing the facility-specific NO X limit. The facility shall use the compliance procedures detailed in the letter and make the letter available to the public. If the Administrator determines it is appropriate, the conditions and requirements of the letter can be reviewed and changed at any point.

(g)Any owner or operator of an affected facility that combusts hazardous waste (as defined by 40 CFR part 261 or 40 CFR part 761) with natural gas or oil may petition the Administrator within 180 days of the initial startup of the affected facility for a waiver from compliance with the NO X emission limit that applies specifically to that affected facility. The petition must include sufficient and appropriate data, as determined by the Administrator, on NO X emissions from the affected facility, waste destruction efficiencies, waste composition (including nitrogen content), the quantity of specific wastes to be combusted and combustion conditions to allow the Administrator to determine if the affected facility is able to comply with the NO X emission limits required by this section. The owner or operator of the affected facility shall demonstrate that when hazardous waste is combusted in the affected facility, thermal destruction efficiency requirements for hazardous waste specified in an applicable federally enforceable requirement preclude compliance with the NO X emission limits of this section. The NO X emission limits for natural gas or distillate oil in paragraph (a)(1) of this section or for residual oil in paragraph (a)(2) or (l)(1) of this section, as appropriate, are applicable to the affected facility until and unless the petition is approved by the Administrator. (See 40 CFR 761.70 for regulations applicable to the incineration of materials containing polychlorinated biphenyls (PCB's).) In lieu of amending this subpart, a letter will be sent to the facility describing the facility-specific NO X limit. The facility shall use the compliance procedures detailed in the letter and make the letter available to the public. If the Administrator determines it is appropriate, the conditions and requirements of the letter can be reviewed and changed at any point.

(h)For purposes of paragraph

(i)of this section, the NO X standards under this section apply at all times including periods of startup, shutdown, or malfunction.

(i)Except as provided under paragraph

(j)of this section, compliance with the emission limits under this section is determined on a 30-day rolling average basis.

(j)Compliance with the emission limits under this section is determined on a 24-hour average basis for the initial performance test and on a 3-hour average basis for subsequent performance tests for any affected facilities that:

(1)Combust, alone or in combination, only natural gas, distillate oil, or residual oil with a nitrogen content of 0.30 weight percent or less;

(2)Have a combined annual capacity factor of 10 percent or less for natural gas, distillate oil, and residual oil with a nitrogen content of 0.30 weight percent or less; and

(3)Are subject to a federally enforceable requirement limiting operation of the affected facility to the firing of natural gas, distillate oil, and/or residual oil with a nitrogen content of 0.30 weight percent or less and limiting operation of the affected facility to a combined annual capacity factor of 10 percent or less for natural gas, distillate oil, and residual oil with a nitrogen content of 0.30 weight percent or less.

(k)Affected facilities that meet the criteria described in paragraphs (j)(1), (2), and

(3)of this section, and that have a heat input capacity of 73 MW (250 MMBtu/hr) or less, are not subject to the NO X emission limits under this section.

(l)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction or reconstruction after July 9, 1997 shall cause to be discharged into the atmosphere from that affected facility any gases that contain NO X (expressed as NO 2 ) in excess of the following limits:

(1)If the affected facility combusts coal, oil, or natural gas, or a mixture of these fuels, or with any other fuels: A limit of 86 ng/JI (0.20 lb/MMBtu) heat input unless the affected facility has an annual capacity factor for coal, oil, and natural gas of 10 percent (0.10) or less and is subject to a federally enforceable requirement that limits operation of the facility to an annual capacity factor of 10 percent (0.10) or less for coal, oil, and natural gas; or

(2)If the affected facility has a low heat release rate and combusts natural gas or distillate oil in excess of 30 percent of the heat input on a 30-day rolling average from the combustion of all fuels, a limit determined by use of the following formula: EP09FE07.030 Where: E n = NO X emission limit (lb/MMBtu); H go = 30-day heat input from combustion of natural gas or distillate oil; and H r = 30-day heat input from combustion of any other fuel.

(3)After February 27, 2006, units where more than 33 percent of total annual output is electrical or mechanical may comply with an optional limit of 270 ng/J (2.1 lb/MWh) gross energy output, based on a 30-day rolling average. Units complying with this output-based limit must demonstrate compliance according to the procedures of § 60.48Da(i) of subpart Da of this part, and must monitor emissions according to § 60.49Da(c), (k), through

(n)of subpart Da of this part. § 60.45b Compliance and performance test methods and procedures for sulfur dioxide.

(a)The SO 2 emission standards under § 60.42b apply at all times. Facilities burning coke oven gas alone or in combination with any other gaseous fuels or distillate oil and complying with the fuel based limit under § 60.42b(k)(2) are allowed to exceed the limit 30 operating days per calendar year for by-product plant maintenance.

(b)In conducting the performance tests required under § 60.8, the owner or operator shall use the methods and procedures in appendix A (including fuel certification and sampling) of this part or the methods and procedures as specified in this section, except as provided in § 60.8(b). Section 60.8(f) does not apply to this section. The 30-day notice required in § 60.8(d) applies only to the initial performance test unless otherwise specified by the Administrator.

(c)The owner or operator of an affected facility shall conduct performance tests to determine compliance with the percent of potential SO 2 emission rate (% Ps) and the SO 2 emission rate

(Es)pursuant to § 60.42b following the procedures listed below, except as provided under paragraph

(d)and

(k)of this section.

(1)The initial performance test shall be conducted over 30 consecutive operating days of the steam generating unit. Compliance with the SO 2 standards shall be determined using a 30-day average. The first operating day included in the initial performance test shall be scheduled within 30 days after achieving the maximum production rate at which the affected facility will be operated, but not later than 180 days after initial startup of the facility.

(2)If only coal, only oil, or a mixture of coal and oil is combusted, the following procedures are used:

(i)The procedures in Method 19 of appendix A of this part are used to determine the hourly SO 2 emission rate (E ho ) and the 30-day average emission rate (E ao ). The hourly averages used to compute the 30-day averages are obtained from the continuous emission monitoring system

(CEMS)of § 60.47b

(a)or (b).

(ii)The percent of potential SO 2 emission rate (%P s ) emitted to the atmosphere is computed using the following formula: EP09FE07.031 Where: %P s = Potential SO 2 emission rate, percent; %R g = SO 2 removal efficiency of the control device as determined by Method 19 of appendix A of this part, in percent; and %R f = SO 2 removal efficiency of fuel pretreatment as determined by Method 19 of appendix A of this part, in percent.

(3)If coal or oil is combusted with other fuels, the same procedures required in paragraph (c)(2) of this section are used, except as provided in the following:

(i)An adjusted hourly SO 2 emission rate (E ho o ) is used in Equation 19-19 of Method 19 of appendix A of this part to compute an adjusted 30-day average emission rate (E ao o ). The E ho o is computed using the following formula: EP09FE07.032 Where: E ho o = Adjusted hourly SO 2 emission rate, ng/J (lb/MMBtu); E ho = Hourly SO 2 emission rate, ng/J (lb/MMBtu); E w = SO 2 concentration in fuels other than coal and oil combusted in the affected facility, as determined by the fuel sampling and analysis procedures in Method 19 of appendix A of this part, ng/J (lb/MMBtu). The value E w for each fuel lot is used for each hourly average during the time that the lot is being combusted; and X k = Fraction of total heat input from fuel combustion derived from coal, oil, or coal and oil, as determined by applicable procedures in Method 19 of appendix A of this part.

(ii)To compute the percent of potential SO 2 emission rate (%P s ), an adjusted %R g (%R g o ) is computed from the adjusted E ao o from paragraph (b)(3)(i) of this section and an adjusted average SO 2 inlet rate (E ai o ) using the following formula: EP09FE07.033 To compute E ai o , an adjusted hourly SO 2 inlet rate (E hi o ) is used. The E hi o is computed using the following formula: EP09FE07.034 Where: E hi o = Adjusted hourly SO 2 inlet rate, ng/J (lb/MMBtu); and E hi = Hourly SO 2 inlet rate, ng/J (lb/MMBtu).

(4)The owner or operator of an affected facility subject to paragraph (b)(3) of this section does not have to measure parameters E w or X k if the owner or operator elects to assume that X k = 1.0. Owners or operators of affected facilities who assume X k = 1.0 shall:

(i)Determine %P s following the procedures in paragraph (c)(2) of this section; and

(ii)Sulfur dioxide emissions (E s ) are considered to be in compliance with SO 2 emission limits under § 60.42b.

(5)The owner or operator of an affected facility that qualifies under the provisions of § 60.42b(d) does not have to measure parameters E w or X k under paragraph (b)(3) of this section if the owner or operator of the affected facility elects to measure SO 2 emission rates of the coal or oil following the fuel sampling and analysis procedures under Method 19 of appendix A of this part.

(d)Except as provided in paragraph

(j)of this section, the owner or operator of an affected facility that combusts only very low sulfur oil, has an annual capacity factor for oil of 10 percent (0.10) or less, and is subject to a federally enforceable requirement limiting operation of the affected facility to an annual capacity factor for oil of 10 percent (0.10) or less shall:

(1)Conduct the initial performance test over 24 consecutive steam generating unit operating hours at full load;

(2)Determine compliance with the standards after the initial performance test based on the arithmetic average of the hourly emissions data during each steam generating unit operating day if a CEMS is used, or based on a daily average if Method 6B of appendix A of this part or fuel sampling and analysis procedures under Method 19 of appendix A of this part are used.

(e)The owner or operator of an affected facility subject to § 60.42b(d)(1) shall demonstrate the maximum design capacity of the steam generating unit by operating the facility at maximum capacity for 24 hours. This demonstration will be made during the initial performance test and a subsequent demonstration may be requested at any other time. If the 24-hour average firing rate for the affected facility is less than the maximum design capacity provided by the manufacturer of the affected facility, the 24-hour average firing rate shall be used to determine the capacity utilization rate for the affected facility, otherwise the maximum design capacity provided by the manufacturer is used.

(f)For the initial performance test required under § 60.8, compliance with the SO 2 emission limits and percent reduction requirements under § 60.42b is based on the average emission rates and the average percent reduction for SO 2 for the first 30 consecutive steam generating unit operating days, except as provided under paragraph

(d)of this section. The initial performance test is the only test for which at least 30 days prior notice is required unless otherwise specified by the Administrator. The initial performance test is to be scheduled so that the first steam generating unit operating day of the 30 successive steam generating unit operating days is completed within 30 days after achieving the maximum production rate at which the affected facility will be operated, but not later than 180 days after initial startup of the facility. The boiler load during the 30-day period does not have to be the maximum design load, but must be representative of future operating conditions and include at least one 24-hour period at full load.

(g)After the initial performance test required under § 60.8, compliance with the SO 2 emission limits and percent reduction requirements under § 60.42b is based on the average emission rates and the average percent reduction for SO 2 for 30 successive steam generating unit operating days, except as provided under paragraph (d). A separate performance test is completed at the end of each steam generating unit operating day after the initial performance test, and a new 30-day average emission rate and percent reduction for SO 2 are calculated to show compliance with the standard.

(h)Except as provided under paragraph

(i)of this section, the owner or operator of an affected facility shall use all valid SO 2 emissions data in calculating %P s and E ho under paragraph (c), of this section whether or not the minimum emissions data requirements under § 60.46b are achieved. All valid emissions data, including valid SO 2 emission data collected during periods of startup, shutdown and malfunction, shall be used in calculating %P s and E ho pursuant to paragraph

(c)of this section.

(i)During periods of malfunction or maintenance of the SO 2 control systems when oil is combusted as provided under § 60.42b(i), emission data are not used to calculate %P s or E s under § 60.42b (a),

(b)or (c), however, the emissions data are used to determine compliance with the emission limit under § 60.42b(i).

(j)The owner or operator of an affected facility that combusts very low sulfur oil is not subject to the compliance and performance testing requirements of this section if the owner or operator obtains fuel receipts as described in § 60.49b(r).

(k)The owner or operator of an affected facility seeking to demonstrate compliance under §§ 60.42b(d)(4), 60.42b(j), and 60.42b(k)(2) shall follow the applicable procedures under § 60.49b(r). § 60.46b Compliance and performance test methods and procedures for particulate matter and nitrogen oxides.

(a)The PM emission standards and opacity limits under § 60.43b apply at all times except during periods of startup, shutdown, or malfunction. The NO X emission standards under § 60.44b apply at all times.

(b)Compliance with the PM emission standards under § 60.43b shall be determined through performance testing as described in paragraph

(d)of this section, except as provided in paragraph

(i)of this section.

(c)Compliance with the NO X emission standards under § 60.44b shall be determined through performance testing under paragraph

(e)or (f), or under paragraphs

(g)and

(h)of this section, as applicable.

(d)To determine compliance with the PM emission limits and opacity limits under § 60.43b, the owner or operator of an affected facility shall conduct an initial performance test as required under § 60.8, and shall conduct subsequent performance tests as requested by the Administrator, using the following procedures and reference methods:

(1)Method 3B of appendix A of this part is used for gas analysis when applying Method 5 or 17 of appendix A of this part.

(2)Method 5, 5B, or 17 of appendix A of this part shall be used to measure the concentration of PM as follows:

(i)Method 5 of appendix A of this part shall be used at affected facilities without wet flue gas desulfurization

(FGD)systems; and

(ii)Method 17 of appendix A of this part may be used at facilities with or without wet scrubber systems provided the stack gas temperature does not exceed a temperature of 160 °C (32 °F). The procedures of sections 2.1 and 2.3 of Method 5B of appendix A of this part may be used in Method 17 of appendix A of this part only if it is used after a wet FGD system. Do not use Method 17 of appendix A of this part after wet FGD systems if the effluent is saturated or laden with water droplets.

(iii)Method 5B of appendix A of this part is to be used only after wet FGD systems.

(3)Method 1 of appendix A of this part is used to select the sampling site and the number of traverse sampling points. The sampling time for each run is at least 120 minutes and the minimum sampling volume is 1.7 dscm (60 dscf) except that smaller sampling times or volumes may be approved by the Administrator when necessitated by process variables or other factors.

(4)For Method 5 of appendix A of this part, the temperature of the sample gas in the probe and filter holder is monitored and is maintained at 160±14 °C (320±25 °F).

(5)For determination of PM emissions, the oxygen (O 2 ) or CO 2 sample is obtained simultaneously with each run of Method 5, 5B, or 17 of appendix A of this part by traversing the duct at the same sampling location.

(6)For each run using Method 5, 5B, or 17 of appendix A of this part, the emission rate expressed in ng/J heat input is determined using:

(i)The O 2 or CO 2 measurements and PM measurements obtained under this section;

(ii)The dry basis F factor; and

(iii)The dry basis emission rate calculation procedure contained in Method 19 of appendix A of this part.

(7)Method 9 of appendix A of this part is used for determining the opacity of stack emissions.

(e)To determine compliance with the emission limits for NO X required under § 60.44b, the owner or operator of an affected facility shall conduct the performance test as required under § 60.8 using the continuous system for monitoring NO X under § 60.48(b).

(1)For the initial compliance test, NO X from the steam generating unit are monitored for 30 successive steam generating unit operating days and the 30-day average emission rate is used to determine compliance with the NO X emission standards under § 60.44b. The 30-day average emission rate is calculated as the average of all hourly emissions data recorded by the monitoring system during the 30-day test period.

(2)Following the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, the owner or operator of an affected facility which combusts coal or which combusts residual oil having a nitrogen content greater than 0.30 weight percent shall determine compliance with the NO X emission standards under § 60.44b on a continuous basis through the use of a 30-day rolling average emission rate. A new 30-day rolling average emission rate is calculated each steam generating unit operating day as the average of all of the hourly NO X emission data for the preceding 30 steam generating unit operating days.

(3)Following the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, the owner or operator of an affected facility that has a heat input capacity greater than 73 MW (250 MMBtu/hr) and that combusts natural gas, distillate oil, or residual oil having a nitrogen content of 0.30 weight percent or less shall determine compliance with the NO X standards under § 60.44b on a continuous basis through the use of a 30-day rolling average emission rate. A new 30-day rolling average emission rate is calculated each steam generating unit operating day as the average of all of the hourly NO X emission data for the preceding 30 steam generating unit operating days.

(4)Following the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, the owner or operator of an affected facility that has a heat input capacity of 73 MW (250 MMBtu/hr) or less and that combusts natural gas, distillate oil, or residual oil having a nitrogen content of 0.30 weight percent or less shall upon request determine compliance with the NO X standards under § 60.44b through the use of a 30-day performance test. During periods when performance tests are not requested, NO X emissions data collected pursuant to § 60.48b(g)(1) or § 60.48b(g)(2) are used to calculate a 30-day rolling average emission rate on a daily basis and used to prepare excess emission reports, but will not be used to determine compliance with the NO X emission standards. A new 30-day rolling average emission rate is calculated each steam generating unit operating day as the average of all of the hourly NO X emission data for the preceding 30 steam generating unit operating days.

(5)If the owner or operator of an affected facility that combusts residual oil does not sample and analyze the residual oil for nitrogen content, as specified in § 60.49b(e), the requirements of § 60.48b(g)(1) apply and the provisions of § 60.48b(g)(2) are inapplicable.

(f)To determine compliance with the emissions limits for NO X required by § 60.44b(a)(4) or § 60.44b(l) for duct burners used in combined cycle systems, either of the procedures described in paragraph (f)(1) or

(2)of this section may be used:

(1)The owner or operator of an affected facility shall conduct the performance test required under § 60.8 as follows:

(i)The emissions rate

(E)of NO X shall be computed using Equation 1 in this section: EP09FE07.035 Where: E = Emissions rate of NO X from the duct burner, ng/J (lb/MMBtu) heat input; E sg = Combined effluent emissions rate, in ng/J (lb/MMBtu) heat input using appropriate F factor as described in Method 19 of appendix A of this part; H g = Heat input rate to the combustion turbine, in J/hr (MMBtu/hr); H b = Heat input rate to the duct burner, in J/hr (MMBtu/hr); and E g = Emissions rate from the combustion turbine, in ng/J (lb/MMBtu) heat input calculated using appropriate F factor as described in Method 19 of appendix A of this part.

(ii)Method 7E of appendix A of this part shall be used to determine the NO X concentrations. Method 3A or 3B of appendix A of this part shall be used to determine O 2 concentration.

(iii)The owner or operator shall identify and demonstrate to the Administrator's satisfaction suitable methods to determine the average hourly heat input rate to the combustion turbine and the average hourly heat input rate to the affected duct burner.

(iv)Compliance with the emissions limits under § 60.44b (a)(4) or § 60.44b(l) is determined by the three-run average (nominal 1-hour runs) for the initial and subsequent performance tests; or

(2)The owner or operator of an affected facility may elect to determine compliance on a 30-day rolling average basis by using the CEMS specified under § 60.48b for measuring NO X and O 2 and meet the requirements of § 60.48b. The sampling site shall be located at the outlet from the steam generating unit. The NO X emissions rate at the outlet from the steam generating unit shall constitute the NO X emissions rate from the duct burner of the combined cycle system.

(g)The owner or operator of an affected facility described in § 60.44b(j) or § 60.44b(k) shall demonstrate the maximum heat input capacity of the steam generating unit by operating the facility at maximum capacity for 24 hours. The owner or operator of an affected facility shall determine the maximum heat input capacity using the heat loss method described in sections 5 and 7.3 of the ASME *Power Test Codes* 4.1 (incorporated by reference, see § 60.17). This demonstration of maximum heat input capacity shall be made during the initial performance test for affected facilities that meet the criteria of § 60.44b(j). It shall be made within 60 days after achieving the maximum production rate at which the affected facility will be operated, but not later than 180 days after initial start-up of each facility, for affected facilities meeting the criteria of § 60.44b(k). Subsequent demonstrations may be required by the Administrator at any other time. If this demonstration indicates that the maximum heat input capacity of the affected facility is less than that stated by the manufacturer of the affected facility, the maximum heat input capacity determined during this demonstration shall be used to determine the capacity utilization rate for the affected facility. Otherwise, the maximum heat input capacity provided by the manufacturer is used.

(h)The owner or operator of an affected facility described in § 60.44b(j) that has a heat input capacity greater than 73 MW (250 MMBtu/hr) shall:

(1)Conduct an initial performance test as required under § 60.8 over a minimum of 24 consecutive steam generating unit operating hours at maximum heat input capacity to demonstrate compliance with the NO X emission standards under § 60.44b using Method 7, 7A, 7E of appendix A of this part, or other approved reference methods; and

(2)Conduct subsequent performance tests once per calendar year or every 400 hours of operation (whichever comes first) to demonstrate compliance with the NO X emission standards under § 60.44b over a minimum of 3 consecutive steam generating unit operating hours at maximum heat input capacity using Method 7, 7A, 7E of appendix A of this part, or other approved reference methods.

(i)The owner or operator of an affected facility seeking to demonstrate compliance under paragraph § 60.43b(h)(5) shall follow the applicable procedures under § 60.49b(r).

(j)In place of PM testing with EPA Reference Method 5, 5B, or 17 of appendix A of this part, an owner or operator may elect to install, calibrate, maintain, and operate a CEMS for monitoring PM emissions discharged to the atmosphere and record the output of the system. The owner or operator of an affected facility who elects to continuously monitor PM emissions instead of conducting performance testing using EPA Method 5, 5B, or 17 of appendix A of this part shall comply with the requirements specified in paragraphs (j)(1) through (j)(13) of this section.

(1)Notify the Administrator one month before starting use of the system.

(2)Notify the Administrator one month before stopping use of the system.

(3)The monitor shall be installed, evaluated, and operated in accordance with § 60.13 of subpart A of this part.

(4)The initial performance evaluation shall be completed no later than 180 days after the date of initial startup of the affected facility, as specified under § 60.8 of subpart A of this part or within 180 days of notification to the Administrator of use of the CEMS if the owner or operator was previously determining compliance by Method 5, 5B, or 17 of appendix A of this part performance tests, whichever is later.

(5)The owner or operator of an affected facility shall conduct an initial performance test for PM emissions as required under § 60.8 of subpart A of this part. Compliance with the PM emission limit shall be determined by using the CEMS specified in paragraph

(j)of this section to measure PM and calculating a 24-hour block arithmetic average emission concentration using EPA Reference Method 19 of appendix A of this part, section 4.1.

(6)Compliance with the PM emission limit shall be determined based on the 24-hour daily (block) average of the hourly arithmetic average emission concentrations using CEMS outlet data.

(7)At a minimum, valid CEMS hourly averages shall be obtained as specified in paragraphs (j)(7)(i) of this section for 75 percent of the total operating hours per 30-day rolling average.

(i)At least two data points per hour shall be used to calculate each 1-hour arithmetic average.

(8)The 1-hour arithmetic averages required under paragraph (j)(7) of this section shall be expressed in ng/J or lb/MMBtu heat input and shall be used to calculate the boiler operating day daily arithmetic average emission concentrations. The 1-hour arithmetic averages shall be calculated using the data points required under § 60.13(e)(2) of subpart A of this part.

(9)All valid CEMS data shall be used in calculating average emission concentrations even if the minimum CEMS data requirements of paragraph (j)(7) of this section are not met.

(10)The CEMS shall be operated according to Performance Specification 11 in appendix B of this part.

(11)During the correlation testing runs of the CEMS required by Performance Specification 11 in appendix B of this part, PM and O 2 (or CO 2 ) data shall be collected concurrently (or within a 30-to 60-minute period) by both the continuous emission monitors and the test methods specified in paragraph (j)(7)(i) of this section.

(i)For PM, EPA Reference Method 5, 5B, or 17 of appendix A of this part shall be used.

(ii)For O 2 (or CO 2 ), EPA reference Method 3, 3A, or 3B of appendix A of this part, as applicable shall be used.

(12)Quarterly accuracy determinations and daily calibration drift tests shall be performed in accordance with procedure 2 in appendix F of this part. Relative Response Audits must be performed annually and Response Correlation Audits must be performed every 3 years.

(13)When PM emissions data are not obtained because of CEMS breakdowns, repairs, calibration checks, and zero and span adjustments, emissions data shall be obtained by using other monitoring systems as approved by the Administrator or EPA Reference Method 19 of appendix A of this part to provide, as necessary, valid emissions data for a minimum of 75 percent of total operating hours per 30-day rolling average. § 60.47b Emission monitoring for sulfur dioxide.

(a)Except as provided in paragraphs

(b)and

(g)of this section, the owner or operator of an affected facility subject to the SO 2 standards under § 60.42b shall install, calibrate, maintain, and operate CEMS for measuring SO 2 concentrations and either O 2 or CO 2 concentrations and shall record the output of the systems. For units complying with the percent reduction standard, the SO 2 and either O 2 or CO 2 concentrations shall both be monitored at the inlet and outlet of the SO 2 control device.

(b)As an alternative to operating CEMS as required under paragraph

(a)of this section, an owner or operator may elect to determine the average SO 2 emissions and percent reduction by:

(1)Collecting coal or oil samples in an as-fired condition at the inlet to the steam generating unit and analyzing them for sulfur and heat content according to Method 19 of appendix A of this part. Method 19 of appendix A of this part provides procedures for converting these measurements into the format to be used in calculating the average SO 2 input rate, or

(2)Measuring SO 2 according to Method 6B of appendix A of this part at the inlet or outlet to the SO 2 control system. An initial stratification test is required to verify the adequacy of the Method 6B of appendix A of this part sampling location. The stratification test shall consist of three paired runs of a suitable SO 2 and CO 2 measurement train operated at the candidate location and a second similar train operated according to the procedures in section 3.2 and the applicable procedures in section 7 of Performance Specification 2. Method 6B of appendix A of this part, Method 6A of appendix A of this part, or a combination of Methods 6 and 3 or 3B of appendix A of this part or Methods 6C and 3A of appendix A of this part are suitable measurement techniques. If Method 6B of appendix A of this part is used for the second train, sampling time and timer operation may be adjusted for the stratification test as long as an adequate sample volume is collected; however, both sampling trains are to be operated similarly. For the location to be adequate for Method 6B of appendix A of this part 24-hour tests, the mean of the absolute difference between the three paired runs must be less than 10 percent.

(3)A daily SO 2 emission rate, ED, shall be determined using the procedure described in Method 6A of appendix A of this part, section 7.6.2 (Equation 6A-8) and stated in ng/J (lb/MMBtu) heat input.

(4)The mean 30-day emission rate is calculated using the daily measured values in ng/J (lb/MMBtu) for 30 successive steam generating unit operating days using equation 19-20 of Method 19 of appendix A of this part.

(c)The owner or operator of an affected facility shall obtain emission data for at least 75 percent of the operating hours in at least 22 out of 30 successive boiler operating days. If this minimum data requirement is not met with a single monitoring system, the owner or operator of the affected facility shall supplement the emission data with data collected with other monitoring systems as approved by the Administrator or the reference methods and procedures as described in paragraph

(b)of this section.

(d)The 1-hour average SO 2 emission rates measured by the CEMS required by paragraph

(a)of this section and required under § 60.13(h) is expressed in ng/J or lb/MMBtu heat input and is used to calculate the average emission rates under § 60.42(b). Each 1-hour average SO 2 emission rate must be based on 30 or more minutes of steam generating unit operation. The hourly averages shall be calculated according to § 60.13(h)(2). Hourly SO 2 emission rates are not calculated if the affected facility is operated less than 30 minutes in a given clock hour and are not counted toward determination of a steam generating unit operating day.

(e)The procedures under § 60.13 shall be followed for installation, evaluation, and operation of the CEMS.

(1)All CEMS shall be operated in accordance with the applicable procedures under Performance Specifications 1, 2, and 3 of appendix B of this part.

(2)Quarterly accuracy determinations and daily calibration drift tests shall be performed in accordance with Procedure 1 of appendix F of this part.

(3)For affected facilities combusting coal or oil, alone or in combination with other fuels, the span value of the SO 2 CEMS at the inlet to the SO 2 control device is 125 percent of the maximum estimated hourly potential SO 2 emissions of the fuel combusted, and the span value of the CEMS at the outlet to the SO 2 control device is 50 percent of the maximum estimated hourly potential SO 2 emissions of the fuel combusted.

(f)The owner or operator of an affected facility that combusts very low sulfur oil or is demonstrating compliance under § 60.45b(k) is not subject to the emission monitoring requirements under paragraph

(a)of this section if the owner or operator maintains fuel records as described in § 60.49b(r). § 60.48b Emission monitoring for particulate matter and nitrogen oxides.

(a)Except as provided in paragraph

(j)of this section, the owner or operator of an affected facility subject to the opacity standard under § 60.43b shall install, calibrate, maintain, and operate a CEMS for measuring the opacity of emissions discharged to the atmosphere and record the output of the system.

(b)Except as provided under paragraphs (g), (h), and

(i)of this section, the owner or operator of an affected facility subject to a NO X standard under § 60.44b shall comply with either paragraphs (b)(1) or (b)(2) of this section.

(1)Install, calibrate, maintain, and operate a CEMS, and record the output of the system, for measuring NO X emissions discharged to the atmosphere; or

(2)If the owner or operator has installed a NO X emission rate CEMS to meet the requirements of part 75 of this chapter and is continuing to meet the ongoing requirements of part 75 of this chapter, that CEMS may be used to meet the requirements of this section, except that the owner or operator shall also meet the requirements of § 60.49b. Data reported to meet the requirements of § 60.49b shall not include data substituted using the missing data procedures in subpart D of part 75 of this chapter, nor shall the data have been bias adjusted according to the procedures of part 75 of this chapter.

(c)The CEMS required under paragraph

(b)of this section shall be operated and data recorded during all periods of operation of the affected facility except for CEMS breakdowns and repairs. Data is recorded during calibration checks, and zero and span adjustments.

(d)The 1-hour average NO X emission rates measured by the continuous NO X monitor required by paragraph

(b)of this section and required under § 60.13(h) shall be expressed in ng/J or lb/MMBtu heat input and shall be used to calculate the average emission rates under § 60.44b. The 1-hour averages shall be calculated using the data points required under § 60.13(h)(2).

(e)The procedures under § 60.13 shall be followed for installation, evaluation, and operation of the continuous monitoring systems.

(1)For affected facilities combusting coal, wood or municipal-type solid waste, the span value for a continuous monitoring system for measuring opacity shall be between 60 and 80 percent.

(2)For affected facilities combusting coal, oil, or natural gas, the span value for NO X is determined as follows: Fuel Span values for NO X

(ppm)Natural gas 500 Oil 500 Coal 1,000 Mixtures 500(x + y) + 1,000z Where: x = Fraction of total heat input derived from natural gas; y = Fraction of total heat input derived from oil; and z = Fraction of total heat input derived from coal.

(3)All span values computed under paragraph (e)(2) of this section for combusting mixtures of regulated fuels are rounded to the nearest 500 ppm.

(f)When NO X emission data are not obtained because of CEMS breakdowns, repairs, calibration checks and zero and span adjustments, emission data will be obtained by using standby monitoring systems, Method 7 of appendix A of this part, Method 7A of appendix A of this part, or other approved reference methods to provide emission data for a minimum of 75 percent of the operating hours in each steam generating unit operating day, in at least 22 out of 30 successive steam generating unit operating days.

(g)The owner or operator of an affected facility that has a heat input capacity of 73 MW (250 MMBtu/hr) or less, and that has an annual capacity factor for residual oil having a nitrogen content of 0.30 weight percent or less, natural gas, distillate oil, or any mixture of these fuels, greater than 10 percent (0.10) shall:

(1)Comply with the provisions of paragraphs (b), (c), (d), (e)(2), (e)(3), and

(f)of this section; or

(2)Monitor steam generating unit operating conditions and predict NO X emission rates as specified in a plan submitted pursuant to § 60.49b(c).

(h)The owner or operator of a duct burner, as described in § 60.41b, that is subject to the NO X standards of § 60.44b(a)(4) or § 60.44b(l) is not required to install or operate a continuous emissions monitoring system to measure NO X emissions.

(i)The owner or operator of an affected facility described in § 60.44b(j) or § 60.44b(k) is not required to install or operate a CEMS for measuring NO X emissions.

(j)Units are not required to operate COMS for measuring opacity if:

(1)The affected facility uses a PM CEMS to monitor PM emissions; or

(2)The affected facility burns only liquid (excluding residual oil) or gaseous fuels with potential SO 2 emissions rates of 26 ng/J (0.060 lb/MMBtu) or less and does not use a post combustion technology to reduce SO 2 or PM emissions. The owner or operator must maintain fuel records of the sulfur content of the fuels burned, as described under § 60.49b(r); or

(3)The affected facility burns coke oven gas alone or in combination with fuels meeting the criteria in paragraph (j)(2) of this section and does not use a post combustion technology to reduce SO 2 or PM emissions.

(k)Owners or operators complying with the PM emission limit by using a PM CEMS monitor instead of monitoring opacity must calibrate, maintain, and operate a CEMS, and record the output of the system, for PM emissions discharged to the atmosphere as specified in § 60.46b(j). The CEMS specified in paragraph § 60.46b(j) shall be operated and data recorded during all periods of operation of the affected facility except for CEMS breakdowns and repairs. Data is recorded during calibration checks, and zero and span adjustments. § 60.49b Reporting and recordkeeping requirements.

(a)The owner or operator of each affected facility shall submit notification of the date of initial startup, as provided by § 60.7. This notification shall include:

(1)The design heat input capacity of the affected facility and identification of the fuels to be combusted in the affected facility;

(2)If applicable, a copy of any federally enforceable requirement that limits the annual capacity factor for any fuel or mixture of fuels under §§ 60.42b(d)(1), 60.43b(a)(2), (a)(3)(iii), (c)(2)(ii), (d)(2)(iii), 60.44b(c), (d), (e), (i), (j), (k), 60.45b(d), (g), 60.46b(h), or 60.48b(i);

(3)The annual capacity factor at which the owner or operator anticipates operating the facility based on all fuels fired and based on each individual fuel fired; and

(4)Notification that an emerging technology will be used for controlling emissions of SO 2 . The Administrator will examine the description of the emerging technology and will determine whether the technology qualifies as an emerging technology. In making this determination, the Administrator may require the owner or operator of the affected facility to submit additional information concerning the control device. The affected facility is subject to the provisions of § 60.42b(a) unless and until this determination is made by the Administrator.

(b)The owner or operator of each affected facility subject to the SO 2 , PM, and/or NO X emission limits under §§ 60.42b, 60.43b, and 60.44b shall submit to the Administrator the performance test data from the initial performance test and the performance evaluation of the CEMS using the applicable performance specifications in appendix B of this part. The owner or operator of each affected facility described in § 60.44b(j) or § 60.44b(k) shall submit to the Administrator the maximum heat input capacity data from the demonstration of the maximum heat input capacity of the affected facility.

(c)The owner or operator of each affected facility subject to the NO X standard of § 60.44b who seeks to demonstrate compliance with those standards through the monitoring of steam generating unit operating conditions under the provisions of § 60.48b(g)(2) shall submit to the Administrator for approval a plan that identifies the operating conditions to be monitored under § 60.48b(g)(2) and the records to be maintained under § 60.49b(j). This plan shall be submitted to the Administrator for approval within 360 days of the initial startup of the affected facility. If the plan is approved, the owner or operator shall maintain records of predicted nitrogen oxide emission rates and the monitored operating conditions, including steam generating unit load, identified in the plan. The plan shall:

(1)Identify the specific operating conditions to be monitored and the relationship between these operating conditions and NO X emission rates (i.e., ng/J or lbs/MMBtu heat input). Steam generating unit operating conditions include, but are not limited to, the degree of staged combustion (i.e., the ratio of primary air to secondary and/or tertiary air) and the level of excess air (i.e., flue gas O 2 level);

(2)Include the data and information that the owner or operator used to identify the relationship between NO X emission rates and these operating conditions; and

(3)Identify how these operating conditions, including steam generating unit load, will be monitored under § 60.48b(g) on an hourly basis by the owner or operator during the period of operation of the affected facility; the quality assurance procedures or practices that will be employed to ensure that the data generated by monitoring these operating conditions will be representative and accurate; and the type and format of the records of these operating conditions, including steam generating unit load, that will be maintained by the owner or operator under § 60.49b(j).

(d)The owner or operator of an affected facility shall record and maintain records of the amounts of each fuel combusted during each day and calculate the annual capacity factor individually for coal, distillate oil, residual oil, natural gas, wood, and municipal-type solid waste for the reporting period. The annual capacity factor is determined on a 12-month rolling average basis with a new annual capacity factor calculated at the end of each calendar month.

(e)For an affected facility that combusts residual oil and meets the criteria under §§ 60.46b(e)(4), 60.44b (j), or (k), the owner or operator shall maintain records of the nitrogen content of the residual oil combusted in the affected facility and calculate the average fuel nitrogen content for the reporting period. The nitrogen content shall be determined using ASTM Method D4629 (incorporated by reference, see § 60.17), or fuel suppliers. If residual oil blends are being combusted, fuel nitrogen specifications may be prorated based on the ratio of residual oils of different nitrogen content in the fuel blend.

(f)For facilities subject to the opacity standard under § 60.43b, the owner or operator shall maintain records of opacity.

(g)Except as provided under paragraph

(p)of this section, the owner or operator of an affected facility subject to the NO X standards under § 60.44b shall maintain records of the following information for each steam generating unit operating day:

(1)Calendar date;

(2)The average hourly NO X emission rates (expressed as NO 2 ) (ng/J or lb/MMBtu heat input) measured or predicted;

(3)The 30-day average NO X emission rates (ng/J or lb/MMBtu heat input) calculated at the end of each steam generating unit operating day from the measured or predicted hourly nitrogen oxide emission rates for the preceding 30 steam generating unit operating days;

(4)Identification of the steam generating unit operating days when the calculated 30-day average NO X emission rates are in excess of the NO X emissions standards under § 60.44b, with the reasons for such excess emissions as well as a description of corrective actions taken;

(5)Identification of the steam generating unit operating days for which pollutant data have not been obtained, including reasons for not obtaining sufficient data and a description of corrective actions taken;

(6)Identification of the times when emission data have been excluded from the calculation of average emission rates and the reasons for excluding data;

(7)Identification of “F” factor used for calculations, method of determination, and type of fuel combusted;

(8)Identification of the times when the pollutant concentration exceeded full span of the CEMS;

(9)Description of any modifications to the CEMS that could affect the ability of the CEMS to comply with Performance Specification 2 or 3; and

(10)Results of daily CEMS drift tests and quarterly accuracy assessments as required under appendix F, Procedure 1 of this part.

(h)The owner or operator of any affected facility in any category listed in paragraphs

(1)or

(2)of this section is required to submit excess emission reports for any excess emissions that occurred during the reporting period.

(1)Any affected facility subject to the opacity standards under § 60.43b(e) or to the operating parameter monitoring requirements under § 60.13(i)(1).

(2)Any affected facility that is subject to the NO X standard of § 60.44b, and that:

(i)Combusts natural gas, distillate oil, or residual oil with a nitrogen content of 0.3 weight percent or less; or

(ii)Has a heat input capacity of 73 MW (250 MMBtu/hr) or less and is required to monitor NO X emissions on a continuous basis under § 60.48b(g)(1) or steam generating unit operating conditions under § 60.48b(g)(2).

(3)For the purpose of § 60.43b, excess emissions are defined as all 6-minute periods during which the average opacity exceeds the opacity standards under § 60.43b(f).

(4)For purposes of § 60.48b(g)(1), excess emissions are defined as any calculated 30-day rolling average NO X emission rate, as determined under § 60.46b(e), that exceeds the applicable emission limits in § 60.44b.

(i)The owner or operator of any affected facility subject to the continuous monitoring requirements for NO X under § 60.48(b) shall submit reports containing the information recorded under paragraph

(g)of this section.

(j)The owner or operator of any affected facility subject to the SO 2 standards under § 60.42b shall submit reports.

(k)For each affected facility subject to the compliance and performance testing requirements of § 60.45b and the reporting requirement in paragraph

(j)of this section, the following information shall be reported to the Administrator:

(1)Calendar dates covered in the reporting period;

(2)Each 30-day average SO 2 emission rate (ng/J or 1b/MMBtu heat input) measured during the reporting period, ending with the last 30-day period; reasons for noncompliance with the emission standards; and a description of corrective actions taken;

(3)Each 30-day average percent reduction in SO 2 emissions calculated during the reporting period, ending with the last 30-day period; reasons for noncompliance with the emission standards; and a description of corrective actions taken;

(4)Identification of the steam generating unit operating days that coal or oil was combusted and for which SO 2 or diluent (O 2 or CO 2 ) data have not been obtained by an approved method for at least 75 percent of the operating hours in the steam generating unit operating day; justification for not obtaining sufficient data; and description of corrective action taken;

(5)Identification of the times when emissions data have been excluded from the calculation of average emission rates; justification for excluding data; and description of corrective action taken if data have been excluded for periods other than those during which coal or oil were not combusted in the steam generating unit;

(6)Identification of “F” factor used for calculations, method of determination, and type of fuel combusted;

(7)Identification of times when hourly averages have been obtained based on manual sampling methods;

(8)Identification of the times when the pollutant concentration exceeded full span of the CEMS;

(9)Description of any modifications to the CEMS that could affect the ability of the CEMS to comply with Performance Specification 2 or 3;

(10)Results of daily CEMS drift tests and quarterly accuracy assessments as required under appendix F, Procedure 1 of this part; and

(11)The annual capacity factor of each fired as provided under paragraph

(d)of this section.

(l)For each affected facility subject to the compliance and performance testing requirements of § 60.45b(d) and the reporting requirements of paragraph

(j)of this section, the following information shall be reported to the Administrator:

(1)Calendar dates when the facility was in operation during the reporting period;

(2)The 24-hour average SO 2 emission rate measured for each steam generating unit operating day during the reporting period that coal or oil was combusted, ending in the last 24-hour period in the quarter; reasons for noncompliance with the emission standards; and a description of corrective actions taken;

(3)Identification of the steam generating unit operating days that coal or oil was combusted for which SO 2 or diluent (O 2 or CO 2 ) data have not been obtained by an approved method for at least 75 percent of the operating hours; justification for not obtaining sufficient data; and description of corrective action taken;

(4)Identification of the times when emissions data have been excluded from the calculation of average emission rates; justification for excluding data; and description of corrective action taken if data have been excluded for periods other than those during which coal or oil were not combusted in the steam generating unit;

(5)Identification of “F” factor used for calculations, method of determination, and type of fuel combusted;

(6)Identification of times when hourly averages have been obtained based on manual sampling methods;

(7)Identification of the times when the pollutant concentration exceeded full span of the CEMS;

(8)Description of any modifications to the CEMS that could affect the ability of the CEMS to comply with Performance Specification 2 or 3; and

(9)Results of daily CEMS drift tests and quarterly accuracy assessments as required under appendix F, Procedure 1 of this part.

(m)For each affected facility subject to the SO 2 standards under § 60.42(b) for which the minimum amount of data required under § 60.47b(f) were not obtained during the reporting period, the following information is reported to the Administrator in addition to that required under paragraph

(k)of this section:

(1)The number of hourly averages available for outlet emission rates and inlet emission rates;

(2)The standard deviation of hourly averages for outlet emission rates and inlet emission rates, as determined in Method 19 of appendix A of this part, section 7;

(3)The lower confidence limit for the mean outlet emission rate and the upper confidence limit for the mean inlet emission rate, as calculated in Method 19 of appendix A of this part, section 7; and

(4)The ratio of the lower confidence limit for the mean outlet emission rate and the allowable emission rate, as determined in Method 19 of appendix A of this part, section 7.

(n)If a percent removal efficiency by fuel pretreatment (i.e., %R f ) is used to determine the overall percent reduction (i.e., %R o ) under § 60.45b, the owner or operator of the affected facility shall submit a signed statement with the report.

(1)Indicating what removal efficiency by fuel pretreatment (i.e., %R f ) was credited during the reporting period;

(2)Listing the quantity, heat content, and date each pre-treated fuel shipment was received during the reporting period, the name and location of the fuel pretreatment facility; and the total quantity and total heat content of all fuels received at the affected facility during the reporting period;

(3)Documenting the transport of the fuel from the fuel pretreatment facility to the steam generating unit; and

(4)Including a signed statement from the owner or operator of the fuel pretreatment facility certifying that the percent removal efficiency achieved by fuel pretreatment was determined in accordance with the provisions of Method 19 of appendix A of this part and listing the heat content and sulfur content of each fuel before and after fuel pretreatment.

(o)All records required under this section shall be maintained by the owner or operator of the affected facility for a period of 2 years following the date of such record.

(p)The owner or operator of an affected facility described in § 60.44b(j) or

(k)shall maintain records of the following information for each steam generating unit operating day:

(1)Calendar date;

(2)The number of hours of operation; and

(3)A record of the hourly steam load.

(q)The owner or operator of an affected facility described in § 60.44b(j) or § 60.44b(k) shall submit to the Administrator a report containing:

(1)The annual capacity factor over the previous 12 months;

(2)The average fuel nitrogen content during the reporting period, if residual oil was fired; and

(3)If the affected facility meets the criteria described in § 60.44b(j), the results of any NO X emission tests required during the reporting period, the hours of operation during the reporting period, and the hours of operation since the last NO X emission test.

(r)The owner or operator of an affected facility who elects to use the fuel based compliance alternatives in § 60.42b or § 60.43b shall either:

(1)The owner or operator of an affected facility who elects to demonstrate that the affected facility combusts only very low sulfur oil under § 60.42b(j)(2) or § 60.42b(k)(2) shall obtain and maintain at the affected facility fuel receipts from the fuel supplier that certify that the oil meets the definition of distillate oil as defined in § 60.41b and the applicable sulfur limit. For the purposes of this section, the distillate oil need not meet the fuel nitrogen content specification in the definition of distillate oil. Reports shall be submitted to the Administrator certifying that only very low sulfur oil meeting this definition and/or pipeline quality natural gas was combusted in the affected facility during the reporting period; or

(2)The owner or operator of an affected facility who elects to demonstrate compliance based on fuel analysis in § 60.42b or § 60.43b shall develop and submit a site-specific fuel analysis plan to the Administrator for review and approval no later than 60 days before the date you intend to demonstrate compliance. Each fuel analysis plan shall include a minimum initial requirement of weekly testing and each analysis report shall contain, at a minimum, the following information:

(i)The potential sulfur emissions rate of the representative fuel mixture in ng/J heat input;

(ii)The method used to determine the potential sulfur emissions rate of each constituent of the mixture. For distillate oil and natural gas a fuel receipt or tariff sheet is acceptable;

(iii)The ratio of different fuels in the mixture; and

(iv)The owner or operator can petition the Administrator to approve monthly or quarterly sampling in place of weekly sampling.

(s)Facility specific NO X standard for Cytec Industries Fortier Plant's C.AOG incinerator located in Westwego, Louisiana:

(1)*Definitions.* *Oxidation zone* is defined as the portion of the C.AOG incinerator that extends from the inlet of the oxidizing zone combustion air to the outlet gas stack. *Reducing zone* is defined as the portion of the C.AOG incinerator that extends from the burner section to the inlet of the oxidizing zone combustion air. *Total inlet air* is defined as the total amount of air introduced into the C.AOG incinerator for combustion of natural gas and chemical by-product waste and is equal to the sum of the air flow into the reducing zone and the air flow into the oxidation zone.

