Procedures for the Acquisition of Petroleum for the Strategic Petroleum Reserve, 64369-64375 [2022-23184]

Agencies

• DEPARTMENT OF ENERGY

[Federal Register Volume 87, Number 205 (Tuesday, October 25, 2022)]
[Rules and Regulations]
[Pages 64369-64375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23184]



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DEPARTMENT OF ENERGY

10 CFR Part 626

RIN 1901-AB56


Procedures for the Acquisition of Petroleum for the Strategic 
Petroleum Reserve

AGENCY: Office of Cybersecurity, Energy Security, and Emergency 
Response, Department of Energy.

ACTION: Final rule.

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SUMMARY: The Energy Policy Act of 2005 directed the Secretary of Energy 
to develop procedures for the acquisition of petroleum products for the 
Strategic Petroleum Reserve (``SPR''). Pursuant to that direction, in 
2006, the Department of Energy (``DOE'' or the ``Department'') 
promulgated the Procedures for Acquisition of Petroleum for the 
Strategic Petroleum Reserve. Over the intervening 16 years, the 
existing regulations have become outdated due to changes in statutory 
authority, agency practice, and market dynamics. In this final rule, 
DOE is amending its regulations on the procedures for the acquisition 
of petroleum products for the SPR to: more closely align the regulatory 
language with the applicable statutory language; remove outdated 
procedures for acquisition under the royalty-in-kind program; add 
procedures for acquisition by exchange to better reflect petroleum 
product acquisition operations as conducted by the Office of Petroleum 
Reserves; and increase the Department's flexibility in structuring 
acquisitions.

DATES: This final rule is effective November 25, 2022.

FOR FURTHER INFORMATION CONTACT: Mr. Thomas McGarry, U.S. Department of 
Energy, Office of Petroleum Reserves, Office of Cybersecurity, Energy 
Security, and Emergency Response, Forrestal Building, Room 3G-024, 1000 
Independence Avenue SW, Washington, DC 20585; (202) 586-8197, email: 
[email protected]; or Mr. Edward Toyozaki, U.S. Department of 
Energy, Office of the General Counsel, Forrestal Building, Room 6D-033, 
1000 Independence Avenue SW, Washington, DC 20585; (202) 586-0126, 
email: [email protected].

SUPPLEMENTARY INFORMATION:

I. Background and Introduction
II. Discussion of Final Rule and Response to Comments
    A. Summary of the Final Rule
    B. Response to Comments
III. Regulatory Review
IV. Congressional Notification
V. Approval of the Office of the Secretary

I. Background and Introduction

    The SPR was established by the Energy Policy and Conservation Act 
(``EPCA''), (Pub. L. 94-163), to store petroleum products to diminish 
the impact of disruptions on petroleum supplies and to carry out the 
obligations of the United States under the International Energy 
Program. (42 U.S.C. 6231 et seq.) Section 160 of EPCA authorizes the 
Secretary of Energy to acquire petroleum products for the SPR. 
Subsequently, the Energy Policy Act of 2005, (Pub. L. 109-58), amended 
EPCA and directed the Secretary of Energy to develop, with the 
opportunity for public notice and comment, procedures for the 
acquisition of petroleum products for the SPR. (42 U.S.C. 6240) The 
principal method for acquiring SPR petroleum products is by purchase, 
but SPR petroleum may also be acquired via exchange. (42 U.S.C. 
6240(a)) On November 8, 2006, and pursuant to EPCA, as amended by the 
Energy Policy Act of 2005, DOE established procedures for the 
acquisition of SPR petroleum at 10 CFR part 626. 71 FR 65376 (``2006 
final rule''). The 2006 final rule included provisions regarding the 
direct purchase, exchange, and transfer of royalty oil from the 
Department of the Interior (``DOI'').
    Subsequent to DOE promulgating the 2006 final rule, the Government 
Accountability Office and the DOI Inspector General published several 
reports between 2008 and 2009 on the shortcomings of and personnel 
misconduct related to the royalty-in-kind program, and, as a result, 
the DOI terminated its royalty-in-kind program in 2010. Then, in 2013, 
with section 306(a) of the Bipartisan Budget Act of 2013, (Pub. L. 113-
67), Congress repealed DOE's authority to conduct SPR acquisitions 
under the royalty-in-kind program that was incorporated into the 2006 
final rule.
    Prior to this final rule, 10 CFR part 626 had not been updated 
since it was promulgated by DOE in the 2006 final rule, and, thus, did 
not reflect the intervening changes to the authorizing statutory 
authority. Additionally, over the last few decades, DOE has conducted 
numerous exchanges, mostly in an emergency exchange capacity; however, 
part 626 did not clearly outline those exchange procedures. Lastly, 
under the original iteration of part 626, the Department found itself 
less able to structure acquisition contracts in response to recent 
changing petroleum product market dynamics.
    Accordingly, considering these circumstances, DOE has determined 
that a revision to these regulations to provide more clarity; better 
reflect the underlying statutory authorities, operational practices, 
and realities; and provide additional flexibility in structuring 
acquisitions is warranted.
    On August 4, 2022, DOE published the notice of proposed rulemaking 
(``NOPR'' or ``proposed rule'') to amend its regulations at part 626. 
(87 FR 47652) Publication of the NOPR began a 30-day public comment 
period that ended on September 6, 2022. DOE received five comments: 
four of which were outside the scope of the proposed rule and a fifth 
that was in support of DOE's proposed rule. The NOPR and comments 
received on the NOPR can be accessed at: https://www.regulations.gov/document/DOE-HQ-2022-0022-0001.

