In 1994, the Congress enacted the Home Ownership and Equity Protection Act of 1994 (HOEPA) as an amendment to the Truth in Lending Act (TILA). HOEPA was a response to anecdotal reports of abusive lending practices whereby unscrupulous lenders made unaffordable home-secured loans to “house-rich but cash-poor borrowers.” These cases frequently involved elderly and sometimes unsophisticated homeowners who were targeted for loans with high rates and fees and repayment terms that were difficult or impossible for the homeowners to meet. Oftentimes the transactions involved fraud or unlawful misrepresentations by lenders or brokers.

HOEPA does not prohibit creditors from making any type of home-secured loan, nor does it limit or cap rates that creditors may charge. Instead, the act identifies a class of high-cost mortgage loans through rate and fee triggers. For transactions covered by HOEPA, creditors must provide abbreviated disclosures to consumers at least three days before the loan is closed, in addition to the disclosures generally required by TILA. When combined with TILA's three-day right of rescission after the loan closing, the HOEPA disclosures afford consumers a minimum of six days to consider key loan terms before finally deciding to enter into a transaction. Transactions covered by HOEPA are also subject to substantive limitations that prohibit certain terms from being included in the loan agreement.

HOEPA directs the Board, in consultation with its Consumer Advisory Council, to conduct public hearings periodically to examine home-equity loans in the marketplace and consider the adequacy of federal laws (including HOEPA) in protecting consumers—particularly low-income consumers. In June 1997, within two years after HOEPA became effective, the Board held hearings on home-equity lending and HOEPA. The results of those hearings were summarized and submitted to the Congress by the Board and Department of Housing and Urban Development (HUD) in July 1998, in a joint report concerning reform of TILA and the Real Estate Settlement Procedures Act.

Predatory lending practices in home-secured loans continue to receive attention from the Congress and regulatory agencies. The available information concerning predatory lending is essentially anecdotal; there is no ready method for measuring the amount of predatory lending or determining how prevalent a problem it represents. There are enough anecdotal reports, however, to suggest that predatory lending continues to be a problem. Abusive practices may involve, among other things, excessive fees and interest rates, unnecessary insurance, and fraud. Borrowers saddled with unaffordable payments can lose their homes. Excessive up-front fees combined with frequent refinancings (often referred to as “loan flipping”) may also strip the equity from consumers” homes.

Given the wide range of practices that predatory lending may involve, a multifaceted approach to dealing with the problem, including both regulatory and nonregulatory strategies, is likely to be the most effective. This includes strengthening enforcement of current laws, voluntary industry action, community outreach efforts, and consumer education and counseling. Several bills taking different approaches to addressing predatory lending have been introduced in the Congress. Several states have enacted or are considering legislation. The Board has convened a nine-agency working group, including the five federal agencies that supervise depository institutions, HUD, the Office of Federal Housing Enterprises Oversight, the Department of Justice, and the Federal Trade Commission. The aims of the group are to tighten enforcement of existing statutes and to establish a coordinated approach to addressing predatory practices.

On May 24, the Board presented testimony at a hearing held by the House Committee on Banking and Financial Services on predatory lending and possible remedial actions. HUD and the Department of the Treasury have convened a National Task Force on Predatory Lending. The primary mission of the Task Force has been to collect information about predatory lending, provide data on the impact of predatory practices, and comment on existing legislative proposals for reform in order to provide a basis for HUD and Treasury to make recommendations for legislation to the Congress. To solicit information about local and national aspects of the predatory lending problem, HUD and Treasury held five pubic forums in Los Angeles, Chicago, New York, Atlanta, and Baltimore. On June 20, HUD and Treasury issued a report on their findings, that discusses possible ways to curb predatory lending and contains recommendations to the Congress regarding possible legislative action and to the Board regarding the exercise of the Board's regulatory authority under HOEPA.

The Board's home-equity hearings under HOEPA will be primarily focused on the Board's regulatory authority under that act, and specific ways that the Board might consider exercising that authority. As described below, the Board is authorized to make some adjustments to HOEPA's high-cost triggers that could affect the scope of the act's coverage. The Board is also directed by HOEPA to prohibit certain acts and practices in connection with mortgage loans if the Board makes the finding required by the statute. Based on information gathered during recent public hearings, the interagency discussions, and meetings with industry and consumer representatives, the Board has developed a series of questions for discussion at the HOEPA hearings and for public comment. These questions are intended to solicit views on the ways that the Board might exercise its authority, and will be used to focus the discussion at the HOEPA hearings on possible regulatory approaches to deter predatory lending.

The Truth in Lending Act (TILA) (15 U.S.C. 1601 et seq. ) is intended to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The act requires creditors to disclose the cost of credit as a dollar amount (the “finance charge”) and as an annual percentage rate (the “APR”). Uniformity in creditors’ disclosures is intended to assist consumers in comparison shopping. TILA requires additional disclosures for loans secured by a consumer's home and permits consumers to rescind certain transactions that involve their principal dwelling. The act is implemented by the Board's Regulation Z (12 CFR part 226).

The Home Ownership and Equity Protection Act of 1994 (HOEPA), contained in the Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160, amends TILA to impose disclosure requirements and substantive limitations on certain home-secured loans (closed-end installment loans) with rates and fees above a specified amount. A loan is covered by HOEPA if (1) the APR exceeds the rate for treasury securities with a comparable maturity by more than 10 percentage points, or (2) the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $400 (adjusted annually based on the consumer price index). HOEPA is implemented by section 32 of the Board's Regulation Z (12 CFR 226.32), effective in October 1995. 60 FR 15463, March 24, 1995.

HOEPA does not prohibit creditors from making any home-secured loan, nor does it limit or cap rates that creditors may charge. Instead, HOEPA layers disclosure and timing requirements onto the requirements already imposed for consumer credit transactions. Creditors offering HOEPA-covered loans must provide abbreviated disclosures to consumers three days before the loan is closed. The disclosures provide that consumers are not obligated to complete the closing, remind borrowers that they could lose their home if they fail to make payments, and state a few key cost disclosures, including the APR, the regular payment, and, if the loan has a variable rate, a “worst case payment” if rates increase as high and quickly as possible under the loan agreement.

In addition, creditors making HOEPA-covered loans are prohibited from including in their loan agreements, among other provisions: (1) Balloon payments in loans with maturities of less than five years, (2) payment schedules that result in negative amortization, (3) higher default interest rates, and (4) prepayment penalties in most instances. Consumers entering into a HOEPA-covered loan may rescind the transaction for up to three years after closing if creditors fail to provide the early disclosures or if they include a prohibited term in the loan agreement.

Home-purchase loans are not covered by HOEPA. Although reverse mortgages are exempt from the HOEPA requirements imposed for traditional mortgages, reverse mortgages are subject to an alternative detailed disclosure scheme under HOEPA (implemented by section 33 of Regulation Z). Home-equity lines of credit (open-end credit) are also exempt from HOEPA, as congressional hearings preceding enactment did not reveal evidence of abusive practices connected with open-end home-equity lending.

In June 1997, the Board held hearings on home-equity lending and HOEPA in Los Angeles, Atlanta, and Washington, DC. Participants were asked to address several topics, including the effect of HOEPA on homeowners seeking home-equity credit and on credit opportunities in the communities targeted by the legislation (for example, whether there had been changes to the volume or cost of home-equity installment loans); the effectiveness of the disclosures and suggestions for improvements; and whether any exemptions or prohibitions would be appropriate for the Board to consider under its HOEPA rulemaking authority. 62 FR 23189, April 29, 1997.

Those testifying at the hearings generally concurred that it was too soon after HOEPA's enactment to determine the effectiveness of the new law. However, consumer representatives reported continuing abusive practices by home-equity lenders of all degrees of sophistication. The hearings formed the basis for a detailed analysis of the problem of abusive lending practices in mortgage lending contained in a July 1998 report to the Congress by the Board and HUD on possible reforms to TILA and the Real Estate Settlement Procedures Act regarding mortgage-related disclosures. (The 1998 joint report is available at the Board's website address: www.federalreserve.gov/boarddocs/press/general/1998.) Chapter 6 of the report suggested a multifaceted approach to curbing predatory lending practices, including some legislative action, stronger enforcement of current laws, and nonregulatory strategies such as community outreach efforts and consumer education and counseling. (See also Chapter 2 at page 17, Chapter 7 at page 76, and Appendix D.)

Since HOEPA's enactment, the volume of home-equity lending has increased significantly. This overall growth in home-equity lending has been accompanied by a sharp boost in the subprime mortgage market. HUD reports that the number of subprime home-equity loans has increased from 80,000 in 1993 to 790,000 in 1998.

The growth in subprime lending brought a substantial increase in the availability of credit to borrowers having less-than-perfect credit histories and to other consumers who do not meet the underwriting standards of prime lenders. Because consumers who obtain subprime mortgage loans have, or perceive they have, fewer credit options than other borrowers, they may be more vulnerable to unscrupulous lenders or brokers. With the increase in the number of subprime loans, consumer advocates have been concerned for some time about the potential for a corresponding increase in the number of predatory loans. Some industry representatives have noted, however, that the trend toward securitizing subprime mortgages has served to standardize creditor practices and to limit the opportunity for widespread abuse.

To address concerns about predatory lending and consider approaches the Board might take in exercising its regulatory authority under HOEPA, the Board has scheduled three one-day hearings in Charlotte (Thursday, July 27), Boston (Friday, August 4), and San Francisco (Thursday, September 7). The hearings will seek statements from the public about home-equity lending in general, but will focus specifically on collecting testimony on the ways that the Board might use its rulewriting authority under HOEPA to address predatory lending practices in the home-equity market. To focus the discussion at the hearings, interested parties wishing to present oral statements at the hearings (and persons submitting written comments to the Board) are asked to address the issues set forth below, as applicable:

HOEPA covers mortgage loans that meet one of the act's two “high-cost” triggers. A loan is covered if (1) the APR exceeds the rate for treasury securities with a comparable maturity by more than 10 percentage points, or (2) the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $400. The Board is required to adjust the $400 threshold annually, based on the consumer price index; for 2000 the amount is $451.

HOEPA authorizes the Board to adjust the HOEPA trigger by 2 percentage points from the current standard of 10 percentage points above the U.S. Treasury securities with comparable maturities. Some consumer advocates and others have suggested that, based on the current APR trigger, only a small percentage of subprime mortgage loans are covered by HOEPA. They contend that lowering the APR trigger would allow HOEPA's protections to be extended to a broader class of transactions.

• Would lowering the APR trigger to 8 percentage points be effective in furthering the purposes of HOEPA, and if so, how?

• If the APR trigger were lowered, would such action have any significant impact on the availability or cost of subprime mortgage loans?

The Board also solicits comment on any available data regarding the percentage of subprime mortgage loans covered under the existing APR trigger, and the percentage of transactions that would be affected by lowering the trigger by 2 percentage points.

A loan is covered by HOEPA if the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $400. For this purpose, “points and fees” include all items included in the finance charge and APR except interest, and all compensation paid to mortgage brokers. The act specifically excludes reasonable closing costs that are paid to unaffiliated third parties. HOEPA also authorizes the Board to add “such other charges” to the points and fees test as the Board deems appropriate. Accordingly, comment is solicited on what fees, if any, should be added to the calculation. In particular, comment is requested on the following:

a. Credit Insurance: Premiums paid for credit insurance that a borrower is required to purchase are finance charges that are currently included in both the APR and the points and fees test under HOEPA. But premiums paid for optional credit life insurance currently are not included in the points and fees test. Some consumer advocates assert that because these premiums are excluded, predatory lenders may avoid HOEPA coverage by “packing” loans with high-priced credit insurance that represents a significant source of fee income, in lieu of charging fees that would be included under the current HOEPA trigger.

• What would be the effect of including lump-sum premiums collected at closing for optional credit insurance in HOEPA's points and fees test? Should such premiums be included only if they are paid to the creditor or an affiliate of the creditor, or only to the extent that the creditor receives compensation in connection with the sale of the insurance?

b. Prepayment Penalties: In some cases, prepayment penalties may provide fee income that is an additional incentive for creditors to encourage frequent refinancings that are not in a consumer's interest. If the consumer must pay a prepayment penalty to the same creditor that is refinancing the loan, the prepayment fee could be viewed as a cost of the new transaction.

• What would be the effect of including a prepayment penalty (assessed on the original loan) in HOEPA's points and fees test for the new loan when the loan is refinanced with the same creditor (or an affiliate)?

c. Points: Consumers who refinance their loans generally pay points on the entire refinanced amount.

• What would be the effect of adding any points paid by the consumer for the existing loan to the points and fees test when the same creditor (or an affiliate) refinances the loan within a specified time period?

The current points and fees test under HOEPA is complex. The statute allows many closing costs to be excluded from the calculation if they are reasonable and paid to third parties. The Board solicits comments on whether a better approach would be to recommend a statutory amendment that would include all closing costs in the points and fees test.

The hearings will explore how the Board's regulatory authority under HOEPA to prohibit specific practices can be used to curb predatory lending. Under HOEPA, the Board is authorized to prohibit acts and practices:

• In connection with mortgage loans —if the Board finds the practice to be unfair, deceptive, or designed to evade HOEPA; and

• In connection with refinancings of mortgage loans —if the Board finds that the practice is associated with abusive lending practices or otherwise not in the interest of the borrower.

Comment is invited on the following specific approaches to dealing with predatory lending practices, and whether any new requirements or prohibitions should apply to all mortgage transactions, only to refinancings, or only to HOEPA-covered refinancings. Both regulatory and legislative proposals should be discussed.

1. Credit insurance. Premiums for credit insurance are often collected from the borrower at closing and added to the loan amount, increasing the total finance charges paid by the consumer. Consumer advocates express concern about high-pressure sales tactics, which may mislead consumers about whether the insurance is required. The Board previously recommended that the Congress consider prohibiting the advance collection of premiums for credit insurance policies in connection with HOEPA loans. If no statutory prohibition is adopted, should the Board regulate the conditions under which such policies are sold or financed? For example:

• What would be the effect of the Board's requiring the sale of single-premium policies to be accompanied by a disclosure that the coverage may also be available with periodic premiums? What other disclosures might be helpful?

• To address concerns about “insurance packing,” what would be the effect of the Board's requiring that the sale of single-premium policies include a disclosure at the time of purchase of how unearned premiums will be rebated if the policy is cancelled or the loan is paid in full early?

• What would be the effect of requiring notification to borrowers, after the loan closing, of their right to cancel the policy and obtain a refund?

• What would be the effect of regulations prohibiting creditors from selling single-premium insurance products until after loan closing?

2. Unaffordable loans. Under HOEPA a creditor may not engage in a pattern or practice of extending credit based on the collateral if (given the consumer's current and expected income, current obligations, and employment status) the consumer will be unable to make the scheduled loan payments.

• Would additional interpretative guidance on the “pattern or practice” requirement be useful, or are case-by-case determinations more appropriate? If additional guidance would be useful, what elements of the requirement should the guidance address?

• What regulatory standards could the Board adopt for determining whether a creditor has considered the consumer's ability to repay the loan in order to satisfy this requirement?

3. Refinancing lower-rate loans. When a consumer seeks a second mortgage to consolidate debts or to finance home improvements, some creditors also require the existing first mortgage to be paid off as a condition of providing the new funds. This ensures that the creditor will be the senior lien-holder, but may increase significantly the points and fees paid for the new loan. Is regulatory action appropriate to protect consumers from abuses and, if so, what type of action could be taken without restricting credit in legitimate transactions?

4. Balloon Payments. Depending on the circumstances, mortgages with a balloon payment feature may be attractive to some borrowers, but may harm other consumers. HOEPA currently prohibits balloon payments for high-cost loans that have terms of less than 5 years. Lenders that price their loans just below HOEPA's triggers, however, might include balloon payments that force consumers to refinance the loan and pay additional points and fees.

• For loans not covered by HOEPA's restriction on balloon payments, are any restrictions or additional disclosures needed in connection with balloon payments in order to prevent abusive practices?

• To avoid evasions of HOEPA's restrictions on balloon payments, what would be the effect of the Board's prohibiting “payable on demand” clauses for HOEPA loans unless such a clause is exercised in connection with a consumer's default? (A similar limitation already exists for home-equity lines of credit.)

5. Prepayment penalties. Prepayment penalties allow creditors to recover their transaction costs if loans are prepaid earlier than expected. That rationale may not be relevant in cases where high rates and up-front fees are charged. In such cases, the penalty might be used to deter the consumer from refinancing the loan on more favorable terms.

• Is it feasible to limit the use of prepayment penalties to transactions where consumers receive, in return, a benefit in the form of lower up-front costs or lower interest rates? How might the existence of such benefits be measured?

6. Foreclosures. Consumers who have been victims of abusive practices must be afforded adequate opportunity to assert their rights in order to avoid unwarranted foreclosures. State law and local practice generally govern the procedures followed for foreclosures. Some states require actual notice to the consumer, but in other states notice by publication is sufficient. Even when consumers do receive notice, they may not get adequate information about their legal options.

• What would be the effect of setting minimum federal standards for foreclosures involving a consumer's primary dwelling? For example, a creditor might be required to provide the consumer with actual notice of: (1) The applicable foreclosure procedures; (2) any legal rights the consumer may have to avoid the foreclosure; and (3) the specific amount that, if paid in accordance with the notice, will terminate the foreclosure.

7. Misrepresentations regarding borrower's qualifications. There is some concern that many borrowers who obtain high-cost loans may actually qualify for lower cost credit. Some brokers or creditors may provide consumers with false or materially misleading information that the consumer does not qualify for a lower cost loan based on the creditor's underwriting criteria. Such a practice generally would be illegal under state laws that protect against fraud and deception. What benefit to consumers might be achieved if the Board issued a rule that prohibited such misrepresentations as unfair and deceptive under HOEPA?

8. Reporting borrowers' payment history. Some creditors do not report to consumer reporting agencies subprime borrowers' good payment history in order to avoid having the borrowers solicited by competitors for a refinancing on more attractive terms. What would be the effect of requiring creditors that choose not to report borrowers' positive payment history to disclose that fact?

9. Referral to credit counseling services. What regulatory action would better enable consumers in general, or HOEPA borrowers in particular, to take advantage of any available credit counseling services?

10. HOEPA disclosures. In their 1998 report to the Congress, the Board and HUD recommended amendments to the required disclosures, including adding references to the availability of credit counseling, using more “user-friendly” text in the narrative reminders about the potential consequences for not making payments, and requiring the consumer's monthly income to be disclosed in close proximity to the consumer's monthly payment. Comment is requested on those recommendations. Comment also is solicited on whether additional information in the current HOEPA disclosures would benefit consumers. For example:

• The consumer must receive HOEPA disclosures three days before loan closing, specifying the APR and monthly payment amount. Due to the marketing practices of some lenders, consumers may not be aware of high up-front costs that will be financed. What would be the effect of the Board's requiring that the disclosure also include additional information, such as the total loan amount on which the disclosed monthly payment is based?

• For HOEPA loans, what would be the effect of requiring that consumers receive a complete Truth in Lending disclosure statement three days before closing?

11. Open-end home equity lines. HOEPA does not cover home-equity lines of credit. Is there evidence that lenders are using open-end credit lines to evade HOEPA? If so, what benefit might be derived from prohibiting the practice of structuring a home-secured loan as open-end credit in order to evade the provisions of HOEPA? How could such practices be identified and what limitations on these practices would be appropriate to effect the purposes of HOEPA?

In addition to issues concerning the Board's regulatory authority under HOPEA, views will also be elicited at the hearings about nonregulatory approaches to curbing predatory lending, such as community outreach and consumer education. Accordingly, the Board seeks comment on the following:

What community outreach activities and consumer education efforts are being pursued currently? Which types of products, programs, and delivery systems have been most effective? What other strategies might be implemented to reach the targeted populations? How might outreach and education efforts be tailored to address some lenders' and brokers' aggressive marketing practices? What role can government agencies play in increasing the effectiveness of these programs?

The Board seeks information about any studies or data pertaining to subprime lending or HOEPA loans that would be useful in determining how the Board might use its regulatory authority under HOEPA. For example, are there data regarding the percentage of HOEPA loans that result in foreclosures? Are there data regarding the effect of HOEPA disclosures showing the percentage of transactions cancelled by borrowers based on disclosures provided before closing?

These hearings are open to the public to attend. Invited speakers will participate in panel discussions. In addition, about two hours is reserved for brief statements by other interested parties, starting at approximately 2:30 p.m. To allow as many persons as possible to offer their views during this period, oral statements should be brief (five minutes or less); written statements of any length may be submitted for the record. Interested parties who wish to participate during this “open-mike” period are asked to contact the Board in advance of the hearing date, to facilitate planning for this portion of the hearings. The order of speakers generally will be based on their registration at the hearing site on the day of the hearing.

Comment letters should refer to Docket No. R-1075, and, when possible, should use a standard typeface with a font size of 10 or 12. This will enable the Board to convert the text to machine-readable form through electronic scanning, and will facilitate automated retrieval of comments for review. Also, if accompanied by an original document in paper form, comments may be submitted on 3 1/2 inch computer diskettes in any IBM-compatible DOS- or Windows-based format.

Title VI of the North American Free Trade Agreement Implementation Act, 107 Stat. 2057 (Pub. L. 103-182; December 8, 1993), popularly known as the Customs Modernization Act (Mod Act), amended a number of Customs and navigation laws.

In particular, section 656 of the Mod Act amended 19 U.S.C. 1448(a) to provide, among other things, that the owner or master of any vessel or vehicle, or agent thereof, would be required to notify Customs of any merchandise or baggage unladen from the vessel or vehicle, for which entry was not made within the time prescribed by law or regulation; and if entry were not made within the prescribed time, the master or person in charge of the importing vessel or vehicle, or agent thereof, would be responsible for such unentered merchandise until it was removed from the carrier's control and placed in general order status in accordance with 19 U.S.C. 1490.

In concert with this, section 658 of the Mod Act amended 19 U.S.C. 1490 by deleting the requirement that a Customs officer take unentered merchandise into Customs custody and send it to a bonded warehouse. Instead, carriers are now required to notify both Customs and a bonded warehouse of the unentered merchandise, and the bonded warehouse would then have to arrange for the transportation and storage of the merchandise at the risk and expense of the consignee.

These, and related, statutory amendments were implemented by a final rule document amending the Customs Regulations, that was published in the Federal Register (63 FR 51283) on September 25, 1998, as T.D. 98-74.

Based on the statutory amendments, and the Customs Regulations implementing them, imported merchandise could not remain at the wharf, pier or other place of unlading more than 15 calendar days after its landing; or, if transferred from the arriving carrier to any party under a Customs-authorized permit to transfer or in-bond entry, the merchandise could not remain in the custody of that party more than 15 calendar days after its receipt under a Customs-authorized permit to transfer or more than 15 calendar days after its arrival at the port of destination, as provided in §§ 4.37, 122.50, 123.10, Customs Regulations (19 CFR 4.37, 122.50, 123.10). There is no provision in these regulations for any extension of this 15-day period.

Customs and the trade have consequently seen an increase in the amount of unentered merchandise moving into general order facilities, including merchandise, such as hazardous materials, requiring specialized storage facilities. Due to this increase in merchandise moving into temporary storage in general order status, the trade community has sought the establishment of national, uniform criteria for the approval and operation of general order warehouses.

Accordingly, by this document, Customs is proposing that a new class of bonded warehouse, a Class 11 warehouse, be established exclusively to handle the receipt of general order merchandise as described in § 127.1, Customs Regulations (19 CFR 127.1). It is further proposed that a Class 3, 4, or 5 bonded warehouse, as described in § 19.1(a)(3), (4), or (5), Customs Regulations (19 CFR 19.1(a)(3), (4), or (5)), may likewise be used for the deposit of general order merchandise, but only if there is no Class 11 warehouse otherwise available to receive the merchandise, and provided the Class 3, 4, or 5 warehouse has also been certified by the port director as meeting the criteria for a Class 11 warehouse, following an application under § 19.2, Customs Regulations (19 CFR 19.2). So far as such warehouses are used for the purpose of handling general order goods, they will also be considered general order (Class 11) warehouses. Section 19.1, Customs Regulations (19 CFR 19.1), would be amended as necessary to address these matters.