(2)*Standard for nitrogen oxides.*

(i)When fossil fuel alone is combusted, the NO X emission limit for fossil fuel in § 60.44b(a) applies.

(ii)When natural gas and chemical by-product waste are simultaneously combusted, the NO X emission limit is 289 ng/J (0.67 lb/MMBtu) and a maximum of 81 percent of the total inlet air provided for combustion shall be provided to the reducing zone of the C.AOG incinerator.

(3)*Emission monitoring.*

(i)The percent of total inlet air provided to the reducing zone shall be determined at least every 15 minutes by measuring the air flow of all the air entering the reducing zone and the air flow of all the air entering the oxidation zone, and compliance with the percentage of total inlet air that is provided to the reducing zone shall be determined on a 3-hour average basis.

(ii)The NO X emission limit shall be determined by the compliance and performance test methods and procedures for NO X in § 60.46b(i).

(iii)The monitoring of the NO X emission limit shall be performed in accordance with § 60.48b.

(4)*Reporting and recordkeeping requirements.*

(i)The owner or operator of the C.AOG incinerator shall submit a report on any excursions from the limits required by paragraph (a)(2) of this section to the Administrator with the quarterly report required by paragraph

(i)of this section.

(ii)The owner or operator of the C.AOG incinerator shall keep records of the monitoring required by paragraph (a)(3) of this section for a period of 2 years following the date of such record.

(iii)The owner of operator of the C.AOG incinerator shall perform all the applicable reporting and recordkeeping requirements of this section.

(t)Facility-specific NO X standard for Rohm and Haas Kentucky Incorporated's Boiler No. 100 located in Louisville, Kentucky:

(1)*Definitions.* *Air ratio control damper* is defined as the part of the low NO X burner that is adjusted to control the split of total combustion air delivered to the reducing and oxidation portions of the combustion flame. *Flue gas recirculation line* is defined as the part of Boiler No. 100 that recirculates a portion of the boiler flue gas back into the combustion air.

(2)*Standard for nitrogen oxides.*

(i)When fossil fuel alone is combusted, the NO X emission limit for fossil fuel in § 60.44b(a) applies.

(ii)When fossil fuel and chemical by-product waste are simultaneously combusted, the NO X emission limit is 473 ng/J (1.1 lb/MMBtu), and the air ratio control damper tee handle shall be at a minimum of 5 inches (12.7 centimeters) out of the boiler, and the flue gas recirculation line shall be operated at a minimum of 10 percent open as indicated by its valve opening position indicator.

(3)*Emission monitoring for nitrogen oxides.*

(i)The air ratio control damper tee handle setting and the flue gas recirculation line valve opening position indicator setting shall be recorded during each 8-hour operating shift.

(ii)The NO X emission limit shall be determined by the compliance and performance test methods and procedures for NO X in § 60.46b.

(iii)The monitoring of the NO X emission limit shall be performed in accordance with § 60.48b.

(4)*Reporting and recordkeeping requirements.*

(i)The owner or operator of Boiler No. 100 shall submit a report on any excursions from the limits required by paragraph (b)(2) of this section to the Administrator with the quarterly report required by § 60.49b(i).

(ii)The owner or operator of Boiler No. 100 shall keep records of the monitoring required by paragraph (b)(3) of this section for a period of 2 years following the date of such record.

(iii)The owner of operator of Boiler No. 100 shall perform all the applicable reporting and recordkeeping requirements of § 60.49b.

(u)*Site-specific standard for Merck & Co., Inc.'s Stonewall Plant in Elkton, Virginia.*

(1)This paragraph

(u)applies only to the pharmaceutical manufacturing facility, commonly referred to as the Stonewall Plant, located at Route 340 South, in Elkton, Virginia (“site”) and only to the natural gas-fired boilers installed as part of the powerhouse conversion required pursuant to 40 CFR 52.2454(g). The requirements of this paragraph shall apply, and the requirements of §§ 60.40b through 60.49b(t) shall not apply, to the natural gas-fired boilers installed pursuant to 40 CFR 52.2454(g).

(i)The site shall equip the natural gas-fired boilers with low NO X technology.

(ii)The site shall install, calibrate, maintain, and operate a continuous monitoring and recording system for measuring NO X emissions discharged to the atmosphere and opacity using a continuous emissions monitoring system or a predictive emissions monitoring system.

(iii)Within 180 days of the completion of the powerhouse conversion, as required by 40 CFR 52.2454, the site shall perform a performance test to quantify criteria pollutant emissions.

(2)[Reserved]

(v)The owner or operator of an affected facility may submit electronic quarterly reports for SO 2 and/or NO X and/or opacity in lieu of submitting the written reports required under paragraphs (h), (i), (j),

(k)or

(l)of this section. The format of each quarterly electronic report shall be coordinated with the permitting authority. The electronic report(s) shall be submitted no later than 30 days after the end of the calendar quarter and shall be accompanied by a certification statement from the owner or operator, indicating whether compliance with the applicable emission standards and minimum data requirements of this subpart was achieved during the reporting period. Before submitting reports in the electronic format, the owner or operator shall coordinate with the permitting authority to obtain their agreement to submit reports in this alternative format.

(w)The reporting period for the reports required under this subpart is each 6 month period. All reports shall be submitted to the Administrator and shall be postmarked by the 30th day following the end of the reporting period.

(x)Facility-specific NO X standard for Weyerhaeuser Company's No. 2 Power Boiler located in New Bern, North Carolina:

(1)*Standard for nitrogen oxides.*

(i)When fossil fuel alone is combusted, the NO X emission limit for fossil fuel in § 60.44b(a) applies.

(ii)When fossil fuel and chemical by-product waste are simultaneously combusted, the NO X emission limit is 215 ng/J (0.5 lb/MMBtu).

(2)*Emission monitoring for nitrogen oxides.*

(i)The NO X emissions shall be determined by the compliance and performance test methods and procedures for NO X in § 60.46b.

(ii)The monitoring of the NO X emissions shall be performed in accordance with § 60.48b.

(3)*Reporting and recordkeeping requirements.*

(i)The owner or operator of the No. 2 Power Boiler shall submit a report on any excursions from the limits required by paragraph (x)(2) of this section to the Administrator with the quarterly report required by § 60.49b(i).

(ii)The owner or operator of the No. 2 Power Boiler shall keep records of the monitoring required by paragraph (x)(3) of this section for a period of 2 years following the date of such record.

(iii)The owner or operator of the No. 2 Power Boiler shall perform all the applicable reporting and recordkeeping requirements of § 60.49b.

(y)Facility-specific NO X standard for INEOS USA's AOGI located in Lima, Ohio:

(1)*Standard for* NO X .

(i)When fossil fuel alone is combusted, the NO X emission limit for fossil fuel in § 60.44b(a) applies.

(ii)When fossil fuel and chemical byproduct/waste are simultaneously combusted, the NO X emission limit is 645 ng/J (1.5 lb/MMBtu).

(2)*Emission monitoring for* NO X .

(i)The NO X emissions shall be determined by the compliance and performance test methods and procedures for NO X in § 60.46b.

(ii)The monitoring of the NO X emissions shall be performed in accordance with § 60.48b.

(3)*Reporting and recordkeeping requirements.*

(i)The owner or operator of the AOGI shall submit a report on any excursions from the limits required by paragraph (y)(2) of this section to the Administrator with the quarterly report required by paragraph

(i)of this section.

(ii)The owner or operator of the AOGI shall keep records of the monitoring required by paragraph (y)(3) of this section for a period of 2 years following the date of such record.

(iii)The owner or operator of the AOGI shall perform all the applicable reporting and recordkeeping requirements of this section. Subpart Dc—[Amended] 6. Subpart Dc is revised to read as follows: Subpart Dc—Standards of Performance for Small Industrial—Commercial—Institutional Steam Generating Units Sec. 60.40c Applicability and delegation of authority. 60.41c Definitions. 60.42c Standard for sulfur dioxide (SO 2 ). 60.43c Standard for particulate matter (PM). 60.44c Compliance and performance test methods and procedures for sulfur dioxide. 60.45c Compliance and performance test methods and procedures for particulate matter. 60.46c Emission monitoring for sulfur dioxide. 60.47c Emission monitoring for particulate matter. 60.48c Reporting and recordkeeping requirements. Subpart Dc—Standards of Performance for Small Industrial—Commercial—Institutional Steam Generating Units § 60.40c Applicability and delegation of authority.

(a)Except as provided in paragraph

(d)of this section, the affected facility to which this subpart applies is each steam generating unit for which construction, modification, or reconstruction is commenced after June 9, 1989 and that has a maximum design heat input capacity of 29 megawatts

(MW)(100 million British thermal units per hour (MMBtu/hr)) or less, but greater than or equal to 2.9 MW (10 MMBtu/hr).

(b)In delegating implementation and enforcement authority to a State under section 111(c) of the Clean Air Act, § 60.48c(a)(4) shall be retained by the Administrator and not transferred to a State.

(c)Steam generating units that meet the applicability requirements in paragraph

(a)of this section are not subject to the sulfur dioxide (SO 2 ) or particulate matter

(PM)emission limits, performance testing requirements, or monitoring requirements under this subpart (§§ 60.42c, 60.43c, 60.44c, 60.45c, 60.46c, or 60.47c) during periods of combustion research, as defined in § 60.41c.

(d)Any temporary change to an existing steam generating unit for the purpose of conducting combustion research is not considered a modification under § 60.14.

(e)Heat recovery steam generators that are associated with combined cycle gas turbines and meet the applicability requirements of subpart GG or KKKK of this part are not subject to this subpart. This subpart will continue to apply to all other heat recovery steam generators that are capable of combusting more than or equal to 2.9 MW (10 MMBtu/hr) heat input of fossil fuel but less than or equal to 29 MW (100 MMBtu/hr) heat input of fossil fuel. If the heat recovery steam generator is subject to this subpart, only emissions resulting from combustion of fuels in the steam generating unit are subject to this subpart. (The gas turbine emissions are subject to subpart GG or KKKK, as applicable, of this part).

(f)Any facility covered by subpart AAAA of this part is not covered by this subpart.

(g)Any facility covered by an EPA approved State or Federal section 111(d)/129 plan implementing subpart BBBB of this part is not covered by this subpart. § 60.41c Definitions. As used in this subpart, all terms not defined herein shall have the meaning given them in the Clean Air Act and in subpart A of this part. *Annual capacity factor* means the ratio between the actual heat input to a steam generating unit from an individual fuel or combination of fuels during a period of 12 consecutive calendar months and the potential heat input to the steam generating unit from all fuels had the steam generating unit been operated for 8,760 hours during that 12-month period at the maximum design heat input capacity. In the case of steam generating units that are rented or leased, the actual heat input shall be determined based on the combined heat input from all operations of the affected facility during a period of 12 consecutive calendar months. *Coal* means all solid fuels classified as anthracite, bituminous, subbituminous, or lignite by the American Society of Testing and Materials in ASTM D388 (incorporated by reference, see § 60.17), coal refuse, and petroleum coke. Coal-derived synthetic fuels derived from coal for the purposes of creating useful heat, including but not limited to solvent refined coal, gasified coal, coal-oil mixtures, and coal-water mixtures, are also included in this definition for the purposes of this subpart. *Coal refuse* means any by-product of coal mining or coal cleaning operations with an ash content greater than 50 percent (by weight) and a heating value less than 13,900 kilojoules per kilogram (kJ/kg) (6,000 Btu per pound (Btu/lb) on a dry basis. *Cogeneration steam generating unit* means a steam generating unit that simultaneously produces both electrical (or mechanical) and thermal energy from the same primary energy source. *Combined cycle system* means a system in which a separate source (such as a stationary gas turbine, internal combustion engine, or kiln) provides exhaust gas to a steam generating unit. *Combustion research* means the experimental firing of any fuel or combination of fuels in a steam generating unit for the purpose of conducting research and development of more efficient combustion or more effective prevention or control of air pollutant emissions from combustion, provided that, during these periods of research and development, the heat generated is not used for any purpose other than preheating combustion air for use by that steam generating unit (i.e., the heat generated is released to the atmosphere without being used for space heating, process heating, driving pumps, preheating combustion air for other units, generating electricity, or any other purpose). *Conventional technology* means wet flue gas desulfurization technology, dry flue gas desulfurization technology, atmospheric fluidized bed combustion technology, and oil hydrodesulfurization technology. *Distillate oil* means fuel oil that complies with the specifications for fuel oil numbers 1 or 2, as defined by the American Society for Testing and Materials in ASTM D396 (incorporated by reference, see § 60.17). *Dry flue gas desulfurization technology* means a SO 2 control system that is located between the steam generating unit and the exhaust vent or stack, and that removes sulfur oxides from the combustion gases of the steam generating unit by contacting the combustion gases with an alkaline slurry or solution and forming a dry powder material. This definition includes devices where the dry powder material is subsequently converted to another form. Alkaline reagents used in dry flue gas desulfurization systems include, but are not limited to, lime and sodium compounds. *Duct burner* means a device that combusts fuel and that is placed in the exhaust duct from another source (such as a stationary gas turbine, internal combustion engine, kiln, etc.) to allow the firing of additional fuel to heat the exhaust gases before the exhaust gases enter a steam generating unit. *Emerging technology* means any SO 2 control system that is not defined as a conventional technology under this section, and for which the owner or operator of the affected facility has received approval from the Administrator to operate as an emerging technology under § 60.48c(a)(4). *Federally enforceable* means all limitations and conditions that are enforceable by the Administrator, including the requirements of 40 CFR parts 60 and 61, requirements within any applicable State implementation plan, and any permit requirements established under 40 CFR 52.21 or under 40 CFR 51.18 and 51.24. *Fluidized bed combustion technology* means a device wherein fuel is distributed onto a bed (or series of beds) of limestone aggregate (or other sorbent materials) for combustion; and these materials are forced upward in the device by the flow of combustion air and the gaseous products of combustion. Fluidized bed combustion technology includes, but is not limited to, bubbling bed units and circulating bed units. *Fuel pretreatment* means a process that removes a portion of the sulfur in a fuel before combustion of the fuel in a steam generating unit. *Heat input* means heat derived from combustion of fuel in a steam generating unit and does not include the heat derived from preheated combustion air, recirculated flue gases, or exhaust gases from other sources (such as stationary gas turbines, internal combustion engines, and kilns). *Heat transfer medium* means any material that is used to transfer heat from one point to another point. *Maximum design heat input capacity* means the ability of a steam generating unit to combust a stated maximum amount of fuel (or combination of fuels) on a steady state basis as determined by the physical design and characteristics of the steam generating unit. *Natural gas* means:

(1)A naturally occurring mixture of hydrocarbon and nonhydrocarbon gases found in geologic formations beneath the earth's surface, of which the principal constituent is methane; or

(2)liquefied petroleum

(LP)gas, as defined by the American Society for Testing and Materials in ASTM D1835 (incorporated by reference, see § 60.17). *Noncontinental area* means the State of Hawaii, the Virgin Islands, Guam, American Samoa, the Commonwealth of Puerto Rico, or the Northern Mariana Islands. *Oil* means crude oil or petroleum, or a liquid fuel derived from crude oil or petroleum, including distillate oil and residual oil. *Potential sulfur dioxide emission rate* means the theoretical SO 2 emissions (nanograms per joule (ng/J) or lb/MMBtu heat input) that would result from combusting fuel in an uncleaned state and without using emission control systems. *Process heater* means a device that is primarily used to heat a material to initiate or promote a chemical reaction in which the material participates as a reactant or catalyst. *Residual oil* means crude oil, fuel oil that does not comply with the specifications under the definition of distillate oil, and all fuel oil numbers 4, 5, and 6, as defined by the American Society for Testing and Materials in ASTM D396 (incorporated by reference, see § 60.17). *Steam generating unit* means a device that combusts any fuel and produces steam or heats water or any other heat transfer medium. This term includes any duct burner that combusts fuel and is part of a combined cycle system. This term does not include process heaters as defined in this subpart. *Steam generating unit operating day* means a 24-hour period between 12:00 midnight and the following midnight during which any fuel is combusted at any time in the steam generating unit. It is not necessary for fuel to be combusted continuously for the entire 24-hour period. *Wet flue gas desulfurization technology* means an SO 2 control system that is located between the steam generating unit and the exhaust vent or stack, and that removes sulfur oxides from the combustion gases of the steam generating unit by contacting the combustion gases with an alkaline slurry or solution and forming a liquid material. This definition includes devices where the liquid material is subsequently converted to another form. Alkaline reagents used in wet flue gas desulfurization systems include, but are not limited to, lime, limestone, and sodium compounds. *Wet scrubber system* means any emission control device that mixes an aqueous stream or slurry with the exhaust gases from a steam generating unit to control emissions of PM or SO 2 . *Wood* means wood, wood residue, bark, or any derivative fuel or residue thereof, in any form, including but not limited to sawdust, sanderdust, wood chips, scraps, slabs, millings, shavings, and processed pellets made from wood or other forest residues. § 60.42c Standard for sulfur dioxide (SO 2 ).

(a)Except as provided in paragraphs (b), (c), and

(e)of this section, on and after the date on which the performance test is completed or required to be completed under § 60.8, whichever date comes first, the owner or operator of an affected facility that combusts only coal shall neither: Cause to be discharged into the atmosphere from the affected facility any gases that contain SO 2 in excess of 87 ng/J (0.20 lb/MMBtu) heat input or 10 percent (0.10) of the potential SO 2 emission rate (90 percent reduction), nor cause to be discharged into the atmosphere from the affected facility any gases that contain SO 2 in excess of 520 ng/J (1.2 lb/MMBtu) heat input. If coal is combusted with other fuels, the affected facility shall neither: Cause to be discharged into the atmosphere from the affected facility any gases that contain SO 2 in excess of 87 ng/J (0.20 lb/MMBtu) heat input or 10 percent (0.10) of the potential SO 2 emission rate (90 percent reduction), nor cause to be discharged into the atmosphere from the affected facility any gases that contain SO 2 in excess of the emission limit is determined pursuant to paragraph (e)(2) of this section.

(b)Except as provided in paragraphs

(c)and

(1)Combusts only coal refuse alone in a fluidized bed combustion steam generating unit shall neither:

(i)Cause to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of 87 ng/J (0.20 lb/MMBtu) heat input or 20 percent (0.20) of the potential SO 2 emission rate (80 percent reduction); nor

(ii)Cause to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of 520 ng/J (1.2 lb/MMBtu) heat input. If coal is fired with coal refuse, the affected facility is subject to paragraph

(a)of this section. If oil or any other fuel (except coal) is fired with coal refuse, the affected facility is subject to the 87 ng/J (0.20 lb/MMBtu) heat input SO 2 emissions limit or the 90 percent SO 2 reduction requirement specified in paragraph

(a)of this section and the emission limit is determined pursuant to paragraph (e)(2) of this section.

(2)Combusts only coal and that uses an emerging technology for the control of SO 2 emissions shall neither:

(i)Cause to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of 50 percent (0.50) of the potential SO 2 emission rate (50 percent reduction); nor

(ii)Cause to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of 260 ng/J (0.60 lb/MMBtu) heat input. If coal is combusted with other fuels, the affected facility is subject to the 50 percent SO 2 reduction requirement specified in this paragraph and the emission limit determined pursuant to paragraph (e)(2) of this section.

(4)of this section shall cause to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of the emission limit determined pursuant to paragraph (e)(2) of this section. Percent reduction requirements are not applicable to affected facilities under paragraphs (c)(1), (2), (3), or (4).

(1)Affected facilities that have a heat input capacity of 22 MW (75 MMBtu/hr) or less.

(2)Affected facilities that have an annual capacity for coal of 55 percent (0.55) or less and are subject to a federally enforceable requirement limiting operation of the affected facility to an annual capacity factor for coal of 55 percent (0.55) or less.

(3)Affected facilities located in a noncontinental area.

(4)Affected facilities that combust coal in a duct burner as part of a combined cycle system where 30 percent (0.30) or less of the heat entering the steam generating unit is from combustion of coal in the duct burner and 70 percent (0.70) or more of the heat entering the steam generating unit is from exhaust gases entering the duct burner.

(d)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that combusts oil shall cause to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of 215 ng/J (0.50 lb/MMBtu) heat input; or, as an alternative, no owner or operator of an affected facility that combusts oil shall combust oil in the affected facility that contains greater than 0.5 weight percent sulfur. The percent reduction requirements are not applicable to affected facilities under this paragraph.

(e)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that combusts coal, oil, or coal and oil with any other fuel shall cause to be discharged into the atmosphere from that affected facility any gases that contain SO 2 in excess of the following:

(1)The percent of potential SO 2 emission rate or numerical SO 2 emission rate required under paragraph

(a)or (b)(2) of this section, as applicable, for any affected facility that

(i)Combusts coal in combination with any other fuel;

(ii)Has a heat input capacity greater than 22 MW (75 MMBtu/hr); and

(iii)Has an annual capacity factor for coal greater than 55 percent (0.55); and

(2)The emission limit determined according to the following formula for any affected facility that combusts coal, oil, or coal and oil with any other fuel: EP09FE07.036 Where: E s = SO 2 emission limit, expressed in ng/J or lb/MMBtu heat input; K a = 520 ng/J (1.2 lb/MMBtu); K b = 260 ng/J (0.60 lb/MMBtu); K c = 215 ng/J (0.50 lb/MMBtu); H a = Heat input from the combustion of coal, except coal combusted in an affected facility subject to paragraph (b)(2) of this section, in Joules

(J)[MMBtu]; H b = Heat input from the combustion of coal in an affected facility subject to paragraph (b)(2) of this section, in J (MMBtu); and H c K a H b = Heat input from the combustion of oil, in J (MMBtu).

(f)Reduction in the potential SO 2 emission rate through fuel pretreatment is not credited toward the percent reduction requirement under paragraph (b)(2) of this section unless:

(1)Fuel pretreatment results in a 50 percent (0.50) or greater reduction in the potential SO 2 emission rate; and

(2)Emissions from the pretreated fuel (without either combustion or post-combustion SO 2 control) are equal to or less than the emission limits specified under paragraph (b)(2) of this section.

(g)Except as provided in paragraph

(h)of this section, compliance with the percent reduction requirements, fuel oil sulfur limits, and emission limits of this section shall be determined on a 30-day rolling average basis.

(h)For affected facilities listed under paragraphs (h)(1), (2), or

(3)of this section, compliance with the emission limits or fuel oil sulfur limits under this section may be determined based on a certification from the fuel supplier, as described under § 60.48c(f), as applicable.

(1)Distillate oil-fired affected facilities with heat input capacities between 2.9 and 29 MW (10 and 100 MMBtu/hr).

(2)Residual oil-fired affected facilities with heat input capacities between 2.9 and 8.7 MW (10 and 30 MMBtu/hr).

(3)Coal-fired facilities with heat input capacities between 2.9 and 8.7 MW (10 and 30 MMBtu/hr).

(i)The SO 2 emission limits, fuel oil sulfur limits, and percent reduction requirements under this section apply at all times, including periods of startup, shutdown, and malfunction.

(j)Only the heat input supplied to the affected facility from the combustion of coal and oil is counted under this section. No credit is provided for the heat input to the affected facility from wood or other fuels or for heat derived from exhaust gases from other sources, such as stationary gas turbines, internal combustion engines, and kilns. § 60.43c Standard for particulate matter (PM).

(a)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification on or before February 28, 2005, that combusts coal or combusts mixtures of coal with other fuels and has a heat input capacity of 8.7 MW (30 MMBtu/hr) or greater, shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of the following emission limits:

(1)22 ng/J (0.051 lb/MMBtu) heat input if the affected facility combusts only coal, or combusts coal with other fuels and has an annual capacity factor for the other fuels of 10 percent (0.10) or less.

(2)43 ng/J (0.10 lb/MMBtu) heat input if the affected facility combusts coal with other fuels, has an annual capacity factor for the other fuels greater than 10 percent (0.10), and is subject to a federally enforceable requirement limiting operation of the affected facility to an annual capacity factor greater than 10 percent (0.10) for fuels other than coal.

(b)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commenced construction, reconstruction, or modification on or before February 28, 2005, that combusts wood or combusts mixtures of wood with other fuels (except coal) and has a heat input capacity of 8.7 MW (30 MMBtu/hr) or greater, shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of the following emissions limits:

(1)43 ng/J (0.10 lb/MMBtu) heat input if the affected facility has an annual capacity factor for wood greater than 30 percent (0.30); or

(2)130 ng/J (0.30 lb/MMBtu) heat input if the affected facility has an annual capacity factor for wood of 30 percent (0.30) or less and is subject to a federally enforceable requirement limiting operation of the affected facility to an annual capacity factor for wood of 30 percent (0.30) or less.

(c)On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that combusts coal, wood, or oil and has a heat input capacity of 8.7 MW (30 MMBtu/hr) or greater shall cause to be discharged into the atmosphere from that affected facility any gases that exhibit greater than 20 percent opacity (6-minute average), except for one 6-minute period per hour of not more than 27 percent opacity.

(d)The PM and opacity standards under this section apply at all times, except during periods of startup, shutdown, or malfunction. (e)(1) On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commences construction, reconstruction, or modification after February 28, 2005, and that combusts coal, oil, wood, a mixture of these fuels, or a mixture of these fuels with any other fuels and has a heat input capacity of 8.7 MW (30 MMBtu/hr) or greater shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of 13 ng/J (0.030 lb/MMBtu) heat input, except as provided in paragraphs (e)(2), (e)(3), and (e)(4) of this section.

(2)As an alternative to meeting the requirements of paragraph (e)(1) of this section, the owner or operator of an affected facility for which modification commenced after February 28, 2005, may elect to meet the requirements of this paragraph. On and after the date on which the initial performance test is completed or required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commences modification after February 28, 2005 shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of both:

(i)22 ng/J (0.051 lb/MMBtu) heat input derived from the combustion of coal, oil, wood, a mixture of these fuels, or a mixture of these fuels with any other fuels; and

(ii)0.2 percent of the combustion concentration (99.8 percent reduction) when combusting coal, oil, wood, a mixture of these fuels, or a mixture of these fuels with any other fuels.

(3)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commences modification after February 28, 2005, and that combusts over 30 percent wood (by heat input) on an annual basis and has a heat input capacity of 8.7 MW (30 MMBtu/hr) or greater shall cause to be discharged into the atmosphere from that affected facility any gases that contain PM in excess of 43 ng/J (0.10 lb/MMBtu) heat input.

(4)On and after the date on which the initial performance test is completed or is required to be completed under § 60.8, whichever date comes first, no owner or operator of an affected facility that commences construction, reconstruction, or modification after February 28, 2005, and that combusts only oil that contains no more than 0.50 weight percent sulfur or a mixture of 0.50 weight percent sulfur oil with other fuels not subject to a PM standard under § 60.43c and not using a post combustion technology (except a wet scrubber) to reduce PM or SO 2 emissions is subject to the PM limit in this section. § 60.44c Compliance and performance test methods and procedures for sulfur dioxide.

(a)Except as provided in paragraphs

(g)and

(h)of this section and § 60.8(b), performance tests required under § 60.8 shall be conducted following the procedures specified in paragraphs (b), (c), (d), (e), and

(f)of this section, as applicable. Section 60.8(f) does not apply to this section. The 30-day notice required in § 60.8(d) applies only to the initial performance test unless otherwise specified by the Administrator.

(b)The initial performance test required under § 60.8 shall be conducted over 30 consecutive operating days of the steam generating unit. Compliance with the percent reduction requirements and SO 2 emission limits under § 60.42c shall be determined using a 30-day average. The first operating day included in the initial performance test shall be scheduled within 30 days after achieving the maximum production rate at which the affect facility will be operated, but not later than 180 days after the initial startup of the facility. The steam generating unit load during the 30-day period does not have to be the maximum design heat input capacity, but must be representative of future operating conditions.

(c)After the initial performance test required under paragraph

(b)of this section and § 60.8, compliance with the percent reduction requirements and SO 2 emission limits under § 60.42c is based on the average percent reduction and the average SO 2 emission rates for 30 consecutive steam generating unit operating days. A separate performance test is completed at the end of each steam generating unit operating day, and a new 30-day average percent reduction and SO 2 emission rate are calculated to show compliance with the standard.

(d)If only coal, only oil, or a mixture of coal and oil is combusted in an affected facility, the procedures in Method 19 of appendix A of this part are used to determine the hourly SO 2 emission rate (E ho ) and the 30-day average SO 2 emission rate (E ao ). The hourly averages used to compute the 30-day averages are obtained from the CEMS. Method 19 of appendix A of this part shall be used to calculate E ao when using daily fuel sampling or Method 6B of appendix A of this part.

(e)If coal, oil, or coal and oil are combusted with other fuels:

(1)An adjusted E ho (E ho o ) is used in Equation 19-19 of Method 19 of appendix A of this part to compute the adjusted E ao (E ao o ). The E ho o is computed using the following formula: EP09FE07.037 Where: E ho o = Adjusted E ho , ng/J (lb/MMBtu); E ho = Hourly SO 2 emission rate, ng/J (lb/MMBtu); E w = SO 2 concentration in fuels other than coal and oil combusted in the affected facility, as determined by fuel sampling and analysis procedures in Method 9 of appendix A of this part, ng/J (lb/MMBtu). The value E w for each fuel lot is used for each hourly average during the time that the lot is being combusted. The owner or operator does not have to measure E w if the owner or operator elects to assume E w =0. X k = Fraction of the total heat input from fuel combustion derived from coal and oil, as determined by applicable procedures in Method 19 of appendix A of this part.

(2)The owner or operator of an affected facility that qualifies under the provisions of § 60.42c(c) or

(d)(where percent reduction is not required) does not have to measure the parameters E w or X k if the owner or operator of the affected facility elects to measure emission rates of the coal or oil using the fuel sampling and analysis procedures under Method 19 of appendix A of this part.

(f)Affected facilities subject to the percent reduction requirements under § 60.42c(a) or

(b)shall determine compliance with the SO 2 emission limits under § 60.42c pursuant to paragraphs

(d)or

(e)of this section, and shall determine compliance with the percent reduction requirements using the following procedures:

(1)If only coal is combusted, the percent of potential SO 2 emission rate is computed using the following formula: EP09FE07.038 Where: %P s = Potential SO 2 emission rate, in percent; %R g = SO 2 removal efficiency of the control device as determined by Method 19 of appendix A of this part, in percent; and %R f = SO 2 removal efficiency of fuel pretreatment as determined by Method 19 of appendix A of this part, in percent.

(2)If coal, oil, or coal and oil are combusted with other fuels, the same procedures required in paragraph (f)(1) of this section are used, except as provided for in the following:

(i)To compute the %P s , an adjusted %R g (%R go ) is computed from E ao o from paragraph (e)(1) of this section and an adjusted average SO 2 inlet rate (E ai o ) using the following formula: EP09FE07.039 Where: %R go = Adjusted %Rg, in percent; E ao o = Adjusted E ao , ng/J (lb/MMBtu); and E ai o = Adjusted average SO 2 inlet rate, ng/J (lb/MMBtu).

(ii)To compute E ai o , an adjusted hourly SO 2 inlet rate (E hi o ) is used. The E hi o is computed using the following formula: EP09FE07.040 Where: E hi o = Adjusted E hi , ng/J (lb/MMBtu); E hi = Hourly SO 2 inlet rate, ng/J (lb/MMBtu); E w = SO 2 concentration in fuels other than coal and oil combusted in the affected facility, as determined by fuel sampling and analysis procedures in Method 19 of appendix A of this part, ng/J (lb/MMBtu). The value E w for each fuel lot is used for each hourly average during the time that the lot is being combusted. The owner or operator does not have to measure E w if the owner or operator elects to assume E w = 0; and X k = Fraction of the total heat input from fuel combustion derived from coal and oil, as determined by applicable procedures in Method 19 of appendix A of this part.

(g)For oil-fired affected facilities where the owner or operator seeks to demonstrate compliance with the fuel oil sulfur limits under § 60.42c based on shipment fuel sampling, the initial performance test shall consist of sampling and analyzing the oil in the initial tank of oil to be fired in the steam generating unit to demonstrate that the oil contains 0.5 weight percent sulfur or less. Thereafter, the owner or operator of the affected facility shall sample the oil in the fuel tank after each new shipment of oil is received, as described under § 60.46c(d)(2).

(h)For affected facilities subject to § 60.42c(h)(1), (2), or

(3)where the owner or operator seeks to demonstrate compliance with the SO 2 standards based on fuel supplier certification, the performance test shall consist of the certification, the certification from the fuel supplier, as described under § 60.48c(f), as applicable.

(i)The owner or operator of an affected facility seeking to demonstrate compliance with the SO 2 standards under § 60.42c(c)(2) shall demonstrate the maximum design heat input capacity of the steam generating unit by operating the steam generating unit at this capacity for 24 hours. This demonstration shall be made during the initial performance test, and a subsequent demonstration may be requested at any other time. If the demonstrated 24-hour average firing rate for the affected facility is less than the maximum design heat input capacity stated by the manufacturer of the affected facility, the demonstrated 24-hour average firing rate shall be used to determine the annual capacity factor for the affected facility; otherwise, the maximum design heat input capacity provided by the manufacturer shall be used.

(j)The owner or operator of an affected facility shall use all valid SO 2 emissions data in calculating %P s and E ho under paragraphs (d), (e), or

(f)of this section, as applicable, whether or not the minimum emissions data requirements under § 60.46c(f) are achieved. All valid emissions data, including valid data collected during periods of startup, shutdown, and malfunction, shall be used in calculating %P s or E ho pursuant to paragraphs (d), (e), or

(f)of this section, as applicable. § 60.45c Compliance and performance test methods and procedures for particulate matter.

(a)The owner or operator of an affected facility subject to the PM and/or opacity standards under § 60.43c shall conduct an initial performance test as required under § 60.8, and shall conduct subsequent performance tests as requested by the Administrator, to determine compliance with the standards using the following procedures and reference methods, except as specified in paragraph

(c)of this section.

(1)Method 1 of appendix A of this part shall be used to select the sampling site and the number of traverse sampling points.

(2)Method 3 of appendix A of this part shall be used for gas analysis when applying Method 5, 5B, or 17 of appendix A of this part.

(3)Method 5, 5B, or 17 of appendix A of this part shall be used to measure the concentration of PM as follows:

(i)Method 5 of appendix A of this part may be used only at affected facilities without wet scrubber systems.

(ii)Method 17 of appendix A of this part may be used at affected facilities with or without wet scrubber systems provided the stack gas temperature does not exceed a temperature of 160 °C (320 °F). The procedures of Sections 8.1 and 11.1 of Method 5B of appendix A of this part may be used in Method 17 of appendix A of this part only if Method 17 of appendix A of this part is used in conjunction with a wet scrubber system. Method 17 of appendix A of this part shall not be used in conjunction with a wet scrubber system if the effluent is saturated or laden with water droplets.

(iii)Method 5B of appendix A of this part may be used in conjunction with a wet scrubber system.

(4)The sampling time for each run shall be at least 120 minutes and the minimum sampling volume shall be 1.7 dry standard cubic meters

(dscm)[60 dry standard cubic feet (dscf)] except that smaller sampling times or volumes may be approved by the Administrator when necessitated by process variables or other factors.

(5)For Method 5 or 5B of appendix A of this part, the temperature of the sample gas in the probe and filter holder shall be monitored and maintained at 160±14 °C (320±25 °F).

(6)For determination of PM emissions, an oxygen (O 2 ) or carbon dioxide (CO 2 ) measurement shall be obtained simultaneously with each run of Method 5, 5B, or 17 of appendix A of this part by traversing the duct at the same sampling location.

(7)For each run using Method 5, 5B, or 17 of appendix A of this part, the emission rates expressed in ng/J (lb/MMBtu) heat input shall be determined using:

(i)The O 2 or CO 2 measurements and PM measurements obtained under this section,

(ii)The dry basis F factor, and

(iii)The dry basis emission rate calculation procedure contained in Method 19 of appendix A of this part.

(8)Method 9 of appendix A of this part (6-minute average of 24 observations) shall be used for determining the opacity of stack emissions.

(b)The owner or operator of an affected facility seeking to demonstrate compliance with the PM standards under § 60.43c(b)(2) shall demonstrate the maximum design heat input capacity of the steam generating unit by operating the steam generating unit at this capacity for 24 hours. This demonstration shall be made during the initial performance test, and a subsequent demonstration may be requested at any other time. If the demonstrated 24-hour average firing rate for the affected facility is less than the maximum design heat input capacity stated by the manufacturer of the affected facility, the demonstrated 24-hour average firing rate shall be used to determine the annual capacity factor for the affected facility; otherwise, the maximum design heat input capacity provided by the manufacturer shall be used.

(c)In place of PM testing with EPA Reference Method 5, 5B, or 17 of appendix A of this part, an owner or operator may elect to install, calibrate, maintain, and operate a CEMS for monitoring PM emissions discharged to the atmosphere and record the output of the system. The owner or operator of an affected facility who elects to continuously monitor PM emissions instead of conducting performance testing using EPA Method 5, 5B, or 17 of appendix A of this part shall install, calibrate, maintain, and operate a CEMS and shall comply with the requirements specified in paragraphs (c)(1) through (c)(13) of this section.

(1)Notify the Administrator 1 month before starting use of the system.

(2)Notify the Administrator 1 month before stopping use of the system.

(3)The monitor shall be installed, evaluated, and operated in accordance with § 60.13 of subpart A of this part.

(4)The initial performance evaluation shall be completed no later than 180 days after the date of initial startup of the affected facility, as specified under § 60.8 of subpart A of this part or within 180 days of notification to the Administrator of use of CEMS if the owner or operator was previously determining compliance by Method 5, 5B, or 17 of appendix A of this part performance tests, whichever is later.

(d)of this section to measure PM and calculating a 24-hour block arithmetic average emission concentration using EPA Reference Method 19 of appendix A of this part, section 4.1.

(6)Compliance with the PM emission limit shall be determined based on the 24-hour daily (block) average of the hourly arithmetic average emission concentrations using CEMS outlet data.

(7)At a minimum, valid CEMS hourly averages shall be obtained as specified in paragraph (d)(7)(i) of this section for 75 percent of the total operating hours per 30-day rolling average.

(i)At least two data points per hour shall be used to calculate each 1-hour arithmetic average.

(ii)[Reserved]

(8)The 1-hour arithmetic averages required under paragraph (d)(7) of this section shall be expressed in ng/J or lb/MMBtu heat input and shall be used to calculate the boiler operating day daily arithmetic average emission concentrations. The 1-hour arithmetic averages shall be calculated using the data points required under § 60.13(e)(2) of subpart A of this part.

(9)All valid CEMS data shall be used in calculating average emission concentrations even if the minimum CEMS data requirements of paragraph (d)(7) of this section are not met.

(10)The CEMS shall be operated according to Performance Specification 11 in appendix B of this part.

(i)For PM, EPA Reference Method 5, 5B, or 17 of appendix A of this part shall be used.

(ii)For O 2 (or CO 2 ), EPA reference Method 3, 3A, or 3B of appendix A of this part, as applicable shall be used.

(12)Quarterly accuracy determinations and daily calibration drift tests shall be performed in accordance with procedure 2 in appendix F of this part. Relative Response Audit's must be performed annually and Response Correlation Audits must be performed every 3 years.

(d)The owner or operator of an affected facility seeking to demonstrate compliance under § 60.43c(e)(4) shall follow the applicable procedures under § 60.48c(f). For residual oil-fired affected facilities, fuel supplier certifications are only allowed for facilities with heat input capacities between 2.9 and 8.7 MW (10 to 30 MMBtu/hr). § 60.46c Emission monitoring for sulfur dioxide

(a)Except as provided in paragraphs

(d)and

(e)of this section, the owner or operator of an affected facility subject to the SO 2 emission limits under § 60.42c shall install, calibrate, maintain, and operate a CEMS for measuring SO 2 concentrations and either O 2 or CO 2 concentrations at the outlet of the SO 2 control device (or the outlet of the steam generating unit if no SO 2 control device is used), and shall record the output of the system. The owner or operator of an affected facility subject to the percent reduction requirements under § 60.42c shall measure SO 2 concentrations and either O 2 or CO 2 concentrations at both the inlet and outlet of the SO 2 control device.

(b)The 1-hour average SO 2 emission rates measured by a CEMS shall be expressed in ng/J or lb/MMBtu heat input and shall be used to calculate the average emission rates under § 60.42c. Each 1-hour average SO 2 emission rate must be based on at least 30 minutes of operation and include at least 2 data points representing two 15-minute periods. Hourly SO 2 emission rates are not calculated if the affected facility is operated less than 30 minutes in a 1-hour period and are not counted toward determination of a steam generating unit operating day.

(c)The procedures under § 60.13 shall be followed for installation, evaluation, and operation of the CEMS.

(1)All CEMS shall be operated in accordance with the applicable procedures under Performance Specifications 1, 2, and 3 of appendix B of this part.

(2)Quarterly accuracy determinations and daily calibration drift tests shall be performed in accordance with Procedure 1 of appendix F of this part.

(3)For affected facilities subject to the percent reduction requirements under § 60.42c, the span value of the SO 2 CEMS at the inlet to the SO 2 control device shall be 125 percent of the maximum estimated hourly potential SO 2 emission rate of the fuel combusted, and the span value of the SO 2 CEMS at the outlet from the SO 2 control device shall be 50 percent of the maximum estimated hourly potential SO 2 emission rate of the fuel combusted.

(4)For affected facilities that are not subject to the percent reduction requirements of § 60.42c, the span value of the SO 2 CEMS at the outlet from the SO 2 control device (or outlet of the steam generating unit if no SO 2 control device is used) shall be 125 percent of the maximum estimated hourly potential SO 2 emission rate of the fuel combusted.

(d)As an alternative to operating a CEMS at the inlet to the SO 2 control device (or outlet of the steam generating unit if no SO 2 control device is used) as required under paragraph

(a)of this section, an owner or operator may elect to determine the average SO 2 emission rate by sampling the fuel prior to combustion. As an alternative to operating a CEMS at the outlet from the SO 2 control device (or outlet of the steam generating unit if no SO 2 control device is used) as required under paragraph

(a)of this section, an owner or operator may elect to determine the average SO 2 emission rate by using Method 6B of appendix A of this part. Fuel sampling shall be conducted pursuant to either paragraph (d)(1) or (d)(2) of this section. Method 6B of appendix A of this part shall be conducted pursuant to paragraph (d)(3) of this section.

(1)For affected facilities combusting coal or oil, coal or oil samples shall be collected daily in an as-fired condition at the inlet to the steam generating unit and analyzed for sulfur content and heat content according to Method 19 of appendix A of this part. Method 19 of appendix A of this part provides procedures for converting these measurements into the format to be used in calculating the average SO 2 input rate.

(2)As an alternative fuel sampling procedure for affected facilities combusting oil, oil samples may be collected from the fuel tank for each steam generating unit immediately after the fuel tank is filled and before any oil is combusted. The owner or operator of the affected facility shall analyze the oil sample to determine the sulfur content of the oil. If a partially empty fuel tank is refilled, a new sample and analysis of the fuel in the tank would be required upon filling. Results of the fuel analysis taken after each new shipment of oil is received shall be used as the daily value when calculating the 30-day rolling average until the next shipment is received. If the fuel analysis shows that the sulfur content in the fuel tank is greater than 0.5 weight percent sulfur, the owner or operator shall ensure that the sulfur content of subsequent oil shipments is low enough to cause the 30-day rolling average sulfur content to be 0.5 weight percent sulfur or less.

(3)Method 6B of appendix A of this part may be used in lieu of CEMS to measure SO 2 at the inlet or outlet of the SO 2 control system. An initial stratification test is required to verify the adequacy of the Method 6B of appendix A of this part sampling location. The stratification test shall consist of three paired runs of a suitable SO 2 and CO 2 measurement train operated at the candidate location and a second similar train operated according to the procedures in § 3.2 and the applicable procedures in section 7 of Performance Specification 2 of appendix B of this part. Method 6B of appendix A of this part, Method 6A of appendix A of this part, or a combination of Methods 6 and 3 of appendix A of this part or Methods 6C and 3A of appendix A of this part are suitable measurement techniques. If Method 6B of appendix A of this part is used for the second train, sampling time and timer operation may be adjusted for the stratification test as long as an adequate sample volume is collected; however, both sampling trains are to be operated similarly. For the location to be adequate for Method 6B of appendix A of this part 24-hour tests, the mean of the absolute difference between the three paired runs must be less than 10 percent (0.10).

(e)The monitoring requirements of paragraphs

(a)and

(d)of this section shall not apply to affected facilities subject to § 60.42c(h)(1), (2), or

(3)where the owner or operator of the affected facility seeks to demonstrate compliance with the SO 2 standards based on fuel supplier certification, as described under § 60.48c(f), as applicable.

(f)The owner or operator of an affected facility operating a CEMS pursuant to paragraph

(a)of this section, or conducting as-fired fuel sampling pursuant to paragraph (d)(1) of this section, shall obtain emission data for at least 75 percent of the operating hours in at least 22 out of 30 successive steam generating unit operating days. If this minimum data requirement is not met with a single monitoring system, the owner or operator of the affected facility shall supplement the emission data with data collected with other monitoring systems as approved by the Administrator. § 60.47c Emission monitoring for particulate matter.

(a)Except as provided in paragraphs

(c)and

(d)of this section, the owner or operator of an affected facility combusting coal, oil, or wood that is subject to the opacity standards under § 60.43c shall install, calibrate, maintain, and operate a COMS for measuring the opacity of the emissions discharged to the atmosphere and record the output of the system.

(b)All COMS for measuring opacity shall be operated in accordance with the applicable procedures under Performance Specification 1 of appendix B of this part. The span value of the opacity COMS shall be between 60 and 80 percent.

(c)Affected facilities that burn only distillate oil that contains no more than 0.5 weight percent sulfur and/or liquid or gaseous fuels with potential sulfur dioxide emission rates of 26 ng/J (0.06 lb/MMBtu) heat input or less and that do not use a post combustion technology to reduce SO 2 or PM emissions are not required to operate a CEMS for measuring opacity if they follow the applicable procedures under § 60.48c(f).

(d)Owners or operators complying with the PM emission limit by using a PM CEMS monitor instead of monitoring opacity must calibrate, maintain, and operate a CEMS, and record the output of the system, for PM emissions discharged to the atmosphere as specified in § 60.45c(d). The CEMS specified in paragraph § 60.45c(d) shall be operated and data recorded during all periods of operation of the affected facility except for CEMS breakdowns and repairs. Data is recorded during calibration checks, and zero and span adjustments. § 60.48c Reporting and recordkeeping requirements.

(a)The owner or operator of each affected facility shall submit notification of the date of construction or reconstruction and actual startup, as provided by § 60.7 of this part. This notification shall include:

(1)The design heat input capacity of the affected facility and identification of fuels to be combusted in the affected facility.