II. Discussion of Final Rule and Response to Comments

A. Summary of the Final Rule

    The final rule revises 10 CFR part 626 in several respects. First, 
the final rule updates language throughout part 626 to more closely 
align with the statutory language found in section 160 of EPCA. This 
includes updating the definitions for ``DOE'', ``Exchange'', and 
``Strategic Petroleum Reserve'', while adding new definitions for 
``Premium'', ``Requestor'', and ``Solicitation''. The definition 
pertaining to ``DOI'' is also struck. These changes provide more 
clarity and maintain continuity throughout the part while supporting 
other changes.
    Second, because Congress repealed DOE's authority to acquire 
``crude oil which the United States is entitled to receive in kind as 
royalties from production on Federal lands'' in 2013, all references to 
the royalty-in-kind program in part 626 have been removed. This 
includes removal of the procedures for acquisition under the royalty-
in-kind program previously found at 10 CFR 626.7.
    Third, the final rule codifies procedures for the exchange of 
petroleum products at the revised 10 CFR 626.7 and adds references to 
``exchange'' throughout part 626, as appropriate. These changes are 
intended to reflect current operational practices of the SPR. Since 
1996, in accordance with statutory authority in sections 159 and 160 of 
EPCA, DOE has conducted over a dozen emergency exchanges with private 
industry. In these emergency exchanges, upon request from refiners and 
verification of the request by DOE, the SPR provides emergency barrels 
of petroleum product to refiners; in return, the requesting refiners 
later provide the SPR the original number of barrels plus extra barrels 
called a ``premium.'' In

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addition to the emergency exchanges by request, since 2000 and most 
recently in 2021, DOE has twice utilized the exchange authority to 
conduct solicitations for exchange, whereby the general public was 
permitted to bid to contract to accept barrels of SPR petroleum 
products in the present and return those barrels plus a premium in the 
future. DOE is now codifying these long-standing procedures into the 
acquisition regulations.
    Fourth, the final rule amends 10 CFR 626.5 and 626.6 to increase 
flexibility for DOE to enter into contracts for the purchase of 
petroleum products, consistent with the requirements and objectives of 
section 160 of EPCA. These changes ensure that DOE continues to acquire 
petroleum products in accordance with the competitive principles of the 
Federal Acquisition Regulation and the DOE Acquisition Regulation, 
while providing DOE the flexibility to use either fixed-price or index-
priced contracts for future petroleum product acquisitions. DOE is 
proposing these changes because the current acquisition regulations, 
including the requirement that DOE acquire oil in accordance with the 
Federal Acquisition Regulation and the requirement to use a price index 
to set purchase prices, unnecessarily restrict DOE's flexibility to 
procure petroleum products using fixed-price contracts, notwithstanding 
the fact that there may be circumstances in which a fixed-price 
acquisition would better meet the statutory objectives of EPCA.
    Lastly, the final rule adds 10 CFR 626.9 to implement subsection 
(f) of section 160 of EPCA. (42 U.S.C. 6240(f)) This final change has 
been included because, while the Department has had the statutory 
authority to suspend previously announced or contracted acquisitions of 
petroleum products or divert the injection of petroleum products into 
the SPR when there is a perceived imminent severe energy supply 
interruption, until now, this authority has not been incorporated into 
any existing regulations.