Class 1 warehouses, which are premises owned or leased by the Government for the deposit of unentered, seized or unclaimed merchandise, would, however, be retained as such, should the exigencies of the service as determined by the applicable port director require their occasional use.

As already indicated, the application criteria set forth in § 19.2 would apply as well to a warehouse where general order merchandise is to be sent. In addition, as a condition for approval of the application to establish a warehouse facility, at the discretion of the port director, minimum space requirements could be imposed for the storage of general order merchandise. The port director would need to post an announcement of these requirements by a written notice at the customhouse, and by any appropriate Customs-authorized electronic data interchange system. An applicant will not be subject to any minimum space requirements that are posted after the filing of his application.

Furthermore, § 19.2(f) would be amended to provide, in the case of applications from a business entity to establish a bonded warehouse, that Customs may require the submission of fingerprints from all employees of the business entity, as opposed to only those of all officers and managing officials. This requirement would apply to applications generally to establish a Customs bonded warehouse, including a general order warehouse. In this regard, there is a reasonably perceived need under the circumstances for a more thorough, comprehensive scrutiny of applicants, consistent with Customs movement toward a post-audit environment and the spirit of “shared responsibility” embodied in the Customs modernization provisions of the North American Free Trade Agreement Implementation Act.

Additionally, a general order warehouse would have to satisfy the inventory and recordkeeping requirements in § 19.12, Customs Regulations (19 CFR 19.12). However, the warehouse would have to do so through an automated inventory control and recordkeeping system. Existing Class 3, 4 and 5 warehouses that handle general order merchandise would be allowed a reasonable “phase-in” period (specifically, 2 years) after which their recordkeeping systems, at least insofar as they cover general order merchandise, must likewise be automated. Section 19.12 would be revised accordingly.

To this end, Customs has recently seen an increase in the quantity of unentered, unclaimed merchandise being sent into general order, as discussed above. Requiring an automated inventory system for such merchandise would enhance effectiveness in managing and monitoring the greater number of general order transactions, and thus augment the ability to track and safeguard this merchandise, which would benefit both the importing community as well as the Government. Specifically, an automated system would assist importers of unentered cargo by enabling its more rapid location and the faster resolution of any problems associated with the entry and clearance of the cargo. Also, as noted, it would help protect the potential interest of the Government in the property, given that, generally speaking, if unentered property remains unclaimed for 6 months from the date of its importation, the title to such property may vest in the United States, and the property may be retained for official Government use, in accordance with 19 U.S.C. 1491(b) (see infra ).

As is currently the case, the proprietor of a general order warehouse must arrange for the transportation of the merchandise to, and its storage at, the warehouse facility. It is observed that the warehouse proprietor is responsible for preparing a Customs Form (CF) 6043 (Delivery Ticket), or other similar Customs document as designated by the port director or an electronic equivalent as authorized by Customs, that covers the proprietor's receipt of the merchandise and its transport to the warehouse from the custody of the carrier (or from any other party to whom custody of the merchandise has been transferred by a Customs-authorized permit to transfer or in-bond entry).

Sections 4.37, 19.9, 122.50 and 123.10, Customs Regulations (19 CFR 4.37, 19.9, 122.50 and 123.10), would be similarly amended in conformance with this latter, existing requirement. Also, for editorial purposes, in § 19.9, the term “bonded carrier” would be substituted in place of “cartman or lighterman”.

In those cases where the carrier or any other party to whom custody of the unentered merchandise has been transferred by a Customs-authorized permit to transfer or in-bond entry fails to relinquish custody of the merchandise to a Customs-approved bonded warehouse, the carrier or other party would be liable for liquidated damages equal to the value of that merchandise under the terms and conditions of his international carrier or custodial bond, as applicable.

On the other hand, if Customs finds that the proprietor cannot accept the goods because they are required to be exported or destroyed, or for other good cause, the goods would remain in the custody of the arriving carrier or in the custody of any party to whom the carrier has transferred the merchandise under a Customs-authorized permit to transfer or in-bond entry. In the event that merchandise cannot be accepted into a general order warehouse, and its exportation or destruction is required, as is the case with certain of the special categories of merchandise enumerated in § 127.28, Customs Regulations (19 CFR 127.28), the carrier or other party would be responsible under bond for exporting or destroying the goods, as necessary.

To implement the foregoing requirements, §§ 4.37, 122.50 and 123.10 would be further amended accordingly. In addition, § 127.13, Customs Regulations (19 CFR 127.13), would be amended consistent with §§ 4.37, 122.50 and 123.10.

Furthermore, where the warehouse proprietor has taken merchandise into his custody, the proprietor would assume the responsibility and expense for the destruction of the merchandise, in the event that such destruction is found to be warranted under the circumstances ( i.e., where the port director concludes that the merchandise has no commercial value or cannot be disposed of at public auction (unsalable)). The port director would authorize such destruction on a CF 3499, or on a similar Customs document as designated by the port director or an electronic equivalent as authorized by Customs. However, before destroying the merchandise, the warehouse proprietor would first have to make a reasonable effort to identify and inform the importer (owner) or consignee of the merchandise regarding its intended destruction. Section 127.14, Customs Regulations (19 CFR 127.14), would be revised to include these additional requirements.

Also, the general authority citation for part 127, Customs Regulations (19 CFR part 127), appearing after its table of contents, would be revised, and specific authority citations would be added for certain regulatory sections in part 127 whose authority is not already included in the general authority citation for the part. Currently, the specific statutory authority citations for numerous regulatory sections in part 127 are set forth in parentheses immediately following the text of the sections. To eliminate unnecessary repetition, these parenthetical citations of authority appearing after the individual sections would be deleted.

In addition, § 127.14(a) would be revised and a new subpart E would be added to part 127 essentially to conform with and implement a number of amendments made to 19 U.S.C. 1491 under section 659 of the Mod Act. Section 1491 previously provided that unclaimed and abandoned merchandise would be sold at public auction.

However, 19 U.S.C. 1491, as amended by section 659 of the Mod Act, now provides that, as an alternative to selling unclaimed and abandoned merchandise at public auction, the title to the merchandise may instead vest in the United States following notice to all known interested parties, unless the merchandise is timely entered or withdrawn for consumption and all duties, taxes, fees, charges and other expenses accruing on the merchandise are paid. As amended, 19 U.S.C. 1491 also provides that in the event that title to such merchandise does vest in the Government, Customs may retain the property for its own official use, transfer the property to any other Federal, state or local agency, destroy the property, or otherwise dispose of it.

Moreover, where any party who lost title to, or a substantial interest in, the merchandise, by virtue of title having vested in the Government, can establish such title or interest, section 1491, as amended, provides that the party, upon filing a timely and proper petition, may be paid the amount that it is believed the party would have received had the merchandise been sold and a proper claim for the surplus of the proceeds of sale been made under 19 U.S.C. 1493.

In this latter regard, 19 U.S.C. 1493 provides that any surplus of proceeds from the sale of unclaimed and abandoned merchandise, that remains after the payment of certain enumerated charges, expenses, duties, taxes and fees, will be deposited in the Treasury, unless a proper claim for the surplus is filed with Customs.

In conformance with the changes already made under T.D. 98-74 to §§ 4.37, 122.50, and 123.10, Customs Regulations, as discussed above, §§ 141.5 and 142.2, Customs Regulations (19 CFR 141.5, 142.2), would likewise be changed to require that the entry of merchandise be made within 15 calendar days (as opposed to 5 working days) after landing from a vessel, aircraft or vehicle, or after arrival at the port of destination in the case of merchandise transported in bond. Also, the reference to entry having to be made “by the consignee” would be removed from these sections, inasmuch as the entry law (see 19 U.S.C. 1484(a)) no longer requires this.

Before adopting this proposal, consideration will be given to any written comments that are timely submitted to Customs. Customs specifically requests comments on the clarity of this proposed rule and how it may be made easier to understand. Comments submitted will be available for public inspection in accordance with the Freedom of Information Act (5 U.S.C. 552), § 1.4 of the Treasury Department Regulations (31 CFR 1.4), and § 103.11(b), Customs Regulations (19 CFR 103.11(b)), on regular business days between the hours of 9:00 a.m. and 4:30 p.m. at the Regulations Branch, U.S. Customs Service, 1300 Pennsylvania Avenue, NW., 3rd Floor, Washington, DC.

The proposed amendments primarily dealing with general order warehouses are intended to expedite the handling and disposition of general order merchandise, and to further facilitate consistent and uniform treatment in the administration of general order warehouses. Also, the proposed amendments dealing with the Mod Act are intended to conform with, implement and enforce the provisions of the statutory law and ensure the protection of the revenue. As such, pursuant to the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), it is certified that, if adopted, the proposed amendments will not have a significant economic impact on a substantial number of small entities. Accordingly, the proposed amendments are not subject to the regulatory analysis or other requirements of 5 U.S.C. 603 and 604. Nor do they meet the criteria for a “significant regulatory action” as specified in E.O. 12866.

The collections of information in this notice of proposed rulemaking have in part already been reviewed by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) and assigned OMB Control Numbers 1515-0121 (Information to be supplied by owner or lessee in support of application to establish a bonded warehouse facility); and 1515-0220 (Notification regarding imported merchandise or baggage for which entry has not been made). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The remaining collection of information in this notice of proposed rulemaking has been submitted to the Office of Management and Budget (OMB) for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507). This collection of information is contained in §§ 4.37(c), 19.9(a), 122.50(c), and 123.10(c). This information is necessary to expedite the handling and disposition of general order merchandise; ensure that merchandise and baggage imported into the United States has been properly accounted for in accordance with the requirements of the statutory law; and facilitate consistent and uniform treatment in the administration of general order warehouses. The likely respondents and/or recordkeepers are business organizations, including importers and carriers.

Estimated total annual reporting and/or recordkeeping burden: 6600 hours.

Estimated average annual burden per respondent/recordkeeper: 33 hours.

Estimated number of respondents and/or recordkeepers: 200.

Estimated annual frequency of responses: 20,000.

Comments on the collection of information should be sent to the Office of Management and Budget, Attention: Desk Officer of the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503. A copy should also be sent to the Regulations Branch, Office of Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania Avenue, NW., 3rd Floor, Washington, DC 20229. Comments should be submitted within the same time frame that comments are due regarding the substance of the proposal.

Comments are invited on: (a) Whether the collection is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of the burden of the collection of the information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or startup costs and costs of operations, maintenance, and purchase of services to provide information.

Part 178, Customs Regulations (19 CFR part 178), containing the list of approved information collections, would be appropriately revised upon adoption of the proposal as a final rule.

It is proposed to amend parts 4, 19, 122, 123, 127, 141, and 142, Customs Regulations (19 CFR parts 4, 19, 122, 123, 127, 141 and 142), as set forth below.

This document withdraws certain proposed regulations previously published in the Federal Register by the IRS. These proposed regulations, §§ 1.593-12, 1.593-13, and 1.593-14, are being withdrawn because under a subsequent amendment the underlying statute, section 593, does not apply to subsections (a), (b), (c), and (d) to taxable years beginning after December 31, 1995.

The principal author of this withdrawal notice is Craig Wojay, Office of the Assistant Chief Counsel (Financial Institutions and Products) within the Office of the Chief Counsel, IRS. However, other personnel from the IRS and the Treasury Department participated in developing the withdrawal notice.

Accordingly, under the authority of 26 U.S.C. 7805, the proposed rulemaking that was published in the Federal Register on Monday, January 13, 1992 (57 FR 1232) is withdrawn.

On September 30, 1999, CT submitted a package of regulatory and narrative materials in order to comply with the NO X SIP Call and strengthen its ozone SIP. EPA proposes full approval of CT's submittal.

The following table of contents describes the format for this SUPPLEMENTARY INFORMATION:

In the following questions and answers, the term “you” refers to the reader of the notice and “we” refers to the EPA.

EPA is proposing approval of CT's SIP submittal, including CT's NO X control regulation, section 22a-174-22b, “Post-2002 Nitrogen Oxides (NO X ) Budget Program” and the SIP narrative entitled, “Connecticut State Implementation Plan Revision to Implement the NO X SIP Call,” dated September 30, 1999. CT submitted the adopted section 22a-174-22b and the SIP narrative with a request to revise the SIP on September 30, 1999. CT submitted the regulation and narrative in order to strengthen its one-hour ozone SIP and to comply with the NO X SIP Call in each ozone season, i.e., May 1 to October 1, beginning in 2003. EPA finds that CT's submittal is fully approvable as a SIP strengthening measure for Connecticut's one-hour ground level ozone SIP and it meets the air quality objective of the NO X SIP Call requirements that EPA has published to date. EPA will take action in a separate future rulemaking on whether Connecticut's submittal meets the applicable NO X SIP Call requirements themselves.

EPA is proposing this action in order to:

• Fulfill CT's and EPA's requirements under the Clean Air Act (the Act);

• Make CT's control regulation federally-enforceable and available for credit in the SIP;

• Make CT's SIP narrative, including the ozone season NO X budget, federally enforceable as part of the CT SIP; and

• Give you the opportunity to submit written comments on EPA's proposed actions, as discussed in the DATES and ADDRESSES sections.

On October 27, 1998, EPA published a final rule entitled, “Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone,” otherwise known as the “NO X SIP Call.” See 63 FR 57356. The NO X SIP Call requires 22 States and the District of Columbia  1 to meet statewide NO X emission budgets during the five month period between May 1 and October 1 in order to reduce the amount of ground level ozone that is transported across the eastern United States. The NO X SIP Call set out a schedule that required the affected states to adopt regulations by September 30, 1999 , 2 and implement control strategies by May 1, 2003.

The NO X SIP Call allowed states the flexibility to decide which source categories to regulate in order to meet the statewide budgets. But, the SIP Call notice suggested that imposing statewide NO X emissions caps on large fossil-fuel fired industrial boilers and electricity generating units would provide a highly cost effective means for States to meet their NO X budgets. In fact, the state-specific budgets were set assuming an emission rate of 0.15 pounds NO X per million British thermal units (lb. NO X /mmBtu) at EGUs, multiplied by the projected heat input (mmBtu) from burning the quantity of fuel needed to meet the 2007 forecast for electricity demand. See 63 FR 57407. The calculation of the 2007 EGU emissions assumed that an emissions trading program would be part of an EGU control program. The NO X SIP Call state budgets also assumed on average a 30% NO X reduction from cement kilns, a 60% reduction from industrial boilers and combustion turbines, and a 90% reduction from internal combustion engines. The non-EGU control assumptions were applied at units where the heat input capacities were greater than 250 mmBtu per hour, or in cases where heat input data were not available or appropriate, at units with actual emissions greater than one ton per day.

To assist the states in their efforts to meet the SIP Call, the NO X SIP Call final rulemaking notice included a model NO X allowance trading regulation, called “NO X Budget Trading Program for State Implementation Plans,” (40 CFR Part 96), that could be used by states to develop their regulations. The NO X SIP Call notice explained that if states developed an allowance trading regulation consistent with the EPA model rule, they could participate in a regional allowance trading program that would be administered by the EPA. See 63 FR 57458-57459.

EPA's model NO X budget and allowance trading rule for SIPs, 40 CFR Part 96, sets forth a NO X emissions trading program for large electric generating units (EGUs) and non-electric generating units (non-EGUs). A state can voluntarily choose to adopt EPA's model rule in order to allow sources within its borders to participate in regional allowance trading. The October 27, 1998 Federal Register notice contains a full description of the EPA's model NO X budget trading program. See 63 FR 57514-57538 and 40 CFR Part 96.

In general, air emissions trading uses market forces to reduce the overall cost of compliance for pollution sources, such as power plants, while maintaining emission reductions and environmental benefits. One type of market-based program is an emissions budget and allowance trading program, commonly referred to as a “cap and trade” program.

In an emissions budget and allowance trading program, the state or EPA sets a regulatory limit, or emissions budget, in mass emissions from a specific group of sources. The budget limits the total number of allocated allowances during a particular control period. When the budget is set at a level lower than the current emissions, the effect is to reduce the total amount of emissions during the control period. After setting the budget, the state or EPA then assigns, or allocates, allowances to the participating entities up to the level of the budget. Each allowance authorizes the emission of a quantity of pollutant, e.g., one ton of airborne NO X .

At the end of the control period, each source must demonstrate that its actual emissions during the control period were less than or equal to the number of available allowances it holds. Sources that reduce their emissions below their allocated allowance level may sell their extra allowances. Sources that emit more than the amount of their allocated allowance level may buy allowances from the sources with extra reductions. In this way, the budget is met in the most cost-effective manner. An example of a budget and allowance trading program is EPA's Acid Rain Program for reducing sulfur dioxide emissions.

To provide additional flexibility for complying with emission control requirements associated with the NO X SIP Call, the final NO X SIP Call provided each affected state with a “compliance supplement pool.” The compliance supplement pool is a quantity of NO X allowances that may be used to cover excess emissions from sources that are unable to meet control requirements during the 2003 and 2004 ozone seasons. Allowances from the compliance supplement pool will not be valid for compliance past the 2004 ozone season. Despite disagreeing with commenters' concerns, the NO X SIP Call included these voluntary provisions to address commenters' concerns about the possible adverse effect that the control requirements might have on the reliability of the electricity supply or on other industries required to install controls as the result of a state's response to the SIP Call.

A state may issue some or all of the compliance supplement pool via two mechanisms. First, a state may issue some or all of the pool to sources with credits from implementing NO X reductions beyond all applicable requirements after September 30, 1999 but before May 1, 2003 ( i.e., early reductions). In this way, sources that cannot install controls prior to May 1, 2003, can purchase other sources' early reduction credits in order to comply. Second, a state may issue some or all of the pool to sources that demonstrate a need for an extension of the May 1, 2003 compliance deadline due to undue risk to the electricity or other industrial sectors and where early reductions are not available. See 40 CFR 51.121(e)(3).

EPA evaluated CT's NO X SIP Call submittal using EPA's “NO X SIP Call Checklist,” (the checklist), issued on April 9, 1999. The checklist reflects and follows the requirements of the NO X SIP Call set forth in 40 CFR 51.121 and 51.122. The checklist outlines the criteria that the EPA Regional Office used to determine the completeness and approvability of CT's submittal.

As noted in the checklist, the key elements of an approvable submittal under the NO X SIP Call are: a budget demonstration; enforceable measures for control; legal authority to implement and enforce the control measures; compliance dates and schedules; monitoring, recordkeeping, and emissions reporting; as well as elements that apply to states that choose to adopt an emissions trading rule in response to the NO X SIP Call. The checklist is available to the public on EPA's website at: http://www.epa.gov/ttn/otag/sip/related.html.

As described above, the final NO X SIP Call rule included a model NO X budget trading program regulation. See 40 CFR Part 96. EPA used the model rule to evaluate section 22a-174-22b. Additionally, EPA used the October 1998 final NO X SIP Call rulemaking notice, as well as the subsequent technical amendments to the NO X SIP Call, published in May 1999 (64 FR 26298) and March 2000 (65 FR 11222), to evaluate the approvability of CT's submittal. EPA also used § 110 of the CAA, Implementation Plans, to evaluate the approvability of CT's submittal as a revision to the SIP.

Connecticut's September 30, 1999, SIP submittal included the following:

• Adopted control regulations which require emission reductions beginning in 2003, i.e., section 22a-174-22b, “Post-2002 Nitrogen Oxides NO X Budget Program;”

• A description of how the state intends to use the compliance supplement pool, i.e., as part of the control regulation;

• A baseline inventory of NO X mass emissions from EGUs, non-EGUs, area, highway and non-road mobile sources in the year 2007 as published in the May 14, 1999, technical amendments to the NO X SIP Call, i.e., as part of the SIP narrative;

• A 2007 projected inventory (budget) reflecting NO X reductions achieved by the state control measures contained in the submittal, i.e., as part of the SIP narrative; and

• A commitment to meet the annual, triennial, and 2007 reporting requirements, i.e., as part of the SIP narrative.

As described above, in order to reduce NO X emissions statewide from 2003 and beyond, CT adopted section 22a-174-22b. The regulation applies to all EGUs with nameplate electricity generating capacities greater than 15 megaWatts that sell any amount of electricity as well as any non-EGU units that have a heat input capacity equal to or greater than 250 mmBtu per hour. Regarding other non-EGUs, CT has no cement kilns or internal combustion (IC) engines with emissions large enough to exceed the applicability threshold for assumed control requirements, i.e., one ton per day. So, CT's SIP submittal does not assume any additional reductions from those sources. Furthermore, you should note that CT is not relying on any reductions beyond anticipated federal measures in the mobile and area sectors.

Below is a table of the 2007 baseline and budget emission levels that Connecticut has submitted with as part of its SIP narrative.

On November 19, 1999, MA submitted a package of regulatory and narrative materials in order to comply with the NO X SIP Call and strengthen its ozone SIP. EPA proposes full approval of MA's submittal.

The following table of contents describes the format for this SUPPLEMENTARY INFORMATION:

In the following questions and answers, the term “you” refers to the reader of the notice and “we” refers to the EPA.

EPA is proposing approval of MA's SIP submittal, including MA's NO X control regulation, 310 CMR 7.28, “NO X Allowance Trading Program” and the SIP narrative materials listed above. EPA is also proposing to approve changes to regulations 310 CMR 7.19, “Reasonably Available Control Technology (RACT) for Sources of Oxides of Nitrogen (NO X ),” and 310 CMR 7.27, “NO X Allowance Program,” related to emissions monitoring.

MA submitted the adopted 310 CMR 7.28 and the SIP narrative, as well as the amendments to 310 CMR 7.19 and 310 CMR 7.27, with a request to revise the SIP on November 19, 1999. MA submitted the regulation and narrative in order to strengthen its one-hour ozone SIP and to comply with the NO X SIP Call in each ozone season, i.e., May 1 to October 1, beginning in 2003. EPA finds that MA's submittal is fully approvable as a SIP strengthening measure for Massachusetts' one-hour ground level ozone SIP and it meets the air quality objective of the NO X SIP Call requirements that EPA has published to date. EPA will take action in a separate future rulemaking on whether Massachusetts's submittal meets the applicable NO X SIP Call requirements themselves.

EPA is proposing this action in order to:

On October 1, 1999, RI submitted a package of regulatory and narrative materials in order to comply with the NO X SIP Call and strengthen its ozone SIP. EPA proposes full approval of RI's submittal.

The following table of contents describes the format for this SUPPLEMENTARY INFORMATION:

In the following questions and answers, the term “you” refers to the reader of the notice and “we” refers to the EPA.

EPA is proposing approval of RI's SIP submittal, including RI's NO X control regulation, Regulation No. 41, “Nitrogen Oxides Allowance Trading Program,” and the SIP narrative entitled, “NO X State Implementation Plan (SIP) Call Narrative.”

RI submitted the adopted Regulation No. 41 and the SIP narrative with a request to revise the SIP on October 1, 1999. RI submitted the regulation and narrative in order to strengthen its one-hour ozone SIP and to comply with the NO X SIP Call in each ozone season, i.e., May 1 to October 1, beginning in 2003. EPA finds that RI's submittal is fully approvable as a SIP strengthening measure for Rhode Island's one-hour ground level ozone SIP and it meets the air quality objective of the NO X SIP Call requirements that EPA has published to date. EPA will take action in a separate future rulemaking on whether Rhode Island's submittal meets the applicable NO X SIP Call requirements themselves.

EPA is proposing this action in order to:

• Fulfill RI's and EPA's requirements under the Clean Air Act (the Act);

• Make RI's control regulation federally-enforceable and available for credit in the SIP;

• Make RI's SIP narrative, including the ozone season NO X budget, federally enforceable as part of the RI SIP; and

• Give you the opportunity to submit written comments on EPA's proposed actions, as discussed in the DATES and ADDRESSES sections.

On October 27, 1998, EPA published a final rule entitled, “Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone,” otherwise known as the “NO X SIP Call.” See 63 FR 57356. The NO X SIP Call requires 22 States and the District of Columbia  1 to meet statewide NO X emission budgets during the five month period between May 1 and October 1 in order to reduce the amount of ground level ozone that is transported across the eastern United States. The NO X SIP Call set out a schedule that required the affected states to adopt regulations by September 30, 1999  2 , and implement control strategies by May 1, 2003.