(2)If applicable, a copy of any federally enforceable requirement that limits the annual capacity factor for any fuel or mixture of fuels under § 60.42c, or § 60.43c.

(3)The annual capacity factor at which the owner or operator anticipates operating the affected facility based on all fuels fired and based on each individual fuel fired.

(4)Notification if an emerging technology will be used for controlling SO 2 emissions. The Administrator will examine the description of the control device and will determine whether the technology qualifies as an emerging technology. In making this determination, the Administrator may require the owner or operator of the affected facility to submit additional information concerning the control device. The affected facility is subject to the provisions of § 60.42c(a) or (b)(1), unless and until this determination is made by the Administrator.

(b)The owner or operator of each affected facility subject to the SO 2 emission limits of § 60.42c, or the PM or opacity limits of § 60.43c, shall submit to the Administrator the performance test data from the initial and any subsequent performance tests and, if applicable, the performance evaluation of the CEMS and/or COMS using the applicable performance specifications in appendix B of this part.

(c)The owner or operator of each coal-fired, oil-fired, or wood-fired affected facility subject to the opacity limits under § 60.43c(c) shall submit excess emission reports for any excess emissions from the affected facility that occur during the reporting period.

(d)The owner or operator of each affected facility subject to the SO 2 emission limits, fuel oil sulfur limits, or percent reduction requirements under § 60.42c shall submit reports to the Administrator.

(e)The owner or operator of each affected facility subject to the SO 2 emission limits, fuel oil sulfur limits, or percent reduction requirements under § 60.42c shall keep records and submit reports as required under paragraph

(d)of this section, including the following information, as applicable.

(1)Calendar dates covered in the reporting period.

(2)Each 30-day average SO 2 emission rate (ng/J or lb/MMBtu), or 30-day average sulfur content (weight percent), calculated during the reporting period, ending with the last 30-day period; reasons for any noncompliance with the emission standards; and a description of corrective actions taken.

(3)Each 30-day average percent of potential SO 2 emission rate calculated during the reporting period, ending with the last 30-day period; reasons for any noncompliance with the emission standards; and a description of the corrective actions taken.

(4)Identification of any steam generating unit operating days for which SO 2 or diluent (O 2 or CO 2 ) data have not been obtained by an approved method for at least 75 percent of the operating hours; justification for not obtaining sufficient data; and a description of corrective actions taken.

(5)Identification of any times when emissions data have been excluded from the calculation of average emission rates; justification for excluding data; and a description of corrective actions taken if data have been excluded for periods other than those during which coal or oil were not combusted in the steam generating unit.

(6)Identification of the F factor used in calculations, method of determination, and type of fuel combusted.

(7)Identification of whether averages have been obtained based on CEMS rather than manual sampling methods.

(8)If a CEMS is used, identification of any times when the pollutant concentration exceeded the full span of the CEMS.

(9)If a CEMS is used, description of any modifications to the CEMS that could affect the ability of the CEMS to comply with Performance Specifications 2 or 3 of appendix B of this part.

(10)If a CEMS is used, results of daily CEMS drift tests and quarterly accuracy assessments as required under appendix F, Procedure 1 of this part.

(11)If fuel supplier certification is used to demonstrate compliance, records of fuel supplier certification is used to demonstrate compliance, records of fuel supplier certification as described under paragraph (f)(1), (2), (3), or

(4)of this section, as applicable. In addition to records of fuel supplier certifications, the report shall include a certified statement signed by the owner or operator of the affected facility that the records of fuel supplier certifications submitted represent all of the fuel combusted during the reporting period.

(f)Fuel supplier certification shall include the following information:

(1)For distillate oil:

(i)The name of the oil supplier;

(ii)A statement from the oil supplier that the oil complies with the specifications under the definition of distillate oil in § 60.41c; and

(iii)The sulfur content of the oil.

(2)For residual oil:

(i)The name of the oil supplier;

(ii)The location of the oil when the sample was drawn for analysis to determine the sulfur content of the oil, specifically including whether the oil was sampled as delivered to the affected facility, or whether the sample was drawn from oil in storage at the oil supplier's or oil refiner's facility, or other location;

(iii)The sulfur content of the oil from which the shipment came (or of the shipment itself); and

(iv)The method used to determine the sulfur content of the oil.

(3)For coal:

(i)The name of the coal supplier;

(ii)The location of the coal when the sample was collected for analysis to determine the properties of the coal, specifically including whether the coal was sampled as delivered to the affected facility or whether the sample was collected from coal in storage at the mine, at a coal preparation plant, at a coal supplier's facility, or at another location. The certification shall include the name of the coal mine (and coal seam), coal storage facility, or coal preparation plant (where the sample was collected);

(iii)The results of the analysis of the coal from which the shipment came (or of the shipment itself) including the sulfur content, moisture content, ash content, and heat content; and

(iv)The methods used to determine the properties of the coal.

(4)For other fuels:

(i)The name of the supplier of the fuel;

(ii)The potential sulfur emissions rate of the fuel in ng/J heat input; and

(iii)The method used to determine the potential sulfur emissions rate of the fuel. (g)(1) Except as provided under paragraph (g)(2) of this section, the owner or operator of each affected facility shall record and maintain records of the amount of each fuel combusted during each operating day.

(2)As an alternative to meeting the requirements of paragraph (g)(1) of this section, the owner or operator of an affected facility that combusts only natural gas, wood, fuels using fuel certification in § 60.48c(f) to demonstrate compliance with the SO 2 standard, fuels not subject to an emissions standard (excluding opacity), or a mixture of these fuels may elect to record and maintain records of the amount of each fuel combusted during each calendar month.

(h)The owner or operator of each affected facility subject to a federally enforceable requirement limiting the annual capacity factor for any fuel or mixture of fuels under § 60.42c or § 60.43c shall calculate the annual capacity factor individually for each fuel combusted. The annual capacity factor is determined on a 12-month rolling average basis with a new annual capacity factor calculated at the end of the calendar month.

(i)All records required under this section shall be maintained by the owner or operator of the affected facility for a period of two years following the date of such record.

(j)The reporting period for the reports required under this subpart is each six-month period. All reports shall be submitted to the Administrator and shall be postmarked by the 30th day following the end of the reporting period. [FR Doc. E7-1881 Filed 2-8-07; 8:45 am] BILLING CODE 6560-50-P 72 27 Friday, February 9, 2007 Proposed Rules Part III Securities and Exchange Commission 17 CFR Parts 240 and 249b Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations; Proposed Rule SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 240 and 249b [Release No. 34-55231; File No. S7-04-07] RIN 3235-AJ78 Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations AGENCY: Securities and Exchange Commission (“Commission”). ACTION: Proposed rule. SUMMARY: The Commission is proposing for comment rules to implement provisions of the Credit Rating Agency Reform Act of 2006 (the “Act”), enacted on September 29, 2006. The Act defines the term “nationally recognized statistical rating organization,” provides authority for the Commission to implement registration, recordkeeping, financial reporting, and oversight rules with respect to registered credit rating agencies, and directs the Commission to issue final implementing rules no later than 270 days after its enactment (or by June 26, 2007). DATES: Comments should be received on or before March 12, 2007. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/proposed.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number S7-04-07 on the subject line; or • Use the Federal eRulemaking Portal ( *http://www.regulations.gov* ). Follow the instructions for submitting comments. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number S7-04-07. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/proposed.shtml* ). Comments are also available for public inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate Director, at

(202)551-5525; Thomas K. McGowan, Assistant Director, at

(202)551-5521; Randall W. Roy, Branch Chief, at

(202)551-5522; Rose Russo Wells, Attorney, at

(202)551-5527; Sheila Swartz, Attorney, at

(202)551-5545, Division of Market Regulation, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-6628. SUPPLEMENTARY INFORMATION: I. Background The credit rating business has expanded significantly over the last 100 years. Credit rating agencies now issue credit ratings for debt securities of public companies, sovereign governments, and municipalities, and for structured products such as asset backed securities. They also issue ratings on money market instruments such as commercial paper and with respect to obligors (that is, a credit assessment of an entity as opposed to the entity's securities). Obligor ratings are issued on, among other entities, public companies, sovereign governments, and non-public companies such as banks and insurance companies. The scope of the credit rating business reflects the importance of credit ratings to securities market participants and other creditors. Investors use credit ratings to make investment decisions. Large public institutions, such as pension funds, also use credit ratings to prescribe the types of securities the institution is permitted to hold. Creditors, such as commercial and investment banks, use credit ratings to manage credit risk and govern transactional agreements. For example, credit agreements frequently contain trigger provisions requiring more collateral if the creditor's credit rating drops. In addition, regulatory bodies have come to rely on credit ratings. In 1975, the Commission adopted the term “nationally recognized statistical rating organization” or “NRSRO” as part of amendments to its broker-dealer net capital rule 1 under the Securities Exchange Act of 1934 (“Exchange Act”). 2 The net capital rule requires a broker-dealer to maintain a level of net capital generally defined as net worth plus subordinated debt less illiquid assets and less percentage deductions on proprietary securities. 3 The net capital rule prescribes specific percentage deductions for various classes of securities based on the liquidity and volatility of the type of security. 4 These deductions, known as “haircuts,” are intended to provide a financial buffer against risks arising from the broker-dealer's business activities, including potential losses arising from market fluctuations in the prices of, or lack of liquidity in, the securities. 1 *See* Adoption of Amendments to Rule 15c3-1 and Adoption of Alternative Net Capital Requirement for Certain Brokers and Dealers, Exchange Act Release No. 11497 (June 26, 1975), 40 FR 29795 (July 16, 1975) and 17 CFR 240.15c3-1. 2 15 U.S.C. 78a *et seq.* 3 *See* 17 CFR 240.15c3-1(c)(2). 4 *See* 17 CFR 240.15c3-1(c)(2)(vi). The Commission's incorporation of the term “nationally recognized statistical rating organization” into the net capital rule provided a means to distinguish between different classes of debt securities for the purpose of prescribing applicable haircuts. 5 Thus, the net capital rule permits a broker-dealer to apply lower haircuts to certain types of debt securities that are rated in one of the four highest categories (known as the “investment grade” categories) by at least two NRSROs. 6 5 *See, e.g.* , 17 CFR 240.15c3-1(c)(2)(vi)(E), (F), and (H). 6 *See Id.* Although the Commission used the term “nationally recognized statistical rating organization” in the net capital rule, it did not provide a definition. The Commission staff has identified NRSROs through no-action letters. 7 In response to a request for a no-action letter from a credit rating agency, the Commission staff would review information and documents submitted by the credit rating agency concerning its financial and managerial resources, methodologies for determining ratings, policies for managing activities that could impact the impartiality of the credit ratings, and recognition in the marketplace. Based on this review, the Commission staff would determine whether the credit rating agency had the financial and managerial resources and appropriate policies and procedures to consistently issue credible and reliable credit ratings. The Commission staff also would determine whether the predominant users of credit ratings considered the credit rating agency to be credible and reliable. 7 *See, e.g.* , Letter from Gregory C. Yadley, Staff Attorney, Division of Market Regulation, SEC, to Ralph L. Gosselin, Treasurer, Coughlin & Co., Inc. (November 24, 1975). If these assessments were both positive, the Commission staff, after seeking the advice of the Commission, would issue a no-action letter informing broker-dealers that they could treat the credit rating agency as an NRSRO for purposes of the net capital rule. 8 Since 1975, the Commission staff has identified nine credit rating agencies as NRSROs. However, as a result of consolidation, only five credit rating agencies currently are identified as NRSROs—Moody's Investors Service, Inc., Fitch, Inc., the Standard and Poor's Division of the McGraw-Hill Companies Inc., A.M. Best Company, Inc., and Dominion Bond Rating Service Limited. 9 8 *See* Letter from Nelson S. Kibler, Assistant Director, Division of Market Regulation, Commission, to John T. Anderson, Esquire, of Lord, Bissell & Brook, on behalf of Duff & Phelps, Inc. (February 24, 1982); Letter from Michael A. Macchiaroli, Assistant Director, Division of Market Regulation, Commission, to Paul McCarthy, President, McCarthy, Crisanti & Maffei, Inc. (September 13, 1983); Letter from Michael A. Macchiaroli, Assistant Director, Division of Market Regulation, Commission, to Robin Monro-Davies, President, IBCA Limited (November 27, 1990) and Letter from Michael A. Macchiaroli, Assistant Director, Division of Market Regulation, Commission, to David L. Lloyd, Jr., Dewey Ballentine, Bushby, Palmer & Wood (October 1, 1990); Letter from Michael A. Macchiaroli, Assistant Director, Division of Market Regulation, Commission, to Gregory A. Root, President, Thomson BankWatch, Inc. (August 6, 1991) and Letter from Michael A. Macchiaroli Assistant Director, Division of Market Regulation, Commission, to Lee Pickard, Pickard and Djinis LLP (January 25, 1999); Letter from Annette L. Nazareth, Director, Division of Market Regulation, Commission, to Mari-Anne Pisarri, Pickard and Djinis LLP (February 24, 2003); and Letter from Mark M. Attar, Special Counsel, Division of Market Regulation, Commission, to Arthur Snyder, President, A.M. Best Company, Inc. (March 3, 2005). 9 Moody's and Standard and Poors represent over 80% of the industry market share as measured by revenues according to the *Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 3850,* Credit Rating Agency Reform Act of 2006, S. Report No. 109-326, 109th Cong., 2d Sess. (Sept. 6, 2006) (“Senate Report”). Over time, the Commission has imported the NRSRO concept into a number of other rules. 10 For example, definitions in Commission Rule 2a-7 under the Investment Company Act of 1940 include the term NRSRO to prescribe the type of securities a money market fund can hold. 11 In addition, regulations adopted by the Commission under the Securities Act of 1933 permit offerings of certain nonconvertible debt, preferred, and asset-backed securities that are rated investment grade by at least one NRSRO to be registered on Form S-3—the Commission's “short-form” registration statement—without the issuer satisfying a minimum public float test. 12 10 *See* Commission rules 17 CFR 228.10(e), 229.10(c), 230.134(a)(14), 230.436(g), 239.13, 239.32, 239.33, 240.3a1-1(b)(3), 240.10b-10(a)(8), 240.15c3-1(c)(2)(vi)(E), (F), and (H), 240.15c3-1a(b)(1)(i)(C), 240.15c3-1f(d), 240.15c3-3a, Item 14, Note G, 242.101(c)(2), 242.102(d), 242.300(k)(3) and (l)(3), 270.2a-7(a)(10), 270.3a-7(a)(2), 270.5b-3(c), and 270.10f-3(a)(3). 11 17 CFR 270.2a-7. 12 Form S-3 (17 CFR 239.13). The term “NRSRO” also has been incorporated into a wide range of federal legislation. 13 For example, when Congress defined the term “mortgage related security” in Section 3(a)(41) of the Exchange Act as part of the Secondary Mortgage Market Enhancement Act of 1984, 14 it required, among other things, that such securities be rated in one of the two highest rating categories by at least one NRSRO. 15 13 *See, e.g.* , 15 U.S.C. 78c(a)(41) (defining the term “mortgage related security”); 15 U.S.C. 78c(a)(53)(A) (defining the term “small business related security”); and 15 U.S.C. 80a-6(a)(5)(A)(iv)(I) (exempting certain companies from the provisions of the Investment Company Act of 1940”); Gramm-Leach-Bliley Act, Pub. L. No. 106-102 (1999); Transportation Equity Act for the 21st Century, Pub. L. No. 105-178 (1998); Reigle Community Development and Regulatory Improvement Act of 1994, Pub. L. No. 103-325 (1994); Department of Commerce, Justice, and State, The Judiciary, and Related Agencies Appropriations Act, FY2001, Pub. L. No. 106-553 (2000); Higher Education Amendments of 1992, Pub. L. No. 102-325 (1992); Housing and Community Development Act of 1992, Pub. L. No. 102-550 (1992); Federal Deposit Insurance Corporation Improvement Act of 1991, Pub. L. No. 102-242 (1991); and Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-72 (1989). 14 Pub. L. No. 98-440, § 101, 98 Stat. 1689 (1984). 15 15 U.S.C. 78c(a)(41). Further, a number of other federal, state, and foreign laws and regulations have incorporated the term “NRSRO.” For example, the U.S. Department of Education uses ratings from NRSROs to set standards of financial responsibility for institutions seeking to participate in student financial assistance programs under Title IV of the Higher Education Act of 1965, as amended. 16 Several state insurance codes rely, directly or indirectly, on NRSRO ratings in determining appropriate investments for insurance companies. 17 Canada and El Salvador also have employed the concept. 18 16 20 U.S.C. 1070 *et seq.* and 42 U.S.C. 2751 *et seq.* , 34 CFR 668.15(b)(7)(ii) and (8)(ii). 17 For example, the California Insurance Code relies on NRSRO ratings in allowing California-incorporated insurers to invest excess funds in certain types of investments. *See* Cal. Ins. Code 1192.10. 18 *See, e.g.* , National Instrument 71-101, The Multi-jurisdictional Disclosure System (Oct. 1, 1998) (Can.) and Law of the Securities Market, El Salvador, Title VI, Chapter II, Section 88(a). D.L. Not. 374, Published in the Official Newspaper No. 149, Volume 340 of August 14, 1998. II. The Credit Rating Agency Reform Act of 2006 The Act 19 seeks to address two important issues that have arisen with respect to credit rating agencies. 20 First, the practice of identifying NRSROs through staff no-action letters has been criticized as a process that lacks transparency and creates a barrier to entry for credit rating agencies seeking wider recognition and market share. 21 Second, the importance of credit ratings to the financial markets has raised the question of whether greater supervision of credit rating agencies is warranted. 22 The failures of Enron and WorldCom—which led to new laws and regulations governing a host of market participants including public companies, securities analysts, and accountants 23 —increased concerns that credit rating agencies were operating outside the scope of any meaningful regulatory supervision. 24 19 Pub. L. No. 109-291 (2006). 20 *See* Section 2 of the Act and the Senate Report. 21 *See* Senate Report. 22 *Id.* 23 *See e.g.* , Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002). 24 *See* Senate Report. Over the years, the Commission has made attempts to address these issues 25 and has participated in international initiatives to address similar issues. 26 However, the Commission's efforts have been hindered by limitations to its authority. 27 Congress ultimately found that legislation was necessary and enacted the Act to provide for voluntary registration and oversight of NRSROs. 28 25 *See e.g., Nationally Recognized Statistical Rating Organizations,* Exchange Act Release No. 34616 (August 31, 1994), 59 FR 46314 (September 7, 1994); *Capital Requirements for Brokers or Dealers Under the Securities Exchange Act of 1934,* Exchange Act Release No. 39457 (December 17, 1997), 62 FR 68018 (December 30, 1997); *Order In the Matter of the Role of Rating Agencies in the U.S. Securities Markets Directing Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934, and Designating Officers for Such Designation* (March 19, 2002); *The Current Role and Function of Credit Rating Agencies in the Operation of the Securities Markets, Hearings Before the U.S. Securities and Exchange Commission* (Nov. 15 and 21, 2002) (“Commission 2002 CRA Hearings”) (Transcripts available on the Commission's Web site at *http://www.sec.gov/spotlight/ratingagency.htm);* Report on the Role and Function of Credit Rating Agencies in the Operation of the Securities Markets, As Required by Section 702(b) of the Sarbanes-Oxley Act of 2002, U.S. Securities and Exchange Commission, January 2003 (“Commission CRA Report”); *Concept Release: Rating Agencies and the Use of Credit Ratings Under the Federal Securities Laws,* Securities Act Release No. 8236, 68 FR 35258 (June 12, 2003) (“Commission CRA Concept Release”); and *Proposed Rule: Definition of Nationally Recognized Statistical Rating Organization,* Securities Act Release No. 8570 (April 22, 2005), 70 FR 21306 (April 25, 2005). 26 *See Statement of Principles Regarding the Activities of Credit Rating Agencies,* Technical Committee, International Organization of Securities Commissions (“IOSCO”) (September 25, 2003); *Report on the Activities of Credit Rating Agencies,* The Technical Committee, IOSCO (September 2003); and *Code of Conduct Fundamentals for Credit Rating Agencies,* Technical Committee of IOSCO (December 2004). 27 *See* Testimony of Commissioner Annette L. Nazareth, then Director, Division of Market Regulation, Commission, Before the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, Regarding Credit Rating Agencies (April 12, 2005) (Available on the Commission's Web site at *http://www.sec.gov/news/testimony/ts041205aln.htm).* 28 *See* Section 2 of the Act and Senate Report. In overview, the Act adds definitions to Section 3 of the Exchange Act, 29 creates a new Section 15E of the Exchange Act, 30 and amends Section 17 of the Exchange Act. 31 These new statutory provisions, and the grants of Commission rulemaking authority under these provisions, establish a registration and regulatory program for credit rating agencies opting to have their credit ratings qualify for purposes of laws and rules using the term “nationally recognized statistical rating organization.” These credit rating agencies would be required to register with the Commission, make public certain information to help persons assess their credibility, make and retain certain records, furnish the Commission with certain financial reports, implement policies to manage the handling of material non-public information and conflicts of interest, and abide by certain prohibitions against unfair, coercive, or abusive practices. The Commission notes that international standards, such as those promulgated by the Technical Committee of the International Organization of Securities Commissions (“IOSCO”), are generally consistent with the Act and the rules the Commission is proposing. 32 29 15 U.S.C. 78c. 30 15 U.S.C. 78o-7. 31 15 U.S.C. 78q. 32 *See e.g., IOSCO Statement of Principles Regarding the Activities of Credit Rating Agencies,* September 25, 2003; *Code of Conduct Fundamentals for Credit Rating Agencies* (IOSCO Technical Committee), December 2004. The statutory provisions of the Act prohibit reliance on Commission staff no-action letters identifying NRSROs. 33 These statutory provisions become effective on the earlier of June 26, 2007 (270 days after the date of enactment of the Act) or the date the Commission issues final rules under the Act. 34 However, as a transitional measure, no-action letters issued before the effective date may continue to be relied upon by regulatory users of credit ratings after the effective date if the credit rating agency identified in the letter has a pending application for registration before the Commission. 35 In this case, the letter becomes void after the Commission has acted on the application. 36 33 *See* Section 15E( *l* ) of the Exchange Act (15 U.S.C. 78o-7( *l* )). This provision of the Act renders moot the Commission's earlier proposals to define the term “NRSRO” by rule and, consequently, they are withdrawn. *See Capital Requirements for Brokers or Dealers Under the Securities Exchange Act of 1934,* Exchange Act Release No. 39457 (December 17, 1997), 62 FR 68018 (December 30, 1997); *Proposed Rule: Definition of Nationally Recognized Statistical Rating Organization,* Securities Act Release No. 8570, (April 22, 2005), 70 FR 21306 (April 25, 2005). 34 Section 15E(p) of the Exchange Act (15 U.S.C. 78o-7(p)). The Act was enacted on September 29, 2006 and June 26, 2007 is 270 days after that date. 35 Section 15E( *l* )(2) of the Exchange Act (15 U.S.C. 78o-7( *l* )(2)). 36 *Id.* III. Description of the Proposed Rules A. Overview The Act mandates that the rules adopted to implement its provisions be “narrowly tailored” to meet the Act's requirements. 37 Moreover, it provides that the rules adopted by the Commission may not “regulate the substance of credit ratings or the procedures or methodologies by which an NRSRO determines credit ratings.” 38 37 Section 15E(c)(2) of the Exchange Act (15 U.S.C. 78o-7(c)(2)). 38 *Id* . Under the proposed rules, 39 in conjunction with the statutory provisions of the Act, a credit rating agency seeking to register as an NRSRO would need to apply to the Commission using Form NRSRO. 40 The information furnished to the Commission in the form would fall broadly into two categories. First, the form would elicit information the credit rating agency would need to make public upon registration and thereafter update to keep the information current. 41 As the Senate Report noted, making this information public would “facilitate informed decisions by giving investors the ratings quality of different firms.” 42 The second category of information would be submitted on a confidential basis to the extent permitted by law and the credit rating agency would not need to make it public or update it on the form (but would have to keep it current through proposed financial reporting requirements). 43 39 The proposed rules would be codified respectively at 17 CFR 240.17g-1 (“Rule 17g-1”); 17 CFR 240.17g-2 (“Rule 17g-2”); 17 CFR 240.17g-3 (“Rule 17g-3”); 17 CFR 240.17g-4 (“Rule 17g-4”); 17 CFR 240.17g-5 (“Rule 17g-5”); and 17 CFR 240.17g-6 (“Rule 17g-6”). Further specifics of this proposed regulatory program—including citations to provisions in the proposed rules and statutory provisions of the Act—are provided in the following sections describing the proposed rules individually. 40 Proposed Rule 17g-1. 41 *See* Sections 15E(a)(1)(B) and (b)(1) of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B) and (b)(1)), Proposed Rule 17g-1, Form NRSRO, and instructions for the form. 42 *See* Senate Report. 43 *See* Sections 15E(a)(1)(B)(viii) and

(ix)of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(viii) and (ix)), proposed Rule 17g-3, Section 24 of the Exchange Act (15 U.S.C. 78x), 17 CFR 240.24b-2, 17 CFR 200.80, and 17 CFR 200.83. After registration, the credit rating agency (now an NRSRO under the Act) would need to promptly update the information on its Form NRSRO to the extent an item or exhibit becomes materially inaccurate, with certain exceptions. 44 In addition, on a calendar year basis, the credit rating agency would need to furnish the Commission with an annual certification on Form NRSRO that the information and documents in the form continues to be accurate and listing any material changes that occurred during the year. 45 The most recently furnished Form NRSRO (initial, amended, or annual certification) and public exhibits would be the operative registration application and would need to be made public by the NRSRO (with exceptions for certain confidential information). 44 *See* Section 15E(b)(1) of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B) and (b)(1)), proposed Rule 17g-1, Form NRSRO, and instructions for the form. 45 Section 15E(b)(2) of the Exchange Act (15 U.S.C. 78o-7(b)(2)), proposed Rule 17g-1, Form NRSRO, and instructions for the form. After registration, the NRSRO would be subject to several substantive rules. First, the NRSRO would be subject to a recordkeeping rule, under which the NRSRO would be required to make and retain certain records relating to the business of issuing credit ratings. 46 These records would assist the Commission, through its examination process, in monitoring whether the NRSRO complies with the requirements of the Act. Other required records would assist the Commission in monitoring whether the NRSRO follows its established policies and procedures. 46 Proposed Rule 17g-2. On an annual fiscal year basis, an NRSRO would be required to furnish the Commission with audited financial statements. 47 This requirement is designed to assist the Commission in monitoring whether the credit rating agency continues to maintain adequate financial resources to consistently produce credit ratings with integrity. The financial reports also would include a schedule of the NRSRO's largest customers. This would assist the Commission in monitoring for potential conflicts of interest arising from dealings with the NRSRO's largest customers. 47 Proposed Rule 17g-3. Finally, all NRSROs would be subject to requirements designed to protect their impartiality with respect to issuing credit ratings. First, they would be required to establish, maintain, and enforce specific written policies designed to prevent the misuse of material non-public information. 48 Second, they would be subject to requirements to avoid, manage, and disclose conflicts of interest. 49 Third, NRSROs would be prohibited from engaging in certain unfair, coercive, or abusive practices. 50 48 Section 15E(g) of the Exchange Act (15 U.S.C. 78o-7(g)), proposed Rule 17g-4. 49 Section 15E(h) of the Exchange Act (15 U.S.C. 78o-7(h)), proposed Rule 17g-5. 50 Section 15E(i) of the Exchange Act (15 U.S.C. 78o-7(i)), proposed Rule 17g-6. B. Proposed Rule 17g-1—Registration Requirements The provisions of proposed Rule 17g-1 would implement rulemaking authority under the Act with respect to how a credit rating agency must apply to be registered as an NRSRO, make the non-confidential information in its application public, apply to add an additional category of credit ratings to its registration, update its application, furnish the annual certification, and withdraw its registration. 1. Entities Eligible To Apply for Registration The Act, by adding definitions to Section 3 of the Exchange Act, 51 identifies the types of entities that may apply for registration with the Commission as an NRSRO. 52 First, it defines a “nationally recognized statistical rating organization” as a credit rating agency that: 51 15 U.S.C. 78c. 52 *See* Section 3 of the Act.

(A)Has been in business as a credit rating agency for at least the three consecutive years immediately preceding the date of its application for registration under section 15E [of the Exchange Act];

(B)Issues credit ratings certified by qualified institutional buyers, in accordance with section 15E(a)(1)(B)(ix) [of the Exchange Act], with respect to

(i)Financial institutions, brokers, or dealers;

(ii)Insurance companies;

(iii)Corporate issuers;

(iv)Issuers of asset-backed securities (as that term is defined in [17 CFR 229.1101(c)]);

(v)Issuers of government securities, municipal securities, or securities issued by a foreign government; or

(vi)A combination of one or more categories of obligors described in any of clauses

(i)through (v); and

(C)Is registered under section 15E [of the Exchange Act]. 53 53 Section 3(a)(62) of the Exchange Act (15 U.S.C. 78c(a)(62)). Section 3(a)(64) of the Exchange Act defines the “qualified institutional buyer” (“QIB”) as having the “meaning given such term in [17 CFR 230.144A(a)] or any successor thereto.” 15 U.S.C. 78c(a)(62). Section 3 of the Exchange Act also defines the term “credit rating agency” as any person:

(A)Engaged in the business of issuing credit ratings on the Internet or through another readily accessible means, for free or for a reasonable fee, but does not include a commercial credit reporting company;

(B)Employing either a quantitative or qualitative model, or both, to determine credit ratings; and

(C)receiving fees from either issuers, investors, or other market participants, or a combination thereof. 54 54 Section 3(a)(61) of the Exchange Act (15 U.S.C. 78c(a)(61)). Finally, Section 3 of the Exchange Act defines the term “credit rating” to mean “an assessment of the creditworthiness of an obligor as an entity or with respect to specific securities or money market instruments.” 55 55 Section 3(a)(60) of the Exchange Act (15 U.S.C. 78c(a)(60)). Taken together, these three definitions limit the type of entity eligible to be registered with the Commission as an NRSRO. First, the entity must meet the definition of “credit rating agency” in Section 3 of the Exchange Act, which means, among other things, it must issue “credit ratings” as that term is defined in the act. Thus, an entity that issues “credit ratings” but does not receive compensation from issuers, investors, or other market participants would not be eligible for registration as an NRSRO because it would not meet the third prong of the definition of “credit rating agency.” 56 Similarly, an entity would not be eligible for registration based solely on the fact that it has issued recommendations with respect to equity securities (for example, buy, sell, or hold) or ratings with respect to the quality of a company's management. In either case, the entity would not have been issuing “credit ratings” as the term is defined because the recommendations and ratings are not assessments of the creditworthiness of an obligor or of specific securities or money market instruments. 57 56 *See* Section 3(a)(61)(C) of the Exchange Act (15 U.S.C. 78c(a)(61)(C)). 57 *See* Section 3(a)(60) of the Exchange Act (15 U.S.C. 78c(a)(60)). Another component of the first prong in the definition of “credit rating agency” is that the entity must be engaged in the business of issuing credit ratings on the Internet or through another readily accessible means, for free or for a reasonable fee. 58 The statute does not define “reasonable fee.” As a preliminary matter, the Commission believes that the fees contemplated by the definition are those charged by a credit rating agency, if any, for a customer to access or receive the credit ratings of the credit rating agency. The fees a credit rating agency charges for other services are not part of the definition, since regulatory users of credit ratings would not need access to these other services to comply with statutes and regulations using the term “NRSRO.” These other fees would include fees charged to issuers, obligors, or underwriters to determine or maintain a credit rating, fees charged to subscribers for credit analysis reports, and fees charged for consulting or other services. 58 *See* Section 3(a)(61)(A) of the Exchange Act (15 U.S.C. 78c(a)(61)(A). Additionally, the Commission preliminarily believes that the determination of whether a fee for accessing or obtaining credit ratings is reasonable would depend on the facts and circumstances. The Commission requests comment on the issue of determination of the reasonableness of fees charged by NRSROs for accessing or obtaining their credit ratings; in particular, the Commission requests comment on this issue in the context of users of credit ratings for regulatory purposes. Finally, if an entity meets the definition of “credit rating agency,” the entity must have been in the business of issuing credit ratings for the three years immediately preceding the date of its application for registration to be eligible to apply to register with the Commission as an NRSRO. 2. Description of Proposed Registration Rule (Rule 17g-1) A credit rating agency that elects to be treated as an NRSRO must apply to the Commission to be registered as an NRSRO. Section 15E(a)(1)(A) of the Exchange Act provides that a credit rating agency applying for registration must furnish the Commission with an application in a form prescribed by Commission rule. 59 In addition, Section 15E(a)(1)(B) of the Exchange Act prescribes certain minimum information the credit rating agency must provide in the application. 60 This includes information regarding the categories of credit ratings set forth in the definition of “NRSRO” in Section 3(a)(62)(B) of the Exchange Act with respect to which the credit rating agency “intends to apply for registration.” 61 59 15 U.S.C. 78o-7(a)(1)(A). 60 15 U.S.C. 78o-7(a)(1)(B). 61 *See* Section 15E(a)(1)(B)(vii) of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(vii)). Paragraph

(a)of proposed Rule 17g-1 would implement these provisions by providing that a credit rating agency applying to be registered with the Commission as an NRSRO would be required to furnish the Commission with an application on Form NRSRO. As discussed below, a credit rating agency would be able to apply to be registered for less than all five of the categories of credit ratings identified in Section 3(a)(62)(B) of the Exchange Act. 62 For example, the credit rating agency might not meet the definitional thresholds discussed above with respect to a particular category of credit rating because it has not issued credit ratings in that category for the three years preceding the date of its application. 63 62 15 U.S.C. 78c(a)(62)(B). 63 *See* definition of “NRSRO” in Section 3(a)(62) of the Exchange Act (15 U.S.C. 78c(a)(62)). Paragraph (b)(1) of proposed Rule 17g-1 provides that an application would be considered furnished to the Commission on the date that the Commission receives a complete and properly executed Form NRSRO that follows all applicable instructions for the form. 64 The requirement that an application must be accurate and complete comports with the requirements imposed on other classes of registrants under the Exchange Act. 65 In addition, Section15E(a)(2)(A) of the Exchange Act requires the Commission to grant the application for registration or commence proceedings on whether to deny it within 90 days from the date the application is furnished to the Commission or a longer period if the applicant consents. 66 Moreover, if proceedings are commenced, Section 15E(a)(2)(B) of the Exchange Act 67 requires the Commission to conclude them within 120 days of the date the application was furnished to the Commission. 68 As a result, the Commission must have a complete application before the 90-day and 120-day periods begin to run. 64 This provision would be implemented under the Commission's authority in Section 15E(a)(1)(A) of the Exchange Act to prescribe the form of the application (15 U.S.C. 78o-7(a)(1)(A)). 65 *See e.g.* , 17 CFR 240.15b1-1 and 17 CFR 240.15b3-1 (broker-dealers); 17 CFR 240.15Ba2-1 (municipal securities dealers); 17 CFR 240.17Ab2-1 (clearing agencies); and 17 CFR 240.17Ac2-1 (transfer agents). 66 15 U.S.C. 78o-7(a)(2)(A). 67 15 U.S.C. 78o-7(a)(2)(B). 68 Under Section 15E(a)(2)(B)(iii) of the Exchange Act, the Commission can extend this period for an additional 90 days for good cause or for such other period as the applicant consents (15 U.S.C. 78o-7(a)(2)(B)(iii)). Practically, an applicant would need to consent to extend both the period for the Commission to make the initial determination and the 120-day period to conclude proceedings, since the 120-day period begins when the application is furnished to the Commission, not when the Commission determines to commence proceedings. Paragraph (b)(1) of proposed Rule 17g-1 also provides that information submitted with the application on a confidential basis would be accorded confidential treatment to the extent permitted by law. As discussed in detail below, the information proposed to be required in Form NRSRO includes information which an NRSRO would need to make public after registration and information that is submitted on a confidential basis to the extent permitted by law. Some of the confidential information is required by Section 15E(a)(1)(B) of the Exchange Act. 69 The Commission also would require certain additional information under authority conferred by Section 15E(a)(1)(B)(x) of the Exchange Act. 70 The Commission believes that it would be appropriate to provide confidential treatment to some of this information as well. Because the statute does not specifically grant confidential treatment to the additional information, the Commission would provide it through paragraph (b)(1) of proposed Rule 17g-1 to the extent permitted by law. 69 *See* Sections 15E(a)(1)(B)(viii) and

(ix)of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(viii) and (ix)). 70 15 U.S.C. 78o-7(a)(1)(B)(x). Paragraph (b)(2) of proposed Rule 17g-1 would provide a mechanism for a credit rating agency to withdraw its application before the Commission takes final action on it. 71 Specifically, it would require the credit rating agency to furnish the Commission with a written notice of withdrawal executed by a duly authorized person. The proposed requirement for execution by a duly authorized person is designed to ensure that the withdrawal notice reflects the intent of the credit rating agency. 71 The withdrawal of a granted registration is discussed separately below. Paragraph

(c)of proposed Rule 17g-1 would provide that if information on the application becomes materially inaccurate before the Commission has granted or denied the application, the credit rating agency must promptly notify the Commission and amend the application with accurate and complete information by submitting an amended initial application on proposed Form NRSRO. 72 Because preparing and furnishing an amended form may take time, this proposed notification provision is designed to alert the Commission as soon as possible that the application before it is materially inaccurate or incomplete. The intent is to avoid situations where the Commission continues to review an application that is no longer materially accurate. 72 This provision would be implemented under the Commission's authority in Section 15E(a)(1)(A) of the Exchange Act to prescribe the form of the application (15 U.S.C. 78o-7(a)(1)(A)). Section 15E(a)(3) of the Exchange Act provides that the Commission, by rule, shall require an NRSRO, after registration, to make the information submitted in its completed application and any amendments publicly available on its Web site or through another comparable, readily accessible means. 73 It also permits the Commission to determine by rule the information that shall be made publicly available. 74 73 15 U.S.C. 78o-7(a)(3). 74 Section 15E(a)(3) of the Exchange Act (15 U.S.C. 78o-7(a)(3)). As discussed below, the Commission proposes not to require an NRSRO to make public certain information required in the application, including the information about the applicant's 20 largest issuer and subscriber customers and the QIB certifications. Paragraph

(d)of proposed Rule 17g-1 would require that the information be made publicly available within five business days of the NRSRO being registered or furnishing an amendment or annual certification. The five business-day period is intended to provide the NRSRO with sufficient time to make the information public while also designed to ensure that users of credit ratings would have access to information within a reasonably short timeframe. Under the proposed rule, certain additional information submitted pursuant to Commission rulemaking authority also would not need to be made publicly available after registration. 75 In addition, an applicant could seek confidential treatment for information in the application under existing law and rules governing confidential treatment. 76 The Commission would accord this information confidential treatment to the extent permitted by law. 75 *See* discussion below with respect to Exhibits 10 through 13 of proposed Form NRSRO. 76 *See* 17 CFR 200.80 and 17 CFR 200.80a. While Section 15E(a)(3) of the Exchange Act 77 does not require an applicant to make the public information in its application publicly available until after registration, this information typically would be made available by the Commission to members of the public before the application is acted on by the Commission. As noted above, an applicant could seek confidential treatment for information in the application under existing laws and rules governing confidential treatment. 78 This would be consistent with how the Commission treats applications of other entities. 77 15 U.S.C. 78o-7(a)(3). 78 *See* Section 24 of the Exchange Act (15 U.S.C. 78x), 17 CFR 240.24b-2, 17 CFR 200.80 and 17 CFR 200.83. As noted, a credit rating agency may apply to be registered for fewer than all five categories of credit ratings described in Section 3(a)(62)(B) of the Exchange Act. 79 Paragraph

(e)of proposed Rule 17g-1 would create a mechanism for an NRSRO registered for fewer than the five categories to apply to be registered with respect to an additional category. 80 The proposed rule provides that the NRSRO would need to furnish an amended Form NRSRO and indicate where appropriate on the form the additional category for which it is applying to be registered. 81 The proposed rule also provides that the application to register for an additional category would be subject to the requirements in proposed Rule 17g-1 and Section 15E of the Exchange Act 82 applicable to an initial application. For example, the provisions of paragraph (b)(1) of proposed Rule 17g-1 regarding when an application is deemed to have been furnished to the Commission would apply, as would the provisions of paragraph

(c)with respect to amending the application prior to registration being granted. The time periods for the Commission to act on the application set forth in Sections 15E(a)(2)(A) and

(B)of the Exchange Act also would apply to the amended form. 83 79 Section 15E(a)(1)(B)(vii) of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(vii)) provides that a credit rating agency must submit information with its application regarding the categories of credit ratings described in Section 3(a)(62)(B) of the Exchange Act (15 U.S.C. 78c(a)(62)(B)) for which it “intends to apply for registration.” 80 This provision further implements Section 15E(a)(1) of the Exchange Act, which requires the Commission, by rule, to prescribe the form of an application for registration (15 U.S.C. 78o-7(a)(1)). 81 The specific requirements for completing the Form NRSRO in this circumstance are described in the next section. 82 15 U.S.C. 78o-7. 83 15 U.S.C. 78o-7(a)(2)(A) and (B). Section 15E(b)(1) of the Exchange Act requires an NRSRO to promptly amend its application for registration if, after registration, any information or document provided as part of the application becomes materially inaccurate. 84 The statute further provides that the information on credit ratings performance statistics (discussed more fully below) need only be updated on an annual basis and that the QIB certifications need not be updated. 85 Paragraph

(f)of proposed Rule 17g-1 provides that an NRSRO would need to meet the statutory requirement to amend an application if information becomes materially inaccurate by promptly furnishing the amendment to the Commission on Form NRSRO. 86 The Act does not define the term “promptly.” The Commission believes the amendment should be furnished as soon as reasonably practicable after the NRSRO determines the information has become materially inaccurate. In most cases, the Commission believes that completing Form NRSRO, attaching any amended information and documents, and submitting the amendment package to the Commission should not take more than two days 84 15 U.S.C. 78o-7(b)(1). 85 *Id.* 86 This provision further implements Section 15E(a)(1) of the Exchange Act (15 U.S.C. 78o-7(a)(1)), which requires the Commission, by rule, to prescribe the form of an application for registration. Section 15E(b)(2) of the Exchange Act requires an NRSRO to furnish the Commission with an amendment to its registration not later than 90 days after the end of each calendar year in a form prescribed by Commission rule. 87 This section further provides that the amendment must

(1)Certify that the information and documents provided in the application for registration (except the QIB certifications) continue to be accurate and

(2)list any material change to the information and documents during the previous calendar year. 88 Paragraph

(g)of proposed Rule 17g-1 would implement these statutory provisions by requiring an NRSRO to furnish the amendment on Form NRSRO. 87 15 U.S.C. 78o-7(b)(2). 88 *Id.* Finally, Section 15E(e)(1) of the Exchange Act provides that an NRSRO may withdraw from registration, subject to terms and conditions the Commission may establish as necessary in the public interest or for the protection of investors, by furnishing the Commission with a written notice of withdrawal. 89 Paragraph