B. Response to Comments

    The Department received five comments on the proposed revisions to 
10 CFR part 626. Of those, four comments were outside the scope of the 
proposed rule; the single responsive comment supported the proposed 
rule. The comments received on the NOPR can be accessed at: https://www.regulations.gov/document/DOE-HQ-2022-0022-0001/comment.
    The single positive comment was submitted by Employ America. Employ 
America stated that given the negative impact that volatile oil prices 
have on inflation, ``the rule is an important step to reduce the 
volatility of oil prices over the short and medium term, improve our 
nation's energy security, and a necessary step to ensure that 
acquisition procedures more fully align with the [SPR]'s governing 
statute.'' Employ America indicated they ``urge the DOE to ensure the 
final rule allows [the Department] to utilize fixed-price contracts 
with sufficient flexibility to achieve the objectives and procedural 
needs defined in the SPR's governing statute.'' That said, Employ 
America noted that fixed-price contracts should not always be used, but 
``given that the SPR must balance several objectives, it needs a 
toolkit that can be deployed as necessary to meet the entire set of 
objectives.'' Finally, Employ America concluded that ``[s]hould the 
proposed rule be finalized, the DOE will have the ability to realign 
its storage capabilities to better support and insure domestic 
producers against the risk of price crashes that have otherwise left 
them reluctant to invest.''
    DOE has properly considered the comment and agrees with the intent 
and substance of the comment. Therefore, for the reasons discussed in 
the preamble and the proposed rule (87 FR 47652; Aug. 4, 2022), the 
Department is publishing the rulemaking as proposed.

III. Regulatory Review

A. Executive Order 12866

    This final rule has been determined to not be a significant 
regulatory action under Executive Order 12866, ``Regulatory Planning 
and Review.'' 58 FR 51735 (October 4, 1993). Accordingly, this action 
was not subject to review under that Executive order by the Office of 
Information and Regulatory Affairs (``OIRA'') of the Office of 
Management and Budget (``OMB'').

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires the 
preparation of an initial regulatory flexibility analysis for any rule 
that by law must be proposed for public comment, unless the agency 
certifies that the rule, if promulgated, will not have a significant 
economic impact on a substantial number of small entities. As required 
by Executive Order 13272, Proper Consideration of Small Entities in 
Agency Rulemaking, 67 FR 53461 (August 16, 2002), DOE published 
procedures and policies on February 19, 2003, to ensure that the 
potential impacts of its rules on small entities are properly 
considered during the rulemaking process, 68 FR 7990. The Department 
has made its procedures and policies available on the Office of General 
Counsel's website: www.energy.gov/gc/office-general-counsel.
    The final rule updates the procedures DOE utilizes for the 
acquisition of petroleum products for the SPR, changes definitions, and 
removes references to the repealed royalty-in-kind program. DOE has 
reviewed the changes under the provisions of the Regulatory Flexibility 
Act and the procedures and policies published on February 19, 2003. 
These changes are procedural and not designed to set the terms or 
conditions of an acquisition and apply only to entities that are 
engaged in the sale of petroleum products to the Strategic Petroleum 
Reserve. Historically, Strategic Petroleum Reserve acquisitions have 
typically been large volume acquisitions, and usually filled by larger 
entities operating in the petroleum industry. Therefore, these 
procedures are unlikely to directly affect small businesses or other 
small entities. For these reasons, DOE certifies that this final rule 
would not have a significant economic impact on a substantial number of 
small entities. Accordingly, DOE has not prepared a regulatory 
flexibility analysis for this rulemaking. DOE's certification and 
supporting statement of factual basis will be provided to the Chief 
Counsel for Advocacy of the Small Business Administration for review 
under 5 U.S.C. 605(b).

C. Paperwork Reduction Act of 1995

    The final rule does not impose any new information or record 
keeping requirements. Accordingly, OMB clearance is not required under 
the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

D. Review Under the National Environmental Policy Act of 1969

    Per 10 CFR 1021.410(a), DOE has determined that promulgation of 
these regulations fall into a class of actions that does not 
individually or cumulatively have a significant impact on the human 
environment as set forth under DOE's regulations implementing the 
National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). 
Furthermore, this rulemaking is covered under the Categorical Exclusion 
found in DOE's National Environmental Policy Act regulations at 
paragraph A6 of appendix A to subpart D, 10 CFR part 1021, which 
applies to rulemakings that are strictly procedural. Accordingly, 
neither an EIS nor an EA is required.

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E. Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 10, 
1999), imposes certain requirements on agencies formulating and 
implementing policies or regulations that preempt State law or that 
have federalism implications. The Executive order requires agencies to 
examine the constitutional and statutory authority supporting any 
action that would limit the policymaking discretion of the States and 
to carefully assess the necessity for such actions. DOE examined this 
final rule and determined that it would not preempt State law and would 
not have a substantial direct effect on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of Government. 
No further action is required by Executive Order 13132.

F. Executive Order 13175

    Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments,'' 65 FR 67249 (November 9, 2000), applies to agency 
regulations that have Tribal implications, that is, regulations that 
have substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal Government and Indian Tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian Tribes. The final rule has been analyzed in 
accordance with the principles and criteria contained in Executive 
Order 13175. Because this final rule will not significantly or uniquely 
affect the communities of the Indian tribal governments or impose 
substantial direct compliance costs on them, the funding and 
consultation requirements of Executive Order 13175 do not apply.