The NO X SIP Call allowed states the flexibility to decide which source categories to regulate in order to meet the statewide budgets. But, the SIP Call notice suggested that imposing statewide NO X emissions caps on large fossil-fuel fired industrial boilers and electricity generating units would provide a highly cost effective means for States to meet their NO X budgets. In fact, the state-specific budgets were set assuming an emission rate of 0.15 pounds NO X per million British thermal units (lb. NO X /mmBtu) at EGUs, multiplied by the projected heat input (mmBtu) from burning the quantity of fuel needed to meet the 2007 forecast for electricity demand. See 63 FR 57407. The calculation of the 2007 EGU emissions assumed that an emissions trading program would be part of an EGU control program. The NO X SIP Call state budgets also assumed on average a 30% NO X reduction from cement kilns, a 60% reduction from industrial boilers and combustion turbines, and a 90% reduction from internal combustion engines. The non-EGU control assumptions were applied at units where the heat input capacities were greater than 250 mmBtu per hour, or in cases where heat input data were not available or appropriate, at units with actual emissions greater than one ton per day.

To assist the states in their efforts to meet the SIP Call, the NO X SIP Call final rulemaking notice included a model NO X allowance trading regulation, called “NO X Budget Trading Program for State Implementation Plans,” (40 CFR Part 96), that could be used by states to develop their regulations. The NO X SIP Call notice explained that if states developed an allowance trading regulation consistent with the EPA model rule, they could participate in a regional allowance trading program that would be administered by the EPA. See 63 FR 57458-57459.

EPA's model NO X budget and allowance trading rule for SIPs, 40 CFR Part 96, sets forth a NO X emissions trading program for large electric generating units (EGUs) and non-electric generating units (non-EGUs). A state can voluntarily choose to adopt EPA's model rule in order to allow sources within its borders to participate in regional allowance trading. The October 27, 1998 Federal Register notice contains a full description of the EPA's model NO X budget trading program. See 63 FR 57514-57538 and 40 CFR Part 96.

In general, air emissions trading uses market forces to reduce the overall cost of compliance for pollution sources, such as power plants, while maintaining emission reductions and environmental benefits. One type of market-based program is an emissions budget and allowance trading program, commonly referred to as a “cap and trade” program.

In an emissions budget and allowance trading program, the state or EPA sets a regulatory limit, or emissions budget, in mass emissions from a specific group of sources. The budget limits the total number of allocated allowances during a particular control period. When the budget is set at a level lower than the current emissions, the effect is to reduce the total amount of emissions during the control period. After setting the budget, the state or EPA then assigns, or allocates, allowances to the participating entities up to the level of the budget. Each allowance authorizes the emission of a quantity of pollutant, e.g. , one ton of airborne NO X .

At the end of the control period, each source must demonstrate that its actual emissions during the control period were less than or equal to the number of available allowances it holds. Sources that reduce their emissions below their allocated allowance level may sell their extra allowances. Sources that emit more than the amount of their allocated allowance level may buy allowances from the sources with extra reductions. In this way, the budget is met in the most cost-effective manner. An example of a budget and allowance trading program is EPA's Acid Rain Program for reducing sulfur dioxide emissions.

To provide additional flexibility for complying with emission control requirements associated with the NO X SIP Call, the final NO X SIP Call provided each affected state with a “compliance supplement pool.” The compliance supplement pool is a quantity of NO X allowances that may be used to cover excess emissions from sources that are unable to meet control requirements during the 2003 and 2004 ozone seasons. Allowances from the compliance supplement pool will not be valid for compliance past the 2004 ozone season. Despite disagreeing with commenters' concerns, EPA included these voluntary provisions in the NO X SIP Call to address commenters' concerns about the possible adverse effect that the control requirements might have on the reliability of the electricity supply or on other industries required to install controls as the result of a state's response to the SIP Call.

A state may issue some or all of the compliance supplement pool via two mechanisms. First, a state may issue some or all of the pool to sources with credits from implementing NO X reductions beyond all applicable requirements after September 30, 1999 but before May 1, 2003 ( i.e. , early reductions). In this way, sources that cannot install controls prior to May 1, 2003, can purchase other sources' early reduction credits in order to comply. Second, a state may issue some or all of the pool to sources that demonstrate a need for an extension of the May 1, 2003 compliance deadline due to undue risk to the electricity or other industrial sectors and where early reductions are not available. See 40 CFR 51.121(e)(3).

EPA evaluated RI's NO X SIP Call submittal using EPA's “NO X SIP Call Checklist,” (the checklist), issued on April 9, 1999. The checklist reflects and follows the requirements of the NO X SIP Call set forth in 40 CFR 51.121 and 51.122. The checklist outlines the criteria that the EPA Regional Office used to determine the completeness and approvability of RI's submittal.

As noted in the checklist, the key elements of an approvable submittal under the NO X SIP Call are: a budget demonstration; enforceable measures for control; legal authority to implement and enforce the control measures; compliance dates and schedules; monitoring, recordkeeping, and emissions reporting; as well as elements that apply to states that choose to adopt an emissions trading rule in response to the NO X SIP Call. The checklist is available to the public on EPA's website at: http://www.epa.gov/ttn/otag/sip/related.html.

As described above, the final NO X SIP Call rule included a model NO X budget trading program regulation. See 40 CFR Part 96. EPA used the model rule to evaluate Regulation No. 41. Additionally, EPA used the October 1998 final NO X SIP Call rulemaking notice, as well as the subsequent technical amendments to the NO X SIP Call, published in May 1999 (64 FR 26298) and March 2000 (65 FR 11222), to evaluate the approvability of RI's submittal. EPA also used § 110 of the CAA, Implementation Plans, to evaluate the approvability of RI's submittal as a revision to the SIP.

Rhode Island's October 1, 1999, SIP submittal included the following:

• Adopted control regulations which require emission reductions beginning in 2003, i.e. , Regulation No. 41;

• A description of how the state intends to use the compliance supplement pool, i.e. , as part of the control regulation;

• A baseline inventory of NO X mass emissions from EGUs, non-EGUs, area, highway and non-road mobile sources in the year 2007 as published in the May 14, 1999, technical amendments to the NO X SIP Call, i.e. , as part of the SIP narrative;

• A 2007 projected inventory (budget) reflecting NO X reductions achieved by the state control measures contained in the submittal, i.e. , as part of the SIP narrative; and

• A commitment to meet the annual, triennial, and 2007 reporting requirements, i.e. , as part of the SIP narrative.

As described above, in order to reduce NO X emissions statewide from 2003 and beyond, RI adopted Regulation No. 41. The regulation applies to all EGUs with nameplate electricity generating capacities greater than 15 megaWatts that sell any amount of electricity as well as any non-EGU units that have a heat input capacity equal to or greater than 250 mmBtu per hour. Regarding other non-EGUs, RI has no cement kilns or internal combustion (IC) engines with emissions large enough to exceed the applicability threshold for assumed control requirements, i.e. , one ton per day. So, RI's SIP submittal does not assume any additional reductions from those sources. Furthermore, you should note that RI is not relying on any reductions beyond anticipated federal measures in the mobile and area sectors.

Below is a table of the 2007 baseline and budget emission levels that Rhode Island has submitted with as part of its SIP narrative.

On July 19, 1999, Rhode Island proposed a draft of Regulation No. 41 and the SIP narrative. The release of the proposal began a 30 day public comment period. On August 17, 1998, EPA provided written comments to the public record. On August 20, 1999, a public hearing was held on Regulation No. 41 and the SIP narrative. On October 1, 1999, the final Regulation No. 41 was filed with the Secretary of State. The regulation became effective on that date.

On October 1, 1999, RI DEM submitted Regulation No. 41 and the SIP narrative to EPA with a request to revise the RI SIP. On October 26, 1999, EPA sent a letter to RI deeming the SIP submittal technically and administratively complete.

In response to the NO X SIP Call, RI adopted Regulation No. 41, “Nitrogen Oxides Allowance Program.” With Regulation No. 41, RI is establishing a NO X cap and allowance trading program for the ozone seasons of 2003 and beyond. RI developed the regulation in order to reduce NO X emissions and allow its sources to participate in the interstate NO X allowance trading program described in § 51.121(b)(2).

Under Regulation No. 41, RI allocates NO X allowances to its EGUs. Each NO X allowance permits a source to emit one ton of NO X during the seasonal control period. NO X allowances may be bought or sold. Unused NO X allowances may also be banked for future use, with certain limitations. For each ton of NO X emitted in a control period, EPA will remove one allowance from the source's NO X Allowance Tracking System (NATS) account. Once the allowance has been retired in this way, no one can use the allowance again.

Source owners will monitor their NO X emissions by using systems that meet the requirements of 40 CFR Part 75, subpart H, and report resulting data to EPA electronically. Each budget source complies with the program by demonstrating at the end of each control period that actual emissions do not exceed the amount of allowances held for that period. However, regardless of the number of allowances a source holds, it cannot emit at levels that would violate other federal or state limits, for example, reasonably available control technology (RACT), new source performance standards, or Title IV (the federal Acid Rain program).

Generally, Regulation No. 41 differs from EPA's model NO X budget trading rule in three ways. First, Regulation No. 41 is applicable to smaller electric generating sources than the model rule. Second, Regulation No. 41 does not allow early reduction credits and does not allocate any allowances from the compliance supplement pool. Finally, Regulation No. 41 describes a different methodology for allocating allowances from that set forth in the model rule but still ensures that the total allowance allocation does not exceed the state program budget. These differences make the regulation more stringent than 40 CFR Part 96 would be and are allowed under § 51.121(p). Therefore, Regulation No. 41 can be considered substantively identical to 40 CFR Part 96.

The NO X SIP Call allotted RI with a compliance supplement pool. However, Regulation No. 41 does not provide for the distribution of early reductions. All of the sources affected are well controlled, gas-fired EGUs, with emission rates below the assumed 0.15 lb. NO X /mmBtu assumed in the development of the state budgets. This means that no EGU sources in RI will have to reduce their emissions from current permitted levels in order to comply with the projected 2007 budget. Therefore, RI decided not to include provisions for distributing allowances from the compliance supplement pool.

For additional information regarding RI's NO X SIP Call submittal, the reader should refer to the document entitled, “Technical Support Document for Rhode Island's NO X SIP Call Submittal,” dated May 5, 2000. Copies of the technical support document (TSD) can be obtained at either of the addresses listed in the ADDRESSES section of this notice.

Once approved into RI's SIP, both RI and EPA will be able to enforce the requirements of the NO X budget and allowance trading program in Regulation No. 41. All of the sources subject to the NO X allowance trading program will have federally-enforceable operating permits that contain source specific requirements, such as emissions monitoring or pollution control equipment requirements. RI and EPA will be able to enforce the source specific requirements of those permits, as well as the requirements of Regulation No. 41.

Additionally, in order to determine compliance with the emission requirements of the program, at the end of each ozone season, RI and EPA will compare sources' allowance and emission accounts in the NO X Allowance Tracking System (NATS). To be in compliance, sources must hold a number of available allowances that meets or exceeds the number of tons of NO X emitted by that source and recorded in the Emissions Tracking System (ETS) for a particular ozone season. For sources with excess emissions, penalties include EPA deducting three times the unit's excess emissions from the unit's allocation for the next control period.

Based on air quality modeling assessments performed for the NO X SIP Call, EPA believes that the NO X reductions in RI and other states subject to the SIP Call will reduce the transport of ozone starting in 2003.

Decreases of NO X emissions will also help improve the environment in several important ways. Decreases in NO X emissions will decrease acid deposition, nitrates in drinking water, excessive nitrogen loadings to aquatic and terrestrial ecosystems, and ambient concentrations of nitrogen dioxide, particulate matter and toxics. On a global scale, decreases in NO X emissions reduce greenhouse gases and stratospheric ozone depletion.

EPA has evaluated RI's October 1, 1999, SIP submittal and finds it fully approvable. The submittal will strengthen RI's SIP for reducing ground level ozone by providing NO X reductions beginning in 2003. EPA also finds that the submittal meets the air quality objectives of the NO X SIP Call. EPA finds the NO X control measures, Regulation No. 41, the SIP narrative that includes RI's 2007 NO X baseline and controlled budgets fully approvable. EPA finds that the submittal contained the information necessary to demonstrate that RI has the legal authority to implement and enforce the control measures, as well as a description of how the state intends to use the compliance supplement pool. Furthermore, EPA finds that the submittal demonstrates that the compliance dates and schedules, and the monitoring, record keeping and emission reporting requirements will be met.

EPA finds that RI's control regulation and SIP narrative materials are consistent with EPA's guidance and meet the air quality objectives of the NO X SIP Call, including, 40 CFR Part 51, § 51.121 and § 51.122 as well as the general SIP submittal requirements of the Act, § 110, 42 U.S.C. 7401 et seq. Regulation No. 41 does contain differences from the model rule but such differences are allowed under § 51.121(p). Therefore, EPA considers Regulation No. 41 to be substantively identical to 40 CFR Part 96.

Regarding RI's SIP narrative, EPA finds that the submittal contains the required elements, including: the baseline inventory of NO X mass emissions from EGUs, non-EGUs, area, highway and non-road mobile sources in the year 2007; the 2007 projected inventory reflecting NO X reductions achieved by the state control measures contained in the submittal; and the commitment to meet the annual, triennial, and 2007 state reporting requirements. EPA further finds that RI's 2007 projected inventory, reflecting the control strategies, is approvable, reflecting the air quality objectives of the NO X SIP Call.

In order to approve RI's 2007 projected inventory as meeting the air quality objectives of the NO X SIP Call, however, it is necessary to consider the adopted 2007 emission budgets and adopted NO X reducing measures in Connecticut (CT) and Massachusetts (MA) as well. Comparing the most recent technical amendments to the NO X SIP Call budgets to the adopted and submitted NO X SIP Call related measures from the three states, you can see that the adopted measures in CT, MA, and RI will reduce more NO X from the EGU and non-EGU sectors than the NO X SIP Call notices have required.

In February 1999, CT, MA, RI, and EPA signed a memorandum of understanding ( i.e. , “the Three State MOU”) agreeing to redistribute the EGU portions of the three states' budgets, as well as the compliance supplement pool allocations, amongst themselves. Under the Three State MOU, the combined 2007 controlled emission level and compliance supplement pool did not change for the three states, only the individual state EGU allocations and supplement pools were redistributed to provide CT with additional flexibility.

On September 15, 1999, EPA published a Notice of Proposed Rulemaking (NPR) to approve the redistribution of the three states' allocations as described in the MOU and modified by the EPA's May 1999 NO X SIP Call technical corrections. 3 See 64 FR 50036. As described in the NPR, the sum of the 2007 budgets and supplement pool allocations for the three states after redistribution is identical to the sum of the three budgets and supplement pool allocations for the states as published in the May 1999 technical corrections Federal Register notice. In other words, the total NO X reduction expected from the three states due to the SIP Call would be the same before and after the redistribution of budgets under the Three State MOU. In fact, both the May 1999 technical amendments and the September 1999 NPR required a NO X reduction of 5,491 tons by the three states each ozone season from 2007 onward and provided a combined allocation of 961 tons from the compliance supplement pool.

On March 2, 2000, EPA published additional technical amendments to the NO X SIP Call in the Federal Register (65 FR 11222). As can be seen in the tables below, the March 2, 2000 technical corrections primarily changed the highway mobile and non-EGU 2007 baselines and budgets for CT, MA, and RI. However, these changes largely cancel each other out, e.g. , the 2007 highway sub-inventory baselines and budgets increased by the same amounts. The March 2000 technical corrections, however, did not effect the amount of reduction expected from the EGU sector. The tables below compare the 2007 baselines and budgets for each sub-inventory sector for CT, MA, and RI as published in the May 1999 and March 2000 technical amendment Federal Register notices.

The March 2000 Federal Register listed 2007 ozone season baseline emissions from CT, MA, and RI as 46,015 tons, 87,092 tons, and 9,463 tons, respectively. The March 2000 Federal Register listed the 2007 ozone season budgets for CT, MA, and RI as 42,849 tons, 84,848 tons, and 9,378 tons, and provided the three states with compliance supplement pools of 569 tons, 404 tons, and 15 tons, respectively, or a total of 988 tons. In total, the March 2000 notice required the three states to reduce their NO X emissions by 5,495 tons per ozone season beginning in 2007.

In the Fall of 1999, CT, MA, and RI all adopted and submitted SIP packages in response to the NO X SIP Call. All three states adopted and submitted NO X control regulations that rely on reductions from the EGU and large non-EGU units to achieve their emission budgets. The 2007 baseline ozone season emissions adopted by the states were 46,219 tons, 87,563 tons, and 9,895 tons, respectively, or a three state total of 143,677 tons per ozone season. The SIP packages adopted and submitted by CT, MA, and RI, included 2007 projected NO X inventories of 44,993 tons, 83,345 tons, and 9,798 tons, respectively, or a three state total of 138,136 tons per ozone season. Therefore, the total NO X reduction expected from the adopted and submitted SIP packages from CT, MA, and RI is 5,541 tons per ozone season.

As discussed above, EPA signed the Three State MOU between CT, MA, and RI. We endorse the concept that states can voluntarily join together and redistribute their NO X SIP Call budgets and compliance supplement pool allocations, provided that the total after the redistribution is less than or equal to before redistribution, and provided that the states have formalized such an agreement in an MOU or similar device to which EPA also agrees. EPA supports this concept because such a redistribution is no different than the effects of trading. For a detailed discussion of why EPA supports the concept that states can collectively redistribute their NO X SIP Call budgets, see the proposed Three State MOU notice, 64 FR 49989, September 15, 1999. Given the fact that together the three states' regulations achieve at least the same NO X reduction and allocate fewer than required compliance supplement pool allocations, EPA finds that the NO X SIP Call SIP submittals from the three states collectively meet the air quality objectives of the NO X SIP Call as published to date. In separate Federal Register notices today, EPA is also proposing approval of CT's and MA's NO X SIP Call submittals.

You can find the NO X SIP Call 2007 baselines, budgets, and compliance supplement pool allocations from the March 2000 technical amendments and the state adopted SIPs summarized in the table below.

For additional information regarding EPA's evaluation of RI's NO X SIP Call submittal, the reader should refer to the TSD available at either of the addresses listed in the ADDRESSES section of this notice.

Regulation No. 41 is also related to the Ozone Transport Commission's (OTC's) ozone season NO X budget program. On September 27, 1994, OTC adopted a Memorandum of Understanding (MOU) that committed the signatory states, including RI, to the development and proposal of a region-wide reduction in NO X emissions. The OTC agreement committed the states to one phase of NO X reductions by 1999 and another phase of reductions by 2003.

As a signatory state of the MOU, RI adopted its NO X budget and allowance trading regulation, Regulation No. 38, on June 10, 1997. Regulation No. 38 contained a NO X emissions budget and allowance trading system for the ozone seasons of 1999 through 2002, the period known as “OTC Phase II.” RI's phase II budget is 626 tons per ozone season. EPA approved RI's phase II OTC NO X budget regulation on June 2, 1999. See 64 FR 29567. Regulation No. 41 contains a new NO X emissions budget and allowance trading program for the ozone seasons of 2003 and thereafter, in order to control NO X emissions during the period described in the OTC program as “OTC phase III.”

On March 3, 2000, the D.C. Circuit ruled on Michigan v. EPA, affirming many aspects of the NO X SIP Call and remanding certain other portions to the Agency ( e.g. , the definition of an EGU and the control assumptions for internal combustion engines). Due to the Court's remanding of the EGU definition and IC engine control assumptions, EPA must now recalculate the final 2007 baseline, 2007 budget, and compliance supplement allocation for each state subject to the NO X SIP Call, including RI. Those recalculated budgets are expected to be published in the next few months. However, this means that RI may be required to revisit its NO X SIP Call program due to potential forthcoming changes to the NO X SIP Call requirements. At such time as EPA publishes new emission budget requirements, RI and other NO X SIP Call subject states will be informed as to what, if any, changes are needed.

Additionally, as described above, the March 2, 2000 technical corrections changed the 2007 baselines and budgets for the highway and non-EGU sub-inventories in CT, MA, and RI. Therefore, when those states make the changes needed due to the remanded portions of the NO X SIP Call, they will need to adopt changes to the highway and non-EGU 2007 baselines and budgets as well.

EPA has reviewed RI's October 1, 1999, SIP submittal using the NO X SIP Call rulemaking notices and checklist. EPA has reviewed RI's control measures and projected reductions and finds them approvable. Therefore, EPA is proposing to approve Regulation No. 41 and RI's NO X SIP Call narrative into the RI SIP at this time.

EPA is soliciting public comments on the issues discussed in this proposal or on other relevant matters. These comments will be considered before EPA takes final action. Interested parties may participate in the Federal rulemaking procedure by submitting written comments to the EPA Regional office listed in the ADDRESSES section of this action.

Nothing in this action should be construed as permitting or allowing or establishing a precedent for any future request for revision to any State implementation plan. Each request for revision to the State implementation plan shall be considered separately in light of specific technical, economic, and environmental factors and in relation to relevant statutory and regulatory requirements.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Regional Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4). For the same reason, this rule also does not significantly or uniquely affect the communities of tribal governments, as specified by Executive Order 13084 (63 FR 27655, May 10, 1998). This rule 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 (64 FR 43255, August 10, 1999), because it merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings' issued under the executive order. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

For additional information, see the Direct Final document which is located in the Rules section of this Federal Register . Copies of the request and the EPA's analysis are available for inspection at the above address.

The remainder of this proposed rule is organized as follows:

Regulated categories and entities potentially affected by this action include:

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this action. This table lists the types of entities that EPA is now aware could be potentially regulated by this action. Other types of entities not listed in the table could also be regulated. To determine whether an entity is regulated by this action, one should carefully examine the RFG provisions at 40 CFR Part 80, particularly § 80.41 dealing specifically with the RFG standards. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding FOR FURTHER INFORMATION CONTACT section.

The purpose of the RFG program is to improve air quality in certain specified areas of the country by requiring reductions in emissions of ozone forming volatile organic compounds (VOCs) and emissions of toxic air pollutants through the reformulation of gasoline, pursuant to 211(k) of the Clean Air Act (CAA or the Act), as amended. Section 211(k)(10)(D) of the Act mandates that RFG be sold in the nine largest metropolitan areas with the most severe summertime ozone levels, as well as areas that are reclassified to “Severe”. When the Sacramento Metropolitan Air Quality Management District was reclassified to “Severe”, the number of mandated areas became 10. There will soon be 11 areas since the San Joaquin Valley area of California will be reclassified to “Severe”. In addition to the mandatory areas, RFG must also be sold in ozone nonattainment areas that opt into the program. 1 The Act also mandates certain requirements for the RFG program. Section 211(k)(1) directs EPA to issue regulations that:

Section 211(k)(2) includes compositional specifications for reformulated gasoline including a 2.0 weight percent oxygen minimum, a 1.0 volume percent benzene maximum, and a prohibition on heavy metal content. This section also requires emissions from RFG to contain no more oxides of nitrogen (NO X ) than baseline gasoline emissions. Baseline emissions are the emissions of 1990 model year vehicles operated on a specified baseline gasoline.

Section 211(k)(3) requires RFG to meet the more stringent of either a formula or VOC and toxic air pollutant performance standards. During the initial RFG rulemaking process EPA found the performance standards to be more stringent. The performance standards at 40 CFR 80.41 require specific minimum reductions in emissions of VOC and toxics. For 1995 through 1999, or Phase I of the RFG program, EPA's regulations must require VOC emission and toxic air emission reductions from RFG measured on a mass basis, at least equal to 15 percent of baseline emissions. For the year 2000 and beyond, or Phase II of the RFG program, EPA's regulations must include a VOC and toxics performance standard each of which must be at least equal to a 25 percent reduction from baseline emissions. For the year 2000 and beyond EPA can adjust the performance standard upward or downward taking into account such factors as technical feasibility and cost, but in no case can the reduction be less than 20 percent. EPA also retains the authority in section 211(k)(1) to require greater reductions than these Phase I and II minimums.