(h)of proposed Rule 17g-1 would provide that the notice must be executed by a person duly authorized by the NRSRO. The proposed requirement for execution by a duly authorized person is designed to ensure that the registration withdrawal notice reflects the intent of the credit rating agency. Section 15E(e)(1) of the Exchange Act also provides the Commission with the authority to establish additional terms and conditions with respect to the withdrawal of a credit rating agency's NRSRO registration as necessary in the public interest or for the protection of investors. 90 Such conditions potentially could include a requirement that the NRSRO provide public notice that its credit ratings will cease to be eligible for regulatory use. 89 15 U.S.C. 78o-7(e)(1). 90 15 U.S.C. 78o-7(e)(1). The Commission generally requests comment on all aspects of this proposed rule. The Commission also seeks comment on whether the five-day time limit for making the non-confidential information in the application publicly available should be longer or shorter. For example, the Commission seeks comment on whether five days is a sufficient amount of time to make an initial application public, given the volume of information that may need to be posted on a Web site or made public through another comparable means. Additionally, the Commission requests comment on ways other than the Internet that the information could be made public that would be comparable to posting the information on a Web site, particularly in terms of ensuring that users of credit ratings would have a comparable ease of access to the information. Further, the Commission seeks comment on whether it should define the term “promptly” in section 15E(b)(1) of the Exchange Act 91 to mean a specific time period such as two, five, or ten business days or some other period. 91 15 U.S.C. 78o-7(b)(1). C. Proposed Form NRSRO 1. Overview of How the Form Would Be Used The Commission is proposing a new form, “Form NRSRO,” the “Application for Registration as a Nationally Recognized Statistical Rating Organization.” The form is designed to serve four functions: To apply for initial registration, to amend the scope of registration, to amend public information required by the form, and to make an annual certification. Instructions for the form describe how an applicant, and after registration, an NRSRO, should complete the form in each of these circumstances. The Commission construes the Act's requirement that implementing rules be “narrowly tailored” to also apply to proposed Form NRSRO. 92 92 Section 15E(c)(2) of the Exchange Act (15 U.S.C. 78o-7(c)(2)). The Commission believes that having just one form (and one set of instructions) would reduce the burden on applicants, NRSROs, and Commission staff. For example, it would reduce the complexity of having different forms for the application, amendments, and annual certification. Using one form also would allow NRSROs to more quickly become familiar with the form and its instructions, which would reduce the potential for making mistakes in completing the form. It also would assist users of credit ratings in understanding the form and public exhibits and where to look on the form for specific information. A credit rating agency applying for registration as an NRSRO would need to complete the form by providing the required information in all the items (except Item 7) 93 and attaching all exhibits. The credit rating agency also would need to attach a minimum of 10 certifications from QIBs (with at least two addressing each category for which registration is sought), and a non-resident credit rating agency would need to attach the undertaking required under proposed Rule 17g-2 (discussed below). 93 As discussed below, an NRSRO would need to complete Item 7 when furnishing an amendment to the form or the annual certification required under Section 15E(b)(2) of the Exchange Act (15 U.S.C. 78o-7(b)(2)). The Commission would use the information provided on the form to make the threshold determination whether the applicant is a “credit rating agency” as defined in section 3(a)(61) of the Exchange Act and would meet the definition of “NRSRO” in section 3(a)(62) of the Exchange Act. 94 The Commission also would use the information on the form to determine whether the applicant meets the statutory requirements for registration. 95 Specifically, the Commission would use the information to determine whether the applicant has adequate financial and managerial resources to consistently produce credit ratings with integrity and to comply with its established policies and methodologies ( *e.g.* , policies for determining credit ratings, managing material non-public information and conflicts of interest, and complying with applicable laws and regulations). 96 The Commission also would use the information to determine whether the credit rating agency, if granted registration, would not be subject to having its registration suspended or revoked under section 15E(d) of the Exchange Act. 97 94 *See* 15 U.S.C. 78c(a)(61) and 15 U.S.C. 78c(a)(62). 95 *See* Section 15E(a)(2)(C) of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C)). 96 *See* Section 15E(a)(2)(C)(ii)(I) of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C)(ii)(I)). 97 Section 15E(a)(2)(C)(ii)(II) of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C)(ii)(II)) directs the Commission to deny a credit rating agency's application for registration as an NRSRO if the Commission finds that the applicant, if granted registration, would be subject to suspension or revocation of its registration under Section 15E(d) of the Exchange Act (15 U.S.C. 78o-7(d)). After registration, an NRSRO would use Form NRSRO if it sought to apply for registration with respect to an additional category of credit ratings. In this case, the NRSRO would not need to update the non-public exhibits, and it also would not need to update the public exhibits to the extent that information or documents previously provided remained materially accurate. However, the fact that the NRSRO was seeking to expand the scope of its registration to an additional category of credit ratings likely would mean certain information provided in the public exhibits would no longer be materially accurate. For example, the NRSRO may have established new or additional methodologies to determine credit ratings in the category for which it was seeking registration. These would need to be provided as an update to Exhibit 2. 98 Finally, the NRSRO would need to provide two QIB certifications for each category of credit rating for which it is applying to be registered. 99 98 As discussed below, Exhibit 2 would elicit the methodologies used by the credit rating agency to determine credit ratings. 99 Section 15E(a)(1)(C)(ii) of the Exchange Act requires an applicant to provide at least 2 QIB certifications for each category of credit rating for which the credit rating agency seeks to be registered (78o-7(a)(1)(C)(iii)). An NRSRO also would use Form NRSRO to amend the information on the form and in the public exhibits after registration. 100 The need to amend the form would arise whenever there was a material change to information in one of the items on the form (except for Items 6 and 7) 101 or to information or a document provided in a public exhibit. For example, if the NRSRO materially changed its procedures for preventing the misuse of material non-public information, the NRSRO would be required to furnish the Commission with an amendment on Form NRSRO and include the new procedures as an update to Exhibit 3. 102 It would not need to update the other public exhibits if the information in them remained materially accurate. 100 *See* Section 15E(b)(1) of the Exchange Act, which requires an NRSRO to update certain information provided in its application for registration (15 U.S.C. 78o-7(b)(1)). 101 As explained below, Item 6 only would be used to provide information relating to the categories of credit ratings for which a credit rating agency was applying for registration. Therefore, unless the amendment is furnished to apply for registration in an additional category, Item 6 would not need to be completed or updated after registration. Item 7 requires information relating to current credit ratings, including information that could change relatively often such as the number of credit ratings currently issued. Therefore, this item would not need to be updated when information in the item materially changed. Instead, an NRSRO would be required to update it when furnishing a Form NRSRO for another reason. 102 As discussed below, Exhibit 3 requires policies and procedures implemented by the NRSRO to prevent the misuse of material non-public information. Finally, an NRSRO would use Form NRSRO to furnish the annual certification required by Section 15E(b)(2) of the Exchange Act. 103 This section requires the NRSRO to certify on an annual calendar-year basis that the information and documents provided in its application continue to be materially accurate (other than the QIB certifications). 104 It also requires the NRSRO to identify any material change to the information or documents that occurred during the previous calendar year. 105 In addition, Section 15E(b)(1) of the Exchange Act provides that the performance statistics about the NRSRO's credit ratings need only be updated on a yearly basis with the annual certification. 106 103 15 U.S.C. 78o-7(b)(2). 104 Section 15E(b)(2)(A) of the Exchange Act (15 U.S.C. 78o-7(b)(2)(A)). 105 Section 15E(b)(2)(B) of the Exchange Act (15 U.S.C. 78o-7(b)(2)(B)). 106 15 U.S.C. 78o-7(b)(1)(A). The proposed Form NRSRO is designed to meet these statutory requirements. First, the certification on the facing page would include the representations needed for the annual certification; namely, that the NRSRO's application on Form NRSRO, as amended, continues to be accurate. 107 Second, Exhibit 1 would require information on credit rating performance statistics. The instructions would require this information to be provided in the initial application and, thereafter, updated with the annual certification (as opposed to the other public exhibits that would need to be updated promptly whenever they become materially inaccurate). The instructions also would require the NRSRO to include with the annual certification a list of each material change made during the previous calendar year. 108 107 *See* Section 15E(b)(2)(A) of the Exchange Act (15 U.S.C. 78o-7(b)(2)(A)). 108 *See* Section 15E(b)(2)(B) of the Exchange Act (15 U.S.C. 78o-7(b)(2)(B)). 2. Items on the Form *Checkboxes indicating nature of submission.* The first entry an applicant or NRSRO would make on Form NRSRO would be to indicate, by checking the appropriate box, the reason the form is being furnished: initial application, amendment, or annual certification. If an amendment, the NRSRO also would need to briefly describe the amendment on lines under the amendment check box. For example, if an NRSRO was filing the amendment because its address and organizational structure changed, the description of the amendments should be as brief as “Item 1C (address change)” and “Exhibit 4 (new organizational structure).” *Item 1 (Identifying information).* Item 1 of proposed Form NRSRO would elicit the name and address of the credit rating agency, and the name and address of the contact person for the credit rating agency. The instructions for proposed Form NRSRO would provide that the individual listed as the contact person must be authorized to receive all communications and papers from the Commission and would be responsible for their dissemination within the credit rating agency. *Item 2 (Legal status, place of formation, fiscal year end).* Item 2 of proposed Form NRSRO would elicit the legal status of the credit rating agency (for example, corporation or partnership), the place and date of formation of the entity, and the fiscal year end of the credit rating agency. The information with respect to the fiscal year end of the applicant or NRSRO is relevant because Form NRSRO would require applicants to submit audited financial statements with the application. Proposed Rule 17g-3 would require NRSROs to annually furnish the Commission with audited financial statements covering the previous fiscal year. *Item 3 (Undertaking by non-resident NRSRO).* Paragraph

(f)of proposed Rule 17g-2 would require an NRSRO that does not reside in the United States to execute a written undertaking, in substantially the form provided in the proposed rule, to promptly provide books and records to the Commission in a form requested by the Commission, including translation into English. The proposed undertaking is designed to provide a means for the Commission to promptly obtain records subject to its examination authority located outside the U.S. without requiring that Commission staff travel to the location. In addition, because some non-resident NRSROs may maintain original records in a language other than English, the proposed undertaking would require a translation if the Commission requested it. Item 3 of proposed Form NRSRO would require a non-resident applicant to attach the required undertaking to its initial application. If the application is granted, the undertaking would be in place when the applicant becomes an NRSRO and is subject to the proposed recordkeeping requirements. The prescribed form of the undertaking would make it applicable only to books and records a credit rating agency is required to make, keep current, retain, or produce to the Commission pursuant to any provision of the Exchange Act 109 or any regulation under the Exchange Act. 110 An applicant becomes subject to these recordkeeping requirements only after registration is granted and the applicant becomes an NRSRO. 109 15 U.S.C. 78a *et seq.* 110 This would include the records required to be retained in proposed Rule 17g-2. *Item 4 (Compliance officer).* Section 15E(j) of the Exchange Act requires every NRSRO to designate an individual responsible for administering the policies and procedures of the credit rating agency to prevent the misuse of nonpublic information, to manage conflicts of interest, and to ensure compliance with the securities laws and the rules and regulations under those laws. 111 Item 4 of proposed Form NRSRO would elicit the name of and contact information for this person. 111 15 U.S.C. 78o-7(j). *Item 5 (Method of making form and public exhibits readily accessible)* . Section 15E(a)(3) of the Exchange Act provides that the Commission shall, by rule, require an NRSRO, upon the granting of registration, to make the non-confidential information and documents submitted to the Commission in the initial application, amendments, or annual certifications publicly available on the NRSRO's Web site or through another comparable, readily accessible means. 112 Item 5 of proposed Form NRSRO would elicit information on how the applicant would make the public information readily accessible. Providing this information on proposed Form NRSRO would assist the Commission in verifying that the NRSRO is complying with this requirement and assist the public in locating the information to assess the credibility and integrity of the NRSRO. 112 15 U.S.C. 78o-7(a)(3). Paragraph

(d)of proposed Rule 17g-1 (discussed above) would implement this rulemaking authority. *Item 6 (Categories of credit ratings for which registration is sought and QIB certifications)* . Item 6 of proposed Form NRSRO would only need to be completed when a credit rating agency was furnishing an initial application to be registered as an NRSRO and when an NRSRO was applying to expand the scope of its registration by adding an additional class of credit ratings. This item would elicit information about the categories of credit ratings for which the applicant was applying for registration. It also would require the applicant to attach the QIB certifications to the application (unless the applicant was exempt from this requirement under Section 15E(a)(1)(D) of the Exchange Act). 113 113 15 U.S.C. 78o-7(a)(1)(D). Section 15E(a)(1)(B)(vii) of the Exchange Act requires an applicant for NRSRO registration to provide information with respect to the categories of credit ratings for which it is applying to be registered. 114 Item 6 of proposed Form NRSRO would require a credit rating agency applying for registration, and an NRSRO applying to add a category of credit ratings to its registration, to indicate the categories of credit ratings for which registration was being sought. 114 15 U.S.C. 78o-7(a)(1)(B)(vii). Item 6 also would elicit the approximate number of credit ratings issued in each category as of the date of the application, and the number of consecutive years preceding the date of the application that the credit rating agency has issued credit ratings with respect to each category indicated. This information would be used by the Commission in verifying that the credit rating agency meets the definitional thresholds for registration as NRSRO, including that the entity has been in business as a credit rating agency for the three consecutive years preceding the date of its application. 115 115 As discussed above, the definitions of “credit rating,” “credit rating agency,” and NRSRO in, respectively, Sections 3(a)(60),

(61)and

(62)of the Exchange Act prescribe the type of entity that is eligible for registration as an NRSRO (15 U.S.C. 78c(a)(60),

(61)and (62)). Item 6 also would elicit a brief description of how the credit rating agency makes its credit ratings readily accessible. The Commission would use this information to verify that the applicant meets another definitional threshold for registration eligibility; namely, that the applicant issues credit ratings on the Internet or through another readily accessible means, for free or for a reasonable fee. 116 The Act does not define “readily accessible” other than to specify that the method must be comparable to the Internet in terms of accessibility. 117 Moreover, as discussed above, the Act does not define “reasonable fee.” However, the Commission believes the “fee” contemplated by the statute is the fee charged to access or receive the credit ratings of the credit rating agency ( *i.e.* , not the fees charged for other services). This information elicited in Item 6 (and after registration in Item 7) would assist the Commission in monitoring the cost to regulatory users of credit ratings of accessing or obtaining NRSRO credit ratings. 116 Section 3(a)(61)(A) of the Exchange Act (15 U.S.C. 78c(a)(61)(A)). 117 *Id.* Finally, Item 6 would require the applicant to provide QIB certifications. Section 15E(a)(1)(B)(ix) of the Exchange Act requires an applicant to submit a minimum of ten QIB certifications with the application. 118 Sections 15E(a)(1)(C)(i), (ii), and

(iii)further provide, respectively, that:

(1)The certifying QIB must not be affiliated with the applicant;

(2)the certification may address more than one of the categories of credit ratings for which the applicant is seeking registration; and

(3)at least two of the certifications must address each category of credit ratings for which the applicant is seeking registration. 119 Section 15E(a)(1)(C)(iv) provides that the QIB must state in the certification that it meets the definition of a “QIB” in Section 3(a)(64) of the Exchange Act 120 and that the QIB has used the credit ratings of the applicant for at least three years immediately preceding the date of the application in the subject category or categories of subscribers. 121 The Senate Report explained that the term “used” was intended to mean the QIB “seriously considered the ratings in some of [its] investment decisions.” 122 118 15 U.S.C. 78o-7(a)(1)(B)(ix). 119 *See* 15 U.S.C. 78o-7(a)(1)(C)(i),

(ii)and (iii), respectively. 120 15 U.S.C. 78c(a)(64). 121 15 U.S.C. 78o-7(a)(1)(C)(iv). 122 The Senate Report further explained that “a QIB whose analysts regularly read and consider [a credit rating agency's] ratings in the course of making investment decisions would have “used” them under the meaning of the bill. A QIB whose employees subscribe to or regularly receive the ratings but do not read them or, if they read them, rarely or never consider them in making their investment decisions would not be deemed to have “used” the ratings.” The proposed instructions to Item 6 would prescribe the form of the QIB certification. For example, consistent with Section 15E(a)(1)(C)(i)(I) of the Exchange Act 123 and the Senate Report explaining that section, the QIB certification would be required to include a representation that the QIB “has seriously considered the credit ratings of [the credit rating agency] in the course of making investment decisions for at least the three years immediately preceding the date of this certification, in the following classes of credit ratings.” 124 The QIB certification also would be required to be executed by a person duly authorized by the QIB to make the certification on behalf of the QIB. 125 This is designed to ensure that the certification is that of the QIB and not an employee of the QIB who may have an interest (distinct from that of the QIB) in providing the certification to the applicant. In addition, as a measure designed to ensure the impartiality of the QIB's assessment, the QIB would need to certify that it had not received compensation for providing the certification. 123 15 U.S.C. 78o-7(a)(1)(C)(i)(I). 124 Instructions to Item 6D of proposed Form NRSRO. 125 *Id.* Item 6 of proposed Form NRSRO also would require the applicant to indicate whether it was submitting the QIB certifications and, if so, how many certifications were being submitted or that the applicant was exempt from the requirement to provide the certifications. Under Section 15E(a)(1)(D) of the Exchange Act, a credit rating agency is not required to submit the QIB certifications if it was identified as an NRSRO in a Commission staff no-action letter issued before August 2, 2006. 126 126 15 U.S.C. 78o-7(a)(1)(D). The Commission requests comment on whether there should be a requirement for an NRSRO to notify the Commission if a QIB withdraws its certification. *Item 7 (Categories of credit ratings covered by current registration).* Item 7 would solicit information about the categories of credit ratings for which the NRSRO was currently registered, the approximate number of credit ratings currently outstanding in each category, and the number of years the NRSRO has issued credit ratings in that category. It also would elicit information about how the NRSRO makes its credit ratings readily accessible to users of credit ratings. Because some of the information in Item 7 may change fairly regularly, this Item would need to be updated if it became materially inaccurate only when the NRSRO furnishes the next Form NRSRO either as an amendment or as an annual certification. Thus, if the information in Item 7 became materially inaccurate, it would be updated on an annual basis at a minimum. The information requested in Item 7 would allow users of credit ratings to assess the NRSRO with respect to the number of credit ratings it has issued and the number of years it has issued credit ratings in each category for which it is registered. 127 127 Because Item 7 would not have been filled out when the NRSRO applied for registration, it would remain blank for a period of time between the granting of an initial registration and the time when the NRSRO furnishes a new Form NRSRO either as an amendment or annual certification. Item 6, however, would have been filled out as part of the application for registration. This item requires the same information as Item 7. Therefore, users of credit ratings would have the access to the information through Item 6 until the NRSRO furnished a new Form NRSRO. Thereafter, the information would be located in Item 7. *Item 8 (Potential statutory disqualifications).* Section 15E(a)(2)(C)(ii)(II) of the Exchange Act 128 directs the Commission to deny a credit rating agency's application for registration as an NRSRO if the Commission finds that the applicant, if granted registration, would be subject to suspension or revocation of its registration under Section 15E(d) of the Exchange Act. 129 Section 15E(d) of the Exchange Act 130 provides that the Commission, by order, shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of an NRSRO, if the Commission finds that the NRSRO or a person associated with the NRSRO has committed certain acts described in Sections 15(b)(4)(A), (D), (E), (G), or

(H)of the Exchange Act, 131 been convicted of certain offenses described in Section 15(b)(4)(B) of the Exchange Act, 132 been convicted of certain other offenses, or if a person associated with the NRSRO is subject to a Commission order suspending or barring the person from being associated with an NRSRO. Item 8 of proposed Form NRSRO would ask whether the acts, convictions or orders described in Section 15E(d) of the Exchange Act 133 applied to the credit rating agency or any person associated with the credit rating agency. 128 15 U.S.C. 78o-7(a)(2)(C)(ii)(II). 129 15 U.S.C. 78o-7(d). 130 15 U.S.C. 78o-7(d). 131 15 U.S.C. 78o-7(b)(4)(A), (D), (E),

(G)and (H). 132 15 U.S.C. 78o(b)(4). 133 15 U.S.C. 78o-7(d). If a question in Item 8 was answered “yes,” the credit ratingagency would be required to provide additional information on a Disclosure Reporting Page

(DRP)NRSRO as set forth in the instructions for Form NRSRO. The Commission would then need to evaluate whether an applicant's registration could be granted in light of the disclosure. After registration, an NRSRO would need to update the information in Item 8 if there was a change. The Commission would then evaluate whether it would be appropriate to issue an order censuring, placing limitations on the activities, functions, or operations of, suspending for a period not exceeding 12 months, or revoking the registration of the NRSRO as provided for under Section 15E(d) of the Exchange Act. 134 134 15 U.S.C. 78o-7(d). *Certification.* Proposed Form NRSRO would require the signature of an authorized person of the credit rating agency representing that the information and statements contained in the form are current, accurate, and complete or, if the NRSRO is submitting an annual certification, that the application, as amended, is current, accurate, and complete. 3. Exhibits to the Form Proposed Form NRSRO would have 13 exhibits. Sections 15E(a)(1)(B)(i), (ii), (iii), (iv), (v), (vi), and

(viii)of the Exchange Act require the furnishing of some of this information. 135 The Commission is proposing to require the furnishing of the remainder of the information pursuant to its authority under Section 15E(a)(1)(B)(x) of the Exchange Act. 136 The proposed exhibits are an important part of the program for NRSRO oversight. Therefore, the information and documents proposed to be provided in the exhibits must be sufficiently detailed to allow the Commission to evaluate and verify the information and, with respect to the public exhibits, assist users of credit ratings in understanding how the NRSRO manages its activities. 135 15 U.S.C. 78o-7(a)(1)(B)(i), (ii), (iii), (iv), (v), (vi), and (viii). 136 15 U.S.C. 78o-7(a)(1)(B)(x). Exhibits 1 through 9 would be public exhibits that the NRSRO would be required to keep current through furnishing updated information and make readily accessible to the public. The information in these public exhibits would be useful to the users of credit ratings in assessing the ratings quality of the NRSRO and in comparing the NRSRO to other NRSROs. Exhibits 10 through 13 would be accorded confidential treatment by the Commission, to the extent permitted by law, under provisions of Section 15E of the Exchange Act 137 in conjunction with proposed Rule 17g-1. 138 The information in the public and confidential exhibits would be used by the Commission to make the determination whether the credit rating agency has adequate financial and managerial resources to consistently produce credit ratings with integrity and to materially comply with the methodologies, policies, and procedures it discloses in the public exhibits. 139 137 *See* Sections 15E(a)(1)(B)(viii), (a)(1)(B)(ix), and

(k)of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(viii), (a)(1)(B)(ix), and (k). 138 *See also* Section 24 of the Exchange Act (15 U.S.C. 78x), 17 CFR 240.24b-2, 17 CFR 200.80 and 17 CFR 200.83. 139 *See* Sections 15E(a)(2)(C) and

(d)of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C) and (d)). The information in Exhibits 10 through 13 would not need to be updated by furnishing amendments on proposed Form NRSRO after registration is granted. Instead, this information would be updated through the proposed financial reporting rule (proposed Rule 17g-3). Section 15E(b)(1) of the Exchange Act 140 provides that information submitted with an application must be updated promptly when the information becomes materially inaccurate, except information submitted under Sections 15E(a)(1)(B)(i) and

(ix)of the Exchange Act (respectively, the performance statistics, which must be updated annually, and the QIB certifications, which need not be updated). 141 Thus, under the statute, the information provided in Exhibits 10 through 13 would need to be updated promptly if it became materially inaccurate. However, the Commission is not proposing that an NRSRO update these exhibits by furnishing the information to the Commission in Form NRSRO amendments. Rather, the Commission is proposing that the NRSRO would update this information as part of the financial statements that would be required to be furnished under proposed Rule 17g-3. 140 15 U.S.C. 78o-7(b)(1). 141 15 U.S.C. 78o-7(a)(1)(B)(i) and (ix). *Exhibit 1 (Public).* Section 15E(a)(1)(B)(i) of the Exchange Act requires that an application for registration as an NRSRO contain credit ratings performance measurement statistics over short-term, mid-term, and long-term periods (as applicable). 142 This information would be required as Exhibit 1 to proposed Form NRSRO. The Exchange Act does not otherwise define or identify the particular credit rating performance statistics to be provided with the application. The Commission believes credit rating agencies typically generate statistical reports showing historical default and downgrade rates within each credit rating notch or grade. 143 Further, the Commission believes these types of statistics are important indicators of the performance of a credit rating agency in terms of its ability to assess the creditworthiness of issuers and obligors and, consequently, would be useful to users of credit ratings in evaluating an NRSRO. 142 15 U.S.C. 78o-7(a)(1)(B)(i). 143 The credit rating notches or grades of a credit rating agency generally are represented by symbols, numbers or other designations that are used to distinguish the creditworthiness of the obligors, securities and money market instruments the credit rating agency rates. For example, some credit rating agencies use symbols such as AAA, AA, A, BBB, BB, B, CCC, and CC to distinguish the creditworthiness of corporate debt securities. AAA would be the highest rating and CC would be the lowest rating above the default or regulatory supervision of the issuer. In addition to historical default and downgrade rates, the instructions to proposed Form NRSRO also would provide that an applicant or NRSRO include in the exhibit definitions of the credit ratings ( *i.e.* , an explanation of each grade or notch) and explanations of the performance measurement statistics, including the metrics used to derive the statistics. The Commission believes that requiring this information would be necessary or appropriate in the public interest or for the protection of investors because it would assist users of credit ratings in understanding how the measurements were derived and in making comparisons with the measurement statistics of other NRSROs. 144 144 Section 15E(a)(1)(B)(x) of the Exchange Act provides that the Commission can require additional information that it finds is necessary or appropriate in the public interest or for the protection of investors (15 U.S.C. 78o-7(a)(1)(B)(x)). The definitions of the notches and grades also would assist the Commission in assessing whether the NRSRO's ratings, as a practical matter, can be used for certain Commission rules. For example, paragraph(c)(2)(vi)(F) of Commission Rule 15c3-1 specifies lower haircuts for debt securities that are rated in one of the “four highest rating categories” ( *i.e.* , notches) of at least two NRSROs. 145 The current NRSROs generally have at least eight notches for their debt securities with the top four commonly referred to as “investment grade.” If an NRSRO decided to use less than eight notches, the Commission would need to evaluate whether, based on the NRSRO's definitions, securities that would be included in the top four notches would be suitable for the lower haircuts specified in paragraph(c)(2)(vi)(F) of Rule 15c3-1. 146 145 17 CFR 240.15c3-1(c)(2)(vi)(F). 146 *Id.* The Commission generally requests comment on Exhibit 1. The Commission also requests comment on whether the performance measurement statistics should use standardized inputs, time horizons and metrics to allow for greater comparability. Commenters are requested to provide specific details as to how these statistical measures could be standardized. The Commission further requests comment on whether credit rating agencies or other persons currently use other performance measurement statistics or whether other performance measurement statistics would be appropriate as an alternative, or in addition, to historical default and downgrade rates. For example, the Commission requests comment on whether Exhibit 1 should require measurement of the performance of a given credit rating by comparing or mapping it to the market value of the rated security or to extreme declines in the market value of the security after the rating. The Commission additionally requests comment on whether the requirement to include definitions and explanations in Exhibit 1 would achieve its stated purpose. *Exhibit 2 (Public).* Section 15E(a)(1)(B)(ii) of the Exchange Act requires that an application for registration as an NRSRO contain information regarding the procedures and methodologies used by the credit rating agency to determine credit ratings. 147 This information would be required as Exhibit 2 to proposed Form NRSRO. The Exchange Act does not otherwise define or identify the procedures and methodologies that must be provided under this section. 148 However, the definition of “credit rating agency” in Section 3(a)(61) of the Exchange Act provides that a “credit rating agency” is an entity that, among other things, “employ[s] either a quantitative or qualitative model, or both, to determine credit ratings.” 149 147 15 U.S.C. 78o-7(a)(1)(B)(ii). 148 *See* 15 U.S.C. 78a *et seq.* 149 *See* particularly, Section 3(a)(61)(B) of the Exchange Act (15 U.S.C. 78c(a)(61)(B)). The Commission believes that entities meeting the definition of “credit rating agency” in Section 3(a)(61) of the Exchange Act 150 generally establish procedures and methodologies for determining credit ratings in the following areas: the determination of whether to initiate a credit rating; the use of public and non-public sources of information to perform credit rating analysis, including information and analysis provided by third-party vendors; the use of quantitative and qualitative models and metrics to determine credit ratings; the interaction with the management of a rated obligor or issuer of rated securities; the establishment of the structure and voting process of committees that review or approve credit ratings; the notification of rated obligors or issuers of rated securities about credit rating decisions and for appeals of final or pending credit rating decisions; monitoring, reviewing, and updating of credit ratings; and the withdrawal, or suspension of the maintenance, of a credit rating. 150 15 U.S.C. 78c(a)(61). This list identifies areas where a credit rating agency could establish procedures and methodologies for determining credit ratings. The applicability of certain areas to a particular credit rating agency may depend on whether it uses subjective qualitative analysis, purely quantitative models or a combination of both. 151 Consequently, an applicant and NRSRO may not establish a procedure or methodology in a given area because doing so would not be relevant to how the credit rating agency determines credit ratings. 151 *See* Section 3(a)(61) of the Exchange Act defining the term “credit rating agency” (15 U.S.C. 78c(a)(61)). In addition, credit rating agencies that issue “unsolicited” credit ratings may establish procedures and methodologies in the areas described above that are unique to such ratings. An “unsolicited” credit rating is one the credit rating agency decides to initiate without being requested to do so by an issuer, obligor, underwriter, or other interested party. Credit rating agencies that use a subscription fee based business model may only issue unsolicited ratings because that business model does not rely on fees from issuers, obligors, and underwriters to determine specific credit ratings (issuers, obligors, and underwriters, however, may subscribe to receive the credit ratings of such credit rating agencies). The procedures and methodologies these credit rating agencies employ, in some respects, may be unique to this business model. Credit rating agencies that are paid by issuers, obligors, and underwriters to determine specific credit ratings sometimes also issue unsolicited ratings. As discussed below with regard to proposed Rule 17g-6, this practice has led to concerns that unsolicited ratings may be used to coerce issuers and obligors into ultimately paying the credit rating agency to determine and maintain the credit rating. Consequently, the Commission believes that credit rating agencies that rely on fees from issuers, obligors, and underwriters to determine specific credit ratings, but also issue unsolicited ratings, often have established procedures and methodologies for determining unsolicited credit ratings that are designed to address this concern and the fact that the issuer or obligor may not have participated in the determination of the credit rating (as is frequently the case with a solicited credit rating). The Commission believes that information regarding the procedures and methodologies established by an NRSRO in the areas described above, including those with respect to unsolicited credit ratings, as applicable, would be useful to users of credit ratings. The information would provide an understanding of the nature of the credit rating agency ( *i.e.* , a user of quantitative models, qualitative analysis, or a combination of both) and how the credit rating agency produces credit ratings. This would provide a basis for comparing NRSROs. The disclosure also would provide the Commission with an understanding of the managerial and financial resources required to produce the credit ratings. This would assist the Commission in evaluating whether an applicant or NRSRO has adequate financial and managerial resources to consistently produce credit ratings with integrity and to materially comply with its procedures and methodologies. 152 152 *See* Sections 15E(a)(2)(C) and 15E(d) of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C) and (d)). The Commission generally requests comment on Exhibit 2, as proposed. The Commission also requests comment on whether the areas identified above are the areas where credit rating agencies establish procedures and methodologies for determining credit ratings. A commenter that believes one or more of the areas identified above is not one where any type of credit rating agency establishes procedures and methodologies should identify each area and explain the reason for such conclusion. The Commission also requests comment on whether there are additional areas where credit rating agencies establish procedures and methodologies for determining credit ratings and, if so, requests that commenters identify them. *Exhibit 3 (Public).* Section 15E(a)(1)(B)(iii) of the Exchange Act 153 requires that an application for registration as an NRSRO contain information regarding policies or procedures adopted and implemented by the credit rating agency to prevent the misuse, in violation of Exchange Act 154 provisions and rules, of material, non-public information. Exhibit 3 would require an applicant and NRSRO to furnish its policies and procedures to prevent the misuse of material, nonpublic information established under Section 15E(g) of the Exchange Act 155 and proposed Rule 17g-4. 153 15 U.S.C. 78o-7(a)(1)(B)(iii). 154 15 U.S.C. 78a *et seq.* 155 15 U.S.C. 78o-7(g). Section 15E(g)(1) of the Exchange Act 156 requires an NRSRO to establish, maintain, and enforce written policies and procedures to prevent the misuse of material, nonpublic information in violation of the Exchange Act. 157 Section 15E(g)(2) of the Exchange Act provides that the Commission shall adopt rules requiring an NRSRO to establish specific policies and procedures to prevent the misuse of material, non-public information. 158 As discussed below, proposed Rule 17g-4 would implement this statutory provision by requiring an NRSRO's policies and procedures established pursuant to Section 15E(g)(1) of the Exchange Act 159 to include certain specific types of procedures. 156 15 U.S.C. 78o-7(g)(1). 157 15 U.S.C. 78a *et seq.* 158 15 U.S.C. 78o-7(g)(2). 159 15 U.S.C. 78o-7(g)(1). The Commission generally requests comment on Exhibit 3, as proposed. *Exhibit 4 (Public).* Section 15E(a)(1)(B)(iv) of the Exchange Act requires that an application for registration as an NRSRO contain information regarding the organizational structure of the applicant. 160 This information would be required as Exhibit 4 to proposed Form NRSRO. The Exchange Act does not otherwise define or identify the specific type of organizational information that should be provided under Section 15E(a)(1)(B)(iv) of the Exchange Act. 161 The Commission believes that companies typically create, as applicable, an organizational chart showing ultimate and sub-holding companies, subsidiaries, and material affiliates; an organizational chart showing divisions, departments, and business units within the entity; and an organizational chart showing the management structure and senior management reporting lines within the entity. 160 15 U.S.C. 78o-7(a)(1)(B)(iv). 161 *Id, see also,* 15 U.S.C. 78a *et seq.* The Commission believes that, if a credit rating agency is part of a holding company structure, users of credit ratings and the Commission would benefit from an organizational chart showing the entity's ultimate and sub-holding companies, subsidiaries, and material affiliates. This chart would provide an understanding of where potential conflicts of interest relating to the business activities of related companies might arise. Also, the fact that a credit rating agency has a holding company that potentially could provide financial support would be relevant to the Commission's evaluation of whether an applicant or NRSRO has adequate financial resources as required under the Exchange Act. 162 162 *See* Sections 15E(a)(2)(C) and 15E(d) of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C) and (d)). The Commission further believes that, if a credit rating agency engages in business activities in addition to determining credit ratings, users of credit ratings and the Commission would benefit from an organizational chart showing the entity's divisions, departments, and business units. This chart would provide an understanding of where potential conflicts of interest relating to ancillary business activities might arise. Finally, the Commission believes that users of credit ratings and the Commission would benefit from an organizational chart showing an NRSRO's management structure and senior management reporting lines. This chart would assist the Commission in evaluating whether an applicant and NRSRO has adequate managerial resources as required under the Exchange Act. 163 Users of credit ratings also would be able to use this information to compare the managerial resources of different NRSROs. 163 *See* Sections 15E(a)(2)(C) and 15E(d) of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C) and (d)). Additionally, the instructions to proposed Form NRSRO would provide that this managerial chart include the compliance officer designated by the NRSRO pursuant to Section 15E(j) of the Exchange Act. 164 The Commission believes that including the compliance officer in the chart would be necessary or appropriate in the public interest or for the protection of investors because it would assist the Commission and users of credit ratings in understanding the degree of the compliance officer's independence from the business managers. 165 The Commission believes users of credit ratings would find the compliance officer's reporting lines relevant in assessing the integrity of the credit rating process of a particular NRSRO, since the officer is responsible for administering the credit rating agency's policies and procedures required by Sections 15E(g) and

(h)of the Exchange Act 166 and for ensuring the NRSRO's compliance with the securities laws and rules and regulations thereunder. 167 In carrying out these responsibilities, a compliance officer would need to review activities overseen by senior business managers. The ability of the compliance officer to objectively review an area could be impacted by whether the officer reported to the senior manager responsible for the area. Thus, the relative independence of the compliance officer would be relevant to assessing the NRSRO's ability to ensure compliance with its policies and procedures. 164 15 U.S.C. 78o-7(j). 165 *See* Section 15E(a)(1)(B)(x) of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(x)). 166 15 U.S.C. 78o-7(g) and (h). 167 Section 15E(j) of the Exchange Act (15 U.S.C. 78o-7(j)). For these reasons, Exhibit 4 would provide that the information about the organizational structure of the applicant or NRSRO required to be furnished and made public under Section 15E(a)(1)(B)(iv) of the Exchange Act 168 consist of charts showing the managerial structure and senior management reporting lines, and, if applicable, the ultimate and sub-holding companies, subsidiaries, and material affiliates of the entity, and the divisions, departments, and business units within the entity. The exhibit also would require that the management chart include the designated compliance officer. 168 *Id.* The Commission generally requests comment on Exhibit 4, as proposed. The Commission specifically also requests comment on whether including the compliance officer in the chart would achieve the stated purpose of the requirement. The Commission further requests comment on whether other organizational information should be provided, or whether some of the information proposed to be required should be eliminated or modified. Commenters who believe that other information should be provided are asked to describe the information and explain why it would be appropriate under Section 15E of the Exchange Act. 169 169 15 U.S.C. 78o-7. *Exhibit 5 (Public).* Section 15E(a)(1)(B)(v) of the Exchange Act requires that an application for registration as an NRSRO contain information regarding whether the applicant has a code of ethics in effect or an explanation of why the applicant has not established a code of ethics. 170 Exhibit 5 to proposed Form NRSRO would elicit this information by requiring an applicant and NRSRO to attach its code of ethics or an explanation of why it does not have a code of ethics. The Exchange Act does not otherwise define or identify the “code of ethics” that should be provided under Section 15E(a)(1)(B)(v). 171 The Commission believes credit rating agencies should have the flexibility to establish a code of ethics appropriate for their business model and organizational structure and, consequently, is not proposing any specific elements that should be in the code of ethics, if any, furnished in this exhibit. 170 15 U.S.C. 78o-7(a)(1)(B)(v). 171 *Id.* The Commission generally requests comment on Exhibit 5, as proposed. The Commission also requests comment on whether it should propose specific elements to be included in the code of ethics provided in Exhibit 5. Commenters who believe the Commission should propose specific elements are asked to describe them. The Commission further seeks comment on whether it should require in Exhibit 5 that NRSROs disclose whether they comply with international principles and codes of conduct related to credit rating agencies. *Exhibit 6 (Public).* Section 15E(a)(1)(B)(vi) of the Exchange Act requires that an application for registration as an NRSRO contain information regarding any conflict of interest relating to the issuance of credit ratings by the applicant and NRSRO. 172 Exhibit 6 to proposed Form NRSRO would require an applicant and NRSRO to identify, in general terms, the types of conflicts of interest that arise from its business as a credit rating agency. 172 15 U.S.C. 78o-7(a)(1)(B)(vi). The Exchange Act does not otherwise define or identify the types of conflicts of interest that should be disclosed under Section 15E(a)(1)(B)(vi) of the Exchange Act. 173 The Commission believes that credit rating agencies that rely on fees from issuers, obligors and underwriters to determine specific credit ratings are exposed to a unique set of conflicts, as are credit rating agencies that operate under a subscriber fee based business model. Moreover, certain conflicts, such as those arising from owning securities of a rated entity, can arise under either business model. 173 *Id, see also* 15 U.S.C. 78a *et seq.* The Commission believes that the types of conflicts of interest arising from the activities of credit rating agencies include, as applicable: receiving compensation from rated obligors, issuers of rated securities and money market instruments, and underwriters of rated securities and money market instruments to determine or maintain a credit rating and for other services; owning securities of, or having any other form of ownership interest in, a rated obligor, issuer of rated securities and money market instruments, or underwriter of rated securities and money market instruments; receiving compensation for any service from subscribers that use credit ratings for regulatory purposes; owning securities of, or having any other form of ownership interest in, a subscriber that uses credit ratings for regulatory purposes; and having another material business relationship ( *e.g.* , a loan) or affiliation ( *e.g.* , being an officer or director) with a rated obligor, issuer of rated securities and money market instruments, underwriter of rated securities and money market instruments, or entity that uses credit ratings for regulatory purposes. The Commission believes the above list covers the range of general conflicts of interest that arise from the activities of credit rating agencies. 174 However, as noted, based on a particular credit rating agency's business model, some of these conflicts would not be evident. The Commission further believes that an applicant and NRSRO subject to any of these types of conflicts would need to disclose that fact in a general manner in order to comply with Section 15E(a)(1)(B)(vi) of the Exchange Act. 175 Furthermore, the disclosure would assist the Commission in evaluating whether an applicant has sufficient financial and managerial resources to comply with the procedures for managing conflicts of interest required under Section 15E(h) of the Exchange Act, 176 given the conflicts of interest identified by the applicant. 177 The information also would be useful to users of credit ratings in assessing an NRSRO by, for example, comparing the types of conflicts disclosed by the entity in Exhibit 6 with the procedures for managing conflicts of interest disclosed by the entity in Exhibit 7 (discussed next). As noted above, the disclosure of the type of conflict only would need to be general in nature. For example, an NRSRO that receives compensation from issuers for rating their securities would only need to disclose that fact. It would not need to disclose separately each time it was compensated by an issuer or the identity of each such issuer. 174 The section below describing proposed Rule 17g-5 provides a further discussion of conflicts of interest generally and how the types of activities described in this list can give rise to conflicts of interest. 175 15 U.S.C. 78o-7(a)(1)(B)(vi). 176 15 U.S.C. 78o-7(h). 177 *See* Section 15E(a)(2)(C) Exchange Act (15 U.S.C. 78o-7(a)(2)(C)). The instructions to Form NRSRO also would provide that an applicant and NRSRO include in Exhibit 6 the identity of any affiliated entity that acts as an underwriter or uses credit ratings for regulatory purposes. 178 The Commission believes that requiring a credit rating agency to disclose this information would be necessary or appropriate in the public interest or for the protection of investors because it would apprise users of credit ratings to a potential conflict of interest arising from the fact that the affiliate could exercise undue influence on the credit rating agency to issue a credit rating that assists in the marketing of the security or that provides a regulatory benefit. 179 Users of credit ratings would be able to review the NRSRO's procedures made public in Exhibit 7 to understand how the credit rating agency addresses these potential conflicts. 178 As discussed below, proposed Rule 17g-5 would prohibit an NRSRO from having a conflict with respect to issuing or maintaining a credit rating with respect to an affiliate. Thus, this type of conflict would need to be avoided rather than disclosed and managed. 179 *See* Section 15E(a)(1)(B)(x) of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(x)). The Commission generally requests comment on Exhibit 6, as proposed. The Commission also requests comment on whether there are conflicts of interest that should be disclosed in addition to those identified above, or whether some of the information proposed to be required should be eliminated or modified. Commenters who believe that other conflicts exist should describe how they arise from the business of credit rating agencies. The Commission further requests specific comment on whether requiring the identification of affiliates that are underwriters and regulatory users of credit ratings would achieve the stated purpose of the requirement. *Exhibit 7 (Public).* Section 15E(h) of the Exchange Act requires an NRSRO to establish, maintain, and enforce written policies and procedures to address and manage conflicts of interest. 180 These policies and procedures would be required as Exhibit 7 to proposed Form NRSRO. The Commission believes that requiring these policies and procedures would be necessary or appropriate in the public interest or for the protection of investors. 181 First, their disclosure would assist the Commission in monitoring whether an NRSRO is complying with Section 15E(h) of the Exchange Act. 182 Second, the disclosure would assist the Commission in evaluating whether an applicant or NRSRO has sufficient financial and managerial resources to manage the conflicts of interest disclosed by the credit rating agency in Exhibit 6. Third, the disclosure would allow users of credit ratings to compare an NRSRO's policies and procedures for managing conflicts of interest with the types of conflicts disclosed in Exhibit 7. 180 15 U.S.C. 78o-7(h). 181 *See* Section 15E(a)(1)(B)(x) of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(x)). 182 15 U.S.C. 78o-7(h). The Commission requests general comment on Exhibit 7, as proposed, including on whether including this information would achieve the stated purpose of the requirement. *Exhibits 8 (Public).* The ability of a credit rating agency to assess the credit worthiness of an issuer and obligor depends on the competence of the personnel responsible for determining the entity's credit ratings (“credit analysts”). This is true regardless of whether the credit rating agency uses quantitative models or qualitative analysis or a combination of both. A credit rating agency that solely uses quantitative models would be relying on credit analysts to understand the model inputs and metrics and back test the model's results to judge whether the model is producing credible credit ratings. A credit rating agency that uses qualitative analysis would be relying on credit analysts to understand and interpret relevant information about an obligor or issuer and use the information to render a credible assessment of the issuer or obligor's creditworthiness. The Commission believes that requiring an applicant and NRSRO to disclose information about the responsibilities, experience and employment history of its credit analysts and supervisors would be necessary or appropriate in the public interest or for the protection of investors. 183 First, it would assist users of credit ratings in assessing the competence of an NRSRO's credit analysts and, thereby, provide a means for users to compare NRSROs. Second, this information would assist the Commission in evaluating whether the applicant has adequate managerial resources to consistently produce credit ratings with integrity and to materially comply with its procedures and methodologies. 184 183 *See* Section 15E(a)(1)(B)(x) of the Exchange Act (15 U.S.C. 78o-7(a)(1)(B)(x)). 184 *See* Sections 15E(a)(2)(C) and

(d)of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C) and (d)). The Commission requests comment on Exhibit 8, as proposed. Comment is specifically sought on whether the information would be helpful to users of credit ratings in comparing the NRSRO to other NRSROs. The Commission also requests comment on whether other information should be provided, or whether some of the information proposed to be required should be eliminated or modified. For example, comment is sought on whether Exhibit 8 should be limited to eliciting information about the supervisors of the credit analysts. Commenters who believe other information should be provided should describe the information and explain why it would be appropriate. *Exhibit 9 (Public)* . As discussed above, Section 15E(j) of the Exchange Act requires every NRSRO to designate an individual responsible for administering the policies and procedures of the credit rating agency to prevent the misuse of nonpublic information, to manage conflicts of interest, and to ensure compliance with the securities laws and the rules and regulations under those laws. 185 The ability of the compliance officer to carry out these statutorily mandated responsibilities would depend, in part, on the officer's experience and qualifications. Additionally, based on the size of the credit rating agency, it may depend also on the experience and qualifications of persons who assist the designated compliance officer in these responsibilities. 185 15 U.S.C. 78o-7(j). The Commission believes that requiring information about the experience and employment history of the designated compliance officer and persons assisting the officer would be necessary or appropriate in the public interest or for the protection of investors. It would assist the Commission in evaluating whether the applicant has adequate managerial resources to consistently produce credit ratings with integrity and to materially comply with its procedures and methodologies. 186 It also would be useful to users of credit ratings because it would provide information regarding the resources an NRSRO devotes to ensuring, among other things, that credit ratings are determined in accordance with the procedures and methodologies the NRSRO makes public in Exhibit 1. 186 *See* Sections 15E(a)(2)(C) and

(d)of the Exchange Act (15 U.S.C. 78o-7(a)(2)(C) and (d)). The Commission requests comment on Exhibit 9, as proposed. The Commission also requests comment on whether other information should be provided, or whether some of the information proposed to be required should be eliminated or modified. Commenters should describe the additional information and why it would be appropriate. *Exhibit 10 (Confidential)* . Section 15E(a)(1)(B)(viii) of the Exchange Act requires that an application for registration as an NRSRO include, on a confidential basis, a list of the 20 largest issuers and subscribers that use the credit rating services provided by the credit rating agency by amount of net revenue received by the credit rating agency in the fiscal year immediately preceding the date of submission of the application. 187 This information would be required as Exhibit 10 to proposed Form NRSRO. An NRSRO would not be required to make this information public (to the extent permitted by law) or update the exhibit after registration. However, an NRSRO would be required to update this information in the audited financial statements provided to the Commission under proposed Rule 17g-3. 187 15 U.S.C. 78o-7(a)(1)(B)(viii). The statute refers to the “20 largest issuers and subscribers.” The instructions to Exhibit 10 would provide that an applicant add certain large obligors ( *i.e.* , persons who are rated as an entity as opposed to having their securities rated) and underwriters to the list. Specifically, these types of customers would need to be added to the list if they are determined to have provided at least as much net revenue as the 20th largest issuer or subscriber. Consequently, a credit rating agency would be required to identify the 20 largest issuers and subscribers as required by Section 15E(a)(1)(B)(viii) of the Exchange Act 188 and add any obligor and underwriter customers that met the above criteria. 188 *Id.* The Commission believes that adding large obligor and underwriter customers to the list of the 20 largest issuer and subscriber customers would be necessary or appropriate in the public interest or for the protection of investors. 189 The Commission views the list as a means to identify customers that could potentially have undue influence on an NRSRO given the amount of revenue the customer provides the NRSRO. Obligors and securities underwriters would have as much of an interest in potentially influencing a credit rating as issuers and subscribers. 189 15 U.S.C. 78o-7(a)(1)(B)(x). Section 15E(a)(1)(B)(viii) of the Exchange Act limits the customers required to be included in the list to users of the “credit rating services” of the applicant and NRSRO. 190 The Exchange Act 191 does not define the term “credit rating services.” The Commission would interpret this term to mean any of the following: Rating an obligor (regardless of whether the obligor or any other person paid for the credit rating); rating an issuer's securities or money market instruments (regardless of whether the issuer, underwriter, or any other person paid for the credit rating); and providing credit ratings to a subscriber. The intent of this interpretation is to include—along with customers that pay for credit ratings and subscriptions—customers that are rated, or whose securities or money market instruments are rated, but that did not pay for the credit rating. Even though these customers may not have paid for the credit rating, they potentially could have undue influence on the credit rating agency if they provide substantial net revenue for other services or products. 190 *See* 15 U.S.C. 78o-7(a)(1)(B)(viii). 191 15 U.S.C. 78a *et seq.* Section 15E(a)(1)(B)(viii) of the Exchange Act provides that the determination of the 20 largest issuers and subscribers is to be based on “net revenue” received from the issuer or subscriber. 192 The Exchange Act 193 does not define the term “net revenue.” The Commission proposes to interpret the term “net revenue” for the purposes of Section 15E(a)(1)(B)(viii) of the Exchange Act 194 to mean all fees, sales proceeds, commissions, and other revenue received by the applicant and its affiliates for any type of service or product, regardless of whether related to credit ratings, and net of any fees, sales proceeds, rebates, commissions, and other monies paid to the customer by the credit rating agency and its affiliates. The risk is that a large customer may be in a position to influence the determination of the credit rating. Limiting the interpretation of net revenue to revenues relating to “credit rating services” may not capture the largest customers of the NRSRO or its affiliates as these customers may use credit rating services of the NRSRO and other services of the NRSRO and its affiliates. The instructions for proposed Form NRSRO would implement this proposed interpretation by providing that the calculation of net revenue should include all revenue received from the customer. 192 15 U.S.C. 78o-7(a)(1)(B)(viii). 193 15 U.S.C. 78a *et seq.* 194 15 U.S.C. 78o-7(a)(1)(B)(viii). The Commission requests comment on Exhibit 10, as proposed. The Commission specifically requests comment on its proposal to include large obligor and underwriter customers in the list. The Commission further requests comment on the proposed interpretations of “credit rating services” and “net revenue.” Specifically, the Commission requests comment on how these interpretations affect the determination of large customers. If a commenter believes they are not practicable, the commenter should provide alternative interpretations and explain how they would achieve the goal of identifying large customers that could potentially exercise undue influence on the NRSRO. *Exhibit 11 (Confidential)* . Exhibit 11 would require the applicant to furnish audited financial statements for the past three fiscal or calendar years immediately preceding the date of the application. An NRSRO would not need to make the information in Exhibit 11 public (to the extent permitted by law) or update the exhibit after registration. An NRSRO would, however, be required to provide audited financial statements to the Commission annually under proposed Rule 17g-3. The Commission believes this financial information would be necessary or appropriate in the public interest or for the protection of investors because it would assist the Commission in making the finding required by Section 15E(a)(2)(C) of the Exchange Act. 195 This section directs the Commission to grant a credit rating agency's application for registration as an NRSRO unless, among other things, the Commission finds that the applicant does not have adequate financial and managerial resources to consistently issue ratings with integrity and to materially comply with its procedures and methodologies furnished in the public exhibits and with the requirements in Sections 15E(g), (h),