G. Review Under Executive Order 12988

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

H. Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (``UMRA'') 
(Pub. L. 104-4) requires each Federal agency to assess the effects of 
Federal regulatory actions on State, local, and tribal governments and 
the private sector. For a regulatory action likely to result in a rule 
that may cause the expenditure by State, local, and tribal governments, 
in the aggregate, or by the private sector of $100 million or more in 
any one year (adjusted annually for inflation), section 202 of UMRA 
requires a Federal agency to publish a written statement that estimates 
the resulting costs, benefits, and other effects on the national 
economy (2 U.S.C. 1532(a) and (b)). UMRA also requires a Federal agency 
to develop an effective process to permit timely input by elected 
officers of State, local, and tribal governments on a ``significant 
intergovernmental mandate'' and requires an agency plan for giving 
notice and opportunity for timely input to potentially affected small 
governments before establishing any requirements that might 
significantly or uniquely affect small governments. On March 18, 1997, 
DOE published a statement of policy on its process for 
intergovernmental consultation under UMRA (62 FR 12820) (also available 
at www.energy.gov/gc/office-general-counsel). DOE examined this final 
rule according to UMRA and its statement of policy and has determined 
that the rule contains neither an intergovernmental mandate nor a 
mandate that may result in the expenditure of $100 million or more in 
any year by State, local, and tribal governments, in the aggregate, or 
by the private sector. Accordingly, no further assessment or analysis 
is required under UMRA.

I. Treasury and General Government Appropriations Act of 1999

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

J. Treasury and General Government Appropriations Act, 2001

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

K. Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 
(May 22, 2001), requires Federal agencies to prepare and submit to OIRA 
and OMB, a Statement of Energy Effects for any significant energy 
action. A ``significant energy action'' is defined as any action by an 
agency that promulgated or is expected to lead to promulgation of a 
final rule, and that: (1)(i) is a significant regulatory action under 
Executive Order 12866, or any successor order; and (ii) is likely to 
have a significant adverse effect on the supply, distribution, or use 
of energy, or (2) is designated by the Administrator of OIRA as a 
significant energy action. For any significant energy action, the 
agency must give a detailed statement of any adverse effects on energy 
supply, distribution, or use should the proposal be implemented, and of 
reasonable alternatives to the action and their expected benefits on 
energy supply, distribution, and use. This final rule updates DOE's 
acquisition of petroleum product procedures for the SPR to align the 
regulatory language more closely with existing statutory language and 
current practice. Accordingly, the final rule also updates definitions, 
as appropriate, for the newly aligned regulatory language.

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This final rule, therefore, does not meet any of the three criteria 
listed above and would not have a significant adverse effect on the 
supply, distribution, or use of energy and is therefore not a 
significant regulatory action. Accordingly, DOE has not prepared a 
Statement of Energy Effects.

IV. Congressional Notification

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

V. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this final 
rule.

List of Subjects in 10 CFR Part 626

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

Signing Authority

    This document of the Department of Energy was signed on October 19, 
2022, by Puesh Kumar, Director for Cybersecurity, Energy Security, and 
Emergency Response, pursuant to delegated authority from the Secretary 
of Energy. That document with the original signature and date is 
maintained by DOE. For administrative purposes only, and in compliance 
with requirements of the Office of the Federal Register, the 
undersigned DOE Federal Register Liaison Officer has been authorized to 
sign and submit the document in electronic format for publication, as 
an official document of the Department of Energy. This administrative 
process in no way alters the legal effect of this document upon 
publication in the Federal Register.

    Signed in Washington, DC, on October 20, 2022.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.

0
For reasons stated in the preamble, DOE revises part 626 in chapter II 
of title 10 of the Code of Federal Regulations as set forth below:

PART 626--PROCEDURES FOR ACQUISITION OF PETROLEUM FOR THE STRATEGIC 
PETROLEUM RESERVE

Sec.
626.1 Purpose.
626.2 Definitions.
626.3 Applicability.
626.4 General acquisition strategy.
626.5 Acquisition procedures--general.
626.6 Acquiring petroleum products by purchase.
626.7 Acquiring petroleum products by exchange.
626.8 Deferrals of contractually scheduled deliveries.
626.9 Suspension and pre-drawdown diversion.

    Authority:  42 U.S.C. 6240(c); 42 U.S.C. 7101, et seq.


Sec.  626.1  Purpose.

    This part establishes the procedures for acquiring petroleum 
products for, and deferring contractually scheduled deliveries to, the 
Strategic Petroleum Reserve. The procedures do not represent actual 
terms and conditions to be contained in the contracts for the 
acquisition of SPR petroleum products.