Shortly after passage of the CAA Amendments in 1990, EPA entered into a regulatory negotiation with interested parties to develop specific proposals for implementing the RFG program. In August 1991, the negotiating committee recommended a program outline that would form the basis for a notice of proposed rulemaking, addressing emission content standards for Phase I (1995-1999), emission models, certification, enforcement, and other important program elements.

EPA published final regulations on February 16, 1994. The final rule closely followed the consensus outline agreed to by various parties in the negotiated rulemaking process. The final rule also adopted a NO X emission reduction performance standard for Phase II RFG, relying on authority under section 211(c)(1)(A).

The regulations provide a method of certification through the complex model, based on fuel characteristics such as oxygen, benzene, aromatics, RVP, sulfur, olefins and the percent of fuel evaporated at 200 and 300 degrees Fahrenheit (E200 and E300, respectively).

Phase II will lead to significant reductions in the emission of the ozone precursors VOC and NO X , and the emission of toxic air pollutants. The VOC Phase II performance standard is 29 percent for southern (class B) areas and 27.4 percent for northern (class C) areas, representing approximately an additional 10 percent reduction in VOC emissions beyond the Phase I requirements. The Phase II NO X reduction requirement is 6.8 percent, and the toxics reduction requirement is 22 percent.

In the Clean Air Act, Congress specified that RFG contain two percent by weight oxygen. MTBE and ethanol are the two forms of chemical oxygen (or oxygenates) that gasoline producers most commonly use to add oxygen to their gasoline. Refiners and importers decide which oxygenate to use to meet the CAA requirement. MTBE and ethanol have also been used in conventional gasoline, as octane enhancers, since the 1970s.

Many chemicals in gasoline, including MTBE, can end up in groundwater, as a result of releases from storage tanks and other sources. MTBE is highly soluble and travels faster and farther in water than other gasoline components. MTBE has a strong taste and odor, so even small amounts of MTBE in water can make a water supply undrinkable, and significantly impact an area's ability to fully utilize its water resources. At higher levels, MTBE may also pose a risk to human health.

EPA is concerned about the presence of MTBE in ground and surface water. In December 1998, EPA established a panel of independent experts to examine MTBE's performance in gasoline, its presence in water, and alternatives to its use. Panel recommendations made to EPA in July 1999 include:

• Ensure no loss of current air quality benefits from RFG.

• Reduce the use of MTBE, and seek Congressional action to remove the oxygen requirement in RFG.

• Strengthen the nation's water protection programs, including the Underground Storage Tank, Safe Drinking Water, and private well protection programs.

EPA is committed to working with Congress to provide a targeted legislative solution that maintains the air quality benefits of RFG while allowing reductions in the use of MTBE. EPA will also protect water supplies by continuing to enforce the UST requirements and by enhancing remediation programs.

Today's action implements the panel's recommendation that EPA take steps within its authority to reduce the amount of MTBE used in gasoline. This proposed rule could reduce the amount of MTBE refiners use in RFG by increasing the flexibility for refiners to blend ethanol into RFG. It will provide continued assurances for ethanol use in the Midwest and incentives for other areas looking to use ethanol.

On March 20, 2000, the Administration announced legislative principles for protecting drinking water supplies, preserving clean air benefits, and promoting renewable fuels. The following legislative principles taken together as a single package are designed to maintain air quality and enhance water quality protection while preserving the significant role of renewable fuels, most importantly ethanol:

1. Amend the Clean Air Act or provide the authority to significantly reduce or eliminate the use of MTBE;

2. As MTBE use is reduced or eliminated, ensure that air quality gains are not diminished;

3. Replace the existing oxygen requirement contained in the Clean Air Act with a renewable fuel standard for all gasoline.

In addition to today's action, EPA on March 24, 2000, published an Advanced Notice of Intent to Initiate Rulemaking to reduce or eliminate MTBE from gasoline, under Section 6 of the Toxic Substances Control Act (65 FR 16093).

EPA proposes to adjust by 1.0 percentage point the Phase II VOC performance standard for reformulated gasoline blends with 10 volume percent ethanol (approximately 3.5 weight percent oxygen). As discussed in Section I.B., section 211(k)(1) of the CAA directs EPA to promulgate regulations that require the greatest reduction in emission of ozone forming VOCs achievable through the reformulation of conventional gasoline. This section also directs EPA, in promulgating such regulations, to consider the cost of achieving such emission reductions and any nonair-quality and other air-quality related health and environmental impacts. With today's action EPA is exercising its discretion to consider cost and other environmental concerns in its implementation of the VOC performance standards.

The current Phase II VOC performance standards (as well as the proposed adjusted standards) require VOC emission reductions greater than those mandated by section 211(k)(3) of the CAA. In promulgating the current VOC standards, EPA exercised both its 211(k)(3) authority (to impose VOC emission reductions of approximately 25% and additional reductions based on technological feasibility and cost), and its 211(k)(1) authority (to require the greatest VOC emission reductions achievable considering cost and various environmental factors).

In light of certain cost and environmental considerations EPA is reevaluating the appropriateness of some of the current VOC emission reduction requirements for certain blends of RFG. The considerations that compel the proposed VOC adjustment include: (1) The incremental cost increase associated with producing Phase II ethanol RFG; (2) the potential for an adverse environmental impact (contamination of groundwater) from use of MTBE, and the interest in increasing the flexibility available to refiners to reformulate without MTBE; and (3) the unlikelihood that today's action will undermine the ozone benefits of the RFG program. For purposes of evaluating these considerations and reaching a decision to undertake today's proposed action, EPA has relied upon several sources, including, a cost study on ethanol RFG blends conducted by the Department of Energy (DOE) at EPA's request;  2 and the recommendation of the Blue Ribbon Panel on Oxygenate Use. The cost factors related to production of ethanol RFG are discussed in Section I.E, and the Blue Ribbon Panel recommendations are discussed in Section I.C.1.

In proposing this action EPA also recognizes the fact that the oxygen content of gasoline affects the amount of carbon monoxide (CO) emissions from automobiles. The National Research Council recommended that “the contribution of CO to ozone formation should be recognized in assessments of the effects of RFG” in its report “Ozone-forming Potential of Reformulated Gasoline,” p. 6, National Academy Press, 1999. Accordingly, today's action considers the ozone benefits of CO emission reductions resulting from the use of oxygenates in the RFG program.

Oxygenates, like ethanol and MTBE, lead to reductions in emissions of CO from 1990 technology cars, the benchmark used for the RFG program. The level of CO reduction is a function of the amount of oxygen in the fuel. MTBE-blended RFG typically contains 2.0 weight percent oxygen. Ethanol, on the other hand, is typically blended in RFG at levels of 10 volume percent which equates to approximately 3.5 weight percent oxygen; thus, the oxygen content in ethanol-blended RFG is typically higher than in MTBE-blended RFG. The CO reduction attributable to the typical ethanol-blended RFG (with 3.5 weight percent oxygen) is therefore greater than that attributable to the typical MTBE blend (with 2.0 weight percent oxygen). The impact of the proposed VOC adjustment on air quality is discussed further in Section I.F.

Refiners that choose to use ethanol to provide 3.5 weight percent oxygen, the maximum allowed under the RFG program, may take advantage of the adjusted VOC standard which applies during the summer ozone season when VOC emissions are controlled in the RFG program. This option may be particularly attractive in the Midwest where state tax incentives combine with federal tax incentives to encourage use of ethanol at the maximum amount permitted by the RFG program.

We seek comment on whether we should propose elimination of the per gallon oxygen minimum. We believe such action might provide additional flexibility to refiners in their choice of oxygenates. Elimination of the per gallon minimum may allow refiners to use little or no oxygenate during the summer ozone season, thus reducing the modest cost associated with summer ethanol use. Even if refiners that currently use MTBE choose to continue using MTBE during the summer ozone season, and use ethanol during the non-ozone season, the use of MTBE may be significantly reduced.

We request comment on the alternative approach of lowering, rather than removing the oxygen minimum, which would retain the benefits of the requirement while reducing the small potential for any adverse impacts.

One way to reduce VOC emissions from gasoline is to reduce the volatility of the gasoline, measured in Reid Vapor Pressure (RVP). EPA expects that the summer RVP levels during Phase II of the RFG program will have to average about 6.7 pounds per square inch (psi) in order for the fuel to meet the VOC performance standard. In Phase I RFG, summer RVP averaged approximately 8.0 psi in the north and 7.0 psi in the south.

When added to gasoline in the amount needed to satisfy the oxygen content requirement of the Act, ethanol raises the RVP of the resulting RFG blend by about 1.4 psi. For an ethanol RFG blend to meet the VOC performance standard, refiners must use a blendstock gasoline with an RVP low enough to offset the increase resulting from adding ethanol. According to a cost study on ethanol RFG blends—conducted by DOE at EPA's request and available in the public docket for this proposed rulemaking, 3 the change in average manufacturing cost of reducing the RVP of blendstock intended for ethanol-blended RFG to a level that ensures compliance with the current Phase II VOC performance standard is approximately $0.01 per gallon of RFG for refiners currently using ethanol. Based on DOE's modeled 1.4 psi increase, this cost reflects the 1.4 psi RVP reduction necessary to offset the RVP increase associated with ethanol. (DOE's cost impact was derived by comparing the cost of reducing the RVP in Phase I RFG with 10 volume percent ethanol, to the RVP level necessary to comply with the Phase II RFG performance standard for VOC.)

The ethanol industry has raised concerns that any incremental cost associated with using ethanol in Phase II RFG may lead to a switch to the use of MTBE, because the more stringent VOC standard of Phase II RFG will require a lower RVP blendstock for ethanol blending.

This summer, ethanol appears to be maintaining its market share in the Chicago and Milwaukee RFG programs; however, for the future it is difficult to predict the geographic distribution of specific oxygenates in Phase II with any certainty. Specifically, in March 1998 EPA wrote to several oil companies serving the Midwest to learn their plans for ethanol use in Phase II of the RFG program. EPA contacted companies that supply a major portion of the Chicago and Milwaukee RFG markets. EPA was told that the price of ethanol relative to other oxygenates will be the determining factor in ethanol use in Phase II of the program. One company told EPA it plans refinery modifications of low to moderate cost that will allow continued use of ethanol year-round; other companies said they would evaluate the price of each oxygenate and, if MTBE was less expensive, they would consider using ethanol during the eight month non-ozone season, but MTBE may be their choice during the ozone season.

EPA wishes to ensure the stability of the RFG program in the Midwest and to avoid any significant disincentive for the use of ethanol. EPA also wants to increase the flexibility for refiners currently using MTBE elsewhere in RFG areas to switch to ethanol. Still, it remains of primary importance that Phase II RFG continue to achieve significant reductions in toxics and in ozone precursors, given RFG's key role in states' ozone control strategies.

We are proposing to reduce by 1.0 percent the Phase II VOC standard for ethanol RFG blends containing 10 volume percent ethanol. Phase II RFG would retain the current average VOC standards of 27.4 percent and 29 percent for northern (Class C) and southern (Class B) areas, respectively, and per-gallon standards of 25.9 percent and 27.5 percent for northern and southern areas, respectively. For RFG blends with 10 volume percent ethanol, however, the average VOC standards would be adjusted to 26.4 percent and 28 percent for northern and southern areas, respectively, and the per-gallon standards adjusted to 24.9 percent and 26.5 percent for northern and southern areas, respectively.

EPA intends this adjustment to provide additional flexibility for refiners to produce ethanol-blended RFG. The proposed adjustment to the Phase II VOC standard would work to offset the incremental costs associated with the production of ethanol-blended RFG that are created by the RVP increase caused by ethanol. Thus, the proposed adjustment would reduce the cost of ethanol blends and provide refiners with additional flexibility.

EPA believes this adjusted VOC standard maintains the air quality benefits of the RFG program while reducing the cost of using ethanol. The increased flexibility the rule would provide for refiners would help refiners reduce the use of MTBE in RFG.

As discussed in Section I.D., the addition of ethanol raises the RVP of gasoline by approximately 1.4 psi. Under the proposal, the adjusted VOC standard would result in an increase of RVP of approximately 0.2 psi for ethanol blends of RFG. We cannot adjust the standard for ethanol-blended RFG to account for the entire RVP impact of ethanol because an increase in RVP of approximately 1.4 psi in the volatility of RFG would result in a complete loss of emission reductions that would be achieved under Phase II, as well as a partial loss of benefits achieved under Phase I.

Even with the proposed adjustment, Phase II RFG will continue to be a strong VOC reduction program and will meet all the requirements of the Clean Air Act. By limiting the adjustment to 1.0 percentage point for ethanol blends, the change in stringency of the VOC standard for ethanol blends is relatively small. This adjustment will still require ethanol RFG blends to achieve significant VOC reductions beyond those required during Phase I of the program. EPA believes this proposal will not undermine the important benefits of Phase II RFG as an ozone control strategy. EPA believes that this level of adjustment will increase flexibility to switch to ethanol and reduce the incentive for refiners to switch to MTBE while maintaining the air quality benefits of the RFG program. EPA's reasons for this belief are discussed in more detail in Section I.F.

EPA requests comment on additional areas of flexibility for implementation and interaction with other emissions control requirements that the public may wish to suggest, and the possible benefits to such flexibility.

Ethanol blends at 10 volume percent, the typical blending level of ethanol, contain 3.5 percent by weight oxygen in the fuel and achieve significant reductions in CO emissions because the amount of CO reduction increases as oxygen increases. Preliminary emission estimates using version 5b of the Mobile model indicate that at the adjusted VOC level proposed today, the use of RFG with ethanol at 10 volume percent would reduce emissions of CO by approximately 24 tons for every 1 ton increase in VOC emissions associated with the use of those blends. (See the technical support document in the docket (A-99-32) for this rulemaking; document number II.B-2.)

As recognized in a study conducted by the National Research Council (NRC), 4 CO contributes to ozone formation and is present in ambient concentrations due in part to the large volume of CO emissions from mobile sources. There is no dispute that CO emissions contribute to ozone formation. The Urban Airshed Model (UAM) relied on by states in their State Implementation Plan submissions includes inventories of CO emissions as well as VOC and NO X . While the role of CO in the formation of ozone is limited when compared to the effect of VOC and NO X , the volume of CO emissions from motor vehicles is comparatively large and therefore is not ignored in photochemical modeling demonstrations.

While it is difficult to quantify the overall ozone impact of a specific change in emissions of CO and VOC, clearly a reduction in CO should directionally reduce ozone, and an increase in VOC should directionally increase ozone. The combined impact on ozone of a change in emissions may vary depending on a variety of environmental conditions, including meteorology. However, given that CO does play a role in ozone formation, the relatively large decrease in CO emissions will offset some, if not all, of any potential increase in ozone formation due to the relatively small increase in VOC emissions. (See the technical support document in the docket (A-99-32) for this rulemaking; document number II.B-2.) Thus, EPA is generally confident that the adjusted standard will achieve ozone reductions that are similar to those anticipated from the current standard, and will assure that the Phase II RFG program will continue to achieve the significant environmental benefits for which it was designed. Furthermore, the adjusted standard will achieve the additional environmental benefits associated directly with decreased CO emissions and the benefits associated with the decreased use of MTBE.

In establishing a change of 1.0 percent in the VOC performance standard, EPA's intent is to take a conservative and cautious approach to ensure that RFG will continue to provide the same level of overall benefits as the existing RFG requirements. EPA is soliciting comment, however, on whether the Agency should also consider adjustments to the VOC standard that are less than or greater than 1.0 percentage point.

With respect to adjustments to the VOC standard greater than 1.0 percentage point, the Illinois Environmental Protection Agency (IEPA) submitted to EPA a proposal and supporting analysis which suggests that EPA should allow a VOC adjustment of 3.7 percentage points—approximately equivalent to an increase in RVP of 0.5 psi. (See Docket A-99-32, document file numbers II.D.3, II.D.5 and II.D.6.).

Briefly, IEPA's analysis compares the VOC and CO emissions associated with a “complying fuel” (assuming a RVP of 6.8 psi and an oxygen content of 2.0 percent by weight) to the emissions associated with a fuel having an RVP of 7.3 (representing an increase in RVP of 0.5 psi) and an oxygen content of 3.5 weight percent. Using a relative reactivity analysis, IEPA concluded that the ozone impact of these two fuels would be identical, and that EPA should therefore provide an adjustment that corresponds to an RVP increase of 0.5 psi. Although EPA is not proposing to adopt the approach recommended by IEPA, the Agency requests comments on such an approach.

The IEPA analysis is based primarily on the use of relative reactivity factors. Relative reactivity factors are values for various types of VOCs and CO that represent a predicted amount of ozone formation, expressed as unit mass of ozone per unit mass of VOC or CO.

EPA is not proposing to use a reactivity analysis as the basis for this regulatory action for several reasons. First, the National Research Council did not recommend that EPA do so. In its May 1999 report, NRC stated, “The committee sees no compelling scientific reasons at this time to recommend that fuel certification under the RFG program be evaluated on the basis of the reactivity of the emissions components.” Second, in the same report NRC stated, “So-called reactivity factors * * * are often uncertain and of limited utility for comparing similar RFG blends.” EPA agrees with the NRC that the reactivity factors that have been developed to date, and were used by IEPA, may not accurately reflect actual photochemical reactivity of various ozone precursors. In recent regulatory decisions, EPA has expressed these concerns and others related to the use of relative reactivity factors [63 FR 48792, September 11, 1998]. In particular, EPA is concerned that the factors do not represent the wide variation in atmospheric conditions that exist across the country and have a large influence on ozone formation.

While today's proposed rule does incorporate a recognition of the fact that, in general, CO is relatively less reactive than VOCs, EPA agrees with the NRC that it is not possible to precisely identify the relative reactivity of such compounds at this time in a manner that is meaningfully predictive of ambient conditions and that can reliably form the basis of a regulatory program. (see Technical Support Document in Docket A-99-32, document number II.B.-2) EPA is, however, currently participating in an industry/academic/government workgroup whose goal is to identify research needs in the area of VOC reactivity. EPA anticipates that significant research results may be available in a year or possibly longer, which will assist us in any reexamination of our current VOC regulatory policy in selected instances. Until there are more data generated from this process, EPA believes that it may be premature to base any regulation on a precise quantification of the distinctions between reactivities of VOCs. The Agency is interested in and solicits comments on IEPA's approach or other reactivity-based approaches.

As explained earlier in this preamble, EPA believes that an adjustment to the VOC standard greater than 1.0 percentage point risks too great a loss in the mass VOC benefits of Phase II RFG. (See Technical Support Document in docket A-99-32,document number II.B.-2). When evaluated on a mass basis using EPA's complex model, IEPA's approach would result in approximately a 37 percent decrease in the incremental amount of VOC emissions reduced between Phase I and Phase II RFG.

Finally, we are also concerned with the effect of fleet turnover and the potential for reduced CO benefits associated with advances in engine technology which is discussed in further detail in Section I.M of the preamble. For this reason, EPA is soliciting comment on whether EPA should re-evaluate the adjusted VOC performance standard in several years to determine whether the proposed adjustment still makes sense in light of technology advances and fleet turnover. This re-evaluation will also provide EPA the opportunity to assess the ozone impact of this proposal in light of any relevant scientific advances in determining ozone impact.

In developing the VOC adjustment in today's proposal, EPA believes that it is important to preserve, as much as possible, the ozone benefits of the current Phase II RFG standards. For areas that presently do not use RFG with ethanol as an oxygenate, this action may lead to an increase in ethanol use. If so, there would probably be an increase in the amount of oxygen in the fuel ( i.e., oxygen would increase to 3.5 weight percent from a baseline level of 2.1 weight percent). The increase in oxygen would result in an associated decrease in CO emissions and, under this proposal, a slight increase in VOC emissions. We believe that this proposed rule would allow areas switching to ethanol RFG to realize Phase II RFG ozone benefits that are similar to current Phase II benefits.

In areas that presently use RFG with ethanol as the oxygenate ( e.g., Chicago and Milwaukee), the oxygen level in the fuel currently averages 3.5 weight percent oxygen. EPA believes that without this rule change and without changes to the Act's oxygen content requirement for RFG, there is some probability that less ethanol (and more MTBE) will be used in these areas. If this occurs, there would be a drop in the oxygen level in the fuel which would result in increases in CO emissions. Thus the CO reduction benefit in the Midwest associated with the use of ethanol RFG (at 3.5 weight percent oxygen) would not be preserved. Today's action is intended to provide additional flexibility to assure that refiners will continue to use ethanol, thus helping to preserve the current CO benefits associated with ethanol RFG. Moreover, as discussed in Section I.K of the preamble (Oxygen Crediting), refiners that take advantage of the adjusted VOC standard would not be allowed to generate oxygen credits for RFG in other areas. This will avoid double counting the benefits of the additional oxygen. If the additional oxygen above 2.0 weight percent in ethanol RFG which results in a reduction in CO in a given area is also used as a credit for a fuel with less than 2.0 weight percent oxygen in other areas, the CO benefit in those areas would be lost. Under this proposal less oxygen credits would be available; therefore, fuel in other areas will need to use more oxygen, which ultimately lowers CO emissions elsewhere.

If we did not expect ethanol use to decline with Phase II RFG, ( i.e., the current 3.5 weight percent oxygen level remains as the baseline), then continued use of RFG with ethanol in light of the proposed VOC adjustment would represent neither an increase in oxygen in the fuel, nor an additional reduction in CO emissions. Such situation raises the question of whether the increase in VOC allowed by the proposed adjusted VOC standard could then be said to result in a lesser ozone benefit. However, when the Phase I RFG program was implemented in 1995, ethanol use, and hence oxygen levels, in the Midwest increased above previous levels. (According to a 1994 survey performed by the American Automobile Manufacturers Association, the average oxygen content of gasoline in the Chicago area was less than 2.0 weight percent.) With the implementation of the Phase I RFG program, gasoline oxygen levels in Chicago and Milwaukee increased to 3.5 weight percent resulting in a decrease in CO emissions. These CO emission reductions were not credited under Phase I of the RFG program. Those uncredited CO reductions have likely resulted in more ozone benefits than would have been realized otherwise.

The National Research Council has recommended that EPA recognize, in the RFG program, the ozone benefits from CO reductions. Accordingly, we believe our consideration in this proposed rule of CO reductions associated with the use of ethanol RFG is appropriate. Although the adjusted VOC increase would, in the worst case, eliminate the additional ozone benefit, the air quality would be no worse in the Midwest than would otherwise be the case under an “unadjusted” VOC standard in Phase II of the program. Moreover, given the assumption that ethanol use would not decline with Phase II RFG, we believe that the nationwide effect of the adjusted VOC standard would not result in an ozone disbenefit. This is because of the reason explained above relating to limitation on use of oxygen credit trading.

Finally, although the increase in VOC is expected to slightly increase air toxics, we are not proposing to adjust the air toxics performance standard. A minimal loss in toxics overcompliance is expected in areas that currently use ethanol as a result of this proposal. Some toxics overcompliance would be lost in areas that switch from MTBE to ethanol; however, we believe the loss, if any, would be modest.

Therefore, EPA believes that the proposed rule would substantially preserve the air quality goals of the Phase II RFG program. 5

The adjusted VOC standard for ethanol RFG will allow a slight increase in VOC where ethanol blends are used. States are required to meet specific VOC reduction goals in their respective State Implementation Plans (SIPs); specifically the 3.0 percent Rate of Progress (ROP) requirement of Section 182(c)(2)(B)(i). Some states rely on reductions from the RFG program in meeting these goals. EPA has determined that the increased VOC associated with the adjusted VOC standard should not affect states' ROP plans in the near term.

As discussed in Section I.D., current market uncertainty makes it difficult to predict the mix of ethanol and MTBE RFG in any one area. Given such uncertainty, we believe that the increase in VOC resulting from the flexibility proposed today cannot now be adequately quantified; moreover, any increase is likely to be a very small portion of an area's total emissions. Also as discussed in Section I.F above, we believe the reduction in CO associated with ethanol use will substantially preserve the benefits of Phase II RFG.