(i)and

(j)of the Exchange Act. 196 The financial statements would provide the Commission with information as to the applicant's net worth and income, which would assist it in determining whether the applicant has sufficient financial resources. Financial statements for three years would provide information that would assist the Commission in verifying that the applicant has been in the business of issuing credit ratings for the three years immediately preceding the date of its application for registration. An applicant must have been in the business of issuing credit ratings for the three years preceding the application to be eligible for registration with the Commission as an NRSRO. 197 The information also would alert the Commission to a significant downward trend in the applicant's financial condition, which could be relevant to whether it has adequate financial resources. 195 *See* 15 U.S.C. 78o-7(a)(2)(C). 196 *S* ee 15 U.S.C. 78o-7(a)(2)(C)(ii)(I). 197 *See* Section 3(a)(62)(A) of the Exchange Act (15 U.S.C. 78c(a)(62)(A)). The proposed requirement that the financial statements be audited would provide the Commission with an independent verification of the information in the statements. However, the Commission anticipates that some applicants may not have been audited in the past. In this case, the applicant would only need to provide an audited financial statement for the fiscal year immediately preceding the date of the application. The other years could be covered by unaudited statements. The applicant would need to attach to the unaudited financial statements a statement by a duly authorized person of the applicant that the financial statements present fairly, in all respects, the financial condition, results of operations, and the cash flows of the applicant. This would provide a level of assurance that the information in the financial statements had been reviewed and verified by the applicant. In addition, the Commission also anticipates that some applicants would be subsidiaries of holding companies. In this case, the applicant would be able to provide consolidated and consolidating financial statements of the parent company. This would diminish the burden on applicants that have a holding company audit but not an audit of the subsidiary credit rating agency. Consolidated and consolidating financial statements would provide sufficient information about the subsidiary credit rating agency for the Commission to evaluate whether its financial resources meet the requirements of Section 15E(a)(2)(C)(ii)(I) of the Exchange Act. 198 198 *Id.* The Commission requests comment on whether the furnishing of audited financial statements would achieve the stated purposes of the requirement. *Exhibit 12 (Confidential)* . Exhibit 12 would require an applicant to provide information as to the amount of revenue generated from various credit rating services and a separate computation of total revenue from all other services. The information would be for the most recently completed fiscal or calendar year and would not have to be audited. An NRSRO would not need to make the information in Exhibit 12 public (to the extent permitted by law) or update the exhibit after registration. An NRSRO would, however, be required to update this information with the annual audited financial statements provided to the Commission under proposed Rule 17g-3. As described in the instructions for proposed Form NRSRO, the specific revenue items would be, as applicable: • Revenue from determining and maintaining credit ratings. • Revenue from subscribers. • Revenue from granting licenses or rights to publish credit ratings. • Revenue from determining credit ratings that are not made readily accessible (private ratings). • Revenue from all other services and products offered by the rating organization (include descriptions of any major sources of revenue). The Commission believes this revenue information would be necessary or appropriate in the public interest or for the protection of investors because it would assist the Commission in making the finding with respect to adequate financial resources required by Section 15E(a)(2)(C) of the Exchange Act. 199 This information would augment the financial statements that would be required under proposed Exhibit 11 in that it would provide detail as to the revenues generated by different types of services. 199 *See* 15 U.S.C. 78o-7(a)(2)(C). The Commission requests comment on whether the furnishing of this revenue information would achieve the stated purposes of the requirement, or whether any additions, deletions or modifications should be made. The Commission also requests comment on any difficulties a credit rating agency may confront in determining its revenues from these various sources. If a commenter believes it would not be practicable to do so, the commenter should explain why. *Exhibit 13 (Confidential).* Exhibit 13 would require an applicant to provide the amount of total aggregate annual compensation paid to its credit analysts and the median compensation. The information would be for the most recently completed fiscal or calendar year and would not have to be audited. An NRSRO would not need to make the information in Exhibit 13 public (to the extent permitted by law) or update the exhibit after registration. An NRSRO would, however, be required to update this information with the annual audited financial statements provided to the Commission under proposed Rule 17g-3. The Commission believes this compensation information would be necessary or appropriate in the public interest or for the protection of investors because it would assist the Commission in making the finding with respect to adequate financial resources required by Section 15E(a)(2)(C) of the Exchange Act. 200 Similar to the revenue information, this information would augment the financial statements that would be required under Exhibit 11 because it provides detail on the expenses necessary to retain the credit rating agency's credit analysts. 200 *See* 1 U.S.C. 78o-7(a)(2)(C). The Commission requests comment on Exhibit 13, as proposed. The Commission also requests comment on any difficulties a credit rating agency would have in determining these compensation amounts. If a commenter believes it would not be practicable to do so, the commenter should explain why. *Request for comment.* In addition to the specific requests for comment above, the Commission requests comment on all aspects of proposed Form NRSRO and the proposed instructions to the form, including whether the proposals could be more narrowly tailored and still meet the stated goals. Further, the Commission solicits comment about whether other requirements should be added, or whether items and exhibits proposed should be eliminated or modified. Commenters are asked to explain their conclusions. D. Proposed Rule 17g-2—Recordkeeping The Act amends Section 17(a)(1) of the Exchange Act to add NRSROs to the list of entities required to make and keep such records, and make and disseminate such reports, as the Commission prescribes by rule as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Exchange Act. 201 The inclusion of NRSROs on the list also provides the Commission with authority under Section 17(b)(1) of the Exchange Act to examine all the records of an NRSRO. 202 201 *See* Section 5 of the Act and 15 U.S.C. 78q(a)(1). 202 *See* 15 U.S.C. 78q(b)(1). Proposed Rule 17g-2, “Records to be made and retained by nationally recognized statistical rating organizations,” would implement the Commission's recordkeeping rulemaking authority under Section 17(a) of the Exchange Act. 203 The proposed rule would require an NRSRO to make and retain certain records relating to its business and to retain certain other business records, if such records are made. The rule also would prescribe the time periods and manner in which all these records must be retained. 203 203 15 U.S.C. 78q. With respect to other regulated entities, the Commission has made clear that books and records rules are “integral to the Commission's investor protection function because the preserved records are the primary means of monitoring compliance with applicable securities laws.” 204 Proposed Rule 17g-2 is designed to ensure that an NRSRO makes and retains records that would assist the Commission in monitoring, through its examination authority, whether an NRSRO was complying with the provisions of Section 15E of the Exchange Act 205 and the rules thereunder. For example, examiners would use the records to monitor whether an NRSRO was following its disclosed procedures and methodologies for determining credit ratings, its disclosed policies and procedures for preventing the misuse of material non-public information, and managing conflicts of interest, and whether it was complying with proposed Rules 17g-4, 17g-5 and 17g-6 discussed below. 204 *See Electronic Storage of Broker-Dealer Records,* Exchange Act Release No. 47806 (May 7, 2003), 68 FR 25281 (May 12, 2003); *see also* Commission order in *Matter of Deutsche Bank Securities, Inc. et al,* Exchange Act Release No. 46937 (December 3, 2002) (“The record keeping rules are ‘a keystone of the surveillance of broker-dealers' ”) (citations omitted); Commission order in *Matter of J.P. Morgan Securities Inc.,* Exchange Act Release No. 51200 (February 14, 2005); *Electronic Recordkeeping by Investment Companies and Investment Advisers,* Investment Company Act Release No. 24991 (May 24, 2001) (“The recordkeeping requirements are a key part of the Commission's regulatory program for funds and advisers, as they allow [the Commission] to monitor fund and adviser operations, and to evaluate their compliance with federal securities laws.”). 205 15 U.S.C. 78o-7. 1. Paragraph (a): Records To Be Made and Retained Paragraph

(a)of proposed Rule 17g-2 would require an NRSRO to make and retain certain books and records. Under the proposed rule, the records required in paragraph

(a)must be complete and current. Consequently, it would be a violation of the proposed rule to falsify a record or fail to update a record when the information on the record becomes stale or incomplete. The Commission believes the records required to be made and retained under paragraph

(a)of proposed Rule 17g-2 would be necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Exchange Act because, as described below, they would assist the Commission in monitoring whether an NRSRO was complying with Section 15E of the Exchange Act and the rules thereunder. 206 The Commission does not intend that these provisions of proposed Rule 17g-2 require a specific form of record. An NRSRO would have the flexibility to implement a recordkeeping system that captured the following information in a manner that conformed to the NRSRO's internal processes. 206 *See* 15 U.S.C. 78q(a)(1). *Paragraph (a)(1).* Paragraph (a)(1) of proposed Rule 17g-2 would require an NRSRO to make records of original entry into the rating organization's accounting system, and records reflecting entries to and balances in all general ledger accounts of the rating organization for each fiscal year. These are fundamental business records and necessary for the preparation of the audited financial statements and schedules that would need to be prepared under proposed Rule 17g-3. *Paragraph (a)(2).* Paragraph (a)(2) of proposed Rule 17g-2 would require an NRSRO to make and retain the following records with respect to each of the NRSRO's current credit ratings, as applicable: the identity of any credit analyst(s) that determined the credit rating; the identity of the person(s) who approved the credit rating before it was issued; the procedures and methodologies used to determine the credit rating; the method by which the credit rating was made readily accessible; whether the credit rating was solicited or unsolicited; and the date the credit rating action was taken. As noted above, the NRSRO would not be required to make a single record containing all this information for each current credit rating. Rather, the NRSRO would have the flexibility to implement a recordkeeping system that captured this information in different records in a manner that conformed to the NRSRO's internal processes. The information in these records about the identity of the credit analysts, the persons who approved the credit rating, the methodology used to determine the credit rating, and whether the credit rating was solicited or unsolicited, collectively would assist the Commission in monitoring whether the NRSRO was following its procedures and methodologies for determining credit ratings. The information about the identity of the credit analysts, and the persons who approved the credit rating, also would assist the Commission in monitoring whether the NRSRO was complying with procedures designed to prevent the misuse of material nonpublic information. *Paragraph (a)(3).* Paragraph (a)(3) of proposed Rule 17g-2 would require a record identifying each person that solicits the NRSRO to determine or maintain a credit rating ( *e.g.* , an obligor, issuer, or underwriter) and the credit ratings determined for the person. This information would assist the Commission in monitoring whether the NRSRO was complying with procedures for addressing and managing conflicts of interest as well as complying with the requirements in proposed Rule 17g-5 prohibiting certain conflicts of interest. *Paragraph (a)(4).* Paragraph (a)(4) of proposed Rule 17g-2 would require a record for each person that subscribes to receive the credit ratings of the NRSRO. Similar to the records that would be required under paragraph (a)(3), this information would assist the Commission in monitoring whether the NRSRO was complying with procedures for addressing and managing conflicts of interest as well as complying with the requirements in proposed Rule 17g-5 prohibiting certain conflicts of interest. *Paragraph (a)(5).* Paragraph (a)(5) of proposed Rule 17g-2 would require a record describing each type of service and product offered by the NRSRO. This record would provide the Commission with details of the ancillary business activities of the credit rating agency and, therefore, would be useful in identifying potential conflicts of interest that arise from such activities. Commission examiners would then be able to review whether the NRSRO had implemented procedures to manage these potential conflicts. *Request for comment.* The Commission requests comment on whether the records that would be required to be made and retained under paragraph

(a)of proposed Rule 17g-2 would achieve the stated purposes of the requirements. Commenters should explain any conclusions they reach on this question with respect to each type of record. The Commission also requests comment on whether there are other types of records that should be required, or whether any of the proposed requirements should be modified or omitted. Commenters that believe additional records should be required are asked to describe the record and explain why the Commission should require that it be made and retained. 2. Records To Be Retained if Made There are certain records an NRSRO may make or receive as a matter of business practice. The Commission does not believe an NRSRO should be required, by rule, to make these records. However, the Commission believes an NRSRO should be required to retain these records for a period of time because the records would assist the Commission's oversight of NRSROs. Accordingly, paragraph

(b)of proposed Rule 17g-2 would require that an NRSRO retain certain records, if they are made or received by the NRSRO. Since these are not records that are required to be made, they would not need to be updated under the requirements of proposed Rule 17g-2. Rather, the rule would require that the NRSRO retain the original record in an unaltered form or a true copy of the original record for the prescribed retention period. The Commission notes, however, that, under Section 15E(b)(1) of the Exchange Act, 207 an NRSRO must update, as provided in that section, the forms and exhibits (Form NRSRO) that would be required to be retained under paragraph (b)(9) of proposed Rule 17g-2 (discussed below). 207 *See* 15 U.S.C. 78o-7(b)(1). The Commission believes the records required to be retained under paragraph

(b)of proposed Rule 17g-2 would be necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Exchange Act because, as described below, they would assist the Commission in monitoring whether an NRSRO was complying with Section 15E of the Exchange Act 208 and the rules thereunder. 209 208 15 U.S.C. 78o-7. 209 *See* 15 U.S.C 78q(a)(1). *Paragraph (b)(1).* Paragraph (b)(1) of proposed Rule 17g-2 would require an NRSRO to retain all significant records underlying the information included in the credit rating agency's annual audited financial statements and schedules required under proposed Rule 17g-3. This would require the NRSRO to retain records such as bank statements, bills payable and receivable, trial balances and records relating to the determination of the largest customers for the list required under paragraph (b)(iii) of proposed Rule 17g-3. These records would assist Commission examiners in understanding and verifying the basis for information provided in the audited financial statements and schedules the NRSRO would be required to annually furnish to the Commission. For example, examiners could use the records relating to the list of the largest customers to verify that the NRSRO had identified such customers in accordance with proposed Rule 17g-3. *Paragraph (b)(2).* Paragraph (b)(2) of proposed Rule 17g-2 would require an NRSRO to retain internal records, including non-public information and work papers, used to determine a credit rating. These records would include, for example, notes of conversations with the management of an issuer or obligor that was the subject of the credit rating and the inputs and raw results of a quantitative model used to determine the credit rating. The retention of this information, and other internal records used to determine a credit rating, would assist the Commission in verifying whether an NRSRO was complying with its procedures and methodologies for determining credit ratings and for preventing the misuse of material nonpublic information. *Paragraph (b)(3).* Paragraph (b)(3) of proposed Rule 17g-2 would require an NRSRO to retain credit analysis reports, credit assessment reports, and private credit rating reports and internal records, including nonpublic information and work papers, used to form the basis for the opinions expressed in these reports. These reports—which credit rating agencies commonly create and sell as an ancillary service to the issuance of credit ratings—generally provide a detailed analysis of the information and assumptions underlying a credit rating. In developing these reports, the credit analyst may receive material nonpublic information about an issuer or obligor. For example, an issuer may request a private credit rating report to understand how a contemplated transaction would impact the current publicly available credit rating of its debt securities. Consequently, the retention of these reports and internal records used to form the basis of the reports would assist the Commission in monitoring whether the NRSRO was complying with its policies and procedures for preventing the misuse of material nonpublic information. *Paragraph (b)(4).* Paragraph (b)(4) of proposed Rule 17g-2 would require an NRSRO to retain all compliance reports and exception reports relating to the business of operating as credit rating agency. The retention of these reports would identify activities of the NRSRO that its designated compliance officer had determined raised, or did not raise, compliance and control issues. Examiners would then be able to review how the NRSRO addressed the compliance issues. This could lead to more focused examinations, which also would decrease the burden on the NRSRO. The reports also would provide information as to whether the NRSRO was complying with its rating credit ratings methodologies, procedures, and policies. *Paragraph (b)(5).* Paragraph (b)(5) of proposed Rule 17g-2 would require an NRSRO to retain all internal audit plans, internal audit reports, and documents relating to internal audit follow-up measures relating to the business of operating as credit rating agency and all records identified by the NRSRO's internal auditors as necessary to perform the audit of an activity relating to the business of operating as credit rating agency. Similar to the compliance reports, the retention of these records would identify activities of the NRSRO that its internal auditors determined raised, or did not raise, compliance or control issues. They also would assist the Commission in verifying whether the NRSRO was complying with its stated methods, procedures, and policies. *Paragraph (b)(6).* Paragraph (b)(6) of proposed Rule 17g-2 would require an NRSRO to retain all marketing materials relating to the business of operating as credit rating agency. Section 15E(f) of the Exchange Act prohibits an NRSRO from representing that it has been designated, recommended, or approved, or that its abilities or qualifications have been passed upon by any federal agency or officer. 210 The retention of marketing materials would assist the Commission in verifying that the NRSRO was complying with this statutory provision. 210 15 U.S.C. 78o-7(f). *Paragraph (b)(7).* Paragraph (b)(7) of proposed Rule 17g-2 would require an NRSRO to retain all external and internal written communications, including electronic communications, received and sent by the NRSRO and its employees relating to initiating, determining, maintaining, changing or withdrawing a credit rating. The retention of written communications has played an important role in assisting the Commission in identifying legal violations and compliance issues with respect to other regulated entities. 211 211 *See e.g.* , Commission complaint in *Commission* v. *Citigroup Global Markets Inc.* , 03 CV 2945

(WHP)(S.D.N.Y.) (April 28, 2003); Commission complaint in *Commission* v. *Merrill, Lynch, Pierce, Fenner & Smith* , 03 CV 2941

(WHP)(S.D.N.Y) (April 28, 2003); Commission Order in *Matter of Columbia Management Advisers, Inc. and Columbia Funds Distributor, Inc.* , Securities Act Release No. 8534 (February 9, 2005). *Paragraph (b)(8).* Paragraph (b)(8) of proposed Rule 17g-2 would require an NRSRO to retain the record that must be made under paragraph

(b)of proposed Rule 17g-6 with respect to declining to determine or withdrawing a credit rating with respect to a structured product. The retention of this record would assist the Commission in understanding the reason behind an NRSRO's decision to take one of these actions and, therefore, to monitor its compliance with the prohibitions in proposed Rule 17g-6. *Paragraph (b)(9).* Paragraph (b)(9) of proposed Rule 17g-2 would require an NRSRO to retain the forms and exhibits (Form NRSRO) furnished to the Commission under proposed Rule 17g-1. This would make the forms and exhibits subject to the retention and production requirements in proposed Rule 17g-2. For example, they would need to be retained in a manner that makes them easily accessible to the NRSRO's principal office. This would assist Commission examiners, particularly examiners in regional and district offices, in accessing the records on site during an examination. *Request for comment.* The Commission requests comment on whether the retention of the records under paragraph

(b)of proposed Rule 17g-2 would achieve the stated purposes of the requirements. Commenters should explain any conclusions they reach on this question with respect to each type of record. The Commission also requests comment on whether there are other standards or criteria that could be used to further tailor these requirements. The Commission further requests comment on whether there are other types of records that should be required to be retained, or whether any proposed requirements should be eliminated or modified. Commenters that believe additional records should be retained are asked to describe the record and explain why requiring its retention would be necessary. 3. Remaining Provisions Proposed Rule 17g-2 has additional provisions that would prescribe how long the records in paragraphs

(a)and

(b)would need to be retained, the manner in which they would need to be retained and the manner in which they, and any other records subject to the Commission's examination authority, would need to be produced. The Commission believes the additional provisions of proposed Rule 17g-2 would be necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Exchange Act because, as described below, they would assist the Commission in monitoring whether an NRSRO was complying with Section 15E of the Exchange Act and the rules thereunder. 212 212 *See* 15 U.S.C 78q(a)(1). *Paragraph (c).* Paragraph

(c)of proposed Rule 17g-2 would prescribe how long the records identified in paragraphs

(a)and

(b)would need to be retained by an NRSRO. Specifically, the records required to be made pursuant to paragraph

(a)would need to be retained for three years after the record is replaced with an updated record, except that the records with respect to customers would need to be retained for three years after the NRSRO's business relationship with the customer ended. The records required to be retained under paragraph

(b)would need to be retained for three years after the record is made or received by the NRSRO. The three year retention periods are designed to ensure that the records are preserved for at least one internal audit or Commission exam cycle. *Paragraph (d).* Paragraph

(d)of proposed Rule 17g-2 would provide that records retained pursuant to paragraphs

(a)and

(b)must be retained in a manner that makes them easily accessible to the principal office and any other office that conducted activities causing the record to be made or received. This provision is designed to facilitate Commission examination of the NRSRO and to avoid delays in obtaining the records during an on-site examination. The proposed rule does not specify the format in which the records must be retained. NRSROs could retain them in, for example, paper form, on microfilm or microfiche, and electronically. *Paragraph (e).* Paragraph

(e)of proposed Rule 17g-2 would provide that records identified in paragraphs

(a)and

(b)could be made or retained by a third-party record custodian, provided the NRSRO furnishes the Commission with a written undertaking of the custodian. The proposed form of the undertaking is designed to ensure that storing the records with a third-party does not make them less accessible than records stored at an NRSRO's offices. Thus, the third-party would undertake that the records are the exclusive property of the NRSRO, will be produced promptly to the NRSRO or the Commission and its representatives at the request of the NRSRO, and will be available for inspection by the Commission and its representatives. The proposed rule also would provide that an NRSRO would remain responsible for complying with the Commission's books and records rules, notwithstanding the fact that a third-party was making and/or storing the records. *Paragraph (f).* Paragraph

(f)of proposed Rule 17g-2 would provide that a non-resident NRSRO (defined in paragraph (h)) must undertake to send books and records to the Commission and its representatives upon request. The undertaking would need to be attached to an initial application for registration as an NRSRO (see Item 3 of proposed Form NRSRO). This proposed requirement is designed to provide a mechanism for the Commission examination staff to inspect records maintained overseas without having to travel to the location. In addition, because some non-resident NRSROs may maintain original records in a language other than English, the proposed undertaking would require a translation if the Commission requested it. *Paragraph (g).* Paragraph

(g)of proposed Rule 17g-2 would require an NRSRO to promptly furnish the Commission with copies of the records that it would have to retain under proposed Rule 17g-2 and any other records of the NRSRO that are subject to examination by the Commission under Section 17(b) of the Exchange Act 213 that are requested by the Commission and its staff. Similar to the “easily accessible” requirement of paragraph (d), this proposed requirement is designed to facilitate Commission examinations of NRSROs by requiring an NRSRO to promptly produce requested records. 213 *See* 15 U.S.C 78q(b). *Paragraph (h).* Paragraph

(h)of proposed Rule 17g-2 would define the term *non-resident rating organization* to mean an NRSRO that is located or has its principal office in a location outside the U.S., its territories, or possessions. This definition is similar to definitions of non-resident entities in other Commission rules. 214 214 *See* *e.g.,* 17 CFR 240.17a-7 and 17 CFR 275.0 -2. *Request for comment.* The Commission requests comment on whether the additional provisions of proposed Rule 17g-2 would achieve the stated purposes of the requirements. Commenters should explain any conclusions they reach on this question with respect to a provision. The Commission also requests comment on whether there are other provisions that should be required, or whether any proposed requirements should be modified or omitted. Commenters that believe additional provisions would be appropriate are asked to describe the nature of the provision and explain why it should be required. More broadly, the Commission requests comment on all aspects of proposed Rule 17g-2, including whether the proposals could be more narrowly tailored and still meet the stated goals, or whether items should be added, eliminated, or modified. Commenters are asked to explain their conclusions. E. Proposed Rule 17g-3 Annual Audit Section 15E(k) of the Exchange Act requires an NRSRO to furnish to the Commission, on a confidential basis and at intervals determined by the Commission, such financial statements and information concerning its financial condition that the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. 215 The section also provides that the Commission may, by rule, require that the financial statements be certified by an independent public accountant. 216 For the reasons discussed below, the Commission believes proposed Rule 17g-3 requiring annual financial statements and schedules would be necessary or appropriate in the public interest or for the protection of investors. 217 215 15 U.S.C. 78o-7(k). 216 *Id.* 217 *See* 15 U.S.C. 78o-7(k). First, Section 15E(d) of the Exchange Act provides that the Commission shall, by order, censure, place limitations on the activities, functions or operations of, suspend for a period not exceeding 12 months, or revoke the registration of an NRSRO if, among other things, the NRSRO fails to maintain adequate financial and managerial resources to consistently produce credit ratings with integrity. 218 The audited financial statements and schedules required to be furnished by an NRSRO on an annual basis under proposed Rule 17g-3 would assist the Commission in monitoring the NRSRO's financial resources and whether the resources were at a level that would necessitate the Commission taking action under Section 15(d) of the Exchange Act. 219 218 15 U.S.C. 78o-7(d). 219 *Id.* Second, Section 15E(b)(1) of the Exchange Act requires an NRSRO to promptly amend its application for registration, as prescribed in that section, if any information or document provided in the application becomes materially inaccurate. 220 As discussed above, the application (proposed Form NRSRO) would require the following financial information: a list of large customers in terms of net revenues, audited financial statements, information about revenues, and information about credit analyst compensation. This information would need to be as of, or for, the previous fiscal year. Accordingly, information only would become materially inaccurate and, therefore, need to be updated on an annual basis. In addition, the information would be furnished in the application on a confidential basis and, to the extent permitted by law, would not need to be made public. Therefore, because the information only would be disclosed to the Commission, it would be more appropriate to update this information by furnishing an annual financial statement and schedules than by furnishing an amended Form NRSRO. 220 15 U.S.C. 78o-7(b)(1). *Paragraph (a).* Paragraph

(a)of proposed Rule 17g-3 would require an NRSRO to furnish the audited financial statements to the Commission annually, as of the fiscal year end indicated on the NRSRO's current Form NRSRO, within 90 calendar days after the end of such fiscal year. The financial statements would include the schedules discussed below. The requirement that the financial statements be audited, therefore, would provide the Commission with an independent verification that the information in the financial statements is presented fairly, in all material respects, and that the schedules are presented fairly, in all material respects, based on the financial statements taken as a whole. The 90 day time period would be consistent with the time period for furnishing the annual certification with respect to NRSROs whose fiscal year-end is the end of the calendar year. These NRSROs could furnish both the annual audited financial statements and the annual certification to the Commission at the same time. Paragraph

(a)also would provide that the financial statements be prepared according to generally accepted accounting principles and comply with applicable provisions of the Commission's Regulation S-X. 221 These requirements are designed to ensure that the financial statements comport with accounting standards and Commission rules. 221 17 CFR 210.1-01 *et seq.* *Paragraph (b).* Paragraph

(b)of proposed Rule 17g-3 would require an NRSRO to include three supporting schedules in the audited financial statements. These schedules would be the mechanism by which an NRSRO would update the list of large customers, information about revenues, and information about total aggregate credit analyst compensation and median compensation originally furnished in the NRSRO's initial application for registration. As discussed above with respect to Exhibit 10, the list of the largest customers would assist the Commission in identifying customers of an NRSRO that could potentially have undue influence on the NRSRO given the amount of revenue they provide the credit rating agency. The largest customers would be determined using the same definitions of “net revenues” and “credit rating services” discussed with respect to Exhibit 10. In addition, just as with Exhibit 10, obligor and underwriter customers would be added to the list to the extent they were as large as, or larger than, the 20th largest issuer or subscriber customer. The information on revenue sources and analyst compensation that would be required in the schedule would be the same as the information that would be required in Exhibits 12 and 13, respectively. The information on revenue sources and credit analyst compensation would augment the financial statements by providing detail as to the revenues generated specifically from credit rating services and the expenses necessary to retain the credit rating agency's credit analysts. This information collectively would assist the Commission in monitoring whether an NRSRO maintains adequate financial resources to consistently produce credit ratings with integrity. 222 222 15 U.S.C. 78o-7(d). *Paragraph (c).* Paragraph (c)(1) of proposed Rule 17g-3 would require that the financial statements be certified by an independent public accountant in accordance with the provisions the Commission's Regulation S-X. These provisions are designed to ensure that auditors are independent of their audit clients. 223 223 *See Final Rule: Strengthening the Commission's Rules Regarding Auditor Independence,* Securities Act Release No. 8183 (January 28, 2003), 68 FR 6005 (February 5, 2003). Paragraph (c)(2) of proposed Rule 17g-3 would require that the NRSRO attach to the financial statements a statement by a duly authorized person of the NRSRO that the financial statements present fairly, in all respects, the financial condition, results of operations, and the cash flows of the NRSRO. This would provide a level of assurance that the information in the financial statements had been reviewed and verified by the NRSRO. This proposed requirement parallels Commission Rule 17a-5(e)(2), which requires a duly authorized officer of a broker-dealer (or, in the case of a general partnership, the general partner) to attach an oath or affirmation stating the financial statements and schedules required under that rule are true and correct. 224 224 17 CFR 240.17a-5(e)(2). Finally, Paragraph

(d)of proposed Rule 17g-3 would provide that the Commission may grant an extension of time from any requirements in the proposed rule either unconditionally or on specified terms and conditions on the written request of an NRSRO, if the Commission finds that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors. The Commission believes the 90-day period after the end of the fiscal year to prepare and furnish the financial statements and schedules required under proposed Rule 17g-3 would be a sufficient amount of time to fulfill these requirements. However, there may be situations where an NRSRO would require more time. In such cases, the NRSRO would be required to request an extension in writing and the Commission could grant it unconditionally or subject to certain specified terms and conditions. *Request for comment.* The Commission requests comment on all aspects of proposed Rule 17g-3, including whether the proposed requirements could be more narrowly tailored and still meet the stated goals. Further, the Commission solicits comment on whether any additional requirements should be added, or whether any of the proposed requirements should be omitted or modified. The Commission also requests comment on the 90-day time period to provide the audited financial statements and, in particular, whether that time frame is too long or too short. The Commission further requests comment on whether the requirement that the schedules to the financial statements be audited is practicable, given the information to be included in them. Commenters that believe it would not be practicable should explain the reasons for their conclusion. F. Proposed Rule 17g-4—Procedures to Prevent the Misuse of Material Non-Public Information Section 15E(g)(1) of the Exchange Act 225 requires an NRSRO to establish, maintain, and enforce written policies and procedures to prevent the misuse of material, nonpublic information in violation of the Exchange Act. 226 Section 15E(g)(2) of the Exchange Act provides that the Commission shall adopt rules requiring an NRSRO to establish specific policies and procedures to prevent the misuse of material, non-public information. 227 Proposed Rule 17g-4 would implement this statutory provision by requiring that an NRSRO's policies and procedures established pursuant to Section 15E(g)(1) of the Exchange Act 228 include three specific types of procedures. 225 15 U.S.C. 78o-7(g)(1). 226 15 U.S.C. 78a *et seq.* 227 15 U.S.C. 78o-7(g)(2). 228 15 U.S.C. 78o-7(g)(1). First, paragraph

(a)of proposed Rule 17g-4 would require procedures designed to prevent the inappropriate dissemination within and outside the NRSRO of material nonpublic information obtained for the purpose of developing a credit rating. Some credit rating agencies, as part of their analysis, contact senior management of the obligors and issuers subject to their credit ratings. In the course of these contacts, an issuer or obligor may provide the credit rating agency with nonpublic information including contemplated business transactions or estimated financial projections. 229 Credit rating agencies have commented that this confidential information greatly assists them in issuing credible and reliable ratings. 230 In fact, the Commission's Regulation FD, which governs the disclosure of material non-public information by issuers, contains an exception that permits issuers to intentionally disclose material non-public information to a credit rating agency without making a simultaneous public disclosure of the information. 231 The selective disclosure to the credit rating agency, however, must be solely for the purpose of developing a publicly available credit rating. 232 229 *See Proposed Rule: Definition of Nationally Recognized Statistical Rating Organization,* Securities Act Release No. 8570 (April 22, 2005), 70 FR 21306 (April 25, 2005). 230 *See Id.* 231 *See* 17 CFR 243.100. 232 17 CFR 243.100(b)(2)(iii). Under paragraph

(a)of proposed Rule 17g-4, a credit rating agency that permits its credit analysts to contact an issuer or obligor in the process of determining or maintaining a credit rating would be required to, for example, have procedures reasonably designed to prevent material, non-public information obtained by the credit analyst from being shared with or made readily accessible to any person outside the NRSRO or to persons employed by the NRSRO who do not need to know the information because they are not involved in determining or approving the credit rating. One concern that has been raised in the past is that subscribers to a credit rating agency's more detailed credit reports also may be granted direct access to the credit analysts. 233 If the credit analyst is in possession of material non-public information, there is a risk the information may be inappropriately disclosed to the subscriber during the course of communications with the credit analyst. 234 233 *See* Commission 2003 CRA Report and Commission 2003 Concept Release, Securities Act Release No. 8236 (June 4, 2003), 68 FR 35258 (June 12, 2003), noting the concern raised by some that subscribers may have preferential access to credit analysts and, as a result, may inappropriately learn material non-public information in the possession of a credit analyst. 234 *Id.* The Commission believes NRSROs should have flexibility to develop procedures tailored to their specific organizational structures and business models and, consequently, is not proposing to prescribe specific procedures. Nonetheless, as applicable to the business model of the NRSRO, an NRSRO could have procedures requiring credit analysts to receive training in the laws governing the misuse of material non-public information; defining the persons within the NRSRO with whom the credit analyst can share the information; prohibiting the credit analyst from disclosing the information to any other persons; and requiring the credit analyst to take steps to safeguard documents containing the information. An NRSRO that does not use management contacts as part of its methodology for determining credit ratings could prohibit credit analysts from contacting rated issuers or obligors. Paragraph

(b)of proposed Rule 17g-4 would require an NRSRO to implement specific procedures designed to prevent an associated person or member of an associated person's household from purchasing, selling, or otherwise benefiting from any transaction in securities or money market instruments when the person possesses or has access to material nonpublic information obtained for the purpose of developing a credit rating. This proposed rule recognizes the risk that individuals in possession of, or with access to, material nonpublic information about an issuer or obligor may trade securities or money market instruments on the information. 235 Again, the Commission does not intend to prescribe exact procedures. However, as applicable to the business model of the NRSRO, an NRSRO could have policies prohibiting associated persons from purchasing or selling a security or money market instrument that is subject to a pending rating action; requiring associated persons to obtain pre-approval before purchasing or selling a security or money market instrument; and requiring associated persons to be notified of securities or money market instruments that are on a “do not trade” list. 235 *See e.g.,* Commission complaint in *Commission* v. *Rick A. Marano, William Marano and Carl Loizzi,* 04 CV 5828 (Judge Kimba Wood) (S.D.N.Y.); *see also* Commission Litigation Release No. 18799 (July 27, 2004). Paragraph

(c)of proposed Rule 17g-4 would require an NRSRO to implement specific procedures designed to prevent the inappropriate dissemination within and outside the NRSRO of a credit rating action prior to making the action readily accessible. This provision recognizes that a credit rating action of an NRSRO that is not yet public may be material, non-public information. Consequently, an NRSRO should have policies designed to ensure that its pending credit rating actions are not disclosed in a manner that allows a person to trade on the information before the action is widely disseminated to the market. Once again, the Commission does not intend to prescribe specific procedures. However, as applicable to the business model of the NRSRO, these policies could include procedures designed to ensure that a credit rating action is issued in a way that makes it readily accessible to the market place, such as posting the credit rating or an announcement of the credit rating action on the NRSRO's Web site or through a news or information service used by market participants. The policies also could include procedures prohibiting credit analysts from selectively disclosing the pending action to persons outside the NRSRO and to persons inside the NRSRO who do not need to know of the pending action. At the same time, the Commission understands that some credit rating agencies, as part of their methodologies for determining credit ratings, will discuss a proposed credit rating action with the management of the issuer or obligor being rated to solicit their views or provide an opportunity to appeal the decision. NRSROs engaging in this practice should have procedures designed to ensure that the discussions with the issuer or obligor do not lead to the selective disclosure of the information to persons other than those persons within the issuer or obligor who are authorized to receive the information. The Commission requests comment on all aspects of this proposed rule, including whether the proposals could be more narrowly tailored and still meet the stated goals. The Commission also requests comment on whether other types of specific procedures should be required, or whether any of the proposed requirements should be omitted or modified. G. Proposed Rule 17g-5—Management of Conflicts of Interest Section 15E(h)(1) of the Act requires an NRSRO to establish, maintain, and enforce policies and procedures reasonably designed, taking into consideration the nature of its business, to address and manage conflicts of interest. 236 Section 15E(h)(2) of the Act requires the Commission to adopt rules to prohibit or require the management and disclosure of conflicts of interest relating to the issuance of credit ratings. 237 Proposed Rule 17g-5 would implement this statutory provision by requiring an NRSRO to disclose and manage certain conflicts of interest and prohibiting other conflicts of interest. 236 15 U.S.C. 78o-7(h)(1). 237 15 U.S.C. 78o-7(h)(2). Paragraph

(a)of proposed Rule 17g-5 would make it unlawful for an NRSRO to have a conflict of interest relating to the issuance of a credit rating that is identified in paragraph

(b)of the proposed rule *unless* the NRSRO has publicly disclosed the type of conflict of interest in compliance with Rule 17g-1 and has implemented policies and procedures to address and manage such conflict of interest in accordance with Section 15E(h)(1) of the Exchange Act. As discussed, Rule 17g-1 would require an NRSRO to apply for registration and update its registration using Form NRSRO. Exhibit 6 to proposed Form NRSRO would require the NRSRO to identify and publicly disclose the types of conflicts of interest that arise from its business activities as required by Section 15E(a)(1)(B)(vi) of the Exchange Act. 238 As mentioned above, Section 15E(h)(1) of the Exchange Act requires an NRSRO to establish, maintain, and enforce written policies and procedures to address conflicts of interest. 239 Accordingly, under proposed Rule 17g-5, it would be unlawful for an NRSRO to have a conflict of interest identified in paragraph

(b)of the rule if it had not complied with its regulatory and statutory requirements with respect to disclosing and managing types of conflicts of interest. The Commission believes that these requirements in proposed Rule 17g-5 would be appropriate in the public interest and for the protection of investors because they are designed to ensure that users of credit ratings are made aware of the potential conflicts of interest that arise from an NRSRO's business activities and that an NRSRO establishes policies and procedures for managing the specific conflicts. 238 15 U.S.C. 78o-7(a)(1)(B)(vi). 239 *Id.* The types of conflicts identified in paragraph

(b)of proposed Rule 17g-5 are those that a credit rating agency commonly faces, depending on its business model. Consequently, prohibiting them outright could adversely impact the ability of an NRSRO to operate as a credit rating agency. Nonetheless, the conflicts should be managed through policies and procedures and disclosed so that users of the credit ratings can assess whether the conflict impacts the NRSRO's judgment. The first type of conflict identified in paragraph

(b)of proposed Rule 17g-5 involves receiving compensation from a rated person for a service or product of the NRSRO or its affiliates. 240 This type of conflict arises from a common business model in the credit rating industry; namely, charging issuers and obligors to determine and maintain a credit rating of the issuer or obligor. A related conflict may arise when the credit rating agency offers other services and products of its own and its affiliates to rated issuers and obligors, including credit assessment and risk management consulting. 241 Furthermore, an NRSRO could potentially issue a credit rating that the rated issuer or obligor uses for regulatory purposes. For example, an issuer may rely on the credit rating to qualify for Form S-3—the Commission's “short-form” registration statement. 242 240 Paragraph (b)(1) of proposed Rule 17g-5. *See* 15 U.S.C. 78o-7(h)(2)(A). 241 *See* Commission 2003 CRA Report noting concerns of some that conflicts in this area could become much greater if these ancillary services were to become a substantial portion of an NRSRO's business. *See also* Commission 2003 CRA Concept Release, Securities Act Release No. 8236 (June 4, 2003), 68 FR 35258 (June 12, 2003), noting concerns of some that greater concerns about conflicts of interest arise when a credit rating agency offers consulting or other advisory services to issuers it rates. 242 Form S-3 (17 CFR § 239.13). The second type of conflict identified in paragraph

(b)of proposed rule 17g-5 involves having an ownership interest (securities or otherwise) in an issuer or obligor subject to a credit rating of the NRSRO. 243 As discussed below, this conflict would be prohibited under paragraph

(c)of proposed Rule 17g-5 if the NRSRO, credit analyst, or an associated person approving the credit rating had the ownership interest. 244 However, it may be appropriate for an NRSRO to permit employees that have no involvement in determining or approving the credit rating of an obligor or issuer to own securities of the entity. 245 For example, a prohibition for all employees could be a particular hardship if the NRSRO issued credit ratings with respect to most public companies. 243 Paragraph (b)(2) of proposed Rule 17g-5. *See* 15 U.S.C. 78o-7(h)(1)(C); *see also Proposed Rule: Definition of Nationally Recognized Statistical Rating Organization,* Securities Act Release No. 8570 (April 22, 2005), 70 FR 21306 (April 25, 2005), which noted that conflicts may arise when a person associated with a credit rating agency also is associated with, or has an interest in, an issuer that is being rated. 244 Several commenters to the 2005 proposing release recommended prohibiting a credit rating agency and its analysts from owning securities in the companies they rate. Letters from Charles D. Brown, General Counsel, Fitch, Inc., dated June 9, 2005; Marjorie E. Gross, Senior Vice President and Regulatory Counsel, The Bond Market Association and Frank A. Fernandez, Senior Vice President and Chief Economist, Securities Industry Association, dated June 9, 2005; and Larry G. Mayewski, Executive Vice President & Chief Rating Officer, A.M. Best Company, Inc., dated June 9, 2005. 245 *Cf.* 17 CFR 275.204A-1(e)(1) (defining “access person” for purposes of requiring investment advisers to establish procedures requiring access persons to report their personal securities holdings). The third type of conflict identified in paragraph

(b)of proposed rule 17g-5 involves receiving compensation from subscribers that use the credit ratings of the NRSRO for regulatory purposes. 246 As discussed in section I, numerous federal and state statutes and regulations use the term “NRSRO.” A subscriber potentially could be subject to one or more of these statutes and regulations and, consequently, benefit depending on how the NRSRO rates securities held by the subscriber. For example, a broker-dealer subscriber holding debt securities would be able to apply lower haircuts when computing its net capital under Exchange Act Rule 15c3-1, if the securities are rated investment grade by two NRSROs. 247 Regulatory users of credit ratings such as broker-dealers likely also would be subscribers to an NRSRO's credit ratings or credit analysis. Therefore, prohibiting this conflict could be impractical, particularly for NRSROs that rely solely on a subscription-based business model. 246 Paragraph (b)(3) of proposed Rule 17g-5. 247 *See,* 17 CFR 240.15c3-1(c)(2)(vi)(E), (F), and (H). The fourth type of conflict identified in paragraph

(b)of proposed rule 17g-5 involves having an ownership interest in a subscriber that uses the NRSRO's credit ratings for regulatory purposes. 248 This potentially could create an incentive for the credit rating agency or an associated person to issue a credit rating that allows the subscriber to take advantage of a benefit in a statute or regulation using the NRSRO concept. 248 Paragraph (b)(4) of proposed Rule 17g-5. The fifth type of conflict identified in paragraph

(b)of proposed rule 17g-5 involves having a business or personal relationship or affiliation with a rated issuer or obligor, underwriter of a rated issuer's securities, or a subscriber that uses the credit ratings for regulatory purposes. 249 An example of this conflict would include a person associated with the NRSRO having a relative or spouse who worked for a rated issuer, obligor, or underwriter of a rated issuer's securities. It also would include a person associated with the NRSRO having a business relationship with one of these types of entities, for example, receiving a loan from a bank that is rated. 250 The Commission believes, however, that prohibiting these types of relationships outright may be unnecessary or could prove impractical. However, an NRSRO should have robust policies and procedures to manage conflicts arising from these relationships. Moreover, paragraph

(c)of proposed Rule 17g-5 would not prohibit a credit analyst or associated person approving the credit rating from having these types of relationships with the rated issuer or obligor or underwriter of the rated issuer's securities. 251 However, there may be circumstances where an NRSRO, as part of its policies and procedures, should prohibit the conflict. One potential example would be if the credit analyst's spouse or close family member works for the rated issuer or obligor. 249 Paragraph (b)(5) of proposed Rule 17g-5. 250 *See* 15 U.S.C. 78o-7(h)(2)(C). 251 *See* 15 U.S.C. 78o-7(h)(2)(D). The sixth type of conflict identified in paragraph

(b)of proposed rule 17g-5 involves being an officer or director of a rated issuer or obligor, underwriter of a rated issuer's securities, or subscriber that uses the NRSRO's credit ratings for regulatory purposes. 252 As discussed below, this type of conflict would be prohibited under paragraph

(c)of proposed Rule 17g-5 if the credit analyst or associated person responsible for approving the credit rating was an officer or director of one of these entities. However, it may be appropriate, subject to adequate policies and procedures, for other employees of the NRSRO and its affiliates to serve in these roles, since they would have no direct role in determining the credit rating. 252 Paragraph (b)(5) of proposed Rule 17g-5. The seventh type of conflict identified in paragraph

(b)of proposed rule 17g-5 would be any other type of conflict that the NRSRO identifies on proposed Form NRSRO in compliance with Section 15E(a)(1)(B)(vi) of the Exchange Act 253 and proposed Rule 17g-1. This catchall provision would capture conflict types not specifically listed in paragraph

(b)of Rule 17g-5 that the NRSRO has identified on Exhibit 6 to proposed Form NRSRO as arising from its business activities. 254 253 15 U.S.C. 78o-7(a)(1)(B)(vi). 254 *See* 15 U.S.C. 78o-7(h)(2)(E). Paragraph