Sec.  626.2  Definitions.

    Backwardation means a market situation in which prices are 
progressively lower in succeeding delivery months than in earlier 
months.
    Contango means a market situation in which prices are progressively 
higher in the succeeding delivery months than in earlier months.
    Contract means the agreement under which DOE acquires SPR petroleum 
products, consisting of the solicitation, the contract form signed by 
both parties, the successful offer, and any subsequent modifications, 
including those granting requests for deferrals.
    Contracting Officer means a person with the authority to enter 
into, administer, and/or terminate contracts and make related 
determinations and findings, including entering into sales contracts on 
behalf of the Government. The term includes certain authorized 
representatives of the Contracting Officer acting within the limits of 
their authority as delegated by the Contracting Officer.
    DEAR means the Department of Energy Acquisition Regulation.
    Deferral means a process whereby petroleum products scheduled for 
delivery to the SPR in a specific contract period is rescheduled for 
later delivery, outside of that period, and encompasses the future 
delivery of the originally scheduled quantity plus an in-kind premium.
    DOE means the Department of Energy and includes any of its 
subsidiary offices, such as the Office of Petroleum Reserves (OPR) and 
the Strategic Petroleum Reserve Program Management Office.
    Exchange means a process whereby petroleum products owned by or due 
to the SPR are provided to an entity or requestor in return for 
petroleum products of comparable quality plus a premium quantity of 
petroleum products (in barrels)--or another form of premium as 
permitted by law--delivered to the SPR in the future, or when SPR 
petroleum products are traded for petroleum products of a different 
quality preferred by DOE for operational reasons based on the relative 
values of the quantities traded.
    FAR means the Federal Acquisition Regulation.
    Government means the United States Government and includes DOE as 
its representative.
    OPR means the Office of Petroleum Reserves within DOE, whose 
responsibilities include the operation of the Strategic Petroleum 
Reserve.
    Petroleum products means crude oil, residual fuel oil, or any 
refined product (including any natural gas liquid, and any natural gas 
liquid product) owned, or contracted for, by DOE and in storage in any 
permanent SPR facility, or temporarily stored in other storage 
facilities.
    Premium means the additional amount of petroleum product (in 
barrels)--or another form of payment as permitted by law--that must be 
delivered to the SPR above the principal amount of petroleum product 
owed to SPR in the case of an exchange or a deferred contractually 
scheduled delivery. The premium may include a calculation based on a 
rate set by DOE and duration of time until the SPR receives the 
petroleum product.
    Requestor is an entity that makes an emergency request under Sec.  
626.7(b).
    Secretary means the Secretary of Energy.
    Solicitation means the written request by DOE for submission of 
offers or quotations to DOE for the acquisition of petroleum products.
    Strategic Petroleum Reserve or SPR means the reserve for the 
storage of up to 1 billion barrels of petroleum products established by 
Title I, Part B, of the Energy Policy and Conservation Act, 42 U.S.C. 
6201 et seq.


Sec.  626.3  Applicability.

    The procedures in this part apply to the acquisition of petroleum 
products by DOE for the Strategic Petroleum Reserve through purchase or 
exchange, as well as to deferrals of contractually scheduled 
deliveries.


Sec.  626.4  General acquisition strategy.

    (a) Criteria for commencing acquisition. DOE shall consider the 
following factors prior to commencing acquisition of petroleum products 
for the SPR:
    (1) The current inventory of the SPR;
    (2) The current level of private inventories;

[[Page 64373]]

    (3) Days of net import protection;
    (4) Current price levels for petroleum products and related 
commodities, the ability to minimize costs and avoid incurring 
excessive costs in acquisition, and the possible effect on consumer and 
market prices of any SPR acquisition;
    (5) The outlook for international and domestic production levels;
    (6) Existing or potential disruptions in supply or refining 
capability;
    (7) The level of market volatility;
    (8) Futures market price differentials for petroleum products and 
related commodities;
    (9) The need to protect national security; and
    (10) Any other factor the Secretary deems necessary or appropriate 
to consider.
    (b) Review of rate of acquisition. DOE shall review the appropriate 
rate of petroleum product acquisition each time an open market 
acquisition has been suspended for more than three months.
    (c) Acquisition through other Federal agencies. DOE may enter into 
arrangements with another Federal agency for that agency to acquire 
petroleum products for the SPR on behalf of DOE.


Sec.  626.5  Acquisition procedures--general.