Therefore, we are proposing at this time that states are not required to account for any potential increase in mass VOC emissions associated with the proposed adjusted performance standard. In time, however, as more data on oxygenate use and distribution becomes available, we intend to consider this issue and assess the impact of any VOC increases on the states' attainment of the ROP goal. Accordingly, we propose to amend the Guidance on the Post-1996 Rate-of-Progress Plan and the Attainment Demonstration” to indicate that states are not required to evaluate whether there will be an increase in mass VOC emissions as a result of adjusted VOC gasoline, for several years. Prior to that time, EPA will begin an evaluation of market conditions with respect to ethanol and MTBE use and decide whether there is sufficient market predictability for state ROP plans to account for any subsequent increases in mass VOC emissions resulting from adjusted VOC gasoline. We solicit comment on this approach and the need for any future evaluation. We also solicit comment on the timing and appropriateness of the magnitude of the changes in VOC emissions this rule would have.

The regulations under 40 CFR 80.41 provide both “per-gallon standards” and “averaged standards” for performance standards and oxygen content. Therefore, refiners, importers and oxygenate blenders would be able to meet the proposed performance standards by producing ethanol RFG that meets the proposed 26.4 percent performance standard for VOC, on average, as long as on a per gallon basis the ethanol RFG meets a minimum VOC performance standard of 23.4 percent.

The regulations allow refiners to produce fuels that on an average basis achieve the minimum 2.1 weight percent oxygen standard, as well as the VOC performance standard. While the proposed VOC adjustment does not affect oxygen averaging, it does affect how VOC compliance is calculated.

We are therefore proposing a change in the method for determining compliance with VOC performance standards. Under the current regulations, a refiner or importer supplying averaged RFG or reformulated gasoline blendstock for oxygenate blending (RBOB) must calculate compliance with RFG standards according to a procedure described in 40 CFR 80.67 of the regulations. Refiners are required to determine compliance for each portion of gasoline for which standards must be separately achieved, and for each relevant standard. Suppliers must make separate compliance determinations for each VOC control region since different VOC performance standards apply to RFG designated for VOC Control Region 1 (southern or Class B) and VOC Control Region 2 (northern or Class C).

Today's proposed regulation creates an additional set of averaged VOC performance standards applicable to “adjusted VOC gasoline” and RBOB used to make “adjusted VOC gasoline”. (As discussed in Section I.K below, we are proposing to define “adjusted VOC gasoline” in 80.40.) Therefore, suppliers could potentially have portions of their RFG/RBOB subject to one of four different standards. Under the procedure currently specified in 80.67, suppliers would have to demonstrate that each of these portions complies separately with the relevant standard.

In order to accommodate the effect of these additional standards on compliance determinations, we are proposing to alter the calculation procedure in the regulations. With this modification suppliers will not have to separately comply with the non-adjusted and “VOC-adjusted” standards, but will continue to determine compliance by VOC control region.

Section 80.67 requires that a compliance total be calculated as:

This compliance total is compared with an actual total which is calculated as:

We are proposing for VOC performance compliance calculations that Std be replaced by a volume-weighted average of the two standards applicable to the RFG and RBOB which a supplier designates for a specific VOC control region i.e:

We also believe that this approach minimizes the changes to the RFG reporting system procedures necessary to report, compute and verify compliance calculations. (The RFG reporting system is a data collection system through which suppliers report to EPA gasoline properties, emissions performance calculations, volumes and other data necessary to determine compliance with regulations.) We recognize that reporting parties and “third party” software developers would have to respond to changes in reporting forms and procedures, and thus, that there is a benefit in minimizing changes to the current system. Creating an additional set of VOC performance standards is expected to have some impact on the reporting system regardless of the method of compliance calculations. For example, minor changes in reporting procedures may be necessary in order to unequivocally identify “VOC-adjusted” and “unadjusted” RFG and RBOB batches. However, this proposed change in the VOC compliance calculation procedure would avoid modifications to the VOC Emissions Performance Averaging Report which would be necessary if separate compliance with each VOC standard were still required.

We are soliciting comment on this proposed approach and any alternative compliance calculation approaches. We encourage parties to comment on both the environmental and administrative consequences of these approaches, including reporting and record keeping issues associated with this proposed regulation. Commenters should consider reporting and recordkeeping issues not only with respect to VOC compliance calculations, but with respect to other aspects of this regulation such as oxygen crediting.

Theoretically, circumstances might arise where a mixture of two ethanol RFG blends (both of which independently meet the applicable VOC performance standard) results in a sample that does not meet the VOC performance standard, because while one of the fuels qualifies for the adjusted downstream standard, the other does not.

For ethanol-blended RFG, the ethanol is added to reformulated blendstock for oxygenate blending, or RBOB, at the terminal. In areas of the country that currently use ethanol there is not likely to be the same variation in oxygen levels seen with MTBE blends; the RFG will typically contain ethanol in amounts close to 10 volume percent. We base this finding on survey data for summertime RFG which support the expectation that ethanol will be blended at 10 volume percent due to marketing considerations. (The statistical analysis of the survey data has been submitted to the docket for this rulemaking.) For 1999, of 3,295 samples of ethanol RFG, over 90 percent of the samples contain oxygen levels at or close to 3.5 weight percent, which equates to approximately 10 volume percent ethanol. (Depending on the specific gravity of the gasoline to which the ethanol is added, the various blends near 3.5 weight percent oxygen could theoretically all be 10 volume percent.) Based on industry practice, therefore, we do not believe that there will be a problem related to downstream compliance, but we solicit comment on this issue.

Another “downstream” issue associated with this proposed regulation is the interaction between the adjusted VOC standard and the RFG surveys required by the RFG regulations. Gasoline samples collected from retail stations in an RFG covered area in each one-week survey conducted during the summer ozone season (June 1-September 15) are evaluated for complex model VOC performance. (Covered areas are geographic areas using RFG and are defined in 40 CFR 80.70.) If the survey average VOC reduction for any survey is less than the applicable per-gallon standard for VOC emissions reduction, the covered area fails the VOC survey. (RFG surveys are discussed more fully in sections of this preamble addressing the oxygen minimum.)

This proposed regulation creates an additional set of per-gallon VOC standards potentially applicable to a portion of the RFG in each covered area. Since each individual gasoline sample collected is analyzed for type and amount of oxygenate, it can be determined which of the VOC standards applies to the gasoline in its current state.

The existence of dual standards creates some difficulty in the implementation and enforcement of the survey regulations. It is necessary to collect a sufficiently large number of samples to ensure that precision requirements for estimating parameter averages are met. These required sample sizes are determined in advance of the surveys, and are specified in the survey design plan. Under the current survey scheme there is no way to guarantee that the sample size for each RFG standard group would be sufficient to meet these precision requirements. A survey could be conducted, the samples analyzed and categorized according to the applicable standard, and the average computed for each of the two groups. However, the number of samples falling into each group would not be known in advance of sample collection and analysis.

A more feasible approach to determining survey compliance would be to calculate a VOC standard applicable for each survey by weighting each of the per-gallon standards by the proportion of samples in that group. For example, suppose 100 samples were collected in a survey in a covered area in VOC Control Region 2, and 70 contained ethanol at 3.5 weight percent oxygen while the remaining 30 did not. The applicable survey requirement would be calculated as (0.70)(24.9)+(0.30)(25.9)=25.2 percent VOC reduction. We are proposing to change the RFG regulations to incorporate this approach.

Refiners and importers are currently able to meet the averaged standard for oxygen through the exchange of credits under 40 CFR 80.67(h). Credits are generated as a result of a refiner producing, or an importer importing, gasoline that on average exceeds the averaged standard for oxygen over the averaging period. An oxygenate blender using the averaged oxygen standard may generate, or use, oxygen credits.

We have considered whether an adverse effect on air quality would occur if refiners or importers that qualify for the adjusted VOC standard ( i.e., make an RFG with 10 volume percent ethanol) also exchange oxygen credits under 40 CFR 80.67(h). We believe that there would be a disbenefit to air quality because the oxygen credit would be sold to a refiner making an RFG with an oxygen level less than 2.0 weight percent in the fuel. The additional oxygen that results in a reduction in CO in the 10 volume percent ethanol RFG would be used as a credit for a fuel with less than 2.0 weight percent oxygen. At such lower levels of oxygen, there would be an increase in CO which, as discussed earlier, plays a role in the formation of ozone in the atmosphere.

The adjusted VOC standard proposed today is based on ethanol RFG blends that contain 3.5 weight percent oxygen. We recognize that there may be some refiners or importers that may wish to take advantage of the oxygen credit trading program as it applies to the averaged oxygen standard. (This would be especially true if we were to adopt the elimination of the oxygen minimum requirement which is discussed in Section II of the preamble and on which we are soliciting comment.) Therefore, in order to offer refiners and importers flexibility, we are proposing to allow refiners that make RBOB for blending with 10 volume percent ethanol a choice of complying with the VOC adjusted standard or with the current (non-adjusted) VOC standard by defining “adjusted VOC gasoline” in 80.40. In the revised 80.40 refiners have the choice of designating gasoline with 10 volume percent ethanol as “adjusted VOC gasoline” or not. If they choose not to, the gasoline must comply with the more stringent ( i.e., non-adjusted) VOC standard. In this way batches of RFG blends that contribute oxygen above the oxygen standard and which comply with the non-adjusted VOC performance standard may be used by refiners or importers for the purpose of generating oxygen credits. Batches of RFG blends containing 10 volume percent ethanol which comply with the adjusted VOC standard, however, may not generate oxygen credits.

We are proposing to modify 40 CFR 80.67(h) to reflect which ethanol RFG may be used for generating oxygen credits. We solicit comment on this proposal as well as whether we should alternatively consider a requirement that all ethanol RFG blends containing 10 volume percent ethanol be ineligible for generating oxygen credits.

Allowing refiners the flexibility to comply with either of the VOC standards for ethanol RFG would require extensive tracking and segregation of the different types of RBOB downstream of the refineries. As discussed in Section I.L. below, we are also proposing to require that the Product Transfer Document designate the type of RBOB and whether it is to be used to make “adjusted VOC gasoline”.

Today's action proposes to require that the Product Transfer Document (as specified in 40 CFR 80.77) designate the type of RBOB ( i.e., which contains no ethanol, which contains ethanol less than 10 volume percent, or which must contain ethanol at 10 volume percent and which is used to make “adjusted VOC gasoline”). EPA believes that such designation is sufficient to allow tracking of the different types of ethanol blends as well as providing documentation of the VOC standard ( i.e., adjusted or non-adjusted) with which a refiner may choose to comply. EPA solicits comment on this change.

We believe that the Product Transfer Document provides a workable solution to tracking the RBOB for ethanol RFG products including requiring refiners to conduct oversight at retail stations receiving that RBOB. If there were sufficient variation in the levels of ethanol used in ethanol RFG blends, such level of oversight might be necessary. As discussed in Section I.J., the industry practice for ethanol RFG is to blend ethanol at 10 volume percent. We are proposing a change in the regulations to exempt from the quality assurance and sampling requirements of 40 CFR 80.69(a)(7) ethanol RFG that qualifies for the adjusted VOC standard. EPA solicits comment on this change.

The adjusted VOC standard is premised in part on the expectation that RFG blends containing 10 volume percent ethanol (3.5 weight percent oxygen) will achieve larger reductions in CO emissions than RFG blends with oxygenates at the level of 2.0 weight percent oxygen. It is possible that future vehicles will employ advanced technology that will significantly reduce CO emissions, irrespective of the oxygen content in the fuel, and consequently negate the importance of the impact of gasoline oxygen content on CO emissions.

We expect that we will learn about the CO emissions performance as time passes. We request comment on this issue and on whether (and when) EPA should evaluate the relationship between advanced vehicle emission control technology and the oxygen content of gasoline on CO emissions.

The Clean Air Act (CAA) section 211(k)(2)(B) requires that reformulated gasoline (RFG) contain 2.0 percent oxygen by weight. Our RFG regulations, in 40 CFR 80.41, specify standards for various fuel parameters, including oxygen content. The regulations provide both “per-gallon standards” and “averaged standards” for each parameter. Refiners, importers and oxygenate blenders may meet the oxygen content requirement by producing RFG which contains at least 2.0 percent oxygen in every gallon, or by producing RFG with 2.1 percent by weight oxygen on average, over the course of a calendar year, as long as no gallon of RFG contains less than 1.5 percent oxygen. This 1.5 percent lower limit is called the “per-gallon minimum”.

The CAA section 211(k)(7) requires an oxygen credit program. The averaged standard for oxygen may be met with the help of oxygen credits. Oxygen credits are created when any refiner makes RFG above the 2.1 percent average requirement over the course of a calendar year. Credits may, with certain restrictions, be transferred from one refinery to another, but cannot be used to meet the per-gallon minimum. Thus, some parties may produce RFG with average oxygen content in excess of the standard while others may produce RFG with average oxygen content below the standard as long as the average oxygen content of all RFG meets the oxygen content standard.

These provisions for compliance on average provide more flexibility to refiners, importers and oxygenate blenders. We recognized when we promulgated the RFG regulations, that allowing for compliance on average as an alternative to adherence to a per-gallon standard could result in some “covered areas” not receiving the same quality of RFG that they would have received without averaging. Therefore, we built into the regulations several mechanisms, described below, to mitigate this potential problem.

The averaged standards for all parameters are numerically more stringent than the per-gallon standards ( e.g. for oxygen 2.1 percent vs 2.0 percent). Furthermore, certain of the parameters (oxygen, benzene and volatile organic compound emission performance), have a per-gallon minimum or maximum specification which gasoline producers may not exceed. These limit the amount of gallon to gallon variability that can occur. Since the oxygen per-gallon minimum is set at 1.5 percent, even under the worst-case scenario, the annual average oxygen content in a covered area could not fall below 1.5 percent.

In addition to these safeguards in the standards, EPA's regulations require refiners, importers and oxygenate blenders who choose to comply on average to conduct surveys, as specified in § 80.68. In these surveys, RFG samples are collected at retail gasoline stations within covered areas and analyzed to determine if the RFG supplied to these areas meets certain pass/fail criteria specified in § 80.68. For example, an oxygen survey series failure occurs in a covered area if the annual average oxygen content of the samples in that area is less than 2.0 weight percent. (An oxygen survey series consists of all the one week surveys conducted in a single covered area during a single calendar year.) These surveys measure all the fuel properties necessary to compare the samples with the RFG standards.

Each type of survey failure results in a specific “ratcheting” of a fuel-parameter-averaged standard and/or a minimum/maximum standard, as specified in § 80.41. For example, an oxygen survey series failure results in a tightening of the per gallon minimum by 0.1 percent. The effect of a survey failure even in a single covered area may be wide ranging since, in general, a ratchet will apply to the gasoline sold in any area by all refiners, blenders or importers that supplied the ratcheted area during the year of the survey failure, and by all refiners, blenders or importers that supply the area while the ratchet is in effect. Oxygen survey series failures have occurred in several covered areas in past years, and consequently, many refiners, importers and blenders are subject to a 1.7 percent per gallon minimum for oxygen, rather than the initial 1.5 percent minimum.

These ratchets correct, over time, any geographic disparities in the quality of RFG that might result from the use of a refinery based average standard. Suppose, for example, that oxygen survey series failures occur in successive years and the oxygen minimum for all suppliers to the failed covered area is ratcheted by another 0.1 percent every time a failure occurs, until the per-gallon minimum is 2.0 percent. Since the minimum oxygen content in each gallon of RFG being supplied to the failed covered area must be at least 2.0 percent, the annual average oxygen content for that area could not be less than 2.0 percent. The ratchets also provide an economic incentive to correct and avoid geographic deficiencies in the quality of RFG. If any RFG standard is incrementally tightened as a result of survey failures for some RFG parameter, it is likely that the cost of compliance with this standard for suppliers will increase. At some point it is likely that it would be economically advantageous to avoid geographic deficiencies and survey failures rather than face further tightening of a standard.

We are soliciting comment on removal of the per gallon minimum oxygen requirement applicable to RFG. We believe that removing the minimum would allow refiners, importers and oxygenate blenders more flexibility in meeting the RFG oxygen content requirement, without compromising the air quality benefits attributable to RFG. Eliminating the per-gallon oxygen minimum may cause oxygen levels to fluctuate more with time in any covered area. Consequently, in order to reduce the effect of such fluctuations on the accuracy of the survey estimates, we are also considering a change in the method for calculating the annual oxygen average from survey data. Finally, removing the per-gallon oxygen minimum requirement eliminates the availability of the oxygen minimum as a ratcheting tool in the event of oxygen survey series failures. Therefore, in order to ensure continued effectiveness of the surveys as a tool to correct and avoid geographic disparities in the quality of RFG, we are also considering whether the requirement for reduction of averaged toxics emissions (per the complex model) should be made more stringent in the event of an oxygen survey series failure.

Removing the RFG per-gallon oxygen minimum would allow refiners, blenders and importers to market some non-oxygenated gasoline in RFG areas—so long as the annual average oxygen content of their RFG is at least 2.1 weight percent. Currently, under § 80.78, there is a prohibition against combining VOC-controlled RFG oxygenated with ethanol with VOC-controlled RFG produced using any other oxygenate during the period January 1 through September 15. We are soliciting comment on whether this prohibition should be extended to the combining of VOC-controlled ethanol RFG with any other VOC-controlled RFG (including RFG blends without oxygen) during the same time period. We are not proposing this change at this time, and will consider all comments in deciding whether to propose such a change in a future rulemaking. These issues are discussed below.

Removal of the per-gallon minimum would allow producers of RFG more flexibility to vary the oxygen content in RFG on a seasonal basis. One foreseeable benefit to suppliers would be the option for suppliers, who might otherwise oxygenate their VOC-controlled RFG with ethanol, to produce a portion of their VOC-controlled RFG without oxygen. Suppliers would thus be able to produce a portion of their VOC-controlled RFG without utilizing the more costly blendstocks necessary to offset the Reid Vapor Pressure (RVP) boost associated with ethanol-blended RFG. The RVP boost from ethanol is not an issue in non VOC-controlled (winter) RFG, and oxygenate usage at sufficiently high levels in winter RFG could ensure that the oxygen content requirement is met on an annual average basis.

Removal of the per-gallon minimum may also facilitate a reduction in the use of methyl tertiary butyl ether (MTBE) in RFG. For example, some refiners who produce ethanol-oxygenated RFG with high levels of oxygen outside of the VOC-control season may elect to use MTBE as an oxygenate during the summer VOC-control season. Under the current regulation, these refiners would have to use enough MTBE during the summer to ensure that both the annual average oxygen requirement and the per-gallon minimum are met. The average level of oxygen needed during the summer to satisfy the annual average requirement could potentially be below the current per-gallon minimum requirement. Therefore, removal of the per-gallon minimum could reduce the total amount of MTBE that these refiners would need to use.

As discussed in Section I.C., the “Blue Ribbon Panel on Oxygenates in Gasoline”, a panel of experts appointed by the EPA Administrator, has recommended that the use of MTBE should be reduced substantially in order to minimize current and future threats to drinking water.

We do not believe that the elimination of the oxygen per-gallon minimum would diminish the quality of RFG or the benefits attributable to RFG. However, the modifications to the survey and commingling provisions of the existing regulations, described below, will help to prevent or mitigate any potential problems. We recognize that, in addition to preventing geographic disparities in the quality of RFG, the oxygen minimum requirement is a useful tool for detecting the illegal presence of conventional gasoline in RFG areas. Elimination of the oxygen minimum would also eliminate this enforcement tool. However other minimum or maximum standards remain in place and these can be employed to help detect conventional gasoline sold as RFG. We request comment on whether the value of increased flexibility gained by removal of the oxygen minimum sufficiently justifies the loss of this enforcement tool. We are soliciting comment on the environmental and economic consequences of removal of the oxygen minimum.

The elimination of the oxygen minimum and the proposed adjustment to the VOC standard may cause RFG oxygen levels to fluctuate substantially throughout the year, with the possibility of seasonal trends. Both of these changes may result in different levels of oxygen occurring in VOC-controlled and non VOC-controlled RFG produced by the same refineries and supplied to the same covered areas. Currently, § 80.68 of the RFG regulations specifies that for each covered area, the average oxygen content for all samples from the survey series shall be averaged, and if the annual average is less than 2.00 percent the area fails the survey series. Calculation of an annual oxygen content average in this fashion may produce an inaccurate estimate in a covered area if there is substantial temporal fluctuation in oxygen levels. The bias may be more pronounced if oxygen levels vary seasonally, since more surveys are conducted during the “summer” (June 1 through September 15) and the number of samples per summer survey is also greater.

We are considering whether the method of calculation for the oxygen survey series average should be changed. A potential modification in procedure would be to:

1. Determine an average for each survey,

2. Average the “summer” and “winter” (January 1 through May 31 and September 16 through December 31) survey averages separately to determine seasonal averages and

3. Weight the seasonal averages to estimate an annual average.

This change in calculation method should probably be sufficient to reduce the potential for seasonal bias in the survey series estimate of the annual oxygen average. This change would also reduce the effect of scheduling of surveys on survey series outcomes. Although we do not conduct these RFG surveys, we determine when and where they occur. These surveys are multi-purpose; i.e., the same samples collected for determination of compliance with the oxygen requirement are used to determine compliance with other RFG requirements. This concurrent sampling results in more samples being taken in each summer survey in order to satisfy VOC and NO X survey precision requirements, and often, in more surveys being done during the summer months in order to effectively assess VOC and NO X performance. Thus, our scheduling of surveys is not done with the sole objective of accurately estimating annual average oxygen content.

Under the current calculation method, our scheduling decisions could limit supplier flexibility in meeting the oxygen average and negate the intended benefits of this regulation change. For example, if refiners supplying RFG to a covered area elect to use high levels of oxygen in winter and low levels in summer, each additional summer survey that we schedule for that area is likely to decrease the estimate of the annual average oxygen content and increase the chance for an oxygen survey series failure. Under the suggested method, scheduling an additional summer survey should not substantially affect the probability of oxygen survey series failure.

At this time, we are also inviting comment on changes in the method for calculating the average for toxics, benzene and non-ozone season NO X survey series from an “average of all samples” method to an “average of survey averages” method. These changes are consistent with the methodology that we are considering for calculating the seasonal oxygen averages. We do not expect that these changes would have any substantial interaction with either the adjusted VOC standard or removal of the oxygen minimum provisions. The technical rationale for these changes is discussed in detail in the original proposal. 6

In summary, we are soliciting comment on whether survey calculation procedures should be changed if the oxygen minimum is removed, and if so, whether our suggested approach is the most appropriate way to do this.

Generally, we recognize that removing the oxygen minimum might increase the likelihood of area-to-area variability in the oxygen content of RFG. Of particular concern is the potential for any substantial reduction of the quality of RFG in any covered area. The required RFG surveys and resultant ratchets for survey failures are the primary mechanism for correcting or avoiding such a situation. These surveys assess the quality of RFG with respect to both fuel property standards ( i.e., oxygen and benzene content) and performance standards ( i.e., complex model VOC, toxics and NO X emissions reductions).

As stated earlier, a specific ratchet is prescribed in the regulations for each type of survey failure, and a failure for a given parameter results in a ratchet of that parameter. In the absence of an oxygen minimum requirement, we believe that ratcheting of the average toxics performance requirement in response to an oxygen survey series failure is appropriate.

The exact role that oxygenates play in RFG toxics emissions performance is difficult to quantify. The complex model indicates that as oxygen content increases while other fuel properties are held constant, the toxics emissions performance of gasoline may increase or decrease, depending on the amount and type of oxygenate and values of other fuel properties. However, the relationship between toxics performance and oxygen in RFG is influenced by other factors. For example, oxygenates are a high octane blending component in RFG. Producing RFG with less oxygen or no oxygen requires adjusting the “recipe” to provide an alternate source for the volume and octane which the oxygenate provided.