(c)of proposed Rule 17g-5 would specifically prohibit four types of conflicts of interest. The Commission preliminarily believes that prohibiting such conflicts of interest would be appropriate in the public interest and for the protection of investors. The first proposed prohibition would make it unlawful for an NRSRO to have a conflict relating to the issuance of a credit rating where the person soliciting the credit rating was the source of 10% or more of the total net revenue of the NRSRO and its affiliates in the most recently ended fiscal year. 255 Such a person would be in a position to exercise substantial influence on the NRSRO. 256 It would be difficult for the NRSRO to remain impartial, given the impact on the NRSRO's income if the issuer, obligor or underwriter withdrew its business. Given our understanding that fees from a single entity generally compose a very small percentage of the revenues of entities currently identified as NRSROs, the Commission preliminarily believes that a 10% threshold is a reasonable benchmark for registered NRSROs. 257 255 Paragraph (c)(1) of proposed Rule 17g-5. The determination of “net revenue” would be same as the determination of net revenue for purposes of Form NRSRO and proposed Rule 17g-3. 256 As noted in the Commission 2003 CRA Report, some participants in the Commission 2002 CRA Hearings expressed concern that ancillary services could become much greater in the future and suggestions were made that their percentage contribution to total revenue be capped. 257 As noted in the Commission 2003 CRA Report, fees from any single issuer typically comprise a very small percentage—less than 1%—of a credit rating agency's total revenue. The second proposed prohibition would make it unlawful for an NRSRO to have a conflict relating to the issuance of a credit rating where the NRSRO, a credit analyst responsible for the credit rating, or a person associated with the NRSRO responsible for approving the credit rating, owns securities of, or has any other ownership interest in the rated person, or is a borrower or lender with respect to the rated person. 258 The Commission preliminarily believes that the NRSRO, credit analyst responsible for determining the credit rating, and person responsible for approving the credit rating should not have a direct financial interest in the rated issuer or obligor. The Commission preliminarily believes an NRSRO or associated person having such a financial interest could not remain impartial and issue an objective credit rating in these circumstances. 259 258 Paragraph (c)(2) of proposed Rule 17g-5. 259 The Senate Report notes that rating agencies argue that although the pay-for-rating business model presents inherent conflicts of interest, the conflict is effectively managed inasmuch as credit analysts do not benefit financially from any of their ratings decisions. The Senate Report further notes that credit analysts are not permitted to own any of the securities they follow. The third proposed prohibition would make it unlawful for an NRSRO to have a conflict relating to the issuance of a credit rating where the rated entity is a person associated with the NRSRO. 260 The Commission preliminary believes an NRSRO would not be able to maintain an appropriate level of impartiality when issuing a credit rating with respect to an affiliated entity. 260 Paragraph (c)(3) of proposed Rule 17g-5. The fourth proposed prohibition would make it unlawful for an NRSRO to have a conflict relating to the issuance of a credit rating where the credit analyst responsible for the credit rating, or a person associated with the NRSRO responsible for approving the credit rating, also is an officer or director of the person that is the subject of the credit rating. 261 Again the Commission preliminarily believes that an NRSRO or person associated with the NRSRO having such a position could not issue an objective credit rating in these circumstances. 261 Paragraph (c)(4) of proposed Rule 17g-5. *Cf.* Rule 2711 of the National Association of Securities Dealers, Inc. (“NASD”) allowing a securities research analyst to be an officer or director of a subject company if proper disclosure is made. The Commission requests comment on all aspects of proposed Rule 17g-5, including whether the proposals could be more narrowly tailored and still meet the stated goals. The Commission also requests comment on whether paragraph

(b)of proposed Rule 17g-5 captures all the types of conflicts that arise from the activities of a credit rating agency. Comment also is sought on whether proposed Rule 17g-5 should contain materiality thresholds insomuch as some conflicts may be inconsequential. The Commission seeks comment on whether the focus of the proposal on the “type” of conflict of interest would appropriately capture the conflicts that arise from the business of a credit rating agency. In addition, the Commission requests comment on the prohibited conflicts and whether these conflicts should be permitted if a credit rating agency discloses them and has procedures in place to manage such conflicts. If so, what specific disclosures should be required? Alternatively, should the rule prohibit other types of conflicts of interest, or should some of the proposed requirements be eliminated or modified? The Commission further requests comment on whether there should be specific exceptions to the proposed prohibitions. For example, should the prohibition against ownership of securities in a rated company apply to indirect ownership of securities such as through a mutual fund. The Commission also requests comment on whether the 10% net revenue threshold in proposed Rule 17g-5(c)(1) is appropriate, or should a higher or lower threshold be applied. H. Proposed Rule 17g-6—Prohibited Unfair, Coercive, or Abusive Practices Section 15E(i)(1) of the Exchange Act 262 provides that the Commission shall adopt rules prohibiting any act or practice by an NRSRO that the Commission determines is unfair, abusive, or coercive, including certain acts and practices set forth in paragraphs (i)(1)(A)-(C) of Section 15E of the Exchange Act. 263 In explaining this statutory provision, the Senate Report stated that “the Commission, as a threshold consideration, must determine that the practices subject to prohibition under this section are unfair, coercive or abusive before adopting rules prohibiting such practices.” The Commission has made a preliminary determination that the acts and practices described in paragraphs (i)(1)(A)-(C) of Section 15E of the Exchange Act 264 would be unfair, coercive, or abusive. Consequently, the Commission is proposing to prohibit them in proposed Rule 17g-6, with one conditional exception. Further, the Commission also has made a preliminary determination that an additional act and practice relating to unsolicited credit ratings (as noted above, these are credit ratings that are not initiated at the request of the issuer, obligor or underwriter) would be unfair, coercive, or abusive and, consequently, is proposing to use its authority under Section 15E(i)(1) of the Exchange Act 265 to prohibit such act and practice. 266 262 15 U.S.C. 78o-7(i)(1). 263 15 U.S.C. 78o-7(i)(1)(A),

(B)and (C). 264 Id. 265 15 U.S.C. 78o-7(i)(1). 266 *See* Commission 2003 CRA Report, which noted that some participants in the Commission 2002 CRA Hearings questioned the appropriateness of unsolicited credit ratings because they could used to engage in “strong-arm” tactics to induce payment for a credit rating an issuer did not request. Section 15E(i)(1)(A) of the Exchange Act provides that the Commission shall prohibit the following practice if the Commission determines it is unfair, coercive, or abusive: Conditioning or threatening to condition the issuance of a credit rating on the purchase by the obligor or an affiliate thereof of other services or products, including pre-credit rating assessment products of the nationally recognized statistical rating organization or any person associated with such nationally recognized statistical rating organization[.] 267 267 15 U.S.C. 78o-7(i)(1)(A). The Commission has preliminarily determined that this practice would be unfair, coercive, or abusive and proposes to prohibit it. Paragraph (a)(1) of Proposed Rule 17g-6 would prohibit an NRSRO from conditioning or threatening to condition the issuance of a credit rating on the purchase of other products or services, including pre-credit rating assessment products. 268 268 *See* Commission 2003 CRA Report, which noted that some participants in the Commission's 2002 CRA Hearings worried that issuers could be unduly pressured to purchase advisory services, particularly in cases where they were solicited by the credit rating analyst. Credit ratings play an important role in financial markets. Market participants use them in making financial decisions whether to buy or sell debt securities and extend credit to rated entities. Moreover, credit ratings of NRSROs are used in federal and state laws and regulations to establish limits or confer exemptions or privileges. Consequently, an entity may benefit from having an NRSRO credit rating because it makes its securities more marketable or the rating would qualify the entity for an exemption or privilege in one of these rules or statutes or make holding the entity's debt securities or transacting with the entity more attractive to other regulated entities. An NRSRO could abuse this incentive by using it to coerce an issuer or obligor to purchase services from the NRSRO or its affiliates. Accordingly, the Commission is proposing to prohibit this potential practice. An NRSRO would be allowed to condition the issuance and maintenance of a credit rating on the issuer or obligor paying for the service of determining and monitoring the credit rating. As noted above, this is a longstanding business model in the credit rating industry. 269 However, as discussed, the NRSRO could not condition the issuance of the credit rating on the purchase of any other service or product offered by the NRSRO and its affiliates. This practice would violate paragraph (a)(1) of proposed Rule 17g-6 even if the NRSRO agreed to issue or did issue a credit rating that otherwise was determined in accordance with its methodologies for issuing credit ratings. 269 *See* Commission 2003 CRA Report, which noted that by the mid-1970s credit rating agencies began charging issuers for ratings, due to difficulties in limiting access to their credit ratings to subscribers, as well as to respond to the demand for more comprehensive and resource-intensive analysis of issuers. Section 15E(i)(1)(C) of the Exchange Act provides that the Commission shall prohibit the following practices if the Commissions determines they are unfair, coercive, or abusive: Modifying or threatening to modify a credit rating or otherwise departing from systematic procedures and methodologies in determining credit ratings, based on whether the obligor, or an affiliate of the obligor, purchases or will purchase the credit rating or any other service or product of the nationally recognized statistical rating organization or any person associated with such organization. 270 270 15 U.S.C. 78o-7(i)(1)(C). The Commission has preliminarily determined that these practices would be unfair, coercive, or abusive and, consequently, proposes to prohibit them through paragraphs (a)(2) and (a)(3) of proposed Rule 17g-6. Paragraph (a)(2) would prohibit an NRSRO from issuing, or offering or threatening to issue, a credit rating that is not determined in accordance with the NRSRO's established procedures for determining credit ratings based on whether the rated person purchases or will purchase the credit rating or another product or service. 271 Thus, an NRSRO would be prohibited from issuing or threatening to issue a credit rating that is lower than would result from using its methodology for determining credit ratings based on whether the issuer or obligor pays for the credit rating or any other service or product of the NRSRO and its affiliates. The NRSRO also would be prohibited from issuing or promising to issue a higher credit rating in these circumstances. 272 271 Paragraph (a)(2) of proposed Rule 17g-6. 272 Presumably, an issuer or obligor would not agree to compensate an NRSRO for a credit rating that was lower than would result from applying the NRSRO's methodologies. Nonetheless, if an NRSRO agreed to issue a lower than warranted credit rating in return for compensation, the NRSRO would violate paragraph (a)(2) as well. The practice proposed to be prohibited in this paragraph is distinguishable from the practice proposed to be prohibited in Paragraph (a)(1). Paragraph (a)(1) addresses the situation where an NRSRO conditions the issuance of a credit rating on the purchase of another service or product. Paragraph (a)(2) addresses the situation where an NRSRO conditions the conclusion reached in the credit rating on the purchase of the credit rating or another service. 273 Thus, unlike paragraph (a)(1), an NRSRO would violate paragraph (a)(2) if it conditioned the issuance of the credit rating on the obligor or issuer paying for the credit rating. This is because the NRSRO would not be agreeing to determine a credit rating that reflected the NRSRO's assessment of the creditworthiness of the issuer or obligor as determined by its methodologies (including, as applicable, quantitative and qualitative models). Rather, the NRSRO would be agreeing to skew the rating higher based on the issuer or obligor agreeing to pay for it. 273 *See* Commission 2003 CRA Report, which noted that some participants in the Commission 2002 CRA Hearings believed that, even if the purchase of ancillary services did not impact the credit rating decision, issuers may be pressured into using the services out of fear that their failure to do so may adversely impact their credit rating. Paragraph (a)(3) of proposed Rule 17g-6 would prohibit an NRSRO from modifying, or offering or threatening to modify, a credit rating in a manner contrary to its procedures for modifying a credit rating based on whether the rated person, or an affiliate of the rated person, purchases or will purchase the credit rating or any other service or product of the NRSRO and its affiliates. The prohibition in paragraph (a)(2) of proposed Rule 17g-6, as discussed, would apply to threats or promises with respect to the issuance of a credit rating. Paragraph (a)(3) would extend this prohibition to threats or promises with respect to changing an existing credit rating. The potential for an NRSRO to use the threat of a lower or the promise of a higher credit rating to obtain business arises from the fact that an entity's cost of credit and, in some cases, ability to obtain credit, generally depends on its credit rating. Entities with lower credit ratings must pay higher interest rates to borrow funds or issue debt. In some cases, a low credit rating could block an entity's access to credit. Thus, it is in a borrower's economic interest to have a high credit rating. This creates the potential for an NRSRO to have inappropriate leverage over an issuer or obligor. The NRSRO could use this leverage to obtain business by threatening to issue or modify a credit rating in a manner that results in a lower rating than would have resulted from using its established methodologies. The NRSRO also could issue a lower rating or lower an existing rating to punish an issuer or obligor for not purchasing the credit rating or another service or product of the NRSRO and its affiliates. Conversely, the NRSRO could promise to issue or modify a credit rating in a manner that results in a higher rating than would have resulted from using its established methodologies as a reward for purchasing the credit rating or other services or products. Proposed Rule 17g-6 would provide a check on the potential inappropriate influence an NRSRO may have over issuers and obligors by prohibiting an NRSRO from using this leverage to coerce an issuer or obligor into purchasing a credit rating or other services and products of the NRSRO and its affiliates. A second reason to prohibit these practices is that they would lead to credit ratings that could mislead the marketplace and undermine the regulatory use of NRSRO credit ratings. An NRSRO that follows through on a threat to issue a low credit rating or promise to issue a high credit rating would be issuing a credit rating that does not accurately reflect the credit rating agency's true assessment of the creditworthiness of the issuer or obligor. The credibility and reliability of an NRSRO and its credit ratings depends on the NRSRO developing and implementing sound methodologies for determining credit ratings and following those methodologies. The fact that an issuer or obligor agrees or refuses to purchase a credit rating or other service or product from the NRSRO and its affiliates should have no bearing on the NRSRO's credit assessment of the issuer or obligor. 274 274 The Commission is mindful of the limitation in Section 15E(c)(2) of the Exchange Act that the rules the Commission adopts under the Exchange Act not regulate the substance of credit ratings (15 U.S.C. 78o-7(c)(2)). The Commission does not believe that this prohibition would interfere with the process by which an NRSRO assesses the creditworthiness of a security, money market instrument or obligor. An issuer's or obligor's agreement or refusal to pay the NRSRO or its affiliate for a service or product is not, necessarily of itself, relevant to a credit assessment of the issuer or obligor. Moreover, this is a practice that Congress specifically identified in Section 15E(i)(1)(C) of the Exchange Act as potentially unfair, coercive, or abusive (15 U.S.C. 78o-7(i)(1)(C)). Section 15E(i)(1)(B) of the Exchange Act provides that the Commission by rule shall prohibit the following practices if the Commission determines they are unfair, coercive, or abusive: Lowering or threatening to lower a credit rating on, or refusing to rate, securities or money market instruments issued by an asset pool or as part of any asset-backed or mortgage-backed securities transaction, unless a portion of the assets within such pool or part of such transaction, as applicable, also is rated by the nationally recognized statistical rating organization[.] 275 275 15 U.S.C. 78o-7(i)(1)(A). In explaining this statutory provision, the Senate Report stated that “there may be instances when a rating agency may refuse to rate securities or money market instruments for reasons that are not intended to be anti-competitive.” The Senate Report further stated that “the Commission * * * should prohibit only those ratings refusals that occur as part of unfair, coercive or abusive conduct.” This provision in the statute is seeking to address a practice, sometimes referred to as “notching,” where a credit rating agency refuses to rate securities or money market instruments issued by an asset pool or as part of any asset-backed or mortgage-backed securities transaction (collectively, a “structured product”) or discounts the rating for a structured product because it has not rated all of the underlying assets. Critics of this practice argue that it forces issuers of structured products to obtain credit ratings from the same credit rating agencies that rated the underlying assets. 276 They argue this makes it difficult for other credit rating agencies to develop a market in rating structured products. On the other hand, credit rating agencies that rate structured products argue that their rating of the structured product necessarily must involve assessments of the creditworthiness of the underlying assets. They do not believe it would be appropriate to rely on credit ratings of the underlying assets issued by another credit rating agency because those ratings may have been determined using different methodologies and may reflect different assessments of the creditworthiness of the asset. 277 276 *See* Commission 2003 CRA Report, which noted that one credit rating agency that participated in the Commission 2002 CRA Hearings complained that other credit rating agencies were attempting to squeeze it out of certain structured finance markets by engaging in the practice of “notching.” 277 The Commission 2003 CRA Report noted that the credit rating agency that raised the concern about “notching” in Commission 2002 Hearings suggested, as a possible solution, that NRSROs be required to recognize the credit ratings of other NRSROs as their own for purposes of rating these asset pools. The Commission preliminarily determines that it would be unfair, coercive, or abusive for an NRSRO to issue or threaten to issue a lower credit rating, lower or threaten to lower an existing credit rating, refuse to issue a credit rating, or to withdraw a credit rating with respect to a structured product unless a portion of the assets underlying the structured product also are rated by the NRSRO. Consequently, the Commission proposes to prohibit these practices in paragraph (a)(4) of Proposed Rule 17g-6. At the same time, the Commission believes there could be legitimate reasons for an NRSRO to refuse to rate a structured product where the NRSRO has not rated the underlying assets. Therefore, the Commission is proposing that an NRSRO could refuse to initiate a rating or withdraw an existing rating in certain circumstances. This exception only would apply to the prohibition in paragraph (a)(4) against refusing to rate the security or withdrawing a rating. It would not apply to issuing or threatening to issue a lower credit rating or lowering or threatening to lower an existing credit rating. Under the exception to the prohibition, an NRSRO could refuse to issue the rating or withdraw the rating if the NRSRO has rated less than 85% of the market value of the assets underlying the structured product. This is designed to address the concern that an NRSRO when assessing the credit worthiness of the structured product would be forced to issue a rating either when a portion of the underlying assets are not rated or when the underlying assets have been rated by another credit rating agency. If the underlying assets were unrated, the NRSRO may not have sufficient information for issuing a rating on the structured product. In cases where the underlying assets were rated by another credit rating agency, the other credit rating agency may have used different methodologies to assess the creditworthiness of the asset and may have determined a credit rating that is different than the credit rating the NRSRO would issue, if it had rated the asset. The Commission preliminarily does not believe it would be appropriate to require the NRSRO to issue or maintain a rating when the NRSRO has rated less than 85% of the market value of the underlying assets. 278 278 Anecdotally, the Commission understands that several of the credit rating agencies currently subject to a staff no-action letter have procedures under which they will undertake to issue a credit rating for a structured product where they have rated approximately 80% to 90% of the market value of the underlying assets. Finally, the Commission is proposing to prohibit a practice that is not specifically identified in Section 15E(i)(1) of the Exchange Act 279 but is related to the practices described in the statute. Specifically, the Commission has preliminarily determined that it would be unfair, coercive or abusive to issue an unsolicited credit rating and communicate with the rated person to induce or attempt to induce the rated person to pay for the rating or another product or service of the NRSRO or its affiliates. Consequently, paragraph (a)(5) of proposed Rule 17g-6 would prohibit this practice. 279 15 U.S.C. 78o-7(i)(1). It may be appropriate for an NRSRO that operates under a business model where issuers or obligors pay for the credit ratings to issue a credit rating that the issuer or obligor has not requested. For example, an NRSRO may want to have an active credit rating for every major issuer in a given industry. It would not be appropriate, however, to determine an unsolicited credit rating and then to contact the issuer or obligor to solicit them to pay for the rating. 280 As discussed, an NRSRO may yield a degree of influence on issuers and obligors, given the impact a credit rating can have on the issuer's or obligor's access to credit and cost of credit. Thus, an issuer or obligor may agree to pay for an unsolicited credit rating to placate the NRSRO, rather than because they want to be rated. For example, the issuer or obligor may already be paying other credit rating agencies for a credit rating and, therefore, would derive no additional benefit from having an additional credit rating. 280 As discussed above, some participants in the Commission 2002 CRA Hearings questioned the appropriateness of unsolicited credit ratings because they could be used to engage in “strong-arm” tactics to induce payment for a credit rating an issuer did not request. Potential tactics identified included sending a bill for an unsolicited rating or sending a fee schedule and encouraging payment. *See* Commission 2003 CRA Report. The Commission requests comment on all aspects of proposed Rule 17g-6, particularly on whether the proposed rule's requirements that prohibit certain acts and practices could be more narrowly tailored and still meet the stated goals. The Commission also requests comment on whether there are any other unfair, coercive, or abusive practices which should be prohibited under the proposed rules, or whether any of the practices proposed to be prohibited should not be subject to prohibition. The Commission further requests comment on whether any of the proposed prohibitions should be modified. With respect to the exception to the prohibition in paragraph (a)(4) of the Rule 17g-6, the Commission requests comment on whether the proposed exception permitting an NRSRO to refuse to issue a credit rating or withdraw a credit rating of structured product when it has not rated all the underlying assets should be modified or deleted and whether the 85% threshold in that exception should be higher or lower. IV. Paperwork Reduction Act Certain provisions of the proposed rules contain a “collection of information” within the meaning of the Paperwork Reduction Act of 1995 (“PRA”). 281 The Commission has submitted the proposed rules to the Office of Management and Budget (“OMB”) for review in accordance with the PRA. An agency may not conduct or sponsor, and a person is not required to comply with, a collection of information unless it displays a currently valid control number. The titles for the collections of information are: 281 44 U.S.C. 3501 *et seq.* 5 CFR 1320.11.

(1)Rule 17g-1, Application for registration as a nationally recognized statistical rating agency; Form NRSRO and the Instructions for Form NRSRO;

(2)Rule 17g-2, Records to be made and retained by national recognized statistical rating organizations;

(3)Rule 17g-3, Annual audited financial statements to be furnished by nationally recognized statistical rating organizations;

(4)Rule 17g-4, Prevention of Misuse of Material Nonpublic Information; and

(5)Rule 17g-6, Prohibited Acts and Practices. A. Collections of Information Under the Proposed Amendments The Commission is proposing for comment rules to implement registration, recordkeeping, financial reporting, and oversight rules under the Credit Rating Agency Reform Act of 2006 (the “Act”). 282 The proposed rules contain recordkeeping and disclosure requirements that are subject to the PRA. The collection of information obligations imposed by the proposed rules would be mandatory. The proposed rules, however, would apply only to credit rating agencies that are registered with the Commission as NRSROs and registration is voluntary. 283 282 Pub. L. No. 109-291 (2006). 283 *See* Section 15E of the Exchange Act (15 U.S.C. 78o-7)). In summary, the proposed rules would require an NRSRO to:

(1)Complete an initial application for registration on Form NRSRO; 284

(2)provide written notice to the Commission if information submitted on the application is materially inaccurate, as well as furnishing an updated Form NRSRO to the Commission, prior to final action by the Commission; 285

(3)if applicable, provide a written notice of withdrawal of the application prior to final action by the Commission; 286

(4)make the current Form NRSRO, including non-confidential exhibits, publicly available on its Web site or through another comparable, readily accessible means; 287

(5)if applicable, apply to be registered for an additional category of credit ratings by furnishing an amended Form NRSRO; 288

(6)update its Form NRSRO after registration with the Commission; 289

(7)furnish an annual certification to the Commission with respect to Form NRSRO; 290

(8)if applicable, provide a written notice of withdrawal of registration; 291

(9)make, keep and preserve certain records; 292

(10)if applicable, furnish the Commission with an undertaking from a third-party custodian; 293

(11)if applicable, provide an undertaking with respect to producing records to the Commission; 294

(12)furnish the Commission with annual audited financial statements; 295

(13)develop procedures to prevent the misuse of material nonpublic information; 296 and

(14)if applicable, document, in writing, the reason for refusing to initiate a rating, or withdrawing an existing rating, with respect to an asset-backed or mortgaged-backed security. 297 Many of these requirements are prescribed in Section 15E of the Exchange Act. 298 284 Section 15E(a)(1) of the Exchange Act (15 U.S.C. 78o-7(a)(1)) and proposed Rule 17g-1(a). 285 Proposed Rule 17g-1(c); *see also* Section 15E(a)(1) of the Exchange Act (15 U.S.C. 78o-7(a)(1)). 286 Proposed Rule 17g-1(b)(2); *see also* Section 15E(a)(1) of the Exchange Act (15 U.S.C. 78o-7(a)(1)). 287 Section 15E(a)(3) of the Exchange Act (15 U.S.C. 78o-7(a)(3)) and proposed Rule 17g-1(d). 288 Proposed Rule 17g-1(e). 289 Section 15E(b)(1) of the Exchange Act (15 U.S.C. 78o-7(b)(1)) and proposed Rule 17g-1(f). 290 Section 15E(b)(2) of the Exchange Act (15 U.S.C. 78o-7(b)(2)) and proposed Rule 17g-1(g). 291 Section 15E(e)(1) of the Exchange Act (15 U.S.C. 78o-7(e)(1)) and proposed Rule 17g-1(h). 292 Proposed Rule 17g-2 under authority in Section 17(a)(1) of the Exchange Act (15 U.S.C. 78q(a)(1)). 293 Proposed Rule 17g-2(e) under authority in Section 17(a)(1) of the Exchange Act (15 U.S.C. 78q(a)(1)). 294 Proposed Rule 17g-2(f) under authority in Section 17(a)(1) of the Exchange Act (15 U.S.C. 78q(a)(1)). 295 Section 15E(k) of the Exchange Act (15 U.S.C. 78o-7(k)) and Proposed Rule 17g-3. 296 Section 15E(g) of the Exchange Act (15 U.S.C. 78o-7(g)) and proposed Rule 17g-4. 297 *See* Proposed Rule 17g-6(b)(2) under authority in Section 17(a)(1) of the Exchange Act (15 U.S.C. 78q(a)(1)). 298 *See* 15 U.S.C. 78o-7. B. Proposed Use of Information Proposed Rules 17g-1 through 17g-6, Form NRSRO, and the Instructions for Form NRSRO, would create a framework for Commission oversight of NRSROs. The collections of information in the proposed rules are designed to allow the Commission to determine whether an entity should be registered as an NRSRO. Further, they would assist the Commission in effectively monitoring, through its examination function, whether an NRSRO is conducting its activities in accordance with Section 15E of the Exchange Act 299 and the rules thereunder. These proposed rules also are designed to assist users of credit ratings by requiring the disclosure of information with respect to an NRSRO that could be used to compare the credit ratings quality of different NRSROs. The information would include methods for determining credit ratings, organizational structure, policies for managing material, non-public information, information regarding conflicts of interest, policies for managing conflicts of interest, credit analyst experience, and management experience. As noted in the Senate Report accompanying the Act, the information that NRSROs would have to make public “will facilitate informed decisions by giving investors the opportunity to compare ratings quality of different firms.” 300 299 15 U.S.C. 78o-7. 300 *See Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 3850,* Credit Rating Agency Reform Act of 2006, S. Report No. 109-326, 109th Cong., 2d Sess. (Sept. 6, 2006) (“Senate Report”). C. Respondents The number of respondents that would be subject to the proposed rules would depend, in part, on the number of entities that meet the statutory requirements to be eligible for registration. The Act, by adding definitions to Section 3 of the Exchange Act, 301 identifies the types of entities that may apply for registration with the Commission as an NRSRO. 302 First, it defines an “NRSRO” as a “credit rating agency” that, in pertinent part, has been in business as a credit rating agency for at least three consecutive years immediately preceding the date of its application for registration; issues credit ratings certified by 10 QIBs (unless exempted from that requirement) with respect to financial institutions, brokers, dealers, insurance companies, corporate issuers, issuers of asset-backed securities (as that term defined in 17 CFR 229.1101(c)), issuers of government securities, issuers of municipal securities, or issuers of foreign government securities; and is registered with the Commission. 303 301 15 U.S.C. 78c. 302 *See* Section 3 of the Act. 303 Section 3(a)(62) of the Exchange Act (15 U.S.C. 78c(a)(62)). Section 3(a)(64) of the Exchange Act defines the “qualified institutional buyer” (“QIB”) as having the “meaning given such term in [17 CFR 230.144A(a)] or any successor thereto.” 15 U.S.C. 78c(a)(62). Section 3 of the Exchange Act also defines the term “credit rating agency” as, in pertinent part, any person engaged in the business of issuing credit ratings on the Internet or through another readily accessible means, for free or for a reasonable fee; employing either a quantitative or qualitative model, or both, to determine credit ratings; and receiving fees from either issuers, investors, or other market participants, or a combination of these persons. 304 The definition specifically excludes a commercial credit reporting company. 305 Finally, Section 3 of the Exchange Act defines the term “credit rating” to mean “an assessment of the creditworthiness of an obligor as an entity or with respect to specific securities or money market instruments.” 306 304 Section 3(a)(61) of the Exchange Act (15 U.S.C. 78c(a)(61)). 305 Section 3(a)(61)(A) of the Exchange Act (15 U.S.C. 78c(a)(61)(A)). 306 Section 3(a)(60) of the Exchange Act (15 U.S.C. 78c(a)(60)). These definitions create threshold eligibility requirements with respect to the entities that would be eligible to apply for registration as an NRSRO. Because NRSROs have not previously been supervised as such, and because credit rating agencies include publicly and privately held companies located throughout the world, it is difficult to estimate the number of entities that would be eligible to register as NRSROs. In 2000, a working group of the Basel Committee on Banking Supervision 307 issued a report on credit rating agencies that was based, in part, on surveys of 28 credit rating agencies located around the world, including the five credit rating agencies currently identified as NRSROs through the Commission's no-action letter process. 308 In its report, the working group estimated that there were approximately 150 credit rating agencies located world-wide. 309 The working group also noted that there was a wide disparity in size among credit rating agencies in terms of number of employees and credit ratings issued. 310 In addition, the working group noted that some credit rating agencies focus exclusively on issuers in the countries where they are located. 311 More recently, the Web site *http://www.DefaultRisk.com* has tracked the number of credit rating agencies. This site identifies 57 credit rating agencies as of February 2006 and indicates that this count reflects a decrease from a previous count of 74. 312 The Web site attributed the decrease to smaller firms either being consolidated into larger firms or ceasing operations. 313 307 The Basel Committee on Banking Supervision is comprised of members from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the United States. Countries are represented by their central bank and also by the authority with formal responsibility for the prudential supervision of banking business where this is not the central bank. More information about the Basel Committee for Banking Supervision can be found at: *http://www.bis.org/.* 308 *Credit Ratings and Complementary Sources of Credit Quality Information* , Working group of the Basel Committee on Banking Supervision, No. 3— August 2000 (“ *Basel Report* ”). 309 *Id.* 310 *Id.* 311 *Id.* 312 *See http://www.defaultrisk.com* (“ *DefaultRisk.com* ”). 313 *Id.* The Commission believes the estimates in the 2000 *Basel Report* and by *DefaultRisk.Com* provide some basis upon which to estimate the number of entities engaging in the business of issuing credit ratings. The Commission, however, cannot determine whether the entities included in these estimates would meet the statutory requirements to apply for, and be registered as, an NRSRO. In addition, the Commission cannot estimate with certitude how many credit rating agencies ultimately would opt to be registered as NRSROs. Section 15E(a)(1) of the Exchange Act makes registration voluntary. 314 Some credit rating agencies may decide not to seek registration because, for example, they do not believe that being an NRSRO would benefit them based on their business model. The Commission staff's experience with the current no-action letter process of identifying NRSROs provides some support for the conclusion that a substantial number of credit rating agencies may not apply for registration. Specifically, assuming the number of credit rating agencies has fluctuated over the years from between approximately 150 as of 2000 ( *Basel Report* ) and 57 as of February 2006 ( *DefaultRisk.com* ), then a large majority of these firms have not applied to the Commission to be identified as NRSROs under the current no-action letter process. It is possible that certain firms that did not seek NRSRO status previously would seek it under Section 15E of the Exchange Act 315 and any rules adopted thereunder. In addition, the use of QIB certifications as a prerequisite to registration (as opposed to the no-action letter process which evaluated national recognition) also may increase the number of credit rating agencies that would be eligible for registration as an NRSRO. 314 15 U.S.C. 78o-7(a)(1). 315 15 U.S.C. 78o-7. For all these reasons, the Commission estimates that the number of credit rating agencies applying for registration would be larger than the sum of the number of credit rating agencies currently identified as NRSROs plus the handful of entities with pending requests for no-action letters. At the same time, the Commission does not believe that all of the 57 credit rating agencies identified by *DefaultRisk.Com* would apply for, or be granted, registration. Consequently, the Commission estimates that approximately 30 credit rating agencies would be registered as NRSROs under Section 15E of the Exchange Act. 316 316 15 U.S.C. 78o-7. The Commission requests comment on this estimate and whether more or fewer credit rating agencies would be registered as NRSROs. The Commission also requests comment on whether the sources of industry information used in arriving at the estimate (the *Basel Report* and the *DefaultRisk.Com* Web site) provide a reasonable basis for arriving at the estimate of 30 NRSROs. The Commission further requests comment on whether there are other industry sources that could provide credible statistics that could be used to determine the number of credit rating agencies that would be registered as NRSROs. Commenters should identify any such sources and explain how a given source would be used to either support the Commission's estimate of 30 NRSROs or arrive at a different estimate. D. Total Annual Recordkeeping and Reporting Burden As discussed in further detail below, the Commission estimates the total recordkeeping burden resulting from these proposed rules would be approximately 16,021 hours 316a on an annual basis and 21,825 hours 316b on a one-time basis. 316a This total is derived from the total annual hours set forth in the order that the totals appear in the text: 1 + 1,500 + 300 + 300 + 7,620 + 6,000 + 300 = 16,021 hours. 316b This total is derived from the total one-time hours set forth in the order that the totals appear in the text: 9,000 + 125 + 900 + 9,000 + 100 + 1,500 = 21,825 hours. The total annual and one-time hour burden estimates described below are averages across all types of expected NRSROs. The size and complexity of NRSROs would range from small entities to entities that are part of complex global organizations employing thousands of credit analysts. The Commission believes that larger NRSROs generally would have established written policies and procedures and recordkeeping systems that would comply with a substantial portion of the requirements in the proposed rules. For example, many of the requirements in the proposed rules are consistent with the IOSCO Code, which a number of credit rating agencies have adopted. These firms might only be required to augment or modify existing policies and procedures and recordkeeping systems to comply with the proposed rules. Some smaller entities also would have implemented the policies, procedures, and recordkeeping systems necessary to comply with the proposed rules. Moreover, given their smaller size and simpler structure, smaller entities would require significantly fewer hours to comply with a substantial portion of the requirements in the proposed rules. Consequently, the burden hour estimates represent the average time across all NRSROs (regardless of size) and taking into account that many firms would only need to augment existing policies, procedures, and recordkeeping systems and processes to comply with the proposed rules. The Commission further notes that, given the significant variance in size between the largest credit rating agencies and the smaller firms, the burden estimates, as averages across all NRSROs, are skewed higher by the largest firms. Furthermore, because the Commission is proposing to require additional information in Form NRSRO beyond that prescribed in Section 15E(1)(B) of the Exchange Act, 317 the burden estimates for proposed Rule 17g-1 include estimates that arise from requirements imposed by Section 15E of the Exchange Act. 318 The intent is to quantify the incremental burden of complying with these statutory requirements as a result of the additional information that would be required under proposed Rule 17g-1. Thus, the estimates do not seek to capture paperwork burden that would be solely attributable to requirements in Section 15E of the Exchange Act. 319 317 15 U.S.C. 78o-7(a)(1)(B). 318 15 U.S.C. 78o-7. 319 *Id.* The Commission seeks comment on whether these factors have been reasonably incorporated into the burden estimates. 1. Proposed Rule 17g-1, Form NRSRO and Instructions for Form NRSRO Section 15E(a)(1) of the Exchange Act requires a credit rating agency applying for registration with the Commission to furnish an application containing certain specified information and such other information as the Commission prescribes as necessary or appropriate in the public interest or for the protection of investors. 320 Proposed Rule 17g-1 would implement this statutory provision by requiring a credit rating agency to furnish an initial application on Form NRSRO to the Commission to apply to be registered under Section 15E of the Exchange Act. 321 The Commission estimates that the average time necessary to complete the initial Form NRSRO, and compile the various attachments, would be approximately 300 hours per applicant. This estimate is based on staff experience with the current NRSRO no-action letter process. 322 The Commission, therefore, estimates that the total one-time burden to the industry as a result of this requirement would be approximately 9,000 hours. 323 320 15 U.S.C. 78a-7(a)(1). 321 15 U.S.C. 78o-7. 322 As a comparison, the Commission notes that Form ADV, the registration form for investment advisers, is estimated to take approximately 22.25 hours to complete. *See* Investment Advisor Act of 1940 Release No. 2266 (July 20, 2004). The Commission estimates that the hour burden under Rule 17g-1 would be greater, given the substantially larger amount of information that would be required in proposed Form NRSRO. 323 300 hours × 30 entities = 9,000 hours. The Commission also anticipates that an NRSRO likely would engage outside counsel to assist it in the process of completing and submitting a Form NRSRO. The amount of time an outside attorney would spend on this work would depend on the size and complexity of the NRSRO. Therefore, the Commission estimates that, on average, an outside counsel would spend approximately 40 hours assisting an NRSRO in preparing its application for registration for a one-time aggregate burden to the industry of 1,200 hours. The Commission further estimates that this work would be split between a partner and associate, with an associate performing a majority of the work. Therefore, the Commission estimates that the average hourly cost for an outside counsel would be approximately $400 per hour. For reasons, the Commission estimates that the average one-time cost to an NRSRO would be $16,000 324 and the one-time cost to the industry would be $480,000. 325 324 $400 per hour × 40 hours = $16,000. 325 $16,000 × 30 NRSROs = $480,000. As noted, proposed Rule 17g-1 would require a credit rating agency to provide the Commission with a written notice if it intends to withdraw its application prior to final Commission action. Based on staff experience, the Commission estimates that one credit rating agency per year would withdraw a Form NRSRO prior to final Commission action on the application and, consequently, would furnish a notice of its intent to withdraw the application. Based on the Commission's current estimates for a broker-dealer to file a notice with the Commission under Rule 17a-11, the Commission estimates the average burden to an NRSRO to furnish the notice of withdrawal would be one hour. 326 Thus, the Commission estimates that the aggregate annual burden to the industry of providing a notice of withdrawal prior to final Commission action would be one hour per year. 327 326 *See* Exchange Act Release No. 49830 (June 8, 2004), at note 89; *see also* 17 CFR 240.17a-11. 327 (1 hour × 1 entity) = 1 hour. Proposed Rule 17g-1 also would require that an NRSRO registered for fewer than the five categories of credit ratings listed in Section 3(a)(62)(B) of the Exchange Act would apply to be registered for an additional category by furnishing an amendment on Form NRSRO. 328 The Commission estimates that it would take an NRSRO substantially less time to update the Form NRSRO for this purpose than to prepare the initial application. For example, much of the information on the form and many of the exhibits would still be current and not have to be updated. Based on the Commission's estimate of the burden to complete a Form ADV, the Commission estimates that filing an amended Form NRSRO for this purpose would take an average of approximately 25 hours per NRSRO. 329 328 *See* proposed Rule 17g-1(e). 329 As noted above, the Commission's burden estimate for Form ADV is approximately 22.25 hours to complete. *See* Investment Advisor Act of 1940 Release No. 2266 (July 20, 2004). The Commission further estimates based on staff experience that approximately five of the 30 credit rating agencies expected to register with the Commission would apply to register for additional categories of credit ratings within the first year. The Commission believes that almost all NRSROs would initially apply to register for the first three categories of credit ratings identified in the definition of NRSRO:

(1)Financial institutions, brokers, or dealers;

(2)insurance companies; and

(3)corporate issuers. 330 The Commission believes these are the most common types of credit ratings issued, particularly since some credit rating agencies limit their credit ratings to domestic companies. The Commission believes that, after these three categories, the next largest category of credit ratings for which most NRSROs would be registered would be for credit ratings with respect to issuers of government securities, municipal securities, and foreign government securities. 331 These types of credit ratings take additional expertise. Finally, the Commission believes the category of credit ratings for which the least number of NRSROs would be registered would be credit ratings of issuers of asset-backed securities (as that term defined in 17 CFR 229.1101(c)). 332 This assumption is based on the fact that determining a credit rating for an asset-backed security takes specialized expertise beyond that for determining credit ratings of corporate issuers and obligors. For example, it requires analysis of complex legal structures. 330 Section 3(a)(62)(B) of the Exchange Act (15 U.S.C. 78c(a)(62)(B)). 331 Section 3(a)(62)(B)(v) of the Exchange Act (15 U.S.C. 78c(a)(62)(B)(v)). 332 Section 3(a)(62)(B)(iv) of the Exchange Act (15 U.S.C. 78c(a)(62)(B)(iv)). For these reasons, the Commission anticipates that a number of NRSROs may register for less than all five categories of credit ratings. Moreover, some of these NRSROs , in time, may develop their businesses to include issuing credit ratings of a category for which they are not initially registered. Based on staff experience, the Commission estimates that approximately five of the estimated 30 NRSROs would apply to add another category of credit ratings to their registration within the first year. Therefore, given the 25 hour per NRSRO average burden estimate, the total aggregate one-time burden to the industry for filing the amended Form NRSRO to change the scope of registration would be approximately 125 hours. 333 333 25 hours × 5 NRSROs = 125 hours. Section 15E(b)(1) of the Exchange Act requires an NRSRO to promptly amend its application for registration if any information or document provided in the application becomes materially inaccurate. 334 Proposed Rule 17g-1 would require an NRSRO to comply with this statutory requirement by furnishing the amendment on Form NRSRO. Based on staff experience, the Commission estimates that an NRSRO would file two amendments of its Form NRSRO per year on average. Furthermore, for the reasons discussed above, the Commission estimates that it would take an average of approximately 25 hours to prepare and furnish an amendment on Form NRSRO. 335 Therefore, the Commission estimates that the total aggregate annual burden to the industry to update Form NRSRO would be approximately 1,500 hours each year. 336 334 15 U.S.C. 78o-7(b)(1). 335 This estimate also is based on the estimates for the collection of information on Rule 17i-2 of the Exchange Act. *See* 17 CFR 240.17i-2. 336 25 hours per amendment × 2 amendments × 30 NRSROs = 1,500 hours. Section 15E(b)(2) of the Exchange Act requires an NRSRO to furnish an annual certification. 337 Proposed Rule 17g-1 would require an NRSRO to furnish the annual certification on Form NRSRO. 338 The Commission estimates that the annual certification, generally, would take less time than an amendment to Form NRSRO because it would be done on a regular basis (albeit yearly) and, therefore, become more a matter of routine over time. Consequently, the Commission estimates that the burden would be similar to that of broker-dealers filing the quarterly reports required under Rules 17h-1T and 17h-2T, which is approximately 10 hours per year for each respondent. 339 Therefore, the Commission estimates it would take an NRSRO approximately 10 hours to complete the annual certification for a total aggregate annual hour burden to the industry of 300 hours. 340 337 15 U.S.C. 78o-7(b)(2). 338 *See* proposed Rule 17g-1(g). 339 *See* 17 CFR 240.17h-1T and 2T. 340 10 hour × 30 NRSROs = 300 hours. Finally, section 15E(a)(3) of the Exchange Act requires an NRSRO to make the information and documents submitted in its application publicly available on its Web site or through another comparable readily accessible means. 341 Proposed Rule 17g-1 would require that this be done within five business days of the granting of an NRSRO's registration or the furnishing of an amendment to the form or annual certification. 342 The Commission assumes that each NRSRO already would have a Web site and would choose to use their Web site to comply with Section 15E(a)(3) of the Exchange Act (15 U.S.C. 78o-7(a)(3)). Therefore, based on staff experience, the Commission estimates that, on average, an NRSRO would spend 30 hours to disclose the information in its initial application on its Web site and, thereafter, 10 hours per year to disclose updated information. Accordingly, the total aggregate one-time burden to the industry to make Form NRSRO publicly available would be 900 hours 343 and the total aggregate annual burden would be 300 hours. 344 341 15 U.S.C. 78o-7(a)(3). 342 *See* proposed Rule 17g-1(d). 343 30 hours × 30 NRSROs. 344 10 hours × 30 NRSROs. 2. Proposed Rule 17g-2 Section 17(a)(1) of the Exchange Act (as amended by the Act) 345 provides the Commission with authority to require an NRSRO to make and maintain such records as the Commission prescribes by rule as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Exchange Act. 346 Proposed Rule 17g-2 would implement this rulemaking authority by requiring an NRSRO to make and keep current certain records relating to its business. In addition, the proposed rule would require an NRSRO to preserve those and other records for certain prescribed time periods. This proposed rule is designed to assist the Commission monitor, through its examination function, whether NRSROs are complying with the requirements of Section 15E of the Exchange Act 347 and the regulations thereunder. The Commission estimates that the average one-time burden of implementing a recordkeeping system to comply with this proposed rule would be approximately 300 hours. This estimates is based on the Commission's experience with, and burden estimates for, certain recordkeeping requirements of consolidated supervised entities (“CSEs”) subject to Commission supervision. 348 345 *See* Section 5 of the Act. 346 *See* Section 5 of the Act and 15 U.S.C. 78q(a)(1). 347 15 U.S.C. 78o-7. 348 *See* 17 CFR 15c3-1g. The Commission also estimates that an NRSRO may need to purchase recordkeeping system software to establish a recordkeeping system in conformance with the proposed rule. The Commission estimates that the cost of the software would vary based on the size and complexity of the NRSRO. Also, the Commission estimates that some NRSRO's would not need such software because they already have adequate recordkeeping systems or, given their small size, such software would not be necessary. Based on these estimates, the Commission estimates that the average cost for recordkeeping software across all NRSROs would be approximately $1000 per firm. Therefore, the one-time cost to the industry would be $30,000. Additionally, the Commission estimates that the average annual amount of time that an NRSRO would spend to make and maintain these records would be approximately 254 hours per year. The estimate for annual hours is based on the Commission's present estimate the amount of time it would take a broker-dealer to comply with the recordkeeping rule, Rule 17a-4. 349 Therefore, the Commission estimates that the one-time hour burden for making and preserving the records under proposed Rule 17g-2 would be approximately 9,000 hours 350 and the total annual hour burden would be approximately 7,620 hours per year. 351 349 *See* 17 CFR 240.17a-4 (recordkeeping requirements for broker-dealers). This rule has previously has been subject to notice and comment and has been approved by OMB. The Commission notes that proposed Rule 17g-2 is based, in part, on Exchange Act Rules 17a-3 (17 CFR 240.17a-3) and 17a-4. The annual hour burden estimate for the proposed rule, however, is based only on the PRA estimate for Rule 17a-4. The proposed rule would require substantially less records to be made and maintained than Rules 17a-3 and 17a-4. Therefore, the Commission is basing its estimate that the burden estimate for only Rule 17a-4 (as opposed to Rules 17a-3 and 17a-4 combined). 350 300 hours × 30 NRSROs = 9,000 hours. 351 254 hours × 30 NRSROs = 7,620 hours. Proposed Rule 17g-2 also would require that an NRSRO that uses a third-party record custodian furnish the Commission with an undertaking from the custodian. Based on staff experience, the Commission estimates that approximately five NRSROs would file this undertaking on a one-time basis. Proposed Rule 17g-2 also would require that a non-resident NRSRO provide an undertaking to the Commission. The Commission estimates, based on staff experience, approximately five non-resident NRSROs would provide this undertaking to the Commission. The Commission estimates, based on staff experience, it would take an NRSRO approximately 10 hours to complete an undertaking prior to furnishing it to the Commission. 352 Therefore, the Commission estimates the total one-time hour burden for these undertakings would be 100 hours. 353 352 The estimated 10 hours includes drafting, legal review and receiving corporate authorization to file the undertaking with the Commission. 353 (10 hours × 5 NRSROs) + (10 hours × 5 NRSROs) = 100 hours. 3. Proposed Rule 17g-3 Section 15E(k) of the Exchange Act requires an NRSRO to furnish to the Commission, on a confidential basis and at intervals determined by the Commission, such financial statements and information concerning its financial condition that the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. 354 The section also provides that the Commission may, by rule, require that the financial statements be certified by an independent public accountant. 355 354 15 U.S.C. 78o-7(k). 355 *Id.* Proposed Rule 17g-3 would implement this statutory provision by requiring an NRSRO to furnish audited annual financial statements to the Commission, including certain specified schedules. 356 The Commission estimates that, on average, it would take an NRSRO approximately 200 hours to prepare for and file the annual audit. This estimate is based on the current PRA estimates used for CSEs under Appendix G to Exchange Act Rule 15c3-1, as well the PRA estimates for supervised investment bank holding companies under Rule 17i-5. 357 Therefore, the Commission estimates that the total annual hour burden to prepare and furnish annual audited financial statements with the Commission would be approximately 6,000 hours. 358 356 *See* proposed Rule 17g-3. 357 *See* 17 CFR 240.15c3-1g and 17i-5. 358 200 hours × 30 NRSROs = 6,000 hours. To comply with proposed Rule 17g-3, an NRSRO would need to engage the services of independent public accountant. The cost of hiring an accountant would vary substantially based on the size and complexity of the NRSRO. For example, the Commission notes, based on staff experience, that the annual audit costs of a small broker-dealer generally range from $3,000 to $5,000 a year. The Commission estimates that the annual audit costs for a small NRSRO would be comparable. The costs for a large NRSRO would be much greater. However, many of these firms already are audited by a public accountant for other regulatory purposes. These firms, however, may incur some incremental costs, given the schedules in proposed Rule 17g-3. For these reasons, the Commission estimates that the average annual cost across all NRSROs to engage the services of an independent public accountant would be approximately $15,000. Therefore, the annual cost to the industry would be $450,000. 359 359 $15,000 ×30 NRSROs = $450,000. 4. Proposed Rule 17g-4 Section 15E(g)(1) of the Exchange Act 360 requires an NRSRO to establish, maintain, and enforce written policies and procedures to prevent the misuse of material, nonpublic information in violation of the Exchange Act. 361 Section 15E(g)(2) of the Exchange Act provides that the Commission shall adopt rules requiring an NRSRO to establish specific policies and procedures to prevent the misuse of material, non-public information. 362 Proposed Rule 17g-4 would implement this statutory provision by requiring that an NRSRO's policies and procedures established pursuant to Section 15E(g)(1) of the Exchange Act 363 include three specific types of procedures. 364 360 15 U.S.C. 78o-7(g)(1). 361 15 U.S.C. 78a *et seq.* 362 15 U.S.C. 78o-7(g)(2). 363 15 U.S.C. 78o-7(g)(1). 364 *See* proposed Rule 17g-4. The Commission expects that most credit rating agencies already have procedures in place to address the specific misuses of material nonpublic information identified in proposed Rule 17g-4. 365 Nonetheless, the Commission anticipates that some NRSROs may need to modify their procedures to comply with the specific procedures that would be required by the proposed rule. Based on staff experience, the Commission estimates that it would take approximately 50 hours for an NRSRO to establish procedures in conformance with the proposed rule for a total one-time burden of 1,500 hours. 366 365 For example, the IOSCO Code requires credit rating agencies to develop such procedures. 366 50 hours × 30 NRSROs = 1,500 hours. 5. Proposed Rule 17g-6(b) Proposed Rule 17g-6(b) would require an NRSRO using the exception in the rule to document in writing the reasons for refusing to issue a credit rating or withdrawing a credit rating in connection with a mortgaged-backed or asset-backed security. Based on staff experience, the Commission estimates that each NRSRO would need to document approximately five refusals per year and that it would take approximately two hours to create the record. The two hour estimate is based on staff experience and on the current one-hour estimate for a broker-dealer to file the notice under Rule 17a-11. The Commission has adjusted this estimate upwards to two hours because the Commission believes that an NRSRO would take longer to explain the applicability of the safe harbor than to explain the reasons for the notices required under Rule 17a-11. For these reasons, the Commission estimates that the total annual hour burden for this proposed rule would be 300 hours per year. 367 367 (2 hours × 5 refusals) × 30 NRSROs = 300 hours. E. Collection of Information Is Mandatory These recordkeeping and notice requirements are mandatory, where applicable. F. Confidentiality Pursuant to section 15E(a)(1)(B) of the Exchange Act, certain information collected in Form NRSRO required under Rule 17g-1(a) would not be confidential. However, other information would be confidential under section 15E(a)(1)(B) of the Exchange Act and proposed Rule 17g-1(b). The Commission would keep this information confidential to the extent permitted by law. The books and records information collected under proposed Rules 17g-2, 17g-4, and 17g-6 would be stored by the NRSRO and made available to the Commission and its representatives as required in connection with examinations, investigations, and enforcement proceedings. The information collected under Rule 17g-3 (the annual audited financial statements) would be generated from the internal records of the NRSRO. Pursuant to Section 15E(k) of the Exchange Act, the annual audit would be furnished to the Commission on a confidential basis, to the extent permitted by law. 368 368 15 U.S.C. 78o-7(k). G. Record Retention Period Paragraph