    (a) Notice of acquisition. (1) Except when DOE has determined there 
is good cause to do otherwise, DOE shall provide advance public notice 
of its intent to acquire petroleum products for the SPR. The notice of 
acquisition will, to the extent feasible, include the general terms and 
details of DOE's petroleum products acquisition and inform the public 
of DOE's overall fill goals.
    (2) The notice of acquisition will generally include the:
    (i) Manner of acquisition;
    (ii) Time period for solicitations;
    (iii) Quantity of petroleum products sought;
    (iv) Minimum petroleum product quality requirements;
    (v) Time period for delivery;
    (vi) Acceptable delivery locations; and
    (vii) Instructions for the offer process.
    (b) Manner of acquisition. (1) DOE shall specify the manner of 
petroleum product acquisition, either purchase or exchange, in the 
notice of acquisition.
    (2) DOE shall, to the greatest extent practicable, determine the 
manner of petroleum product acquisition after considering:
    (i) The availability of appropriated funds;
    (ii) Minimization of costs;
    (iii) Minimization of the Nation's vulnerability to a severe energy 
supply interruption;
    (iv) Minimization of the impact to supply levels and market forces;
    (v) Whether the manner of acquisition would encourage competition 
in the petroleum industry; and
    (vi) Other considerations DOE deems to be relevant.
    (c) Solicitation. (1) To secure the economic benefit and security 
of a diversified base of potential suppliers of petroleum products to 
the SPR, DOE shall maintain a listing, developed through online 
registration, direct requests to DOE, and outreach to potential 
suppliers by DOE. Upon the issuance of a solicitation, DOE shall notify 
potential suppliers via their registered email addresses.
    (2) DOE shall make the solicitation publicly available on the 
website of the OPR: www.spr.doe.gov.
    (d) Timing and duration of solicitation. (1) DOE shall determine 
petroleum products requirements on nominal six-month cycles, and shall 
review and update these requirements prior to each solicitation cycle.
    (2) Unless termination rights are explicitly waived by DOE, DOE may 
terminate any solicitations and contracts pertaining to the acquisition 
or exchange of petroleum products at the convenience of the Government, 
and in such event shall not be responsible for any costs incurred by 
suppliers, other than costs for petroleum products delivered to the SPR 
and for reasonable, customary, and applicable costs incurred by the 
supplier in the performance of a valid contract for delivery before the 
effective date of termination of such contract. In no event shall the 
Government be liable for consequential damages or the entity's lost 
profits as a result of such termination.
    (e) Quality. (1) DOE shall define minimum petroleum product quality 
specifications for the SPR. DOE shall include such specifications in 
acquisition solicitations, and shall make them available on the website 
of the OPR: www.spr.doe.gov.
    (2) DOE shall periodically review the quality specifications to 
ensure, to the greatest extent practicable, the petroleum product mix 
in storage matches the demand of the United States refining system.
    (f) Quantity. In determining the quantities of petroleum products 
to be delivered to the SPR, DOE shall:
    (1) Take into consideration market conditions and the availability 
of transportation systems; and
    (2) Seek to avoid adversely affecting other market participants or 
petroleum product market fundamentals.
    (g) Offer and evaluation procedures. (1) Each solicitation shall 
provide necessary instructions on offer format and submission 
procedures. The details of the offer, evaluation, and award procedures 
may vary depending on the method of acquisition.
    (2) DOE may use relative values and time differentials to manage 
acquisition and delivery schedules to reduce acquisition costs.
    (3) DOE may evaluate offers based on prevailing market prices of 
specific petroleum products, and shall award contracts on a competitive 
basis.
    (4) Whether acquisition is by purchase or exchange, DOE may use a 
price index to account for fluctuations in absolute and relative market 
prices at the time of delivery to reduce market risk to all parties 
throughout the contract term.
    (h) Scheduling and delivery. (1) Except as provided in paragraph 
(h)(4) of this section, DOE shall accept offers for petroleum products 
delivered to specified SPR storage sites via pipeline or as waterborne 
cargos delivered to the terminals serving those sites.
    (2) Except as provided in paragraph (h)(4) of this section, DOE 
shall generally establish schedules that allow for evenly spaced 
deliveries of economically sized marine and pipeline shipments within 
the constraints of SPR site and commercial facilities receipt 
capabilities.
    (3) DOE shall strive to maximize U.S. flag carrier utilization 
through the terms of its supply contracts.
    (4) DOE reserves the right to accept offers for other methods of 
delivery if, in DOE's sole judgment, market conditions and logistical 
constraints require such other methods.


Sec.  626.6  Acquiring petroleum products by purchase.