One potential oxygen/octane replacement strategy is the use of reformate, a blending component which contains high-octane aromatic compounds. Increasing the aromatics content in gasoline increases emissions of toxics air pollutants, and this effect is incorporated into the complex model. We recognize that reducing or eliminating the oxygen content in an RFG recipe would not necessarily result in poorer toxics performance. For example, lost volume and octane content could be made up by increasing the use of alkylates, another potentially available refinery blending stream. Alkylates are a good octane source, and an increase in alkylate content in the recipe would not result in poorer toxics emissions performance. While the complex model does predict that total toxics emissions increase somewhat with oxygen removal, independent of what is used as a replacement, this effect can be offset by relatively small changes in other fuel properties with greater influence on toxics emissions.

However, U.S. refiners have far greater capacity to produce reformate than they do to produce alkylate and, thus, it is likely that the removal of oxygen from RFG batches below the current minimum would tend to result in an upward pressure on the use of aromatics. Therefore, EPA's suggestion to ratchet the toxics performance standard in the event of an oxygen survey series failure, is based on a reasonable expectation that inadequate use of oxygen will generally result in an increase in toxic air emissions. Accordingly, the risk of a more stringent “ratcheted” toxics standard would provide incentive to avoid risking an oxygen survey failure.

In summary, removing the oxygen per-gallon minimum would not necessarily lead to average oxygen content deficiencies, or to poorer average toxics emissions performance in any covered area, but the potential for such occurrences exists. Therefore, we are requesting comment on whether ratchets to the average toxics standard in response to oxygen survey failure would be an appropriate mechanism to address this concern.

This toxics ratchet would provide an economic incentive to avoid and correct average oxygen content deficiencies in any covered area, as well as a means to mitigate the possible environmental consequence of such deficiencies. The specific toxics ratchet suggested in the event of an oxygen survey series failure is the same as that currently prescribed for a toxics emissions performance survey series failure— i.e., the complex model toxics emissions reduction requirement for that covered area beginning in the year following the failure is made more stringent by increasing the average toxics emissions reduction standard by an additional 1.0 percent.

The RFG regulations provide enforcement exemptions for Federal RFG sold in California. While most survey requirements do not apply in California, Section 80.81 of the regulations, which addresses these enforcement exemptions, contains a provision for oxygen surveys in Federal RFG areas in California.

We are suggesting that the 1.0% ratchet of the average toxics emissions reduction standard apply, as well, in the event of a California oxygen survey series failure. We are also soliciting comments on possible alternatives to a toxics ratchet.

The regulations, in § 80.78(a)(8), currently prohibit the commingling of VOC-controlled RFG oxygenated with ethanol with VOC-controlled RFG produced using any other oxygenate during the period January 1 through September 15. The rationale for this prohibition is the RVP boost associated with ethanol. For example, the RVP resulting from mixing equal volumes of a 7 psi ethanol-oxygenated RFG blend and a 7 psi ether-oxygenated RFG blend would be greater than 7 psi. The RVP resulting from mixing two 7 psi ether-oxygenated RFG blends or two ethanol-oxygenated RFG blends would not be greater than 7 psi.

When an ethanol-oxygenated blend is mixed with an ether-oxygenated blend the commingled blend is likely to have a VOC emissions performance worse than the average of the VOC performance of the two original RFG formulations. Since commingling can reduce the effectiveness of RFG to control VOC emissions, it is prohibited. This RVP boost will also occur when RFG oxygenated with ethanol is mixed with a non-oxygenated gasoline, and removal of the oxygen minimum would produce situations where non-oxygenated RFG is permissible. Therefore, in order to prevent reduced VOC control effectiveness, we request comment on whether an elimination of the oxygen minimum should include an extension of the commingling prohibition to combinations of VOC-controlled ethanol-oxygenated RFG with any other VOC-controlled RFG during the January 1 to September 15 time period. We also are soliciting comment on the adequacy of this approach to addressing commingling issues associated with removal of the oxygen minimum.

Based upon discussions EPA has had with refiners and representatives of the ethanol industry, we are considering whether it is advisable to change the dates during which the commingling prohibition is in effect. Under the current regulation, it is in effect from January 1 through September 15. Refiners and ethanol supporters are questioning why the period begins in January and suggest that it begin in April. The prohibition ends on September 15 because that is the end of the ozone season; during the three and a half months after that date, refiners and terminals can clear out the VOC controlled RFG. The prohibition begins in January because we have evidence that some refiners may begin production of VOC controlled RFG as early as January.

We understand that in terms of seasonal switching of RFG ( i.e., from wintertime non-VOC controlled RFG to summertime VOC controlled RFG) there is difficulty in product turnover at some terminals and the requirement to segregate VOC controlled RFG from non-VOC controlled RFG may present difficulties. This segregation requirement is not, however, part of the commingling prohibition. Therefore we would like to know what disadvantage the starting date of January 1 represents with respect to the commingling prohibition, as well as what advantages a starting date of April 1 would provide.

Elimination of the oxygen minimum is likely to have some impact on toxics emissions. The magnitude of the impact is uncertain for a number of reasons. Most fundamentally, there is uncertainty about how, where and to what extent the elimination of the oxygen minimum will result in seasonal trends in oxygen usage. Consequently, it is impossible to predict with any accuracy the overall impact of this potential change on RFG toxics performance. However, it is possible to examine, and to some degree quantify, changes in RFG toxics performance that could occur under certain scenarios.

Some background information is necessary in order to understand the relationship between this rule and toxics emissions. RFG standards include a performance standard for toxics. The complex model calculates total toxics performance by separately calculating performance for five toxic air pollutants; benzene, acetaldehyde, formaldehyde, 1,3 butadiene and polycyclic organic matter (POM), and summing the results. The equations in the model which estimate the various toxics pollutants are a function of multiple fuel parameters, including oxygen. Oxygen is not the most influential parameter on toxics performance. Variations in other parameters, such as benzene, over the range of values that normally occur in RFG have a much greater effect on total toxics emissions. Some of the toxics equations are not oxygenate-specific, while others are. For example, the higher emitter exhaust benzene equation contains a term for oxygen weight percent, and as oxygen content increases, all else being constant, benzene emissions decrease. On the other hand, the formaldehyde equations have a term for oxygen from MTBE only, and as MTBE oxygen increases formaldehyde emissions increase. The acetaldehyde equations include a term for oxygen from ethanol, and as ethanol oxygen increases acetaldehyde emissions increase. The complex model treats all of the constituent toxics equally on a mass basis even though these toxics may have different cancer potencies and pose significantly different cancer risk.

As a result of these complex model characteristics, the model predicts that, as MTBE oxygen increases from zero, all else being constant, total toxics emissions will decrease. The model also predicts that an ethanol-oxygenated gasoline will have higher total toxics emissions than an otherwise identical MTBE-oxygenated gasoline with the same weight percent oxygen. Additionally, as ethanol oxygen increases from zero, all else being constant, total toxics emissions will decrease to a minimum and begin to increase again. However, the total toxics emissions at 3.5% oxygen (approximately 10 volume percent ethanol) would still be lower than the total toxics emissions at zero oxygen.

Consequently, since this rule may facilitate changes in both the type and amount of oxygenate used, there is a potential for some adverse impact on total toxics emissions. In order to get a sense of the magnitude of this impact, we have provided results from several complex model runs where the type and amount of oxygen is varied while other parameters are held constant. All model runs were done with the Phase II complex model, which is applicable beginning in 2000. However, rather than choose a hypothetical “recipe” (set of complex model fuel parameters) meeting Phase II requirements, we have fixed the non-oxygen fuel parameters at summer and winter seasonal average levels for Phase I RFG, based on 1998 RFG surveys from areas which used little or no ethanol (the summer season is June 1-September 15 and winter is the rest of the year). In order to provide a single set of numbers for each oxygenate scenario, we have combined summer and winter results from each complex model run using the weights 0.468 for summer and 0.532 for winter. (These are the weights specified in the RFG regulations for calculating annual survey series toxics averages, and suggested for calculation of the annual survey series oxygen averages.) Toxics results from these complex model runs are summarized in the following table:

The public meetings will be held on the following dates, times and locations:

Members of the public who plan to attend any of these meetings should write, call, email or fax to the address listed in the FOR FURTHER INFORMATION CONTACT section above. Include your name, affiliation, address and phone number, and whether you wish to make a statement. The Agency will use the information to arrange enough time on the agenda for public comment.

On May 26, 2000, President Clinton signed Executive Order 13158 which among other things explicitly directs EPA to take action to better protect marine and coastal areas. Section 4(f) of the Executive Order on Marine Protected Areas states:

EPA believes that revisions to the Ocean Discharge Criteria (also called the section 403 regulations) is the most appropriate approach to implementing the order.

In 1972, Congress passed the Federal Water Pollution Control Act, commonly known as the Clean Water Act (CWA). Under the CWA, point source discharges ( i.e., discharges from municipal and industrial facilities) to waters of the United States must obtain a National Pollutant Discharge Elimination System (NPDES) permit, which requires compliance with technology- and water quality-based treatment standards. In addition, because of the complexity and ecological significance of marine ecosystems, discharges to the marine environment beyond the baseline ( i.e., the territorial sea, contiguous zone, and oceans) must also comply with section 403 of the CWA (section 403), which specifically addresses impacts from such point sources on marine resources.

The current Ocean Discharge Criteria regulations consider 10 criteria in evaluating NPDES permits for discharges into marine waters. These criteria emphasize an assessment of the impact of an ocean discharge both on the biological community in the area of the discharge and on surrounding biological communities. The current regulations governing section 403 were issued in 1980. Revising these regulations could potentially impact holders of NPDES permits that discharge into ocean waters and anyone who might apply for such a permit in the future.

EPA is holding these five meetings to present EPA's plans for section 403 regulatory revisions in support of the Executive Order. These meetings will provide the interested public an opportunity to comment on EPA's approach for regulatory revisions and to present data or opinions regarding the impacts of ocean discharges under CWA section 403 on the ocean environment.

These five meetings will provide an opportunity for the interested public to comment on EPA's approach to meeting the requirements of the Executive Order. Specifically, the Agency may reconsider revising the existing scientific standards for protecting coastal and ocean waters under section 403 of the Clean Water Act, and proposing a list of Special Aquatic Sites (SAS's). The Agency's actions may also include strengthening the existing regulations regarding permits to discharge into ocean waters under section 403 of the CWA, including specific protection for SAS's in ocean waters.

Please follow these instructions to access the rule: From the World Wide Web (WWW), type http://www.epa.gov/epaoswer/hazwaste/ldr/index.html.

Entities potentially affected by this action are generators of spent aluminum potliner from primary aluminum reduction, or entities that treat, store, transport, or dispose of these wastes.

This table is not intended to be exhaustive, but provides a guide for readers regarding entities likely to be affected by this action. This table lists those entities of which EPA now is aware that potentially could be affected by this action. Other entities not listed in the table also could be affected. To determine whether your facility is regulated by this action, you should examine 40 CFR parts 260 and 261 carefully in concert with the amended rules found at the end of this Federal Register document. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding FOR FURTHER INFORMATION CONTACT section.

In developing this proposal, we tried to address the concerns of all our stakeholders. Your comments will help us improve this rule. We invite you to provide different views on options we propose, new approaches we have not considered, new data, how this rule may affect you, or other relevant information. We welcome your views on all aspects of this proposed rule, but we request comments in particular on the items in the following Table.

Your comments will be most effective if you follow the suggestions below:

• Explain your views as clearly as possible and why you feel that way.

• Provide technical and cost data to support your views.

• If you estimate potential costs, explain how you arrived at the estimate.

• Tell us which parts you support, as well as those with which you disagree.

• Provide specific examples to illustrate your concerns.

• Offer specific alternatives.

• Refer your comments to specific sections of the proposal, such as the units or page numbers of the preamble, or the regulatory sections.

• Make sure to submit your comments by the deadline in this notice.

• Be sure to include the name, date, and docket number with your comments.

K088 (spent potliner from primary aluminum reduction as listed in 40 CFR 261.32) is generated by the aluminum manufacturing industry. Aluminum production occurs in four distinct steps: (1) mining of bauxite ores; (2) refining of bauxite to produce alumina (aluminum oxide); (3) reduction of alumina to aluminum metal; and (4) casting of the molten aluminum. Bauxite is refined by dissolving alumina in a molten cryolite bath. Next, alumina is reduced to aluminum metal. This reduction process requires high purity aluminum oxide, carbon, electrical power, and an electrolytic cell. An electric current reduces the alumina to aluminum metal in electrolytic cells, called pots. These pots consist of a steel shell lined with brick with an inner lining of carbon. During pot service, the liner is degraded and broken down. Upon failure of a liner in a pot, the cell is emptied, cooled, and the lining is removed. In 1980, EPA originally listed spent potliners as a RCRA hazardous waste and assigned the hazardous waste code K088. See 45 FR 47832.

The Phase III—Land Disposal Restrictions Rule (61 FR 15566, April 8, 1996) prohibited the land disposal of K088 spent potliner unless the waste satisfies the section 3004(m) treatment standard established in the same rulemaking. The Phase III rule established treatment standards, expressed as numerical concentration limits, for various regulated constituents in the waste—25 in all, with standards for both wastewaters and nonwastewaters. These constituents included cyanide, fluoride, toxic metals (including arsenic), and a group of organic compounds called polycyclic aromatic hydrocarbons (PAHs).

With the exception of fluoride, the treatment standard limits established for K088 were equivalent to the universal treatment standards. See 61 FR 15585; see also 40 CFR 268.48 (Universal Treatment Standards Table). The fluoride standard was based generally on data submitted in a delisting petition for K088 waste from the Reynolds Metals Company. These data were generated from the operation of Reynold's proprietary treatment process for spent potliners.

In the Phase III rule, the Agency granted a nine-month national capacity variance pursuant to section 3004(h)(2) to allow facilities generating K088 adequate time to work out treatment and disposal logistics. See 61 FR 15589. Subsequent developments then took an unexpected turn. Unanticipated performance problems in the Reynolds treatment process resulted in treatment residues whose actual leachate (as measured in the landfill leachate collection system at the company's disposal site) contained markedly higher concentrations of arsenic and fluoride than predicted by the Toxicity Characteristic Leaching Procedure (TCLP), the analytical test used to measure performance of the treatment technology for certain hazardous constituents in K088. Two of the 22 regulated constituents of concern, namely, arsenic and fluoride were significantly more soluble in highly alkaline conditions (the actual disposal environment of the landfill Reynolds was using for disposal) than acidic conditions (the situation modeled by the TCLP). 62 FR 1992, 1993 (January 14, 1997). In addition, the company was disposing of the treatment residues in non-subtitle C units.

EPA concluded that further time was needed to evaluate whether adequate protective treatment capacity was available (within the meaning of RCRA section 3004(h)(2)), and, as part of this determination, whether Reynold's practices in fact satisfied the mandate of section 3004(m) that threats posed by land disposal of the hazardous waste be minimized through treatment. Until these questions were answered and a finding of sufficient protective treatment capacity made, EPA determined that insufficient treatment capacity existed for K088 waste because Reynolds, at the time, was the only available commercial treatment facility for spent potliners. Consequently, on January 14, 1997, we extended the existing national capacity variance, and postponed implementing the land disposal prohibition for an additional six months to be able to study the efficacy of the Reynolds treatment process and the resulting leachate. See generally 62 FR 1992.

In July 1997, EPA, after further study and negotiation with affected parties, announced that Reynolds treatment does reduce the overall toxicity associated with the waste, and, by virtue of an Enforcement Order, that disposal of treatment residues would occur only in units meeting subtitle C standards. This was an improvement over the disposal of untreated spent potliner and provided protective treatment capacity. See 62 FR 37696 (July 14, 1997). On October 8, 1997, the national capacity extension ended and the prohibition on land disposal of untreated spent potliner took effect.

Petitions for judicial review of the Phase III rule and the January 1997 and July 1997 rules were filed by Columbia Falls Aluminum Company and other aluminum producers from the Pacific Northwest. The petitioners argued among other things that the use of the Toxicity Characteristic Leaching Procedure (TCLP) did not accurately predict the leaching of waste constituents, particularly arsenic and fluoride, to the environment and that it was therefore arbitrary to measure compliance with the treatment standard using this test. The United States Court of Appeals for the District of Columbia Circuit decided on April 3, 1998, that EPA's use of the TCLP as a basis for setting treatment standards for K088 was arbitrary and capricious for those constituents for which the TCLP demonstratively and significantly under-predicted the amount of the constituent that would leach (139 F.3d 914; see also 63 FR 28571, May 26, 1998 (EPA's interpretation of the Court's opinion)). The Court vacated all the K088 treatment standards and the prohibition on land disposal even though only two of the 54 hazardous constituents for which EPA established treatment standards, namely arsenic and fluoride nonwastewaters, were implicated and despite the Court's expressed statement that its decision did not affect the viability of the concentration limits established for other constituents (139 F.3d at 923-24). In its decision, the Court specifically invited EPA to file a motion to delay issuance of the mandate in this case for a reasonable time in order to develop a replacement standard. Id .

On May 18, 1998, we filed a motion with the Court to stay its mandate for four months while we promulgated a replacement prohibition and accompanying treatment standards. The Court granted this motion, indicating that its mandate would not become effective before September 24, 1998. On September 21, 1998, we promulgated interim replacement standards for K088 waste. 1 (See 63 FR 51254, September 24, 1998). We did not, however, replace the treatment standard for fluoride, one of the two constituents for which the TCLP markedly under predicted its leaching potential in treated K088. We determined that significant technical effort would be needed to develop a replacement treatment standard for this constituent—a task that could not be achieved by the D.C. Circuit's deadline of September 24, 1998. 2 We did commit, however, to investigating and if appropriate developing a more permanent treatment standard for K088—an effort we expected to be completed within two years. We stated that a new treatment standard for spent potliners (K088) would hopefully be based on the performance of a treatment technology that resulted in the immobilization of arsenic and fluoride, as well as the other toxic metals in the waste. At that time, we were aware of numerous technologies that showed promise for the treatment of K088 waste, a number of which we viewed as close to being commercially available. We stated that more information was needed to characterize the performance of these technologies, as well as to assess their safety and (in some cases) the safety of the hazardous waste-derived products which may be generated as part of these treatment processes. Chemical Waste Management, 976 F.2d at 17 (treatment technologies whose air emissions are not adequately controlled are not treating in conformance with requirements of section 3004(m)).

This brings us to today's proposal. Over the last 18 months we have gathered additional data and information on treatment technologies that may be evaluated as the basis for a permanent treatment standard for K088 waste. We have investigated technologies such as vitrification, gasification, and alkaline chlorination, among others. Our emphasis has been on the overall environmental benefits of these technologies including, of course, the performance of these technologies on the treatment of cyanide as well as the two constituents of special concern to the Court, namely arsenic and fluoride. Concurrent with this analysis we have evaluated various analytical methods for measuring fluoride and arsenic concentrations in K088 waste. We have also considered several regulatory implementation approaches for K088 vitrification units and appropriate emission controls for these units.

As a result of these efforts, we are proposing a four-part regulatory strategy for K088 treatment—a strategy that provides environmental protection, but also flexibility with regard to regulatory compliance. The four basic components being discussed in today's proposal include: (1) Revised treatment standards for cyanide and fluoride in K088 nonwastewaters; (2) regulation of K088 vitrification units as RCRA Subpart X miscellaneous treatment units; (3) required air controls on K088 vitrification units; and (4) regulatory status of the outputs of K088-vitrification units. 3 Today's preamble is structured to address each of these components individually and in the order that they have been presented here.

In this section we discuss proposed revisions to the treatment standards for fluoride, total cyanide, and amenable cyanide in K088 nonwastewaters. We discuss the analytical method proposed to measure compliance with the proposed fluoride treatment standard for K088 nonwastewaters, the identification of treatment processes and performance data for K088, the determination of Best Demonstrated Available Technology or BDAT, and today's proposed treatment standards.

The September 21, 1998 interim final rule committed EPA to the development of a more permanent treatment standard for K088 waste. Cyanide and fluoride were two of the hazardous constituents for which treatment standard development had previously proved problematic. K088 waste contains extremely high concentrations of these constituents, much higher than any of the other regulated constituents in the waste. 4 Furthermore, spent potliners are listed as a hazardous waste because of high concentrations and large amounts of toxic cyanide. See 40 CFR Part 261, Appendix VII (basis for listing K088); 62 FR 37696. 5 Concentrations of cyanide have been found in untreated potliners as high as 5800 mg/kg. Past land disposal of these wastes have resulted in cyanide groundwater contamination. Indeed, EPA has stated repeatedly (and reiterates here) that control of cyanide is the most important objective of the K088 treatment standard, given cyanide's toxicity, concentration in these wastes, and potential to migrate from these wastes in high concentration, as shown by the historic damage incidents. See, e.g., 63 FR 51256; 51261.

K088 also contains high concentrations of fluoride. Often concentrations of fluoride in untreated potliner are greater than ten percent and some data suggest that untreated potliner may have concentrations of fluoride at greater than 20 percent. Most of this fluoride is in the form of soluble sodium fluoride. Unless this fluoride is recovered or effectively immobilized, the high concentrations of soluble fluoride found in K088 have significant potential to contaminate surface water and ground water and cause significant adverse effects to human health and the environment.

New performance data collected as part of developing this proposed rule show that the cyanide present in K088 waste can be readily treated to levels far below the current treatment standard using a vitrification process. These data also show that fluoride can be recovered and reused within the aluminum reduction process as well as sold as product to other industrial sectors. See Chemical Waste Management v. EPA, 976 F.2d 2, 27 (D.C. Cir. 1992) (remanding treatment standards as failing to minimize threats when more aggressive treatment was demonstrated to exist). Accordingly, we are proposing to amend to current cyanide treatment standards based on this new performance data as well as proposing a new treatment standard for fluoride nonwastewaters that will encourage fluoride recycling and reuse.

The proposed treatment standards for both total and amenable cyanides in nonwastewaters are based upon analysis using Method 9010 or 9012, found in Test Methods for Evaluating Solid Waste, Physical/Chemical Methods, EPA Publication SW-846, as incorporated by reference in 40 CFR 260.11. These analyses require a sample size of 10 grams and a distillation time of one hour and 15 minutes. This is the analytical method already required for cyanide in all the existing treatment standards.

Today's notice also proposes the use of a revised test for analyzing fluoride in K088 nonwastewaters. This test uses a version of the Toxicity Characteristic Leaching Procedure (TCLP) that uses deionized water as the leaching fluid (ASTM Method D3987-85 (1999)). The prior treatment standard for fluoride was based on TCLP analysis following treatment that converted the fluoride present in untreated K088 waste to generally insoluble calcium fluoride. (See 61 FR 15584, April 8, 1996.) However, the solubility of calcium fluoride is a function of pH. Because the TCLP tests use a simulated leachate with enough buffering capacity to lower the leachate pH to more acidic conditions, the calcium fluoride would be substantially less soluble than would be the case under actual field conditions. At the more acidic pH of the TCLP test, fluoride concentrations in treated waste were measured at less than 48 mg/L TCLP (the old treatment standard promulgated in the Phase III rule, 61 FR 15584, April 8, 1996), while measured concentrations in actual alkaline landfill leachate can be much higher, approximately 2200 mg/L. Had the original Phase III test been performed using de-ionized water as the leachate fluid, we expect that test results would have more closely tracked with the actual field measurement because the simulated leachate used in testing would not be buffered.

More recent leachate test results support this hypothesis. Fluoride results using deionized water leach ranged from 730-940 mg/L in the December 6, 1996, Special Laboratory Report, from Reynolds Metals Company. Actual leachate results from “landfill—cell 1” in which these wastes were placed have ranged from 664 to 1120 mg/L (April 1998 to August 1999), although values of approximately 2200 mg/L were initially observed from cell 1.

Testing of fluoride concentrations in K088 nonwastewaters, using a version of the TCLP with de-ionized water as the leachate fluid (ASTM Method D3987-85 (1999)), appears to be a workable solution to the pH-fluoride solubility concerns and a suitable measure of treatment performance. With de-ionized water as the leachate test fluid, leachate pH is controlled by the physical properties of the waste (and not the artificial buffering capacity of the test fluid), and more closely correlates with monofill conditions.