(c)of proposed Rule 17g-2 would require an NRSRO to retain the records for at least three years, except records relating to customers would need to be retained until three years after the business relationship with the customer ended. 369 369 *See* proposed Rule 17g-2(c). H. Request for Comment The Commission requests comment on the proposed collections of information in order to:

(1)Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information would have practical utility;

(2)evaluate the accuracy of the Commission's estimate of the burden of the proposed collection of information;

(3)determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected;

(4)evaluate whether there are ways to minimize the burden of the collection of information on those who respond, including through the use of automated collection techniques or other forms of information technology; and

(5)evaluate whether the proposed rules would have any effects on any other collection of information not previously identified in this section. Persons who desire to submit comments on the collection of information requirements should direct their comments to the OMB, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and should also send a copy of their comments to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090, and refer to File No. S7-04-07. OMB is required to make a decision concerning the collections of information between 30 and 60 days after publication of this document in the **Federal Register** ; therefore, comments to OMB are best assured of having full effect if OMB receives them within 30 days of this publication. The Commission has submitted the proposed collections of information to OMB for approval. Requests for the materials submitted to OMB by the Commission with regard to these collections of information should be in writing, refer to File No. S7-04-07, and be submitted to the Securities and Exchange Commission, Records Management, Office of Filings and Information Services, 100 F Street, NE., Washington, DC 20549. V. Costs and Benefits of the Proposed Rules The Commission is sensitive to the costs and benefits that result from its rules. The Commission has identified certain costs and benefits of the proposed rules and requests comment on all aspects of this cost-benefit analysis, including identification and assessment of any costs and benefits not discussed in the analysis. 370 The Commission seeks comment and data on the value of the benefits identified. The Commission also welcomes comments on the accuracy of its cost estimates in each section of this cost-benefit analysis, and requests those commenters to provide data so the Commission can improve the cost estimates, including identification of industry statistics relied on by commenters to reach conclusions on cost estimates. The Commission also seeks comment on the extent to which costs are attributable to requirements set forth in Section 15E of the Exchange Act, 371 rather than the proposed rules. Finally, the Commission seeks estimates and views regarding these costs and benefits for particular types of market participants, as well as any other costs or benefits that may result from the adoption of these proposed rules. 370 For the purposes of this cost/benefit analysis, the Commission is using salary data from the *SIA Report on Management and Professional Earnings in the Securities Industry 2005* (“SIA Management Report 2005”), which provides base salary and bonus information for middle-management and professional positions within the securities industry. The positions in the report are divided into the following categories: Accounting, Administration & Finance, Compliance, Customer Service, Floor/Trading, Human Resources Management, Internal Audit, Legal, Marketing/Corporate Communications, New Business Development, Operations, Research, Systems/Technology, Wealth Management, and Business Continuity Planning. The Commission believes that the salaries for these securities industry positions would be comparable to the salaries of similar positions in the credit rating industry. The Commission also notes that it is using salaries for New York-based employees, which tend to be higher than the salaries for comparable positions located outside of New York. This conservative approach is intended to capture unforeseen costs. Finally, the salary costs derived from the SIA Management Report 2005 and referenced in this cost benefit section, are modified to account for an 1800-hour work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead. 371 15 U.S.C. 78o-7. A. Benefits The purposes of the Credit Rating Agency Reform Act of 2006 (the “Act”) 372 are to improve ratings quality for the protection of investors and in the public interest by fostering accountability, transparency, and competition in the credit rating industry. 373 As the Senate Report states, the Act establishes “fundamental reform and improvement of the designation process,” and “eliminating the artificial barrier to entry will enhance competition and provide investors with more choices, higher quality ratings, and lower costs.” 374 372 Pub. L. No. 109-291 (2006). 373 *See Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 3850,* Credit Rating Agency Reform Act of 2006, S. Report No. 109-326, 109th Cong., 2d Sess. (Sept. 6, 2006) (“Senate Report”). 374 *Id.* To these ends, the Act establishes—through statutory provisions and the grant of Commission rulemaking authority—a regulatory program for credit rating agencies opting to have their credit ratings qualify for purposes of laws and rules using the term “NRSRO.” Specifically, the Act sets out a voluntary mechanism for credit rating agencies to register with the Commission as an NRSRO. 375 It requires an NRSRO to make public certain information to help users of credit ratings assess the NRSRO's credibility and compare the NRSRO with other NRSROs. 376 The Act also requires an NRSRO to furnish the Commission with periodic financial reports. 377 Further, the Act requires an NRSRO to implement policies to manage the handling of material non-public information and conflicts of interest. 378 Pursuant to authority under the Act, the Commission would prohibit certain acts and practices the Commission determines to be unfair, coercive, or abusive. 379 375 Section 15E of the Exchange Act (15 U.S.C. 78o-7). 376 Sections 15E(a)(1) and (b)(1) of the Exchange Act (15 U.S.C. 78o-7(a)(1) and (b)(1)). 377 Section 15E(k) of the Exchange Act (15 U.S.C. 78o-7(k)). 378 Sections 15E(g) and

(h)of the Exchange Act (15 U.S.C. 78o-7(g) and (h)). 379 Section 15E(i) of the Exchange Act (15 U.S.C. 78o-7(i)). The rules proposed by the Commission under the Act would be issued pursuant to specific grants of rulemaking authority in the Act. They are designed to further the goals of the Act. A primary purpose of the Act is to foster “competition in the credit rating agency business.” 380 The practice of identifying NRSROs through staff no-action letters has been criticized as a process that lacks transparency and creates a barrier for credit rating agencies seeking wider recognition and market share. The Commission believes that these proposed rules further the Act's goal of increasing competition because they would provide credit rating agencies with a transparent process to apply for registration as an NRSRO that does not favor a particular business model or larger, established firms. This would make it easier for more credit rating agencies to apply for registration. Increased competition in the credit ratings business could lower the cost to issuers, obligors, and underwriters of obtaining credit ratings. 380 *See Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 3850,* Credit Rating Agency Reform Act of 2006, S. Report No. 109-326, 109th Cong., 2d Sess. (Sept. 6, 2006) (“Senate Report”). In addition, the Act requires NRSROs to make their credit ratings and information about themselves available to the public. Part of the definition of “credit rating agency” in the Act is that the entity must be in the business of issuing credit ratings on the Internet or through another readily accessible means, for free or for a reasonable fee. 381 Under the Act and the rules proposed to be adopted thereunder, an NRSRO would need to disclose important information such as its credit ratings performance statistics, its methods for determining credit ratings, its organizational structure, its procedures to prevent the misuse of material non-public information, the conflicts of interest that arise from its business activities, its code of ethics, and the qualifications of its credit analysts, credit analyst supervisors and compliance personnel. The Commission believes that these disclosures under the proposed rules would allow users of the credit ratings to compare the ratings quality of different NRSROs. Although the information an NRSRO would provide on its Form NRSRO and to comply with the proposed rules cannot substitute for an investor's due diligence in evaluating a credit rating, it would aid investors by providing a publicly accessible foundation of basic information about an NRSRO. 381 Section 3(a)(61) of the Exchange Act (15 U.S.C. 78c(a)(61)). In addition, the proposed rules implement provisions of the Act that are designed to improve the integrity of NRSROs. For example, the registration of a credit rating agency as an NRSRO would allow the Commission to conduct regular examinations of the credit rating agency to evaluate compliance with the regulatory scheme set forth in Section 15E of the Exchange Act 382 and the proposed rules and would subject an NRSRO to disclosure, recordkeeping, and annual audit requirements, as well as requirements regarding the prevention of misuse of material, nonpublic information, the management of conflicts of interest, and certain prohibited acts and practices. Increased confidence in the integrity of NRSROs and the credit ratings they issue could promote participation in the securities markets. Better quality ratings could also reduce the likelihood of an unexpected collapse of a rated issuer or obligor, reducing risks to individual investors and to the financial markets. In addition to improving the quality of credit ratings, increased oversight of NRSROs could increase the accountability of an NRSRO to its subscribers, investors, and other persons who rely on the credibility and objectivity of credit ratings in making an investment decision. 382 15 U.S.C. 78o-7. Proposed Rule 17g-1 prescribes a process for a credit rating agency to register with the Commission as an NRSRO. 383 This proposed rule would require a credit rating agency apply for registration using Form NRSRO. Proposed Form NRSRO would require that a credit rating agency provide information required under Section 15E(a)(1)(B) of the Exchange Act and certain additional information. 384 The additional information would assist the Commission in making the assessment regarding financial and managerial resources required under Section 15E(a)(2)(C)(ii)(I) of the Exchange Act. 385 This section directs the Commission to grant a credit rating agency's application for registration as an NRSRO unless, among other things, the Commission finds that the applicant does not have adequate financial and managerial resources to consistently issue ratings with integrity and to materially comply with its procedures and methodologies disclosed under Sections 15E(a)(1)(B) of the Exchange Act 386 and with the requirements in Sections 15E(g), (h),

(i)and

(j)of the Exchange Act. 387 Certain other additional information that would need to be made public would assist users of credit ratings in assessing the credibility of the NRSRO and to compare the NRSRO with other NRSROs. 383 *See* proposed Rule 17g-1. 384 *See* Section 15E(a)(1)(B) of the Exchange Act. 15 U.S.C. 78o-7(a)(1)(B). *See* Section III.C.2. (discussing the items included in Form NRSRO). 385 *See* 15 U.S.C. 78o-7(a)(2)(C)(ii)(I). 386 15 U.S.C. 78o-7(a)(1)(B). 387 15 U.S.C. 78o-7(g), (h),

(i)and (j). Proposed Rule 17g-2 would implement the Commission's recordkeeping and rulemaking authority under Section 17(a) of the Exchange Act 388 by requiring an NRSRO to make and retain certain records related to its business as a credit rating agency. 389 The proposed recordkeeping rule would assist the Commission in monitoring whether an NRSRO is complying with provisions of Section 15E of the Exchange Act and the rules thereunder. This would include monitoring whether it is operating consistently with the methodologies and procedures it establishes (and discloses) to determine credit ratings and its policies and procedures designed to ensure the impartiality of its credit ratings. 388 15 U.S.C. 78q(a)(1). 389 *See* proposed Rule 17g-2. Section 15E(k) of the Exchange Act requires an NRSRO to furnish to the Commission, on a confidential basis and at intervals determined by the Commission, such financial statements and information concerning its financial condition that the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. 390 The section also provides that the Commission may, by rule, require that the financial statements be certified by an independent public accountant. 391 Proposed Rule 17g-3 would require an NRSRO to furnish annual audited financial statements to the Commission. 392 This proposed rule would enhance Commission oversight of an NRSRO. Specifically, it would aid the Commission in monitoring whether the initiation of a proceeding under Section 15E(d) of the Exchange Act would be appropriate because the NRSRO “fails to maintain adequate financial and managerial resources to consistently produce credit ratings with integrity.” 393 In addition, the audited financial statements also would assist the Commission in monitoring potential conflicts of interests of a financial nature which may arise in the operation of an NRSRO. 394 390 15 U.S.C. 78o-7(k). 391 *Id* . 392 *See* proposed Rule 17g-3. 393 15 U.S.C. 78o-7(d). 394 *See* *e.g.* , proposed Rule 17g-5(c)(1) prohibiting an NRSRO from issuing or maintaining a credit rating for a person that, in the most recently ended fiscal year, provided the NRSRO with net revenue equaling or exceeding 10% of the NRSRO's total revenue for the year. Section 15E(g)(1) of the Exchange Act 395 requires an NRSRO to establish, maintain, and enforce written policies and procedures to prevent the misuse of material, nonpublic information in violation of the Exchange Act. 396 Section 15E(g)(2) of the Exchange Act provides that the Commission shall adopt rules requiring an NRSRO to establish specific policies and procedures to prevent the misuse of material, non-public information. 397 Proposed Rule 17g-4 would implement this statutory provision by requiring that an NRSRO's policies and procedures established pursuant to Section 15E(g)(1) of the Exchange Act 398 include three specific types of procedures. 399 These specific procedures would establish a baseline for the type of procedures an NRSRO must implement to meet the statutory requirement in Section 15E(g) of the Exchange Act. 400 In this way, the proposed rule is designed to ensure that an NRSRO establishes adequate procedures and controls to protect material nonpublic information. 395 15 U.S.C. 78o-7(g)(1). 396 15 U.S.C. 78a *et seq.* 397 15 U.S.C. 78o-7(g)(2). 398 15 U.S.C. 78o-7(g)(1). 399 *See* proposed Rule 17g-4. 400 15 U.S.C. 78o-7(g). Proposed Rule 17g-5 would implement Section 15E(h)(2) of the Exchange Act 401 by requiring an NRSRO to disclose and manage certain conflicts of interest, as well as specifically prohibiting other conflicts of interest. 402 The proposed rule would promote the disclosure and management of conflicts of interest required by Sections 15E(a)(1)(B)(vi) and 15E(h) of the Exchange Act and mitigate potential undue influences on an NRSRO's credit rating process. 403 401 15 U.S.C. 78o-7(h)(2). 402 *See* proposed Rule 17g-5. 403 15 U.S.C. 78o-7(a)(1)(B)(vi) and (h). Proposed Rule 17g-6 would prohibit an NRSRO from engaging in certain unfair, abusive, or coercive acts or practices, including practices with respect to unsolicited ratings. 404 These proposed prohibitions are designed to enhance the integrity of NRSROs, promote competition and fulfill a statutory mandate. 404 *See* proposed Rule 17g-6. We request comment on available metrics to quantify these benefits and any other benefits the commenter may identify, including the identification of sources of empirical data that could be used for such metrics. B. Costs The Act requires that the rules and regulations that the Commission may prescribe under the Act “shall be narrowly tailored” to meet its requirements. 405 The rules proposed by the Commission are designed to adhere to this statutory mandate and, thereby, keep compliance costs as low as possible. 405 15 U.S.C. 78o-7(c)(2). The cost of compliance to a given NRSRO would depend on its size and the complexity of its business activities. As discussed above, the size and complexity of credit rating agencies varies significantly. Therefore, it is difficult to quantify a cost per NRSRO. Instead, the Commission is providing estimates of the average cost per NRSRO taking into consideration the range in size and complexity of NRSROs and the fact that many already may have established policies, procedures and recordkeeping systems and processes that would comply substantially with the proposed requirements. The Commission believes that larger NRSROs generally would already have established written policies and procedures and recordkeeping systems that would comply with a substantial portion of the requirements in the proposed rules. Many of the requirements in the proposed rules are consistent with the IOSCO Code, which a number of credit rating agencies (including the largest) have adopted. These firms would need to augment or modify existing policies and procedures and recordkeeping systems to comply with the proposed rules (rather than establish new ones). Some smaller credit rating agencies also have implemented the policies, procedures, and recordkeeping systems necessary to comply with the proposed rules. Moreover, given their smaller size and simpler structure, smaller entities would require less effort and incur less cost to comply with a substantial portion of the requirements in these proposed rules. For these reasons, the cost estimates represent the average cost across all NRSROs (regardless of size) and take into account that many firms would only need to augment existing policies, procedures and recordkeeping systems and processes to come into compliance with the proposed rules. Furthermore, as discussed with respect to the Paperwork Reduction Act of 1995 (“PRA”), 406 the Commission is proposing to require additional information in Form NRSRO beyond that prescribed in Section 15E(1)(B) of the Exchange Act. 407 Therefore, the cost estimates for proposed Rule 17g-1 include estimates that arise from requirements imposed by Section 15E of the Exchange Act. 408 The intent is to quantify the incremental burden of complying with these statutory requirements as a result of the additional information that would be required under the proposed Rule 17g-1. Thus, those estimates do not seek to capture costs that would be solely attributable to requirements in Section 15E of the Exchange Act. 409 The Commission requests commenters to provide data for the costs that would be solely attributable to the requirements of Section 15E of the Exchange Act. 406 44 U.S.C. 3501 *et seq.* ; 5 CFR 1320.11. 407 15 U.S.C. 78o-7(a)(1)(B). 408 15 U.S.C. 78o-7. 409 *Id* . Given the estimates set forth below, the Commission estimates that the total one-time estimated cost to NRSROs resulting from these rule proposals would be approximately $4,936,325 410 and the total estimated annual cost to NRSROs resulting from these rule proposals would be approximately $3,955,500 per year. 411 410 This total is derived from the total one-time costs set forth in the order that they appear in the text: $2,007,000 + $480,000 + $25,625 + $30,000 + $241,200 + $1,845,000 + $307,500 = $4,936,325. 411 This total is derived from the total annual costs set forth in the order that they appear in the text: $307,500 + $61,500 + $80,400 + $1,562,100 + $1,494,000 + $450,000 = $3,505,500. 1. Proposed Rule 17g-1, Form NRSRO and Instructions to Form NRSRO Section 15E(a)(1) of the Exchange Act requires a credit rating agency applying for registration with the Commission to furnish an application containing certain specified information and such other information as the Commission prescribes as necessary or appropriate in the public interest or for the protection of investors. 412 Proposed Rule 17g-1 would implement this statutory provision by requiring a credit rating agency to furnish an initial application on Form NRSRO to apply to be registered under section 15E of the Exchange Act. 413 412 15 U.S.C. 78o-7(a)(1). 413 15 U.S.C. 78o-7. NRSROs would incur costs to register under Section 15E of the Exchange Act and proposed Rule 17g-1 thereunder. 414 As discussed above with respect to PRA, the Commission estimates that an NRSRO would spend approximately 300 hours to complete and furnish an initial Form NRSRO. Also, as discussed with respect to the PRA, the Commission estimates there would be 30 NRSROs. For these reasons, the Commission estimates that the average one-time cost to an NRSRO would be $66,900 415 and the total aggregate one-time cost to the industry would be $2,007,000. 416 414 There is no filing fee for a Form NRSRO. 415 The Commission estimates that a credit rating agency would have a senior compliance examiner perform these responsibilities. The SIA Management Report 2005 (Senior Compliance Examiner) indicates that the average hourly cost for a senior compliance examiner is $223. Therefore, the average one-time cost per NRSRO would be approximately $66,900 [(300 hours) × ($223 per/hour)]. 416 30 NRSROs × $66,900 = $2,007,000. Also, as discussed with respect to the PRA, the Commission also anticipates that an NRSRO likely would engage outside counsel to assist it in the process of completing and submitting a Form NRSRO. The amount of time an outside attorney would spend on this work would depend on the size and complexity of the NRSRO. Therefore, the Commission estimates that, on average, an outside counsel would spend approximately 40 hours assisting an NRSRO in preparing its application for registration. The Commission further estimates that this work would be split between a partner and associate, with an associate performing a majority of the work. Therefore, the Commission estimates that the average hourly cost for an outside counsel would be approximately $400 per hour. For these reasons, the Commission estimates that the average one-time cost to an NRSRO would be $16,000 417 and the one-time cost to the industry would be $480,000. 418 417 $400 per hour × 40 hours = $16,000. 418 $16,000 × 30 NRSROs = $480,000. Under proposed Rule 17g-1, an NRSRO applying to be registered for an additional category of credit ratings would need to file an amended Form NRSRO with the Commission. As discussed with respect to the PRA, the Commission estimates, on average, an NRSRO would spend 25 hours completing and furnishing a Form NRSRO for this purpose. The Commission also estimates with respect to the PRA that five of the 30 NRSROs would apply to register for an additional category of credit ratings. For these reasons, the Commission estimates that the average one-time cost to an NRSRO would be $5,125 419 and the total aggregate one-time cost to the industry would be $25,625. 420 419 The Commission estimates an NRSRO would have a senior compliance person perform these responsibilities. The SIA Management Report 2005 (Compliance Officer) indicates that the average hourly cost for a compliance manager is $205. Therefore, the average cost to an NRSRO would be $5,125 [(25 hours for one year) × ($205)]. 420 5 NRSROs × $5,125 = $25,625. Furthermore, as discussed above with respect to the PRA, the Commission also estimates that an NRSRO may need to purchase recordkeeping system software to establish a recordkeeping system in conformance with the proposed rule. The Commission estimates that the cost of the software would vary based on the size and complexity of the NRSRO. Also, the Commission estimates that some NRSRO's would not need such software because they already have adequate recordkeeping systems or, given their small size, such software would not be necessary. Based on these estimates, the Commission estimates that the average cost for recordkeeping software across all NRSROs would be approximately $1000 per firm. Therefore, the one-time cost to the industry would be $30,000. 421 421 $1,000 × 30 NRSROs = $30,000. Section 15E(b)(1) of the Exchange Act requires an NRSRO to promptly amend its application for registration if any information or document provided in the application becomes materially inaccurate. 422 Proposed Rule 17g-1 would require an NRSRO to comply with this statutory requirement by furnishing the amendment on Form NRSRO. As discussed with respect to the PRA, the Commission estimates that an NRSRO would furnish two amendments on Form NRSRO per year on average. The Commission also estimates with respect to the PRA that it would take approximately 25 hours to prepare and furnish an amendment and that there would be 30 NRSROs. For these reasons, the Commission estimates that the average annual cost to an NRSRO would be $10,250 423 and the total aggregate annual cost to the industry would be $307,500. 424 422 15 U.S.C. 78o-7(b)(1). 423 Based on the PRA estimates, an NRSRO would spend approximately 50 hours each year updating its application on Form NRSRO (25 hours per amendment × two amendments). The Commission estimates an NRSRO would have a senior compliance person perform these responsibilities. The SIA Management Report 2005 (Compliance Officer) indicates that the average hourly cost for a compliance manager is $205. Therefore, the total average annual cost to an NRSRO to update its registration on Form NRSRO would be $10,250 [(50 hours per year) × ($205 per hour)]. 424 $10,250 × 30 NRSROs = $307,500. Section 15E(b)(2) of the Exchange Act requires an NRSRO to furnish an annual certification. 425 Proposed Rule 17g-1 would require an NRSRO to furnish the annual certification on Form NRSRO. 426 As discussed with respect to the PRA, the Commission estimates an NRSRO would spend approximately 10 hours per year completing and furnishing the annual certification and that there would be 30 NRSROs. For these reasons, the Commission estimates that the average annual cost to an NRSRO would be $2,050 427 and the total aggregate annual cost to the industry would be $61,500. 428 425 15 U.S.C. 78o-7(b)(2). 426 *See* proposed Rule 17g-1(g). 427 The Commission estimates an NRSRO would have a senior compliance person perform these responsibilities. The SIA Management Report 2005 (Compliance Officer) indicates that the average hourly cost for a compliance manager is $205. Therefore, the average annual cost would be $2,050 [(10 hours per year) × ($205 per hour)]. 428 $2,050 × 30 NRSROs = $61,500. Section 15E(a)(3) of the Exchange Act requires an NRSRO to make certain information and documents submitted in its application publicly available on its Web site or through another comparable readily accessible means. 429 Proposed Rule 17g-1 would require that this be done within five business days of the granting of an NRSRO's registration or the furnishing of an amendment to the form or annual certification. 430 As discussed with respect to the PRA, the Commission estimates that the average hour burden for an NRSRO to disclose this information on its Web site would be approximately 30 hours on a one-time basis and 10 hours per year. Furthermore, as discussed with respect to the PRA, the Commission estimates that there would be 30 NRSROs. For these reasons, the Commission estimates that an NRSRO would incur an average one-time cost of $8,040 and an average annual cost of $2,680. 431 Consequently, the total aggregate one-time cost to the industry would be $241,200 432 and total aggregate annual cost to the industry would be $80,400 per year. 433 429 15 U.S.C. 78o-7(a)(3). 430 *See* proposed Rule 17g-1(d). 431 The Commission estimates that an NRSRO would have a Senior Programmer perform this work. The SIA Management Report 2005 (Senior Programmer) indicates that the average hourly cost for a senior programmer is $268. Therefore, the average one-time cost would be $8,040 [(30 hours) × ($268 per hour)] and the average annual cost would be $2,680 [(10 hours per year) × ($268 per hour)]. 432 $8,040 × 30 NRSROs = $241,200. 433 $2,680 × 30 NRSROs = $80,400. The Commission believes the requirements in proposed Rule 17g-1 to provide notices when a credit rating agency withdraws its application or an NRSRO withdraws its registration would result in *de minimis* costs. As noted above, we request comment on these proposed cost estimates. We also request comment on whether there would be costs in addition to those identified above, such as costs arising from systems changes. We also request comment on whether these proposals would impose costs on other market participants, including persons who use credit ratings to make investment decisions or for regulatory purposes, and persons who purchase services and products from NRSROs. Commenters should identify the metrics and sources of any empirical data that support their costs estimates. 2. Proposed Rule 17g-2 Section 17(a)(1) of the Exchange Act 434 provides the Commission with authority to require an NRSRO to make and maintain such records as the Commission prescribes by rule as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Exchange Act. 435 Proposed Rule 17g-2 would implement this rulemaking authority by requiring an NRSRO to make and preserve specified records related to its credit rating business. 434 *See* Section 5 of the Act. 435 *See* Section 5 of the Act and 15 U.S.C 78q(a)(1). As discussed with respect to the PRA, the Commission estimates that an NRSRO, on average, would spend approximately 300 hours on a one-time basis to establish a recordkeeping system and 254 hours each year updating its books and records. For these reasons, the Commission estimates that an NRSRO would incur an average one-time cost of $61,500 and an average annual cost of $52,070. 436 Consequently, the total aggregate one-time cost to the industry would be $1,845,000, 437 and the total aggregate annual cost to the industry would be $1,562,100 per year. 438 436 The Commission estimates that an NRSRO would have a compliance manager perform these responsibilities. The SIA Management Report 2005 indicates that the average hourly cost for a compliance manager is $205. Therefore, the average one-time cost would be $61,500 [(300 hours) × ($205 per hour)] and the average annual cost would be $52,070 [(254 hours per year) × ($205 per hour)]. 437 $61,500 × 30 NRSROs = $1,845,000. 438 $52,070 × 30 NRSROs = $1,562,100. As noted above, we request comment on these proposed cost estimates. We also request comment on whether there would be costs in addition to those identified above, such as costs arising from restructuring business practices. We also request comment on whether these proposals would impose costs on other market participants, including persons who use credit ratings to make investment decisions or for regulatory purposes, and persons who purchase services and products from NRSROs. Commenters should identify the metrics and sources of any empirical data that support their costs estimates. 3. Proposed Rule 17g-3 Section 15E(k) of the Exchange Act requires an NRSRO to furnish to the Commission, on a confidential basis and at intervals determined by the Commission, such financial statements and information concerning its financial condition that the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. 439 The section also provides that the Commission may, by rule, require that the financial statements be certified by an independent public accountant. 440 439 15 U.S.C. 78o-7(k). 440 *Id* . Proposed Rule 17g-3 would implement this statutory provision by requiring an NRSRO to furnish audited annual financial statements to the Commission, including certain specified schedules. 441 As discussed above with respect to the PRA, the Commission estimates that NRSRO, on average, would spend approximately 200 hours per year preparing for and furnishing the annual audit. For these reasons, the Commission estimates that the average annual cost to an NRSRO would be $49,800 442 and the total aggregate annual cost to the industry would be $1,494,000. 443 441 *See* proposed Rule 17g-3. 442 The Commission estimates that a senior internal auditor would perform these responsibilities. The SIA Management Report 2005 (Senior Internal Auditor) indicates that the average hourly cost for a senior internal auditor is $249. Therefore, the average annual cost would be $49,800 [(200 hours per year) × ($249 per hour)]. 443 $49,800 × 30 NRSROs = $1,494,000. As noted above, the average one-time and annual costs to NRSROs would vary widely depending on the size and complexity of the NRSRO. Moreover, some large credit rating agencies already prepare audited financial statements in accordance with other regulatory requirements. Nonetheless, these credit rating agencies, if they become NRSROs, may need to make changes to their accounting systems to comply with proposed annual audit requirements in Rule 17g-3. The Commission believes these costs would vary, depending on the size and complexity of the NRSRO, and seeks comment on the costs that would be incurred to make changes to their accounting systems. Furthermore, as discussed above with respect to the PRA, an NRSRO would need to engage the services of an independent public accountant to comply with proposed Rule 17g-3. The cost of hiring an accountant would vary substantially based on the size and complexity of the NRSRO. As noted above, based on staff experience, the annual audit costs of a small broker-dealer generally range from $3,000 to $5,000 a year. As the Commission estimated above, the annual audit costs for a small NRSRO would likely be comparable to the costs incurred by a small broker-dealer. The costs for a large NRSRO would be much greater. However, many of these firms already are audited by a public accountant for other regulatory purposes. These firms, however, may incur some incremental costs, given the schedules in proposed Rule 17g-3. For these reasons, the Commission estimates that the average annual cost across all NRSROs to engage the services of an independent public accountant would be approximately $15,000. Therefore, the annual cost to the industry would be $450,000. 444 444 $15,000 × 30 NRSROs = $450,000. As noted above, we request comment on these proposed cost estimates. We also request comment on whether there would be costs in addition to those identified above, such as costs arising from systems changes. We also request comment on whether these proposals would impose costs on other market participants, including persons who use credit ratings to make investment decisions or for regulatory purposes, and persons who purchase services and products from NRSROs. Commenters should identify the metrics and sources of any empirical data that support their cost estimates. 4. Proposed Rule 17g-4 Section 15E(g)(1) of the Exchange Act 445 requires an NRSRO to establish, maintain, and enforce written policies and procedures to prevent the misuse of material, nonpublic information in violation of the Exchange Act. 446 Section 15E(g)(2) of the Exchange Act provides that the Commission shall adopt rules requiring an NRSRO to establish specific policies and procedures to prevent the misuse of material, non-public information. 447 Proposed Rule 17g-4 would implement this statutory provision by requiring that an NRSRO's policies and procedures established pursuant to Section 15E(g)(1) of the Exchange Act 448 include three specific types of procedures. 449 445 15 U.S.C. 78o-7(g)(1). 446 15 U.S.C. 78a *et seq.* 447 15 U.S.C. 78o-7(g)(2). 448 15 U.S.C. 78o-7(g)(1). 449 *See* proposed Rule 17g-4. As discussed above with respect to PRA, the Commission estimates that it would take approximately 50 hours for an NRSRO to establish procedures in conformance with the proposed rule and that there would be 30 NRSROs. For these reasons, the Commission estimates that the average one-time cost to an NRSRO would be $10,250 450 and the total aggregate one-time cost to the industry would be $307,500. 451 450 The Commission estimates an NRSRO would have a senior compliance person perform these responsibilities. The SIA Management Report 2005 (Compliance Officer) indicates that the average hourly cost for a compliance manager is $205. Therefore, the average one-time cost to an NRSRO would be $10,250 [(50 hours) × ($205)]. 451 30 NRSROs × $10,250 = $307,500. As noted above, we request comment on these proposed cost estimates. We also request comment on whether there would be costs in addition to those identified above, such as costs arising from systems changes and restructuring business practices. We also request comment on whether these proposals would impose costs on other market participants, including persons who use credit ratings to make investment decisions or for regulatory purposes, and persons who purchase services and products from NRSROs. Commenters should identify the metrics and sources of any empirical data that support their costs estimates. 5. Proposed Rules 17g-5 and 17g-6 Proposed Rules 17g-5 and 17g-6 are conduct rules that would require NRSROs respectively to avoid certain conflicts of interest and unfair, abusive or coercive acts and practices and, consequently, do not require an NRSRO to make records or reports or create recordkeeping or accounting systems. 452 Moreover, 15E(1)(B)(vi) of the Exchange Act requires an NRSRO to disclose any conflicts of interest. Additionally, Section 15E(h) of the Exchange Act requires an NRSRO establish, maintain, and enforce written policies and procedures reasonable designed to address and manage any conflicts of interest that can arise from its business. Therefore, the Commission does not anticipate that proposed Rule 17g-5 would result in any significant incremental costs. 452 Paragraph

(b)of Rule 17g-6 does require a record to be made in certain situations. However, the Commission estimates that this requirement would impose *de minimis* costs. Proposed Rules 17g-5 and 17g-6 do prohibit respectively certain conflicts of interest and unfair, coercive and abusive acts and practices. The Commission believes that most entities that would become NRSROs do not engage in these types of conflicts, acts and practices. Therefore, the Commission estimates that these proposed rules generally would impose *de minimis* costs. However, the Commission recognizes that an NRSRO may incur costs related to training employees about the requirements in these proposed rules. It also is possible that the proposed rules could require some NRSROs to restructure their business models or activities. The Commission, therefore, requests comment on such training and restructuring costs. The Commission also request comment on whether there are any other costs associated with these proposed rules. VI. Consideration of Burden on Competition and Promotion of Efficiency, Competition, and Capital Formation Under Section 3(f) of the Exchange Act, 453 the Commission must, when engaging in rulemaking that requires the Commission to consider or determine if an action is necessary or appropriate in the public interest, consider whether the action will promote efficiency, competition, and capital formation. Section 23(a)(2) of the Exchange Act 454 requires the Commission to consider the anticompetitive effects of any rules the Commission adopts under the Exchange Act. Section 23(a)(2) prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. 453 15 U.S.C. 78c(f). 454 15 U.S.C. 78w(a)(2). The Commission's preliminary view is that the proposed rules should promote efficiency, competition, and capital formation. As discussed above with respect to the costs and benefits of the proposed rules, the primary purpose of the Credit Rating Agency Reform Act of 2006 (the “Act”) 455 is to foster “competition in the credit rating agency business.” 456 The practice of identifying NRSROs through staff no-action letters has been criticized as a process that lacks transparency and creates a barrier for credit rating agencies seeking wider recognition and market share. The Commission believes that these proposed rules implementing provisions of the Act further the Act's goal of increasing competition because they would provide credit rating agencies with a transparent process to apply for registration as an NRSRO that does not favor a particular business model or larger, established firms. This would make it easier for more credit rating agencies to apply for registration. Increased competition in the credit ratings business could lower the cost to issuers, obligors, and underwriters of obtaining credit ratings. 455 Pub. L. No. 109-291 (2006). 456 *See Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 3850,* Credit Rating Agency Reform Act of 2006, S. Report No. 109-326, 109th Cong., 2d Sess. (Sept. 6, 2006) (“Senate Report”). In addition, the Act requires NRSROs to make their credit ratings and information about themselves available to the public. Part of the definition of “credit rating agency” in the Act is that the entity must be in the business of issuing credit ratings on the Internet or through another readily accessible means, for free or for a reasonable fee. 457 Under the Act and the rules proposed to be adopted thereunder, an NRSRO would need to disclose important information such as its credit ratings performance statistics, its methods for determining credit ratings, its organizational structure, its procedures to prevent the misuse of material non-public information, the conflicts of interest that arise from its business activities, its code of ethics, and the qualifications of its credit analysts, credit analyst supervisors and compliance personnel. The Commission believes that these disclosures under the proposed rules would allow users of the credit ratings to compare the ratings quality of different NRSROs. Although the information an NRSRO would provide on its Form NRSRO and to comply with the proposed rules cannot substitute for an investor's due diligence in evaluating a credit rating, it would aid investors by providing a publicly accessible foundation of basic information about an NRSRO. 457 Section 3(a)(61) of the Exchange Act (15 U.S.C. 78c(a)(61)). In addition, the proposed rules implement provisions of the Act that are designed to improve the integrity of NRSROs. For example, the registration of a credit rating agency as an NRSRO would allow the Commission to conduct regular examinations of the credit rating agency to evaluate compliance with the regulatory scheme set forth in Section 15E of the Exchange Act and the proposed rules and would subject an NRSRO to disclosure, recordkeeping, and annual audit requirements, as well as requirements regarding the prevention of misuse of material, nonpublic information, the management of conflicts of interest, and certain prohibited acts and practices. Increased confidence in the integrity of NRSROs and the credit ratings they issue could promote participation in the securities markets. Better quality ratings could also reduce the likelihood of an unexpected collapse of a rated issuer or obligor, reducing risks to individual investors and to the financial markets. In addition to improving the quality of credit ratings, increased oversight of NRSROs could increase the accountability of an NRSRO to its subscribers, investors, and other persons who rely on the credibility and objectivity of credit ratings in making an investment decision. The Commission solicits comment on these matters with respect to the proposed rules. In particular, the Commission solicits comment on whether the proposed rules would have an adverse effect on competition that is neither necessary nor appropriate in furtherance of the purposes of the Exchange Act. In addition, comment is sought on whether the proposed rules, if adopted, would promote efficiency, competition, and capital formation. Commenters are requested to provide empirical data and other factual support for their views, if possible. VII. Consideration of Impact on the Economy For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, or “SBREFA,” 458 the Commission must advise OMB whether a proposed regulation constitutes a major rule. Under SBREFA, a rule is “major” if it has resulted in, or is likely to result in: 458 Pub. L. No. 104-121, Title II, 110 Stat. 857

(1996)(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note to 5 U.S.C. 601). • An annual effect on the economy of $100 million or more • A major increase in costs or prices for consumers or individual industries; or • A significant adverse effect on competition, investment, or innovation. If a rule is “major,” its effectiveness will generally be delayed for 60 days pending Congressional review. The Commission requests comment on the potential impact of each of the proposed rules on the economy on an annual basis. Commenters are requested to provide empirical data and other factual support for their view to the extent possible. VIII. Initial Regulatiry Flexibility Analysis The Commission has prepared the following Initial Regulatory Flexibility Analysis (IRFA), in accordance with the provisions of the Regulatory Flexibility Act, 459 regarding proposed rules 17g-1, 17g-2, 17g-3, 17g-4, 17g-5, and 17g-6 and proposed Form NRSRO under the Exchange Act. 459 5 U.S.C. 603. The Commission encourages comments with respect to any aspect of this IRFA, including comments with respect to the number of small entities that may be affected by the proposed rules. Comments should specify the costs of compliance with the proposed rules and suggest alternatives that would accomplish the goals of the rules. Comments will be considered in determining whether a Final Regulatory Flexibility Analysis is required and will be placed in the same public file as comments on the proposed rules. Comments should be submitted to the Commission at the addresses previously indicated. A. Reasons for the Proposed Action The proposed rules would implement specific provisions of the Credit Rating Agency Reform Act of 2006 (the “Act”). 460 The Act defines the term “nationally recognized statistical rating organization” as a credit rating agency registered with the Commission, provides authority for the Commission to implement registration, recordkeeping, financial reporting, and oversight rules with respect to registered credit rating agencies, and directs the Commission to issue final implementing rules no later than 270 days after its enactment. 460 Pub. L. No. 109-291 (2006). B. Objectives The proposed rules would implement specific provisions of the Act. The objectives of the Act are “to improve ratings quality for the protection of investors and in the public interest by fostering accountability, transparency, and competition in the credit rating industry.” 461 The proposed rules are designed to further these objectives and assist the Commission in determining whether an entity should be registered as an NRSRO, monitoring whether an NRSRO complies with the provisions of the Act and rules thereunder, fulfilling the Commission's statutory mandate to adopt rules to implement the NRSRO regulatory program, and provide information regarding NRSROs to the public and to users of credit ratings. 461 *See Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 3850,* Credit Rating Agency Reform Act of 2006, S. Report No. 109-326, 109th Cong., 2d Sess. (Sept. 6, 2006) (“Senate Report”). C. Legal Basis Pursuant to the Exchange Act 462 and, particularly, Section 15E of the Exchange Act. 463 462 15 U.S.C. 78a *et seq.* 463 15 U.S.C. 78o-7. D. Small Entities Subject to the Rule Paragraph

(a)of Rule 0-10 provides that for purposes of the Regulatory Flexibility Act, a small entity “[w]hen used with reference to an ‘issuer’ or a ‘person’ other than an investment company” means “an ‘issuer’ or ‘person’ that, on the last day of its most recent fiscal year, had total assets of $5 million or less.” 464 The Commission believes that an NRSRO with total assets of $5 million or less would qualify as a “small” entity for purposes of the Regulatory Flexibility Act. 464 17 CFR 240.0-10(a). As noted above, the Commission believes that approximately 30 credit rating agencies would be registered as an NRSRO. Moreover, as also noted above, the Senate Report accompanying the Act states that the two largest credit rating agencies have about 80% of the market share as measured by revenues. The Senate Report also states that these two firms rate more than 99% of the debt obligations and preferred stock issues publicly traded in the United States. Given these figures, the Commission believes that the majority of the credit rating agencies registered with the Commission would be “small” entities. 465 Consequently, the Commission estimates that, of the approximately 30 credit rating agencies estimated to be registered with the Commission, approximately 20 would be “small” entities for purposes of the Regulatory Flexibility Act. 466 465 *See* 17 CFR 240.0-10(a). 466 *Id.* E. Reporting, Recordkeeping, and Other Compliance Requirements A credit rating agency seeking to apply to the Commission for registration as a nationally recognized statistical rating organization would apply using proposed Form NRSRO. 467 The Form would elicit certain information and require the credit rating agency to attach a number of documents, including exhibits (some of which would have to be made publicly available and some of which would be eligible for confidential treatment) and certifications from qualified institutional buyers. The public exhibits would consist of information such as performance data for the credit ratings, organizational structure, the methods used by the credit rating agency for issuing credit ratings, the policies used by the credit rating agency to manage activities that could potentially risk the impartiality of its credit ratings, and information about managers and credit analysts. To the extent permitted by law, the confidential exhibits would consist of information about the credit rating agency's financial condition, revenues and credit analyst compensation. 467 Proposed Rule 17g-1. After registration, the credit rating agency (now an NRSRO under the Act) would generally need to promptly update the public information on its Form NRSRO whenever an item or exhibit becomes materially inaccurate. To update information, the NRSRO would furnish the Commission with an amendment using Form NRSRO. In addition, the NRSRO would need to furnish the Commission with an annual certification on Form NRSRO. 468 The annual certification would represent that all information on the form, as amended, continues to be accurate, would require the credit rating agency to list any material changes made during the previous year, and would include an update to the public exhibit relating to the performance statistics of its credit ratings. After its application for registration is approved, the NRSRO would be required to make Form NRSRO and the public exhibits submitted to the Commission, and all amendments, readily accessible to the public. 468 *Id.* NRSROs would also be subject to a recordkeeping rule. 469 This rule would require the NRSRO to make and retain certain records relating to the business of issuing credit ratings. These records would assist the Commission, through its examination process, in monitoring whether the NRSRO continues to maintain adequate financial and managerial resources to consistently produce credit ratings with integrity (as required under the Act) and whether the NRSRO was complying with the provisions of the Act, the rules adopted under the act, and the NRSRO's disclosed policies and procedures. 469 Proposed Rule 17g-2. On an annual fiscal year basis, an NRSRO would be required to furnish the Commission with audited financial statements. 470 This requirement is designed to assist the Commission in monitoring whether the NRSRO continues to maintain adequate financial resources to consistently produce credit ratings with integrity. It also is designed to assist the Commission in monitoring whether the NRSRO is complying with provisions of the Act and the rules adopted thereunder regarding the potential conflicts of interest arising from dealings with large customers in terms of revenues earned. 470 Proposed Rule 17g-3. Finally, all NRSROs would be subject to requirements designed to protect their impartiality with respect to issuing credit ratings. First, they would be required to establish, maintain and enforce specific written policies designed to prevent the misuse of material non-public information. 471 Second, NRSROs would be prohibited from having certain general conflicts unless they, as required under the Act, disclosed the conflict and adopted procedures to manage the conflict. Further certain conflicts of interest—for example, rating a security owned by the NRSRO—would be prohibited. Third, NRSROs would be prohibited from engaging in certain practices that the Commission has determined to be unfair, coercive or abusive practices. 472 471 Proposed Rule 17g-4. 472 Proposed Rule 17g-6. F. Duplicative, Overlapping, or Conflicting Federal Rules The Commission believes that there are no federal rules that duplicate, overlap, or conflict with the proposed rules. G. Significant Alternatives Pursuant to section 3(a) of the RFA, 473 the Commission must consider certain types of alternatives, including:

(1)The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities;

(2)the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for small entities;

(3)the use of performance rather than design standards; and

(4)an exemption from coverage of the rule, or any part of the rule, for small entities. 473 5 U.S.C. 603(c). The Commission does not believe it is necessary or appropriate to establish different compliance or reporting requirements or timetables; clarify, consolidate, or simplify compliance and reporting requirements under the rule for small entities; or exempt small entities from coverage of the rule, or any part of the rule. The Act and the proposed rules establish a voluntary program of registration and supervision that allows NRSROs the flexibility to develop procedures tailored to their specific organizational structure and business models. The Commission also does not believe that it is necessary to consider whether small entities should be permitted to use performance rather than design standards to comply with the proposed rules as the rules already propose performance standards and do not dictate for entities of any size any particular design standards that must be employed to achieve the objectives of the proposed rules. H. Request for Comments The Commission encourages the submission of comments to any aspect of this portion of the IRFA. Comments should specify costs of compliance with the proposed rules and suggest alternatives that would accomplish the objective of the proposed rules. The Commission specifically requests comment on the estimate that 30 credit rating agencies would be registered as NRSROs with the Commission, and that 20 of those 30 NRSROs would be small entities for purposes of the Regulatory Flexibility Act. 474 Commenters that disagree with these estimates are requested to describe in detail the basis for their conclusions and identify the sources of any industry statistics they relied on to reach their conclusions. 474 5 U.S.C. 603. IX. Statutory Authority The Commission is proposing Form NRSRO and Rules 17g-1, 17g-2, 17g-3, 17g-4, 17g-5 and 17g-6 under the Exchange Act pursuant to the authority conferred by the Exchange Act, including Sections 3(b), 15E, 17, 23(a) and 36. 475 475 15 U.S.C. 78c(b), 78o-7, 78q, 78w, and 78mm. Text of Proposed Rules List of Subjects in 17 CFR Parts 240 and 249b Brokers, Reporting and recordkeeping requirements, Securities. In accordance with the foregoing, the Commission hereby proposes that Title 17, Chapter II of the Code of Federal Regulation be amended as follows. PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 1. The authority for Part 240 continues to read in part as follows: Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j-l, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 *et seq.* ; and 18 U.S.C. 1350, unless otherwise noted. 2. Sections 240.17g-1 through 240.17g-6 are added to read as follows: Nationally Recognized Statistical Rating Organizations Sec. 240.17g-1 Application for registration as a nationally recognized statistical rating organization. 240.17g-2 Records to be made and retained by nationally recognized statistical rating organizations. 240.17g-3 Annual audited financial statements to be furnished by nationally recognized statistical rating organizations. 240.17g-4 Prevention of misuse of material nonpublic information. 240.17g-5 Conflicts of interest. 240.17g-6 Prohibited acts and practices. § 240.17g-1 Application for registration as a nationally recognized statistical rating organization.