    (a) General. For the purchase of petroleum products, DOE shall, 
through certified contracting officers, conduct petroleum product 
acquisitions in accordance with the competitive principles of the FAR 
and the DEAR.
    (b) Acquisition strategy. (1) DOE solicitations:
    (i) May be either continuously open or fixed for a period of time; 
and
    (ii) May provide either for immediate delivery or for delivery at 
future dates.
    (2) DOE may alter the acquisition plan to take advantage of 
differentials in prices for different qualities of petroleum products, 
based on a consideration of factors, including the availability of 
storage capacity in the

[[Page 64374]]

SPR sites, the logistics of changing delivery streams, and the 
availability of ships, pipelines, and terminals to move and receive the 
petroleum products.
    (3) Based on the market analysis described in paragraph (d) of this 
section, DOE may refuse offers or suspend the acquisition process on 
the basis of Government estimates projecting substantially lower 
petroleum product prices in the future than those contained in offers. 
If DOE determines there is a high probability that the cost to the 
Government can be reduced without significantly affecting national 
energy security goals, DOE may either contract for delivery at a future 
date or delay purchases to take advantage of the projected lower future 
prices. Conversely, DOE may increase the rate of purchases if prices 
fall below recent price trends or futures markets present a significant 
contango and prices offer the opportunity to reduce the average cost of 
petroleum product acquisitions in anticipation of higher future prices.
    (4) Based on the market analysis described in paragraph (d) of this 
section, DOE may refuse offers, decrease the rate of purchase, or 
suspend the acquisition process if DOE determines acquisition will add 
significant upward pressure to prices either regionally or on a world-
wide basis. DOE may consider recent price changes, private inventory 
levels, petroleum product acquisition by other stockpiling entities, 
the outlook for world petroleum products production, incipient 
disruptions of supply or refining capability, logistical problems for 
moving petroleum products, macroeconomic factors, and any other 
considerations that may be pertinent to the balance of petroleum 
product supply and demand.
    (c) Fill requirements determination. DOE shall develop SPR fill 
requirements for each solicitation based on an assessment of national 
energy security goals, the availability of storage capacity, and the 
need for specific grades and quantities of petroleum products.
    (d) Market analysis. (1) DOE shall establish a market value for 
each petroleum product to be acquired based on a market analysis at the 
time of contract award.
    (2) DOE may consider prices on futures markets, spot markets, 
recent price movements, current and projected shipping rates, forecasts 
by the DOE Energy Information Administration, and any other analytic 
tools available to DOE to determine the most desirable purchase 
profile.
    (3) DOE may also consider factors including recent price changes, 
private inventory levels, petroleum product acquisition by other 
stockpiling entities, the outlook for world petroleum product 
production, disruptions of supply or refining capability, logistical 
problems for moving petroleum products, macroeconomic factors, and any 
other considerations that may be pertinent relevant to the balance of 
petroleum product supply and demand.
    (e) Evaluation of offers. (1) DOE shall evaluate offers using:
    (i) The criteria and requirements stated in the solicitation; and
    (ii) The market analysis under paragraph (d) of this section.
    (2) DOE shall require financial guarantees from the contracting 
entity, in the form of a letter of credit or equivalent financial 
assurance.


Sec.  626.7   Acquiring petroleum products by exchange.

    (a) General. DOE may, through certified contracting officers, 
conduct petroleum product acquisitions through the exchange of 
petroleum products. Exchanges are conducted through emergency requests 
or by solicitation.
    (b) Emergency requests. (1) Notwithstanding the requirements of 
Sec.  626.5, the requirements of this subsection shall control all 
exchanges by emergency request.
    (2) At any point, in the event of an emergency, a requestor may 
request, in writing, for an exchange of petroleum product from the SPR.
    (3) All requests shall include the following:
    (i) A justification of need that describes:
    (A) The emergency event,
    (B) The emergency event's impact on the requestor, and
    (C) The requestor's inability to acquire petroleum product from an 
alternative source;
    (ii) The quantity of petroleum product (in barrels) requested;
    (iii) The quality specifications of petroleum product requested; 
and
    (iv) The anticipated duration of the emergency event.
    (4) Upon receipt of an emergency request, DOE will verify the 
emergency, evaluate the need, and assess the market to ensure there is 
no alternative source of petroleum products available to the requester. 
DOE, in its sole discretion, may approve or disapprove any emergency 
request.
    (5) Upon approval of an emergency request, DOE may enter into 
contract negotiations with the requestor.
    (6) Repayment to the SPR for an exchange by emergency request shall 
be in the form of barrels of petroleum products, or another form of 
repayment as permitted by law, and shall include the following to be 
returned to the SPR by the contracted date:
    (i) The principal amount of petroleum products provided to the 
requestor;
    (ii) A premium; and
    (iii) Costs incurred by DOE in conducting the emergency request.
    (c) Solicitation for exchange. (1) A solicitation for exchange:
    (i) May be either continuously open or fixed for a period of time;
    (ii) Shall advertise the quantity and quality specification of 
petroleum product available for exchange;
    (iii) May provide either for immediate delivery or for delivery at 
future dates to a bidding entity;
    (iv) May, in DOE's sole discretion, include a rate table from which 
offerors may offer dates for repayment; and
    (v) May require financial guarantees from offerors in the form of a 
letter of credit or equivalent financial assurance to accompany their 
bids.
    (2) In conducting the bidding and selection process:
    (i) Offerors shall follow the instructions to offerors included in 
the solicitation;
    (ii) DOE shall evaluate and select bids that best support national 
energy security goals, the availability of petroleum products and 
storage capacity, and need for specific grades and quantities of 
petroleum products; and
    (iii) Upon selection of a successful bid, DOE shall notify the 
apparently successful offeror.
    (3) Repayment to the SPR for an exchange by solicitation shall be 
in the form of barrels of petroleum products or another form of 
repayment as permitted by law, and may be calculated based on any rate 
table, if applicable, and shall include the following:
    (i) Principal amount of petroleum product owed to SPR in the case 
of an exchange or a deferred contractually scheduled delivery;
    (ii) Costs incurred by DOE in conducting the exchange; and
    (iii) A premium for each prospective date for repayment.
    (4) Based on the market analysis described in paragraph (c)(5) of 
this section, DOE may refuse offers, decrease the rate of acquisition, 
or suspend the exchange process if DOE determines acquisition will add 
significant upward pressure to prices either regionally or on a 
worldwide basis. DOE may consider recent price changes, private 
inventory levels, petroleum product acquisition by other stockpiling 
entities, the outlook for world petroleum products production, 
incipient disruptions of supply or refining capability, logistical 
problems for moving petroleum