In developing this proposal, we also considered whether to conduct leach testing under more aggressive conditions, such as the very alkaline conditions (pH >12) that have been observed at the Gum Springs facility. Ultimately, the lack of a broadly-accepted test method, the variability of site conditions, concerns about transferability of results to other wastes or sites, and time constraints led us to reject this approach for developing today's proposal. We also evaluated the potential of a column-based test, although acceptable for rulemaking development, would not facilitate rapid assessment of compliance after promulgation of the standard. This was seen as a significant drawback not only for EPA, but for regulated entities as well, since column tests normally require weeks to conduct, and most treatment facilities lack multi-week storage capacity for treatment residues. Also, basing standards on alkaline leach or column-based testing conditions would entail the development and proposal of a new analytical procedure whereas the deionized water leach test has been fully vetted. 6 As such, we have collected performance data on K088 treatment using the alternative analytical method being proposed today.

In the Land Disposal Restrictions (LDR) program, two types of treatment standards have been established by EPA: (1) numerical concentration-based treatment limits for each regulated constituent of concern; and (2) methods of treatment that must be used to treat a particular constituent or constituents(s). In either case, the treatment standard is based on a technology determined to be the “Best Demonstrated Available Technology” or BDAT. The BDAT determination consists of four steps: The first step is the identification of all possible technologies that, in theory, can treat a particular waste. The second step involves a determination of which of these technologies are demonstrated, defined as available on a full-scale basis. 7 Third, from the list of demonstrated technologies, we determine which are available, i.e., those which can be purchased and provide substantial treatment. Finally, available technologies are evaluated based on their treatment performance. EPA typically calculates numerical treatment standards or establishes a method of treatment based on the performance of that technology (or sometimes technologies) shown to perform best on a waste or waste constituent.

However, when evaluating any hazardous waste treatment process, we keep in mind other important environmental objectives. Consequently, within the LDR program and more specifically the BDAT process, a hierarchy of preferred options exists for evaluating treatment and recycling technologies. This hierarchy is part of a broader waste management goal to promote source reduction that is less or no production of hazardous waste, and recycling or reuse (i.e, all the waste generated is used as a feedstock in the same process or another process.) Next, in descending order of preference, are options for hazardous waste management and the establishment of LDR treatment standards. First, are treatment technologies that recover chemical value from the waste for reuse. This option may result in some residuals needing to be land disposed but the preferred techniques would also significantly reduce the quantity and toxicity of any waste destined for land disposal. Further down the hierarchy are treatment technologies that reduce the quantity and toxicity without recovery of materials for reuse. Finally, at the lowest rung, are treatment technologies that only lower toxicity or the potential for migration. These may even increase the volume of materials for land disposal, e.g., metals stabilization.

If a treatment technology treats hazardous constituents, recovers chemical value from the waste, and meets our BDAT criteria, it will typically be our preference when establishing LDR standards. Treatment standards based on “treatment/recovery” are developed in one of two ways by: (1) establishing a required method of treatment, e.g. “lead recovery or RLEAD”; or (2) establishing numerical concentrations levels based on hazardous constituent concentrations in the recycling (i.e., treatment) residue. Presently, there are 14 waste codes that directly require or include recycling as their treatment standard. See 40 CFR 268.40. We recognize, however, that not all hazardous waste within a specific waste listing may be recyclable. Generally, that is why we establish concentration-based numerical standards instead of requiring mandatory recycling of a particular constituent. Although numerical standards can be based on a recycling technology, any technology (other than prohibited technologies) can be used to meet the treatment standard. In general, this type of approach meets our LDR goal of encouraging environmentally sound recycling at the same time providing the regulated community with flexibility in meeting the treatment standards. 8

We have identified a range of treatment and recycling practices as applicable to K088 waste. Most of these processes, however, are still under development and are not full-scale operating units so they cannot be the basis of BDAT. What we find encouraging however, is that all of the processes being investigated are recovery or recycling-based. Many of these processes recover reusable chemical value from the spent potliner from either the fluoride or the unburned carbon contained in the waste. Some of these technologies also claim to process the K088 into marketable products. We are encouraged by the prospect of K088 management with some of these alternative processes. However, at the present time and for purposes of this proposal, we are only in a position to evaluate the three existent facilities known to be treating K088 waste.

The Reynolds Metals Company facility in Gum Springs, Arkansas, the Ormet Primary Aluminum facility in Hannibal, Ohio, and the Chemical Waste Management of the Northwest, Incorporated facility in Arlington, Oregon (herein referred to as Reynolds, Ormet, and CWMNW respectively) presently operate the three treatment facilities for K088 waste in the U.S. All three of these facilities maintain full-scale treatment operations and currently meet all the existing treatment standards for K088 waste found in § 268.40. Reynolds and CWMNW operate commercial treatment operations, while Ormet operates a private on-site treatment facility not involved in the commercial treatment of K088. All three of these treatment units are considered available as defined by our BDAT methodology and have had their treatment performance data evaluated for establishment of treatment standards for fluoride, cyanide and arsenic. 9

In 1999, we collected and analyzed treatment performance data from Ormet. We also reviewed performance data submitted by CWMNW. We compared these data to existing performance data from Reynolds. Our analysis shows that the Vortec technology, used at the Ormet facility, provides highly effective treatment of cyanide in addition to being a highly effective recovery process for fluoride. Furthermore, the process has also been shown to be effective in the immobilization of residual fluoride.

Conversely, Reynolds and CWMNW operate treatment only facilities for K088 waste. They do not recycle or recover the fluoride value in the waste. Reynolds and CWMNW performance data show that both treatment processes are less effective than Ormet in the destruction of cyanide and the immobilization of residual fluoride.

As shown in Table 1, data from the Ormet treatment/recovery process showed cyanide concentrations in the treated potliner measuring below detectable limits (<0.5 mg/kg). This comports with a greater than 99.9% destruction of the cyanide. Conversely, treatment performance data from Reynolds showed untreated potliners with an average cyanide concentration of 77 mg/kg (92-94% total destruction of cyanide). 12 Data from CWMNW showed treatment of the cyanide below the current treatment standard of 590 mg/kg, but well above the average performance concentrations achieved by Ormet.

The Ormet process also removes and recovers from the untreated potliner approximately 99.9% total fluoride. Residual concentrations of fluoride in the treated potliner averaged 38.5 mg/kg total fluoride. Leachable fluoride concentration in the treated potliner averaged 2.15 mg/L total fluoride. 13 Conversely, fluoride concentrations in the treated potliner from Reynolds' averaged 44,700 mg/kg with leachate values averaging 552 mg/kg.

As such, we have initially determined Ormet's treatment process as BDAT for fluoride and cyanide in K088 waste. 14 Ormet's performance data show cyanide destruction values exceeding those obtained by both Reynolds and CWMNW. Furthermore, Ormet's ability to recovery fluoride values for the untreated potliner, coupled with effective immobilization of the residual fluoride in the treated potliner, indicate a treatment process superior to Reynolds and CWMNW.

While the data strongly support this BDAT determination, it is imperative, however, that we discuss here, the issue of “most-difficult-to-treat” waste. In the LDR program, we generally prefer to establish a treatment standard based on a waste that we determine to be the most difficult to treat. We usually consider the “most-difficult-to-treat” waste, as being the waste with the highest constituent concentration(s) of concern. It is therefore assumed that if a treatment technology can treat a highly concentrated waste, then it can also treat lower concentrations with equal effectiveness. However, we have encountered cases where data and information on different treatment technologies is limited in scope and does not represent the most difficult to treat waste. In these situations, our engineering judgment has played a crucial role in supporting the BDAT determination.

Today's rule is such a case. As mentioned earlier, Ormet is a privately-owned K088 treatment facility. It does not commercially treat K088 waste (although the treatment technology it uses is commercially available, as explained earlier). Because of this, the treatment performance data that we gathered at the Ormet facility reflects the treatment of only one type of K088 waste—Ormet's. Reynolds, the largest commercial treater of K088 waste treats K088 from more than 15 aluminum reduction facilities and has a much broader concentration range of K088 regulated constituents. As indicated by Table 1, the average concentration of cyanide in Ormet's untreated potliner was well below the average concentration of cyanide in Reynold's untreated potliner (670 mg/kg versus 2,770 mg/kg). Based on this information, one might be tempted to conclude that Ormet's waste is not the most difficult to treat for cyanide. However, based on an extensive engineering review of the process at Ormet, and our findings that the treatment unit is well-designed and operated and has a robust combination of time, temperature and mixing within the unit, we are confident that higher concentrations of cyanide, (such as those encountered by Reynolds) will be easily destroyed by this process. 15 Furthermore, we have determined that the Ormet process is matrix independent for cyanide and capable of destroying any concentration of cyanide contained in a K088 waste to below the detection limit. Therefore, we believe that the treatment standards being proposed today for both total and amenable cyanide are appropriate.

Similarly, the average concentration of total fluoride in the Reynolds untreated potliner was 81,000 mg/kg, exceeding the average concentration in Ormet's waste of 62,775 mg/kg. However, we conclude, for similar engineering reasons, that the process employed at Ormet is capable of providing effective recovery and immobilization of fluoride independent of the concentration of fluoride contained in the untreated K088 waste. That is, virtually all of the fluoride will partition to the vitrification baghouse dust, and is then recoverable. The remainder of the fluoride will be immobilized in the treatment residue.

EPA notes that the proposed standard for cyanide would no longer be the universal treatment standard (UTS). The UTS is normally our preferred option, but here the improved cyanide treatment performance from vitrification of K088 (over two and one-half orders of magnitude) is striking. In addition, the Ormet vitrification process appears to optimize recovery/treatment of fluoride, so that improved treatment of both cyanide and fluoride will go together. The proposed treatment standards thus reflect both of these linked treatment improvements. The Agency requests comment as to whether the assumptions made in this “difficult to treat” determination are valid and our conclusions are correct. Additional discussion on this matter can be found in the technical background document supporting this proposed rulemaking and is available in the docket.

The K088 treatment technology used at Ormet can be generally described as a direct-fired vitrification system that destroys cyanide, while recovering fluoride for reuse. In this treatment, the K088 along with other additives are mixed together and then vitrified to form a residue or glass-like “frit,” while effectively partitioning the fluoride for reuse. The fluoride that does not partition is immobilized within the frit.

The unit performing this operation is referred to as a combustion melting system (CMS  TM ) which was licensed by Ormet from the Vortec Corporation. The CMS  TM consists of a Counter Rotating Vortex (CRV) reactor, a cyclone melter, and a separator/reservoir. The process involves the rapid suspension heating of finely crushed K088 waste, sand, and limestone in a preheater prior to physical and chemical melting that occurs within a cyclone reactor. The reactor is a refractory-lined, water-cooled, carbon steel vessel. Natural gas and preheated air are used to achieve temperatures of approximately 2400° F in the reactor. Materials begin to melt in the reactor and flow downward to the cyclone melter. Melting of the waste and other additives, as well as the combustion of the cyanide and other organics, is completed in this vessel and the resultant molten glass is separated from the combustion gas. The molten glass is dropped into a water quench tank where it solidifies into a frit.

The separated combustion gas is used to preheat the air entering the reactor, and is then sent to a baghouse to remove sodium fluoride (this residue is referred to as the primary baghouse dust). Arsenic, if present, would likewise partition to the baghouse because of its high volatility. The exhaust from the baghouse is then transferred into the potroom dry scrubber system, which is a baghouse air pollution control device using alumina to dry scrub fluoride from aluminum reduction pot exhaust gases. Here, gaseous fluoride is removed and additional particulate removal occurs. The material from the dry scrubber system (referred to as secondary baghouse dust) is fluoride-enriched alumina material that is also reused.

Based on an analysis of the entire treatment process, the Agency concludes that the revised treatment standards for fluoride and cyanide will be derived from the concentrations of these constituents as measured in the treated potliner or glass frit. We do so for two reasons. First, the baghouse dust is fluoride-rich material that can be sold as a product or recycled back into the aluminum reduction pots as an electrolyte. Second, the glass frit is the primary residual from the treatment of K088 and will likely be land disposed at some point either after its use as a product or immediately if the glass frit market cannot sustain all the frit that is generated. 16

EPA took four samples of the frit and analyzed them for total cyanide, amenable cyanide and fluoride. The data for total cyanide in the glass frit consisted of 4 data points all of which measured total cyanide concentrations at below detectable levels (<0.5 mg/kg). Based on these data, a treatment standard of 1.3 mg/kg for total cyanide was calculated. The data for amenable cyanide also included four data points all of which measured below detectable levels (<0.5 mg/kg) in the frit. Based on these data, a treatment standard of 1.4 mg/kg for amenable cyanide was calculated. The difference results from differing recovery factors in the two calculations.

Data was also collected on the leachability of fluoride in the glass frit using the deionized water leach test (ASTM Method D3987-85(1999)). The leach test is a measure of the immobility of the fluoride in the treated matrix. Data results as measured on the frit were: 1.9, 2.3, 1.9, and 2.5 (mg/L).  17 Based on these data, a treatment standard of 2.7 mg/L fluoride was calculated.

To resolve the compliance problem that would result from having a total cyanide value less than the amenable cyanide value, we propose that both total and amenable cyanide have the same compliance values. Therefore, EPA is today proposing revised treatment standards of 1.4 mg/kg total cyanide and 1.4 mg/kg amenable cyanide for K088 nonwastewaters. We are also proposing a new treatment standard for fluoride in K088 nonwastewaters, 2.7 mg/L fluoride, when measured by a version of the Toxicity Characteristic Leaching Procedure with deionized water as the leaching fluid (ASTM Method D3987-85 (1999)). It should be noted that we are not proposing to revise any of the other treatment standards for K088 waste found in 40 CFR 268.48.

The numerical treatment standards proposed in today's notice are performance standards reflecting the levels achieved by the BDAT. We emphasize that we are not proposing to require the use of any particular treatment technology. Any technology or combination of technologies not otherwise prohibited ( i.e. , impermissible dilution) can be used to achieve these standards.  18 The establishment of concentration-based treatment standard provides the regulated community with the greatest amount of flexibility in meeting the treatment standards.

Evaluation of the performance data from Reynolds and CWMNW show that these treatment processes cannot generally achieve the proposed treatment standards which, in practical terms, means that existing treatment technologies that do not recover and substantially immobilize fluoride will need to be modified or replaced. See “Best Demonstrated Available Technology (BDAT) Background Document for Spent Aluminum Potliners—K088” for additional discussion. However, as previously mentioned, we are aware of several promising technologies being developed for K088—all of which recover fluoride. Preliminary information further suggest that these technologies would be successful in meeting the treatment standards being proposed today. We request any data and information on any developing technologies currently being investigated by the primary aluminum industry or other for the treatments of K088 waste. Furthermore, we solicit your comments on the achievability of these proposed treatment standards as well as EPA's assumptions regarding the technical and economic feasibility of recycling the fluoride dust.

During the development of this proposal, we did consider several other regulatory options in lieu of the treatment standards being proposed today. One option we considered was the development of a separate treatability group and treatment standard for “Baghouse Dust from K088 Vitrification Processes—No Land Disposal Based On Recycling.” This option was explored because clarification might be needed as to the management of the dust, i.e., no land disposal. We determined, however, that the addition of a second, separate standard for K088 baghouse dust had no practical advantage over the proposed standard and rejected this option for two reasons: (1) The baghouse dust is a high quality product that can be recycled within the aluminum industry or other industrial processes; and (2) the proposed treatment standard of 2.7 mg/L cannot be met by the baghouse dust and, therefore, for all practical purposes, it must be recycled. 19

We also considered a “Fluoride Recycling plus 268.48 Standards” requirement for all of K088 waste. This option would require some type of fluoride recycling to occur in addition to treatment to meet the concentration-based treatment standards (both existing and proposed). The option we are proposing already effectively provides this result since the baghouse dust would not meet the numerical standards if land disposed, and thus its recycling is essentially compelled.

During the development of the revised treatment standards for cyanide and fluoride, we also evaluated the possibility of revising the nonwastewater treatment standard for arsenic. The current treatment standard for arsenic in K088 nonwastewaters is 26.1 mg/kg total arsenic. The development of a revised arsenic treatment standard in this proposal proved problematic for two reasons. First, Ormet's untreated potliners have extremely low concentrations of arsenic, measuring between 3.1 and 4.0 mg/kg, and therefore could not be considered “most-difficult to treat” for BDAT purposes. 20 Second, performance data from the Ormet process indicates that arsenic is not immobilized in the treated potliner. 21 Rather it partitions (because of its high volatility) to the baghouse dust, which is then be recycled back into the aluminum reduction pots or sold as product. Of course, trace amounts of arsenic may not be collected in the baghouse and would be contained ultimately in the stack emissions. We do not have data indicating at what level either of these two potential events might occur and, therefore, cannot make a judgment about the efficacy of an arsenic recycling standard or the probability or degree of environmental concern about potential releases of arsenic to the air or land. However, later in this notice, we are proposing an approach to assure that emissions from these devices do not present significant environmental threats.

EPA has therefore decided tentatively not to alter the existing arsenic treatment standard. That standard reflects total arsenic concentrations in the land disposed treatment residue from higher-arsenic potliners, and also is designed to prevent significant additions of arsenic via the treatment process (that is, the arsenic remaining in the treatment residues would reflect arsenic in the potliners in the first place). See 63 FR at 51,257-58 (Sept. 24, 1998). Given the current questions regarding whether any superior means of arsenic treatment presently exists, EPA is not in a position to propose a different standard at this time.

While we are not at this time proposing an alternative to the total arsenic standards now in place for K088, we foresee only very limited impacts upon the continuing development of alternative recycling and treatment technologies for K088 by other companies. We note however that should a K088 recycling process be constructed that has, as one of its residuals for land disposal, arsenic at total levels above the current standard, current regulations would prevent disposal of the residual. We emphasize that this does not render the process unusable. However, the generator would have to petition for a variance from the current treatment standard in accordance with 40 CFR 268.44 or for a rulemaking in accordance with 40 CFR 260.20 for the Agency to set appropriate alternative treatment standards. EPA also could adjust the arsenic standard as part of this rulemaking if we receive sufficient information as part of the comment process and the appropriate notice and comment protocols ( e.g. , a Notice of Data Availability (NODA)) are met.

We are informally engaged in a broader effort to gather data on the effectiveness of current arsenic treatment methods and may revise the arsenic treatment standards for K088 or all hazardous waste upon the completion of these studies, if warranted. In the interim, as part of this docket, we are soliciting your comments on arsenic treatment methods in general, the use of these treatment methods for arsenic in K088, and our technical questions about the Ormet process (particularly with respect to its apparent inability to immobilize arsenic contained in K088).

Because new treatment units are likely to be needed to treat the 120,000 tons of K088 generated each year to achieve compliance with today's proposed standards, the issue of the regulatory status of K088 vitrification units has arisen. We discuss in this section several options for regulating K088 vitrification units and propose that they should be miscellaneous treatment units under RCRA. Furthermore, we propose that these units should be subject to a particular suite of emission controls irrespective of whether the unit recycles K088 treatment residuals back into the aluminum making process or into other products. Furthermore, we note that although the discussion in today's notice is in the context of how to regulate K088 vitrification units, the rationale for regarding these units as Subpart X miscellaneous treatment units would logically extend to all vitrification units treating other hazardous waste. Thus, all vitrification units, whether direct-fired or indirectly heated and irrespective of the waste treated or recycled, would be classified as Subpart X treatment units. Therefore, the Agency solicits your comments on the extension of this approach to all vitrification units treating hazardous waste.

The initial issue requiring resolution is whether spent potliners are a solid waste when they are processed by a vitrification unit that generates glass frit and recyclable baghouse dust, both of which can be put to productive use. The argument goes that spent potliners are used as an ingredient in a glass production process, and so are not a solid waste based on 40 CFR 261.2 (e)(1). This subsection excludes from the regulatory definition of solid waste those secondary materials that are used or reused as ingredients in an industrial process to make a product, provided the materials are not being reclaimed. Because this regulation contains a proviso that the process not be reclamation, it is necessary to argue further that the recovery of fluoride values in the baghouse dust is not reclamation to fit within the cited exemption.

Although the issue is not entirely clear-cut, EPA takes the view here that vitrification of K088 is a hazardous waste treatment process, notwithstanding that recovery of something usable can result. Marine Shale Processors v. United States , 81 F. 3d 1371, 1380 (5th Cir. 1996); United States v. Marine Shale Processors , 81 F. 3d 1361, 1366 (5th Cir. 1996). These cases indicate that units producing a product may still be engaged in hazardous waste treatment subject to regulation.

Certain traditional criteria suggest that the best way to characterize the process is as conventional treatment plus recycling. For example, we know that spent potliners contain high concentrations of cyanide which is present in concentrations well in excess of that needed to produce glass frit. 22 See Marine Shale Processors v. United States , 81 F. 3d at 1381-83 and n.3 (concentrations of hazardous constituents in excess of those needed to produce a product are a critical indication that conventional waste treatment, rather than recycling, is occurring). Spent potliners may also contain relatively high concentrations of carcinogenic polycyclic aromatic hydrocarbons, which do not contribute to the process at all. United States v. Marine Shale Processors , 81 F. 3d at 1366 ([a] substance cannot be an ingredient in making something if it is merely along for the ride); see also 60 FR at 11723 and n.11 (March 2, 1995) where EPA suggested that K088 could meet the criteria of being “inherently waste like” under section 261.2(d) for these reasons. The economics of the vitrification process also suggest that waste treatment is occurring at least in part, since generators of K088 would pay the vitrification facility to process the material, most likely at or near the going rate for hazardous waste treatment. See memorandum from Sylvia K. Lowrance, Director, Office of Solid Waste, to Hazardous Waste Management Division Directors, Regions I-X, entitled “F006 Recycling,”, dated April 26, 1989, which states that the economics of the process are a criterion for legitimate recycling ( i.e. , whether most of the revenue come from charging generators for managing their wastes or from the sale of the product). We note, of course, that the recovered fluoride can be sold by the treatment facility.

From a strictly definitional standpoint, the recovery of fluoride values in baghouse dust at least arguably meets the definition of reclamation in § 261.1(c)(4) (which is recovery of contained values in a matrix as a usable end product, the example in the rule being recovery of lead from a spent battery). Here we observe that fluoride in spent potliners being treated by the Ormet vitrification process is recovered as an air pollution control dust and can be returned to the aluminum reduction process as an agent to lower the melting point of the molten cryolite bath used to reduce aluminum from alumina. This means that under § 261.2(e)(1)(i), the fluoride recovery operation is reclamation and that fluoride recovery does not qualify strictly for the current overall recycling exclusion from RCRA. This is a separate proposition from identifying as BDAT a process that includes strong elements of recycling or reclamation in its broadest sense, which are preferred outcomes in the waste management hierarchy.

For these reasons, the Agency interpretation here is that vitrification of spent potliners is best viewed as a type of hazardous waste treatment, notwithstanding the elements of recycling, reclamation, and reuse. Hence, absent some regulatory exemption, some form of subtitle C rule regulatory controls are appropriate. The selection of appropriate controls under RCRA section 3004 and 3005 is a matter within our discretion. The next section discusses what those controls ought to be, with the chief focus on the air emissions from the treatment process.

K088 can contain toxic constituents at significant concentrations as shown below  23 :

Although cyanide and polycyclic aromatic hydrocarbons (PAHs) are relatively easy to destroy in a combustion system, improper combustion could result in high emissions from untreated compounds in the incoming waste or from products of incomplete combustion. Similarly, the metals present in K088 will condense as the combustion gas is cooled and can be effectively controlled using particulate matter control equipment such as a baghouse. Improper design, operation, or maintenance of the particulate matter control equipment could cause high metals emissions, however. Finally, the high levels of fluoride in K088 could result in unsafe emissions of hydrogen fluoride if the gas cleaning system is not properly designed, operated, and maintained.

We considered a number of control approaches under RCRA for K088 vitrification units, partly based on traditional classification criteria, including those for an incinerator, industrial furnace, or Subpart X miscellaneous treatment unit. We also considered whether the potential hazards posed by vitrification unit air emissions should be controlled by establishing MACT (Maximum Achievable Control Technology) standards under Section 112 of the Clean Air Act instead of using RCRA authorities. We discuss below our current thinking on these options and propose that K088 vitrification units can most effectively and efficiently controlled under our program for RCRA Subpart X miscellaneous treatment units. We also propose to have these units be presumptively subject to the recent MACT hazardous waste incinerator standards as a point of departure in developing the suite of Subpart X permit conditions to be imposed, irrespective of whether the facility engages in recycling of K088.