(a)*Form of registration.* A credit rating agency applying to the Commission to be registered under section 15E of the Act (15 U.S.C. 78o-7) as a nationally recognized statistical rating organization with respect to one or more of the categories of credit ratings described in section 3(a)(62)(B) of the Act (15 U.S.C. 78c(a)(62)(B)) must furnish the Commission with an initial application on Form NRSRO (§ 249b.300 of this chapter) that follows all applicable instructions for the form.

(b)*Furnishing and withdrawing initial application.*

(1)An initial application will be considered furnished to the Commission on the date the Commission receives a complete and properly executed initial application on Form NRSRO that follows all instructions for the form. Information submitted on a confidential basis will be accorded confidential treatment to the extent permitted by law.

(2)The applicant may withdraw an application prior to the date of a Commission order granting or denying the application. To withdraw the application, the applicant must furnish the Commission with a written notice of withdrawal executed by a duly authorized person.

(c)*Updating application prior to final action by the Commission.* The applicant must promptly furnish the Commission with a written notice if information submitted to the Commission on Form NRSRO, including exhibits and attachments, is found to be or becomes materially inaccurate prior to the date of a Commission order granting or denying the application. The notice must describe the circumstances in which the information was found to be inaccurate. The applicant must also update the application with accurate and complete information by promptly furnishing the Commission with an amended initial application on Form NRSRO that follows all applicable instructions for the form.

(d)*Public availability of Form NRSRO.* A credit rating agency registered as a nationally recognized statistical rating organization (“rating organization”) must make the current Form NRSRO and non-confidential exhibits publicly available by posting them on its Web site or by another comparable and readily accessible means within 5 business days of the date of the Commission order granting the application and, subsequently, within 5 business days of furnishing an amendment or an annual certification on Form NRSRO.

(e)*Amending scope of registration.* A rating organization that is registered for fewer than the five categories of credit ratings described in section 3(a)(62)(B) of the Act (15 U.S.C. 78c(a)(62)(B)) may apply to be registered for an additional category by furnishing the Commission with an amendment on Form NRSRO indicating where appropriate on the Form the additional class for which registration is sought and following all applicable instructions for the Form. The application to amend the scope of the registration will be subject to the requirements of this section and section 15E(a)(2) of the Act (15 U.S.C. 78o-7(a)(2)) applicable to an initial application for registration, including with respect to the time periods and requirements for the Commission to grant or deny the application.

(f)*Updating Form NRSRO after registration.* A rating organization amending its application for registration pursuant to the requirements of section 15E(b)(1) of the Act (15 U.S.C. 78o-7(b)(1)) must promptly furnish the Commission with the amendment on Form NRSRO that follows all applicable instructions for the Form.

(g)*Annual certification.* A rating organization submitting its annual certification pursuant to the requirements of section 15E(b)(2) of the Act (15 U.S.C. 78o-7(b)(2)) must furnish the Commission with the annual certification on Form NRSRO that follows all applicable instructions for the Form not later than 90 days after the end of each calendar year.

(h)*Withdrawal of registration.* A rating organization withdrawing its registration must furnish the Commission with a written notice of withdrawal executed by a duly authorized person. § 240.17g-2 Records to be made and retained by nationally recognized statistical rating organizations.

(a)*Records required to be made and retained.* Every credit rating agency registered with the Commission as a nationally recognized statistical rating organization (“rating organization”) must make and retain the following books and records, which must be complete and current:

(1)Records of original entry into the rating organization's accounting system and records reflecting entries to and balances in all general ledger accounts of the rating organization for each fiscal year.

(2)Records with respect to each of the rating organization's current credit ratings indicating (as applicable):

(i)The identity of any credit analyst(s) that determined the rating;

(ii)The identity of the person(s) who approved the rating before it was issued;

(iii)The procedures and methodologies used to determine the rating;

(iv)The method by which the credit rating was made readily accessible;

(v)Whether the credit rating was solicited or unsolicited; and

(vi)The date the credit rating action was taken.

(3)A record for each person (for example, an obligor, issuer, underwriter, or other user) that solicits the rating organization to determine or maintain a credit rating indicating:

(i)The identity and principal business address of the person; and

(ii)The credit rating(s) determined for the person.

(4)A record for each subscriber to the credit ratings and/or credit analysis of the rating organization indicating the identity and principal business address of the subscriber and the compensation received from the subscriber.

(5)A record describing each type of service and product offered by the rating organization.

(b)*Records required to be retained.* A rating organization must retain the following books and records:

(1)All significant records (for example, bank statements, invoices, and trial balances) underlying the information included in the rating organization's annual audited financial statements and schedules furnished to the Commission pursuant to § 240.17g-3.

(2)Internal records, including non-public information and work papers, used to determine a credit rating.

(3)Credit analysis reports, credit assessment reports, and private rating reports and internal records, including non-public information and work papers, used to form the basis for the opinions expressed in these reports.

(4)All compliance reports and compliance exception reports that relate to its business as a credit rating agency.

(5)All internal audit plans, internal audit reports, documents relating to internal audit follow-up measures that relate to its business as a credit rating agency, and all records identified by the rating organization's internal auditors as necessary to perform the audit of an activity that relates to its business as a credit rating agency.

(6)All marketing materials that relate to its business as a credit rating agency.

(7)All external and internal communications, including electronic communications, received and sent by the rating organization and its employees relating to initiating, determining, maintaining, changing, or withdrawing a credit rating.

(8)All records made pursuant to paragraph

(b)of § 240.17g-6.

(9)All Form NRSROs (including information and documents in the exhibits thereto) furnished to the Commission.

(c)*Record retention periods.*

(1)The records required to be retained pursuant to paragraphs (a)(1), (a)(2), and (a)(5) of this section must be retained for three years after the date the record is replaced with an updated record.

(2)The records required to be retained pursuant to paragraphs (a)(3) and (a)(4) of this section must be retained for three years after the date of the last receipt by the person in the record of a service or product of the rating organization.

(3)The records required to be retained pursuant to paragraphs (b)(1) through (b)(9) of this section must be retained for three years after the date the record is made or received by the NRSRO.

(d)*Manner of retention.* An original or true and complete copy of the original of each record required to be retained pursuant to paragraphs

(a)and

(b)of this section must be maintained in a manner that, for the applicable retention period specified in paragraph

(c)of this section, makes the original record or copy easily accessible to the rating organization's principal office and to any other office that conducted activities causing the record to be made or received.

(e)*Third-party record custodian.* The records required to be retained pursuant to paragraphs

(a)and

(b)of this section may be made or retained by a third-party record custodian, provided the rating organization furnishes the Commission at its principal office in Washington, DC with a written undertaking of the custodian executed by a duly authorized person. The undertaking must acknowledge that the records are the property of the rating organization, will be surrendered promptly on request of the rating organization, and that the custodian will permit the Commission or its representatives to examine the records. The undertaking must be in substantially the following form: The undersigned acknowledges that books and records it has made or is retaining for [the rating organization] are the exclusive property of [the rating organization] and the undersigned undertakes that upon the request of [the rating organization] it will promptly provide the books and records to [the rating organization] or the U.S. Securities and Exchange Commission (“Commission”) and its representatives and that upon the request of the Commission it will promptly permit examination by the Commission and its representatives of the records at any time or from time to time during business hours, and promptly furnish to the Commission and its representatives a true and complete copy of any or all or any part of such books and records. A rating organization that agrees with a third-party custodian to have the custodian make or retain any record specified in paragraphs

(a)and

(b)of this section remains responsible for complying with every provision in this section, notwithstanding the agreement.

(f)*Non-resident undertaking.* A non-resident rating organization, as defined in paragraph

(h)of this section, must undertake to provide books and records to the Commission upon demand. The undertaking must be attached to the rating organization's initial application for registration as a nationally recognized statistical rating organization, signed by a duly authorized person, marked “Non-Resident Books and Records Undertaking,” and in substantially the following form: Upon a request by the U.S. Securities and Exchange Commission (“Commission”) and its representatives, [the rating organization] will furnish at its own expense to the Commission and its representatives, at its principal office in Washington, DC, an accurate copy of any book(s) and record(s) which [the rating organization] is required to make, keep current, retain, or produce to the Commission pursuant to any provision of the Securities Exchange Act of 1934 or any regulation under that Act. [The rating organization] will produce the requested copy of the book(s) or record(s), in a form acceptable to the Commission and its representatives, including translation into English, within 14 days of receiving the request or within a longer period of time if the Commission consents to that longer time period.

(g)A rating organization must promptly furnish the Commission and its representatives with legible, complete, and current copies of those records of the rating organization required to be retained under this section, or any other records of the rating organization subject to examination under section 17(b) of the Act (15 U.S.C. 78q(b)) that are requested by the Commission and its representatives.

(h)Where used in this section *non-resident rating organization* means a rating organization that:

(1)If a corporation, is incorporated or has its principal office in a location outside the United States, its territories, or possessions; or

(2)If a partnership or other unincorporated organization or association, is organized under the laws of a jurisdiction or has its principal office in a location outside the United States, its territories, or possessions. § 240.17g-3 Annual audited financial statements to be furnished by nationally recognized statistical rating organizations.

(a)A credit rating agency registered with the Commission as a nationally recognized statistical rating organization (“rating organization”) annually must furnish the Commission, at its principal office in Washington, DC, with audited financial statements. The audited financial statements must be prepared in accordance with generally accepted accounting principles, must comply with applicable provisions of Regulation S-X (§ 210.1-01—§ 210.12-29, of this chapter), must be as of the fiscal year end indicated on the rating organization's current Form NRSRO, and must be furnished not more than 90 calendar days after the end of the fiscal year.

(b)The audited financial statements must include the following supporting schedules:

(1)A schedule separately itemizing the following aggregate revenues (as applicable):

(i)Revenue from determining and maintaining credit ratings;

(ii)Revenue from subscribers;

(iii)Revenue from granting licenses or rights to publish credit ratings;

(iv)Revenue from determining credit ratings that are not made readily accessible (private ratings); and

(v)Revenue from all other services and products offered by the rating organization (include descriptions of any major sources of revenue);

(2)A schedule providing the total aggregate and median annual compensation of the rating organization's credit analysts; and

(3)A schedule listing the 20 largest issuers and subscribers that used credit rating services provided by the rating organization by amount of net revenue received by the rating organization and its affiliates from the issuer or subscriber during the fiscal year. In addition, add to the list any obligor or underwriter that used credit rating services provided by the rating organization if the net revenue received by the rating organization and its affiliates from the obligor or underwriter during the fiscal year equaled or exceeded the net revenue received from the 20th largest issuer or subscriber. Include the net revenue amount for each customer. Note to paragraph (b)(3): A customer would have used the “credit rating services” of the rating organization if the customer was any of the following: an obligor that is rated by the rating organization (regardless of whether the obligor paid for the credit rating); an issuer that has securities or money market instruments rated by the rating organization (regardless of whether the issuer paid for the credit rating); any other person that has paid the rating organization to determine a credit rating with respect to a specific obligor, security, or money market instrument; or a subscriber to the credit ratings of the rating organization. In calculating net revenue received from a customer, the rating organization should include all fees, sales proceeds, commissions, and other revenue received by the rating organization and its affiliates for any type of service or product, regardless of whether related to credit rating services, and net of any fees, sales proceeds, rebates, and monies paid to the customer by the rating organization and its affiliates.

(c)The audited financial statements must be furnished in accordance with the following:

(1)They must be certified by an accountant who is qualified and independent in accordance with paragraphs

(a)through

(c)of § 210.2-01 of this chapter, and the accountant must give an opinion on the financial statements and schedules in accordance with paragraphs

(a)through

(d)of § 210.2-02 of this chapter; and

(2)The rating organization must attach to the financial statements a signed statement by a duly authorized person at the rating organization that the person has responsibility for the financial statements and, to the best knowledge of the person, the financial statements fairly present, in all material respects, the financial condition, results of operations, and cash flows of the rating organization for the period presented.

(d)The Commission may grant an extension of time from any requirements in this section either unconditionally or on specified terms and conditions on the written request of a rating organization if the Commission finds that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors. § 240.17g-4 Prevention of misuse of material nonpublic information. The written policies and procedures a nationally recognized statistical rating organization (“rating organization”) establishes, maintains, and enforces to prevent the misuse of material nonpublic information in accordance with section 15E(g)(1) of the Act (15 U.S.C. 78o-7(g)(1)) must include:

(a)Procedures designed to prevent the inappropriate dissemination within and outside the rating organization of material nonpublic information obtained in connection with the performance of credit rating services;

(b)Procedures designed to prevent a person associated with the rating organization or any member of an associated person's household from purchasing, selling, or otherwise benefiting from any transaction in securities or money market instruments when the person possesses or has access to material nonpublic information obtained in connection with the performance of credit rating services that affects the securities or money market instruments; and

(c)Procedures designed to prevent the inappropriate dissemination within and outside the rating organization of a pending credit rating action prior to making the action readily accessible. § 240.17g-5 Conflicts of interest.

(a)It shall be unlawful for a nationally recognized statistical rating organization (“rating organization”) or a person associated with the rating organization to have a conflict of interest relating to the issuance of a credit rating identified in paragraph

(b)of this section, unless:

(1)The rating organization has disclosed the type of conflict of interest on Form NRSRO in accordance with section 15E(a)(1)(B)(vi) of the Act (15 U.S.C. 78o-7(a)(1)(B)(vi)); and

(2)The rating organization has implemented policies and procedures to address and manage conflicts of interest in accordance with section 15E(h) of the Act (15 U.S.C. 78o-7(h)).

(b)*Conflicts of interest.* For purposes of this section, each of the following is a conflict of interest:

(1)Receiving compensation for any type of service or product from a person that is subject to a pending or issued credit rating of the rating organization.

(2)Owning securities or money market instruments of a person that is subject to a pending or issued credit rating of the rating organization.

(3)Receiving compensation from a subscriber that uses the credit ratings of the rating organization for regulatory purposes.

(4)Owning securities or money market instruments of, or having any other form of ownership interest in, a subscriber that uses the credit ratings of the rating organization for regulatory purposes.

(5)Having any other business, personal, or ownership relationship or affiliation with a person that is subject to a credit rating of the rating organization, an underwriter of securities or money market instruments rated by the rating organization, or a subscriber that uses the credit ratings of the rating organization for regulatory purposes.

(6)Being an officer or director of a person that is subject to a credit rating of the rating organization, an underwriter of securities or money market instruments rated by the rating organization, or a subscriber that uses the credit ratings of the rating organization for regulatory purposes.

(7)Any other type of conflict of interest identified by the rating organization on Form NRSRO in accordance with section 15E(a)(1)(B)(vi) of the Act (15 U.S.C. 78o-7(a)(1)(B)(vi)).

(c)*Prohibited conflicts.* It shall be unlawful for a rating organization to have a conflict of interest relating to the issuance of a credit rating in the following circumstances:

(1)The rating organization issues or maintains a credit rating solicited by a person that, in the most recently ended fiscal year, provided the rating organization and its affiliates with net revenue (as determined under § 240.17g-3) equaling or exceeding 10% of the total net revenue of the rating organization and its affiliates for the year;

(2)The rating organization issues or maintains a credit rating with respect to a person where the rating organization, a credit analyst who participated in determining the credit rating, or a person associated with the rating organization responsible for approving the credit rating, owns securities of, or has any other ownership interest in, the rated person or is a borrower or lender with respect to the rated person;

(3)The rating organization issues or maintains a credit rating with respect to a person associated with the rating organization; or

(4)The rating organization issues or maintains a credit rating where a credit analyst who participated in determining the credit rating, or a person associated with the rating organization responsible for approving the credit rating, is also an officer or director of the person that is subject to the credit rating. § 240.17g-6 Prohibited acts and practices.

(a)*Prohibitions.* It shall be unlawful for a nationally recognized statistical rating organization (“rating organization”) to engage in any of the following unfair, coercive, or abusive practices:

(1)Conditioning or threatening to condition the issuance of a credit rating on the purchase by an obligor or issuer, or an affiliate of the obligor or issuer, of any other services or products, including pre-credit rating assessment products, of the rating organization or any person associated with the rating organization.

(2)Issuing, or offering or threatening to issue, a credit rating that is not determined in accordance with the rating organization's established procedures and methodologies for determining credit ratings, based on whether the rated person, or an affiliate of the rated person, purchases or will purchase the credit rating or any other service or product of the rating organization or any person associated with the rating organization.

(3)Modifying, or offering or threatening to modify, a credit rating in a manner that is contrary to the rating organization's established procedures and methodologies for modifying credit ratings based on whether the rated person, or an affiliate of the rated person, purchases or will purchase the credit rating or any other service or product of the rating organization or any person associated with the rating organization.

(4)Issuing or threatening to issue a lower credit rating, or lowering or threatening to lower an existing credit rating, or refusing to issue a credit rating or withdrawing a credit rating, with respect to securities or money market instruments issued by an asset pool or as part of any asset-backed or mortgage-backed securities transaction, unless a portion of the assets which comprise the asset pool or the asset-backed or mortgage-backed securities also are rated by the rating organization. The prohibitions on refusing to issue a credit rating or withdrawing a credit rating shall not apply if the rating organization has rated less than 85% of the market value of the assets underlying the asset pool or the asset-backed or mortgage-backed securities.

(5)Issuing an unsolicited credit rating and communicating with the rated person to induce or attempt to induce the rated person to pay for the credit rating or any other service or product of the rating organization or a person associated with the rating organization.

(b)A rating organization refusing to issue a credit rating or withdrawing a credit rating with respect to an asset pool or the asset-backed or mortgage-backed security must document in writing the reason for the refusal or withdrawal. PART 249b—FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934 3. The authority citation for Part 249b continues to read in part as follows. Authority: 15 U.S.C. 78a *et seq.* , unless otherwise noted; 4. Section 249b.300 and Form NRSRO are added to read as follows: § 249b.300 Form NRSRO, application for registration as a nationally recognized statistical rating organization pursuant to section 15E of the Securities Exchange Act of 1934 and § 240.17g-1 of this chapter. This form shall be used for application for, and amendments to applications for, registration as a nationally recognized statistical rating organization pursuant to section 15E of the Securities Exchange Act of 1934 (15 U.S.C. 78o-7) and § 240.17g-1 of this chapter. Note: The text of Form NRSRO will not appear in the Code of Federal Regulations. BILLING CODE 8010-01-P EP09FE07.041 EP09FE07.042 EP09FE07.043 EP09FE07.044 EP09FE07.045 EP09FE07.046 EP09FE07.047 Form NRSRO Instructions A. General Instructions 1. Form NRSRO is the Application for Registration as a Nationally Recognized Statistical Rating Organization (“NRSRO”) under Section 15E of the Securities Exchange Act of 1934 (“Exchange Act”). Exchange Act Rule 17g-1 requires credit rating agencies to use Form NRSRO to submit an INITIAL APPLICATION to apply to register with the U.S. Securities and Exchange Commission (“Commission”) as an NRSRO, to submit updated information as required by Section 15E(b)(1) of the Exchange Act as an AMENDMENT to Form NRSRO, and to submit the ANNUAL CERTIFICATION required by Section 15E(b)(2) of the Exchange Act. 2. Exchange Act Rule 17g-1(c) requires a credit rating agency to promptly furnish the Commission with a written notice if information submitted on an INITIAL APPLICATION, including exhibits and attachments, is found to be or becomes materially inaccurate before the Commission has granted or denied the application. The notice must describe the circumstances in which the information was found to be materially inaccurate, and the credit rating agency must promptly update the application with accurate information by furnishing the Commission with an amended INITIAL APPLICATION on Form NRSRO. 3. An INITIAL APPLICATION will be considered furnished to the Commission on the date the Commission receives a complete and properly executed Form NRSRO. Section 15E(a)(2) of the Exchange Act prescribes time periods and requirements for the Commission to grant or deny the application after it has been furnished to the Commission. 4. Type or clearly print all information. Provide the name of the credit rating agency and the date on each page. Use only the current version of Form NRSRO or a reproduction of it. 5. Mark each page of information that is submitted on a confidential basis “Confidential.” The Commission will accord that information confidential treatment to the extent permitted by law. 6. Section 15E of the Exchange Act (15 U.S.C. 78o-7) authorizes the Commission to collect the Information on this form from Applicants and NRSROs. The principal purpose of this form is to determine whether an Applicant should be granted registration as an NRSRO and, once registration is granted, whether a credit rating agency continues to meet the criteria for registration as an NRSRO. Intentional misstatements or omissions constitute federal criminal violations under 18 U.S.C. 1001. The information collection is in accordance with the clearance requirements of Section 3507 of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507). The Commission may not conduct or sponsor, and you are not required to respond to, a collection of information unless it displays a valid Office of Management and Budget

(OMB)control number. The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is displayed on the facing page of this form. Send comments regarding this burden estimate or suggestions for reducing the burden to Director, Office of Information Technology, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549. The information contained in this form is part of a system of records subject to the Privacy Act of 1974, as amended (5 U.S.C. 552a). The Commission has published in the **Federal Register** the Privacy Act Systems of Records Notice for these records, and the Commission may make “routine use” disclosure of the information as outlined under the Notice. 7. Exchange Act Rule 17g-2(b)(9) requires a credit rating agency to retain copies of all information and documents submitted to the Commission with Form NRSRO These records must be made available for inspection upon a regulatory request. 8. ADDRESS—The mailing address for Form NRSRO is: U. S. Securities and Exchange Commission, Form NRSRO Mailbox, Mail Stop, 100 F Street, NE., Washington, DC 20549- B. Instructions for Initial Applications 1. Check the appropriate box at the top of Form NRSRO; 2. All Items must be answered and all required responses must be complete. Enter “None” or “N/A” where appropriate; 3. Provide all required information and attachments, including undertakings, exhibits, certifications, and Disclosure Reporting Pages, as applicable; 4. If information submitted, including exhibits and attachments, is found to be or becomes materially inaccurate before the Commission approves the application, promptly furnish the Commission with accurate information, pursuant to Rule 17g-1(c); and 5. Execute the Form. C. Instructions for Amendments 1. Submit an AMENDMENT to Form NRSRO in order to: a. Promptly provide accurate information to the Commission in the event that information on the current Form NRSRO, on any Disclosure Reporting Page (NRSRO), or on Exhibits 2 through 9 becomes materially inaccurate, pursuant to Section 15E(b)(1) of the Exchange Act; or b. Change the scope of an existing registration to add a class of credit ratings. 2. To submit an AMENDMENT: a. Check the appropriate box at the top of Form NRSRO and briefly describe the nature of the amendment; b. Complete Items 1, 2, 4, 5, 7, 8 (with Disclosure Reporting Pages, as applicable), and update, as required, Exhibits 2 through 9, to provide accurate information. (Do not update or attach Exhibits 2 through 9 if the information in them remains materially accurate.) If applying to change the scope of an existing registration, complete Item 6. An NRSRO is not required to update certifications by qualified institutional buyers. ( *See* instructions for Item 6 below.); and c. Execute the Form. D. Instructions for Annual Certifications 1. Submit an ANNUAL CERTIFICATION on Form NRSRO within 90 days after the end of each calendar year, in accordance with Section 15E(b)(2) of the Exchange Act; 2. Check the appropriate box at the top of Form NRSRO; 3. Complete and update, as required, Items 1, 2, 4, 5, 7, 8 (with Disclosure Reporting Pages, as applicable), and update, as required, Exhibits 2 through 9, to provide accurate and complete information; 4. Update Exhibit 1; 5. Attach a list of all AMENDMENTs submitted during the previous calendar year; and 6. Execute the Form. E. Instructions for Specific Line Items Item 1E. The individual listed as the contact person must be authorized to receive all communications from the Commission and must be responsible for their dissemination within the credit rating agency's organization. Item 3. Exchange Act Rule 17g-4(c) requires a non-resident rating organization to undertake to provide books and records upon Commission request. The undertaking must be signed by a person duly authorized by the credit rating agency, must be attached to the INITIAL APPLICATION, must be marked “Non-Resident Books and Records Undertaking,” and must be in substantially the following form: “Upon a request by the U.S. Securities and Exchange Commission (“Commission”) and its representatives, [the rating organization] will furnish at its own expense to the Commission and its representatives, at its principal office in Washington, D.C., an accurate copy of any book(s) or record(s) which [the rating organization] is required to make, keep current, retain, or produce to the Commission pursuant to any provision of the Securities Exchange Act of 1934 or any regulation under that Act. [The rating organization] will produce the requested copy of the book(s) or record(s), in a form acceptable to the Commission and its representatives, including translation into English, within 14 days of receiving the request or within a longer period of time if the Commission consents to that longer time period. Signature” Item 4. Section 15E(j) of the Exchange Act requires an NRSRO to designate a compliance officer responsible for administering the policies and procedures of the credit rating agency established pursuant to Sections 15E(g) and

(h)of the Exchange Act (respectively, to prevent the misuse of material nonpublic information and address and manage conflicts of interest) and for ensuring compliance with applicable securities laws, rules, and regulations. Item 5. Section 15E(a)(3) of the Exchange Act and Exchange Act Rule 17g-1(d) require a credit rating agency to make certain information and documents submitted to the Commission publicly available on its Web site or through another comparable, readily accessible means within 5 business days of the date of the Commission order granting the application for registration as an NRSRO, and, subsequently, within 5 business days of furnishing an amended Form NRSRO to the Commission. All information and documents submitted to the Commission in the completed INITIAL APPLICATION, any AMENDMENT, and the ANNUAL CERTIFICATION must be made publicly available *except* Exhibits 10 through 13, the certifications from qualified institutional buyers, and the non-resident undertaking. Describe in detail how that information will be made readily accessible. If the information and documents will be posted on the credit rating agency's Web site, for example, give the Internet address and link to the information and documents. Item 6. Complete Item 6 only if submitting an INITIAL REGISTRATION or changing the scope of an existing registration to add a class of credit ratings. Item 6A. Pursuant to Section 15E(a)(1)(B)(vii) of the Exchange Act, a credit rating agency applying for registration as an NRSRO must disclose in the application the classes of credit ratings for which the credit rating agency is applying to be registered. Indicate these classes by checking the appropriate box or boxes. Pursuant to the definition of “nationally recognized statistical rating agency” in Section 3(a)(62) of the Exchange Act, a credit rating agency must have been in business as a credit rating agency for at least the 3 consecutive years immediately preceding the date of its application for registration as an NRSRO. For each class of credit ratings, provide the approximate number of ratings the credit rating agency currently has outstanding and the number of consecutive years immediately preceding the date of the application that the credit rating agency has issued ratings as a credit rating agency, as defined in Section 3(a)(61) of the Exchange Act, with respect to that class. Item 6B. Pursuant to Section 3(a)(61)(A) of the Exchange Act, a “credit rating agency” issues “credit ratings on the Internet or through another readily accessible means, for free or for a reasonable fee.” Briefly describe how the credit rating agency makes the credit ratings in the classes indicated in Item 6A readily accessible for free or for a reasonable fee. Item 6C. Section 15E(a)(1)(B)(ix) of the Exchange Act requires that an application for registration as an NRSRO include written certifications from qualified institutional buyers, as defined in paragraph Section 3(a)(64) of the Exchange Act, except that, under Section 15E (a)(1)(D), a credit rating agency is not required to submit these certifications if it has received a no-action letter from Commission staff prior to August 2, 2006 stating that the staff would not recommend enforcement action to the Commission against any broker or dealer that uses credit ratings issued by the credit rating agency to compute capital charges under Exchange Act Rule 15c3-1. If the credit rating agency is required to submit certifications, paragraph Section 15E(a)(1)(C) of the Exchange Act requires the credit rating agency to submit a minimum of 10 certifications from qualified institutional buyers, none of which is affiliated with the credit rating agency. Each certification may address more than one class of credit ratings. Of the submitted certifications, at least two must address each class of credit rating identified in Item 6A under “Applying for Registration.” If this is an AMENDMENT to an existing registration to add one or more classes of credit ratings to the scope of its NRSRO registration, the NRSRO must submit at least two certifications that address each additional class of credit ratings. The required certifications must be signed by a person duly authorized by the certifying entity, must be notarized, must be marked “Certification from Qualified Institutional Buyer,” and must be in substantially the following form: “I, [Executing official], am authorized by [Certifying entity] to execute this certification on behalf of [Certifying entity]. I certify that all actions by stockholders, directors, general partners, and other bodies necessary to authorize me to execute this certification have been taken and that [Certifying entity]:

(i)Meets the definition of a ‘qualified institutional buyer’ as set forth in section 3(a)(64) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(64)) pursuant to following subsection(s) of 17 CFR 230.144A(a)(1) [insert applicable citations];

(ii)Has seriously considered the credit ratings of [the credit rating agency] in the course of making investment decisions for at least the three years immediately preceding the date of this certification, in the following classes of credit ratings: [Applicable classes of credit ratings]; and

(iii)Has not received compensation either directly or indirectly from [the credit rating agency] for executing this certification. Signature” The certifications should be marked “Confidential,” and the Commission will accord them confidential treatment to the extent permitted by law. A credit rating agency is not required to make them publicly available. Item 7. Check the appropriate boxes indicating the classes of credit ratings for which the credit rating agency is currently registered as an NRSRO. Complete other parts of this Item according to the instructions for Item 6. Item 8. Answer each question by checking the appropriate box. Information that relates to an affirmative answer must be provided on a Disclosure Reporting Page (NRSRO) and attached to Form NRSRO. The Disclosure Reporting Page (NRSRO) is attached to these instructions. Item 9. Exhibits. Section 15E(a)(1)(B) of the Exchange Act requires an application for registration as an NRSRO to contain certain specific information and documents and, pursuant to Section 15E(a)(1)(B)(x), any other information and documents concerning the applicant and any person associated with the applicant that the Commission requires as necessary or appropriate in the public interest or for the protection of investors. A. Initial Application. An Initial Application must include Exhibits 1 through 13. B. Amendment. Update Exhibits 2 through 9 promptly with new information and documents whenever the existing information or documents contained in the exhibit becomes materially inaccurate ( *see* Section 15E(b)(1) of the Exchange Act). Do not update Exhibits 10 through 13 after registration is granted. C. Annual Certification. Section 15E(b)(2) of the Exchange Act requires an NRSRO to certify annually that the information and documents attached to Form NRSRO are accurate and to list any material changes that occurred to the information and documents during the previous year. Section 15E(b)(1) of the Exchange Act requires that an NRSRO amend the information provided with Exhibit 1 in the ANNUAL CERTIFICATION. D. If any information or document required to be included with any exhibit is maintained in a language other than English, provide both the original document (or a true and complete copy of the original document) and a version of the document translated into English. Attach a certification by an authorized person that the translated version is a true, accurate, and complete English translation of the information or document. E. Attach exhibits to Form NRSRO in numerical order. Bind each exhibit separately, and mark each exhibit or bound volume of the exhibit with the appropriate exhibit number. The information provided in the exhibits must be sufficiently detailed to allow for verification. The information and documents required to be provided in Exhibits 1 through 9 must be made publicly available ( *see* Item 5); the information and documents required to be provided in Exhibits 10 through 13 should be marked “Confidential.” The Commission will accord them confidential treatment to the extent permitted by law. The credit rating agency is not required to make them publicly available. Exhibit 1. This exhibit must include credit ratings performance measurement statistics over short-term, mid-term, and long-term periods *(as applicable)* of the credit rating agency through the most recent calendar year-end, including, *as applicable:* historical down-grade and default rates within each credit rating category (ranking) of the credit rating agency. As part of this exhibit, define the credit ratings used by the credit rating agency and explain the performance measurement statistics, including the metrics used to determine the statistics. Exhibit 2. This exhibit must include the procedures and methodologies that the credit rating agency uses to determine credit ratings, including unsolicited credit ratings. The procedures and methodologies furnished in this exhibit should include, *as applicable:* policies for determining whether to initiate a credit rating; a description of the public and non-public sources of information used in determining credit ratings, including information and analysis provided by third-party vendors; a description of any quantitative and qualitative models and metrics used to determine credit ratings; procedures for interacting with the management of a rated obligor or issuer of rated securities or money market instruments; the structure and voting process of committees that review or approve credit ratings; procedures for informing rated obligors or issuers of rated securities or money market instruments about credit rating decisions and for appeals of final or pending credit rating decisions; procedures for monitoring, reviewing, and updating credit ratings; and procedures to withdraw, or suspend the maintenance of, a credit rating. For purposes of this exhibit: *Unsolicited credit rating* means a credit rating that the credit rating agency determines without being requested to do so by the issuer or underwriter of the rated securities or money market instruments or the rated obligor. Exhibit 3. This exhibit must include policies or procedures established, maintained, and enforced by the credit rating agency to prevent the misuse of material, nonpublic information as required by Section 15E(g) of the Exchange Act and 17 CFR 240.17g-4. Exhibit 4. This exhibit must include a description of the organizational structure of the credit rating agency, including, *as applicable,* an organizational chart that identifies the credit rating agency's ultimate and sub-holding companies, subsidiaries, and material affiliates; an organizational chart showing the divisions, departments, and business units of the credit rating agency; and an organizational chart showing the managerial structure of the credit rating agency, including the designated compliance officer identified in Item 4. Exhibit 5. This exhibit must include a copy of the written code of ethics in effect at the credit rating agency or a statement of the reasons why the credit rating agency does not have a written code of ethics. Exhibit 6. This exhibit must identify in general terms the types of conflicts of interest relating to the issuance of credit ratings by the credit rating agency including, *as applicable:* whether the credit rating agency receives compensation from rated obligors, issuers of rated securities or money market instruments, and underwriters of rated securities or money market instruments to determine or maintain a credit rating and for other services (identify the services); whether an affiliate of the credit rating agency owns securities of, or has any other form of ownership interest in, a rated obligor, issuer of rated securities or money market instruments, or underwriter of rated securities or money market instruments; whether the credit rating agency's employees are permitted to own securities of a rated obligor or issuer of rated securities or money market instruments; whether the credit rating agency receives compensation from entities that use its credit ratings for regulatory purposes and for other services (identify the services); whether the credit rating agency, or an affiliate, owns securities of, or has any other form of ownership interest in, an entity that uses credit ratings for regulatory purposes; whether the credit rating agency's employees are permitted to own securities of an entity that uses credit ratings for regulatory purposes; and whether the credit rating agency, its affiliates, or its employees have any other business relationship or affiliation with a rated obligor, issuer of rated securities or money market instruments, underwriter of rated securities or money market instruments, or entity that uses credit ratings for regulatory purposes. In addition, identify each entity that is an underwriter of rated securities or money market instruments or that uses credit ratings for regulatory purposes that is also a person associated with the credit rating agency. Exhibit 7. This exhibit must include the written policies and procedures established, maintained, and enforced by the credit rating agency pursuant to Section 15E(h) of the Exchange Act to address and manage conflicts of interest. Exhibit 8. This exhibit must include the following information regarding each of the credit rating agency's credit analysts and each officer and employee of the credit rating agency responsible for supervising the credit rating agency's credit analysts: • Name. • Title and brief description of responsibilities, including whether a supervisor. • Employment history. • Post-secondary education. • Whether employed by the credit rating agency full-time (at least 35 hours per week) or part-time. For purposes of this exhibit: *Credit analyst* means an individual associated with the credit rating agency who is responsible for determining a credit rating using either a quantitative model, a qualitative model and analysis, or a combination of these methods. Exhibit 9. This exhibit must include the following information about the credit rating agency's designated compliance officer (identified in Item 4) and any other persons that assist the designated compliance officer in carrying out the responsibilities set forth in Section 15E(j) of the Exchange Act: • Name. • Title and brief description of responsibilities. • Employment history. • Post secondary education. • Whether employed by the credit rating agency full-time (at least 35 hours per week) or part-time. Exhibit 10. This exhibit must include a list of the largest customers that used credit rating services provided by the credit rating agency by the amount of net revenue received by the credit rating agency and its affiliates from the customer during the fiscal year ending immediately before the date the credit rating agency submits an INITIAL APPLICATION. In making this list, the credit rating agency should first determine the 20 largest issuer and subscriber customers in terms of net revenue received by the credit rating agency and its affiliates from the issuer or subscriber. Next, the credit rating agency should add to the list any obligor or underwriter that used credit rating services provided by the credit rating agency if the net revenue received by the credit rating agency and its affiliates from the obligor or underwriter during the fiscal year equaled or exceeded the net revenue received from the 20th largest issuer or subscriber. In making the list, rank the customers from largest to smallest and include the net revenue amount for each customer. For purposes of this exhibit: *Net revenue* means all fees, sales proceeds, commissions, and other revenue received by the credit rating agency and its affiliates for any type of service or product, regardless of whether related to credit rating services, and net of any fees, sales proceeds, rebates, and other monies paid to the customer by the credit rating agency and its affiliates; and *Credit rating services* means any of the following: rating an obligor (regardless of whether the obligor or any other person paid for the credit rating); rating an issuer's securities or money market instruments (regardless of whether the issuer, underwriter, or any other person paid for the credit rating); and providing credit ratings to a subscriber. Exhibit 11. This exhibit must include financial statements of the credit rating agency, which must include a balance sheet, an income statement and statement of cash flows, and a statement of changes in owners’ equity, audited by an independent public accountant, for each of the three fiscal or calendar years ending immediately before the date it submits an INITIAL APPLICATION to the Commission, subject to the following: If the credit rating agency is a division, unit, or subsidiary of a parent company, the credit rating agency can provide audited consolidated and consolidating financial statements of the parent company. If the credit rating agency does not have audited financial statements for one or more of the three fiscal or calendar years ending immediately before the date it submits an INITIAL APPLICATION to the Commission, it can provide unaudited financial statements for the applicable year or years, but the credit rating agency must provide audited financial statements for the fiscal or calendar year ending immediately before the date it submits an INITIAL APPLICATION to the Commission. The credit rating agency must attach to the unaudited financial statements a certification by a person duly authorized by the credit rating agency to make the certification that the person has responsibility for the financial statements and that to the best knowledge of the person making the certification the financial statements fairly present, in all material respects, the financial condition, results of operations, and cash flows of the rating organization for the period presented. Exhibit 12. This exhibit must include the following information, *as applicable,* regarding the credit rating agency's aggregate revenues for the fiscal or calendar year ending immediately before the date it furnishes an INITIAL APPLICATION to the Commission: • Revenue from determining and maintaining credit ratings; • Revenue from subscribers; • Revenue from granting licenses or rights to publish credit ratings; • Revenue from determining credit ratings that are not made readily accessible (private ratings); and • Revenue from all other services and products offered by the rating organization (include descriptions of any major sources of revenue). Exhibit 13. This exhibit must include the total and median annual compensation of the credit rating agency's credit analysts. F. Explanation of Terms. For purposes of Form NRSRO, the following definitions and descriptions apply: 1. COMMISSION—The U. S. Securities and Exchange Commission. 2. CREDIT RATING—An assessment of the creditworthiness of an obligor as an entity or with respect to specific securities or money market instruments [Section 3(a)(60) of the Exchange Act]. 3. CREDIT RATING AGENCY [Section 3(a)(61) of the Exchange Act]—Any person: • Engaged in the business of issuing credit ratings on the Internet or through another readily accessible means, for free or for a reasonable fee, but does not include a commercial credit reporting company; • Employing either a quantitative or qualitative model, or both to determine credit ratings; and • Receiving fees from either issuers, investors, and/or other market participants. 4. NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION [Section 3(a)(62) of the Exchange Act]—A credit rating agency that: • Has been in business as a credit rating agency for at least the 3 consecutive years immediately preceding the date of its application for registration as an NRSRO; • Issues credit ratings certified by qualified institutional buyers with respect to: ○ Financial institutions, brokers, or dealers; ○ Insurance companies; ○ Corporate issuers; ○ Issuers of asset-backed securities; ○ Issuers of government securities, municipal securities, or securities issued by a foreign government; or ○ A combination of one or more of the above; and • Is registered as an NRSRO. 5. NON-RESIDENT RATING ORGANIZATION [Exchange Act Rule 17g-4(a)]—A nationally recognized statistical rating organization that: • If a corporation, is incorporated in or has its principal office in, a location outside the United States, its territories, or possessions; • If a partnership or other unincorporated organization or association, has its principal office in a location outside the United States, its territories, or possessions. 6. PERSON—An individual, partnership, corporation, trust, limited liability company, or other organization. 7. PERSON ASSOCIATED WITH THE CREDIT RATING AGENCY—Any partner, officer, director, or branch manager of the credit rating agency (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with a credit rating agency, or any employee of a credit rating agency [Section 3(a)(63) of the Exchange Act]. 8. QUALIFIED INSTITUTIONAL BUYER—An entity listed in 17 CFR 230.144A(a) that is not affiliated with the credit rating agency [Section 3(a)(64) of the Exchange Act]. Disclosure Reporting Page (NRSRO) This Disclosure Reporting Page

(DRP)is to be used to report information related to affirmative responses to Item 8 of Form NRSRO. Use a separate DRP for each event or proceeding. Attach additional pages as necessary. Name of credit rating agency Date Check Item being responded to: ☐ Item 8A ☐ Item 8B ☐ Item 8C The individual(s) or entity(ies) for whom this DRP is being filed is (are): ☐ The credit rating agency ☐ The credit rating agency and one or more associated persons ☐ One or more associated persons If this DRP is being filed for one or more associated persons, provide the full name of the associated person(s): If this DRP provides information relating to a “Yes” answer to Item 8A, describe the act(s) that was

(were)committed or omitted; or the order(s) or finding(s); or the injunction(s) (provide the relevant statute(s) or regulation(s)) and provide jurisdiction(s) and date(s): If this DRP provides information relating to a “Yes” answer to Item 8B, describe the crime(s) and provide jurisdiction(s) and date(s): If this DRP provides information relating to a “Yes” answer to Item 8C, attach the relevant Commission order(s) and provide date(s): ☐ This DRP should be removed from Form NRSRO because the person(s) is

(are)no longer associated with the credit rating agency. By the Commission. Dated: February 2, 2007. Nancy M. Morris, Secretary. [FR Doc. 07-548 Filed 2-8-07; 8:45 am]

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