[[Page 64375]]

products, macroeconomic factors, and any other considerations that may 
be pertinent to the balance of petroleum product supply and demand.
    (5) Market analysis:
    (i) DOE shall establish a market value for each petroleum product 
to be acquired based on a market analysis at the time of contract 
award.
    (ii) DOE may consider prices on futures markets, spot markets, 
recent price movements, current and projected shipping rates, forecasts 
by the DOE Energy Information Administration, and any other analytic 
tools available to DOE to determine the most desirable purchase 
profile.
    (iii) DOE may also consider factors including recent price changes, 
private inventory levels, petroleum product acquisition by other 
stockpiling entities, the outlook for world petroleum product 
production, disruptions of supply or refining capability, logistical 
problems for moving petroleum products, macroeconomic factors, and any 
other considerations that may be pertinent relevant to the balance of 
petroleum product supply and demand.


Sec.  626.8  Deferrals of contractually scheduled deliveries.

    (a) General. (1) DOE prefers to take deliveries of petroleum 
products for the SPR at times scheduled under applicable contracts. 
However, in the event the market is distorted by disruption to supply 
or other factors, DOE may defer scheduled deliveries or consider 
deferral requests from awardees.
    (2) An awardee seeking to defer scheduled deliveries of petroleum 
products to the SPR may submit a deferral request to DOE.
    (b) Deferral criteria. DOE shall only grant a deferral request for 
negotiation under paragraph (c) of this section if it determines that 
DOE can receive a premium for the deferral and, based on DOE's deferral 
analysis, that at least one of the following conditions exists:
    (1) DOE can reduce the cost of its petroleum products acquisition 
per barrel and increase the volume of petroleum products being 
delivered to the SPR by means of the premium barrels required by the 
deferral process;
    (2) DOE anticipates private inventories are approaching a point 
where unscheduled outages may occur;
    (3) There is evidence that refineries are reducing their run rates 
for lack of feedstock; or
    (4) There is an unanticipated disruption to petroleum product 
supply.
    (c) Negotiating terms. (1) If DOE decides to negotiate a deferral 
of deliveries, DOE shall estimate the market value of the deferral and 
establish a strategy for negotiating with suppliers the minimum 
percentage of the market value to be taken by the Government. During 
these negotiations, if the deferral request was initiated by DOE, DOE 
may consider any reasonable, customary, and applicable costs already 
incurred by the supplier in the performance of a valid contract for 
delivery. In no event shall such consideration account for any 
consequential damages or lost profits suffered by the supplier as a 
result of such deferral.
    (2) DOE shall only agree to amend the contract if the negotiation 
results in an agreement to give the Government a fair and reasonable 
share of the market value.


Sec.  626.9  Suspension and pre-drawdown diversion.

    Where the Secretary has found that a severe energy supply 
interruption may be imminent, the Secretary may suspend any previously 
announced or contracted acquisition of any petroleum product by the SPR 
or injection of petroleum products into the SPR; or sell any petroleum 
product acquired for injection into the SPR that has not yet been 
injected into the SPR.

[FR Doc. 2022-23184 Filed 10-24-22; 8:45 am]
BILLING CODE 6450-01-P