Incinerator Approach. While the one operating K088 vitrification system at Ormet uses controlled flame combustion and therefore meets the RCRA definition of an incinerator in 40 CFR 260.10, glass vitrification units can also be heated indirectly using electricity. See US EPA, Treatment Technology Background Document, January 1991, at p. 114. Indirectly heated units would be outside of the RCRA definition of an incinerator in § 260.10. To simplify decisions on regulatory classification, we propose to regulate all vitrification units the same given that their primary function is essentially the same (i.e., they treat waste by vitrification) whether or not the unit is direct-fired. 24 This would avoid significant implementation issues for EPA and for individual State and regional permit writers, especially if custom-designed vitrification units employ variations in design and operation or experience variations in emissions that may derive from controlled flame combustion versus indirect heating configurations. We wish to avoid unnecessary confusion and controversy (with attendant delays) in any permit implementation scheme. This would not be feasible under § 260.10 and an incinerator approach unless we were assured that all current and future units would be direct-fired. We can reach a workable solution by other means (see Subpart X discussion below).

Industrial Furnace Approach. Vitrification units that are an integral component of a manufacturing process could potentially be considered a type of smelting, melting, or refining furnace (SMRF) that is listed as a category of industrial furnace under the regulatory definition in 40 CFR 260.10. Although the Agency had originally intended the SMRF category of industrial furnaces to apply to metallurgical furnaces, one could possibly interpret the category to also include glass or slag vitrification furnaces as a type of melting furnace. We considered whether it would be appropriate to explicitly add K088 vitrification units to the list of industrial furnaces in § 260.10 through this rulemaking. Under this approach, emission standards could be established under Subpart H of Part 266 and implemented through the BIF permit process under RCRA.

To be considered an industrial furnace, however, the unit must be an integral component of a manufacturing process and must use thermal treatment “to accomplish recovery of material products;” see also Marine Shale, 81 F. 3d at 1381-83 construing this definition. As discussed earlier, there are elements of waste treatment about these K088 vitrifying activities. In addition, unlike currently recognized industrial furnaces, the outputs of the vitrification process are entirely the result of K088 input and treatment and are not, for example, historical production processes that are using waste as an ingredient substitute.

We initially conclude that classifying K088 vitrification units as industrial furnaces is problematic. Ormet asserts that the frit is marketable for a variety of uses, including polishing and grinding, backing for asphalt shingles, molding for steel castings and as cullet in glass or ceramic manufacturing. The fluoride can be sold as a flux to steel mills as well as being recycled as a electrolyte in the aluminum industry. If, however, the market for the frit or the fluoride dust is not sustainable, the facility would not meet the primary criterion for an industrial furnace. See Marine Shale v. United States , 81 F.3d at 1383-84 (device listed as an industrial furnace which does not in fact engage in recovery of material products is not an industrial furnace, since industrial furnaces, by definition, must be used primarily to accomplish recovery of material products). We do not have any evidence that the current markets can use the amount of purported product that would be generated by vitrification processes treating 120,000 tons of K088 each year. Indeed, the amounts involved suggest caution about assuming constant demand, especially for the frit.

Finally, it is not a good use of constrained Agency resources to proceed with a rulemaking to list K088 vitrification units as industrial furnaces in § 260.10 and then to establish standards specific to those units. This is particularly the case here given that we expect only a few facilities to be constructed to meet the treatment capacity demand and given the availability of recently-upgraded emission standards for incinerators that can be applied through the Subpart X approach discussed next.

Subpart X Miscellaneous Treatment Unit Approach. Early on, the RCRA program recognized that treatment units (including thermal) may not fit easily into any existing classification, including those for incinerators and BIFs. As a result, EPA created a category known as Subpart X miscellaneous units. 25

Design and operational conditions are developed for Subpart X units on a facility-by-facility basis by a regional or state permit writer, who has wide flexibility to impose conditions appropriate to protecting human health and the environment. 40 CFR 264.601. Typically, Subpart X permit writers are expected to incorporate existing standards for other types of units that would address the same or similar types of environmental and regulatory concerns. For example, Subpart X thermal treatment unit permits would likely incorporate many or all permit conditions and standards developed for other thermal units burning hazardous waste, e.g. , incinerators. See the discussion below giving further guidance on appropriate air emission standards for K088 vitrification units.

The Subpart X miscellaneous unit approach therefore offers implementation flexibility that de-emphasizes our somewhat rigid regulatory definitions and optimizes the ability of regulatory agencies to impose appropriate, environmentally protective conditions on a case-by-case basis. (A trade-off is the uncertainty of not knowing in advance what standards apply to a given activity, plus the administrative burden and inefficiencies of dealing with units on an ad hoc basis. These problems appear resolvable here, as explained below, because there are likely to be only a few units involved, and we are indicating a potential starting point for emission standards in this rulemaking.)

Using Subpart X as the umbrella approach for K088 vitrification units thereby offers an opportunity to avoid the potential implementation confusion and additional regulatory burdens involved in the two alternative approaches discussed above. 26 We would be able to address the permitting of K088 vitrification units in a consolidated fashion that would make unnecessary the need to engage in lengthy discussions about how regulatory definitions would apply. Rather, time and effort would be spent on characterizing the design, operation, and emissions of K088 treatment units and developing appropriate regulatory control. We also note that this is basically the approach the Agency previously used to implement controls for both direct-fired and indirect-fired carbon regeneration units. See 56 FR at 7200 (Feb. 21, 1991).

We have discussed earlier the Agency's view that vitrification of K088 is a form of waste treatment, not excluded recycling. However, under EPA regulations (see 40 CFR 261.6(c)), the corollary issue of a recycling unit being exempt from permitting warrants brief mention. Under § 261.6(c), certain types of Subpart X recycling units have been regarded as exempt from permitting—either under application of EPA's own regulations or under a state's authorized implementing regulations. Today, we are proposing to regulate K088 vitrification units regardless of whether or not processing of hazardous waste K088 might otherwise be considered to be exempt recycling under current permit regulations in § 261.6(c).

Our proposed approach is consistent with EPA's general approach to regulate air emissions from hazardous waste recycling activities. Under current RCRA regulations, treatment units (other than industrial furnaces) that recycle hazardous waste are still subject to the standards of Parts 264 and 265. See 40 CFR 261.6(d). Likewise, industrial furnaces are subject to air emission standards in 40 CFR Part 266 when they burn hazardous waste for any purpose except certain types of metal recovery. Even if a K088 vitrification unit were to be viewed as being engaged in bona fide recycling of K088 along with its conventional treatment of that waste, today's proposed regulations would not allow this particular type of unit to be exempt from permitting and a full suite of appropriate emission standards. This is, at least in part, because K088 can contain high concentrations of toxic compounds. Improper design, operation, or maintenance of the reactor or gas cleaning system could result in emissions of toxic compounds at levels that could pose a hazard to human health and the environment. In addition, we note that, as discussed above, if we were not to classify K088 vitrification units as miscellaneous treatment units potentially eligible for the recycling exemption, direct-fired units could be appropriately classified as incinerators subject to the recently promulgated MACT incinerator standards.

As discussed above, a Subpart X miscellaneous treatment unit classification is particularly apt because we expect it will result in appropriate emission controls, allowed for a consolidated implementation scheme, and avoid controversy over RCRA definitional issues. Permits issued under Subpart X must contain terms and provisions as necessary on a case-by-case basis to ensure protection of human health and the environment. See 40 CFR 264.601. This broad performance standard can be viewed as being another potential source of controversy and attendant delay for the construction and operation of new, properly controlled K088 vitrification units. 27 Therefore, we are also proposing, as part of the Subpart X approach, that permit writers must consider the recently-promulgated hazardous waste incinerator standards  28 as the point of departure for any Subpart X K088 vitrification unit.

This means that, absent factors suggesting otherwise, a K088 vitrification unit would be subject to the same standards as a hazardous waste incinerator (see 64 FR at 52993-94 (Sept. 30, 1999). Applying the incinerator MACT standards to K088 vitrification units could be accomplished either through direct regulatory provisions that can be added to 40 CFR Part 265 or via guidance to permit writers on how to approach developing permit conditions for these units on a site-by-site basis. Under either approach, if a particular incinerator standard is not technically applicable to the type of device or if it is unnecessary to ensure protection, then the permit writer is free to develop a technical justification as to why that particular standard should not be included in a permit. Again, this implementation scheme should shift the dialogue from one of definitional classification to one focused on the unit controls necessary to adequately protect the public and the environment. And, as noted above, it also offers the implementation advantage of having one type of permitting scheme for all K088 treatment unit designs, regardless of whether they are directly or indirectly fired.

We have looked closely at whether the MACT hazardous waste incinerator standards are the most appropriate for K088 vitrification units, and conclude that those standards are technically appropriate and necessary to address the hazards posed by toxic metal and nonmetal emissions from these units. Two issues should be discussed, however. First, K088 vitrification units may not feed enough chlorine to exceed the MACT incinerator standards for hydrogen chloride and chlorine gas, combined, even if emissions are uncontrolled. Our MACT regulations minimize the compliance burden in such cases by waiving emissions testing, and requiring only monitoring of feedrate to document that the standards could not be exceeded if emissions were uncontrolled. This approach can certainly be considered by permit writers dealing with K088 vitrification units. Second, the MACT incinerator standards do not establish controls specific to hydrogen fluoride, which is potentially a significant pollutant from K088 vitrification units. Accordingly, permit writers must consider whether additional permit conditions are needed to ensure that emissions of hydrogen fluoride do not pose a hazard to human health and the environment.

A K088 vitrification unit is currently in operation at the Ormet Primary Aluminum Reduction facility in Hannibal, Ohio. At least some of the frit and baghouse dust from the vitrification unit appear to be recycled for beneficial use. As a State authorized to implement the applicable RCRA standards, Ohio has previously determined that this vitrification unit is excluded from RCRA regulation. As discussed above, when viewing this issue from a national policy perspective (and not on the site-specific factors that Ohio may have relied upon in its determination), we are persuaded that K088 vitrification units should be regulated for a number of reasons already discussed above, some of which are independent of whether recycling is deemed to occur. The status of the existing Ormet K088 vitrification unit could therefore become an issue under today's proposal, and regulatory confusion could easily result.

Because of the potential for confusion as to the proper classification and ultimately the proper emission controls that should apply to any existing K088 vitrification facility, it would be appropriate for a state, should it so chose, to use the authority of 270.10(c) to allow an existing facility to submit Part A of a RCRA permit application and to operate under the interim status standards of Subpart P, Part 265, within 30 days of the date of promulgation of these revised LDRs for K088. See 60 FR at 11,723 (March 2, 1995) noting that it may be appropriate for EPA to make the substantial confusion finding because of unclear status of potential K088 treatment technologies. Questions about other interim status issues (such as adding a vitrification unit as a change in interim status) should be addressed to the Region or State administering the RCRA permit regulations at the plant location.

Under this potential rulemaking option, we could use the authority of section 112(d) of the Clean Air Act to establish technology-based MACT (maximum achievable control technology) standards solely for these units. In such a case, RCRA air emission standards may be unnecessary since the MACT standards could also be sufficiently protective of human health and the environment. See RCRA section 1006(b) allowing EPA to defer RCRA regulation where it may unnecessarily duplicate provisions adopted under other environmental statutes, including the Clean Air Act.

Most significant from our perspective is the prospective resource commitment needed to develop MACT standards specific to K088 vitrification units. Such an effort has not been planned to date, and this effort would divert already constrained Agency resources to develop a regulatory regime applicable possibly only to a handful of units. Indeed, under a worst case scenario, the MACT standards development process could take as long or longer than a case-by-case permitting approach under Subpart X for new treatment facilities. This is particularly true if several units can be built quickly, but we need to wait for full-scale operations to obtain the emissions testing data to develop national MACT standards. In addition, we have concluded that the recently-promulgated MACT incinerator standards (perhaps with an additional standard to control hydrogen fluoride) would address the potential air emissions concerns that we now have. Starting a separate rulemaking would appear to be unnecessary from an environmental protection standpoint.

On balance, given that we expect that only a handful of new sources would be needed to meet the K088 treatment capacity demand and the existence of standards that can be applied to these Units, it does not appear cost-effective for the Agency to pursue a separate rulemaking to develop MACT standards to control emissions specifically from these sources. Rather, it appears more appropriate to adopt a RCRA Subpart X approach for regulating K088 vitrification units.

To enable K088 vitrification units to be able to be regulated as miscellaneous treatment units, we propose to revise the definition of an incinerator in § 260.10 to specifically exclude K088 vitrification units. This would ensure that direct-fired vitrification units are not classified as incinerators. In addition, we propose to add a definition for K088 vitrification unit. See proposed amendments to § 260.10. Because K088 vitrification units would not meet the definition of incinerator or boiler, and because K088 vitrification units are not listed as a type of industrial furnace, they would not qualify as BIFs and therefore would be classified by default as miscellaneous treatment units (along with sludge dryers and carbon regeneration units, for example). Please note that we are also requesting comment on whether to expand these regulatory changes to include all vitrification units and/or all types of K088 treatment units (whether vitrification or not).

As discussed above, Ormet's treatment process, which can be defined as a K088 vitrification process, generates two treatment residuals: a glass frit which is usable as a commercial product and a fluoride-rich baghouse dust that can be recycled back into the aluminum reduction pots as electrolyte or sold as a product for other industrial uses such as steel making. EPA is proposing here that both of these output streams be classified as products, and no longer solid wastes, provided certain conditions are satisfied. When put to productive use, this will avoid inappropriate Subtitle C regulation of these recycling activities. We will address the conditions for the glass frit and the fluoride-rich baghouse dust separately.

First, the glass frit, would be required to meet all the numerical treatment standards for K088 and it would have to be recycled. The Agency is proposing that this product be required to meet the LDR treatment standards to ensure the effective treatment of cyanide, fluoride and other regulated constituents in K088. Furthermore, it is important to note that at some point this product could be land disposed and there exists a need to address potential environmental consequences of this land disposal. By having to meet the K088 treatment standards, the glass frit is subject to a set of treatment standards that minimize threats to human health and the environment. We reiterate here, that if the glass frit is not recycled, it is still a K088 waste and must meet the treatment standards found in § 268.40 prior to land disposal in a Subtitle C land disposal unit.

The proposed conditions for the baghouse dusts are that they be recycled (e.g., returned for use to a primary aluminum process or to another process) and not be land disposed (i.e., placed on the land) before reintroduction into these industrial processes. This proposal is consistent with the principle (applicable to reclamation processes) found in existing rules. See § 261.3(c)(2)(i) stating that the output of a reclamation process typically is no longer a solid waste and § 261.2(e)(i) indicating that secondary materials put to direct use ordinarily are not solid wastes. EPA is proposing these conditions for two central reasons: (1) the baghouse dust is similar to raw materials currently utilized by industry in terms of physical properties and types and concentrations of hazardous constituents;  29 and (2) the concentration of fluoride in the baghouse dust is so high (and greatly in excess of the levels proposed as the treatment standard today for fluoride) that EPA is uncertain that other dispositions would be safe. The proposed exclusion limits the type of recycling of the baghouse dust to situations where the dust is used as an ingredient, or is used for material recovery (i.e., reclaimed) by being reintroduced into other industrial processes (normally primary aluminum or potentially steel production). EPA has added this qualification in the unlikely event that the baghouse dust would be burned as a fuel (probably not legitimate recycling in any case). It is our understanding that the proposed language covers all of the current and contemplated means of recycling the baghouse dust. The condition on there being no land disposal before return to the primary aluminum process is necessary to ensure that the basic LDR goal is not derogated. These baghouse dusts would not meet today's proposed treatment standards for fluoride, so that allowing their land disposal (in the guise of products stored on the land prior to recycling) would be inconsistent with the purpose of the LDR program, the prohibition and treatment standards for spent potliners, and our goal to ensure that recycling does not present threats to human health and the environment. 30

In addition, EPA is including the standard condition that both these materials not be accumulated speculatively before recycling. Such prolonged storage would be inconsistent with the proposed product status, and indeed would raise the same types of concerns that the RCRA storage prohibition (codified in § 268.50) is intended to stop.

Typically, prohibitions on land disposal of hazardous waste are to take effect immediately upon promulgation, but may be postponed for two years on a national basis and (potentially) two more years on a case-by-case basis from the “earliest date on which adequate alternative treatment, recovery or disposal capacity that protects human health and the environment will be available.” RCRA section 3004(h)(2). Here, however, spent potliners are already prohibited from land disposal (as of September 24, 1998; 63 FR 51254). Thus, the period during which EPA could conceivably issue any type of variance based on the available treatment capacity is already running out (less than a year remains on the potential national capacity variance period) and could already have expired by the time EPA issues a final rule adopting amended K088 treatment standards. A basic question, therefore, is whether there should be any lapse in the existing prohibition and treatment standards during the time it takes for additional treatment capacity to be created to treat K088 to the proposed treatment standards (assuming EPA adopts them). A second question is when the effective date should be for the amended standards (again, assuming EPA adopts them). These questions are discussed below.

EPA proposes that there should be no lapse in the existing prohibition and treatment standards because if there were, land disposal of untreated spent potliners could resume. As EPA has explained at length, this result would be directly at odds with the central objective of the land disposal restriction statutory provisions. See 63 FR 51255-256. Moreover, EPA has already determined that there currently exists adequately protective treatment and disposal capacity for spent potliners treated to meet the existing (interim) treatment standards. See 62 FR 37696-697. Thus, EPA knows of no reason to justify eliminating the existing land disposal prohibition and treatment standards during the period before additional treatment capacity capable of meeting the proposed standards becomes available.

EPA is guided by the overall objective of section 3004(h): treatment standards which best accomplish the objective of section 3004(m) to minimize threats posed by land disposal—should take effect as soon as possible, consistent with availability of protective treatment capacity. Therefore, we estimated how long it will take for available treatment capacity to be created and satisfy the proposed treatment standards. 31 We are basing the proposed effective date for today's treatment standards on this estimate.

Because a land disposal prohibition and interim treatment standards for K088 waste already exist under the interim rule of September 24, 1998, we propose as noted above to leave these requirements in place until the final rule adopting amended treatment standards becomes effective. Furthermore, although there are no legal constraints to limit EPA's potential implementation time period for a final rule amending these treatment standards, EPA will establish an appropriate effective date based on the projected availability of treatment or recovery capacity that can meet today's proposed treatment standards.

Key determinants of K088 generation include primary aluminum production rates (which vary from year to year), the useful life spans of different types of potliners, the lag time between aluminum production and waste generation, and occasional increases in potliner waste generation due to production starts and stops. To compare the required treatment or recovery capacity to available commercial capacity that can meet today's proposed treatment standards, EPA combined all data presented in previous rulemakings and used the 1997 Biennial Reporting System (BRS) to update these data. At the present time, EPA estimates that approximately 80,000-100,000 tons per year of K088 waste would require alternative management to meet the proposed treatment standards.

The majority of available commercial K088 waste treatment capacity in the United States exists at the Reynolds Gum Springs facility in Arkansas. This facility uses a thermal treatment system capable of treating approximately 120,000 tons of K088 waste per year and meeting the interim treatment standards promulgated on September 24, 1998. Two additional U.S. facilities have available technology to treat K088 waste to the interim standards. They are Chemical Waste Management of the Northwest, Inc. (CWMNW), which uses a combination of chemical oxidation and stabilization to treat commercial K088 waste, and a primary aluminum producer, Ormet, which uses a Vortec vitrification system to manage its own K088 waste. Other technologies, under development, although appearing to be promising, are not yet operating commercially.

In today's proposed rule, EPA would amend the treatment standards based on vitrification performance data and thus significantly lower the existing treatment standards for fluoride and total and amenable cyanide in K088 nonwastewaters. Available data suggest that the existing treatment process at the Reynolds Gum Springs facility cannot meet the proposed treatment standard for cyanide (both total and amenable) and fluoride for most (and perhaps all) of the K088 wastes currently being treated at the facility. Even if Reynolds can reconfigure or adjust its thermal treatment process or purchase an additional treatment system, a substantial amount of time may be required. CWMNW, the other commercial treatment facility, will not meet the proposed treatment standards for total and amenable cyanide and fluoride in K088 with its current chemical treatment. Therefore, there is uncertainty whether CWMNW will continue to provide treatment capacity to meet the amended treatment standards for K088 waste.

At this time, among K088 generators, only Ormet appears to have an on-site management treatment technology (vitrification) capable of meeting the proposed treatment standards. The Ormet unit's capacity is up to 10,000 tons per year. The treatment capacity is based on Ormet's own waste generation and the company has no plans to expand its on-site capacity or accept K088 from other generators.

Based on this information, we find that no commercial vitrification or equivalent capacity currently exists that could meet the proposed treatment standards for K088 waste. Nevertheless, projects to construct plants for spent potliner recycling are currently in the planning phase. For example, in 1997, Vortec and Ormet formed a joint technology development enterprise (SPL Recycling, LLC) to assist in the development of waste recycling projects in the aluminum industry. Also, Reynolds is examining recycling technologies potentially capable of meeting the revised treatment standards. Some primary aluminum producers are also investigating recycling technologies to handle their K088 waste. Although other firms are also studying alternative K088 treatment or recycling technologies or processes (e.g., gasification, the “Alcoa-Selca” process, and the Spent Potliner Test Plan by AshGrove Cement Company). Most of these technologies and processes have not yet been proven commercially, and uncertainty exists about their potential to meet the proposed treatment standards.

The amount of time needed to establish sufficient vitrification or equivalent capacity for all K088 wastes—which essentially dictates our selection of an effective date for the amended standards—is affected by the need for treatment facilities to conduct full design and engineering assessments, negotiate contractual agreements, obtain permits from appropriate regulatory agencies, construct the systems, set up the appropriate infrastructures, and make other logistical arrangements necessary to receive, store, treat and recycle or dispose of K088 wastes. Such a process can take years to accomplish. For example, approximately two years were needed to before Ormet's vitrification system became operational. Using this example and other information noted in the background document for this analysis of the appropriate effective date for this rule, EPA is proposing to delay the effective date for two years following final rule promulgation. Although two years may or may not be adequate for certain systems to become operational and meet the proposed treatment standards for K088 waste, the length of time needed depends on whether the facility has an existing treatment system or will build a new system. For example, if a facility has an existing thermal system capable of treating K088 waste already, then it may replace its existing system with a vitrification device to meet the proposed requirements and new treatment standards if EPA adopts them. EPA will consider comments and other available information to adjust the time required before treatment capacity capable of meeting the revised treatment standards will be available.

In today's rule, as discussed above, EPA is not soliciting comments on the land disposal prohibition or interim standards for K088 waste. EPA is requesting capacity data and information solely to better assess when treatment or recovery capacity could become available and meet the proposed treatment standards. EPA is also seeking comments on whether two years after the final rule effective date is a sufficient time period to allow for adequate treatment or recovery capacity to become operational.

Under section 3006 of RCRA, EPA may authorize qualified States to administer and enforce the RCRA program within the State. Following authorization, EPA retains enforcement authority under sections 3008, 3013, and 7003 of RCRA, although authorized States have primary enforcement responsibility. The standards and requirements for authorization are found in 40 CFR Part 271.

Prior to the Hazardous and Solid Waste Amendments (HSWA) of 1984, a State with final authorization administered its hazardous waste program in lieu of EPA administering the Federal program in that State. The Federal requirements no longer applied in the authorized State, and EPA could not issue permits for any facilities that the State was authorized to permit. When new, more stringent Federal requirements were promulgated or enacted, the State was obligated to enact equivalent authority within specified time frames. New Federal requirements did not take effect in an authorized State until the State adopted the requirements as State law.

In contrast, under RCRA section 3006(g), new requirements and prohibitions imposed by HSWA take effect in authorized States at the same time that they take effect in unauthorized States. EPA is directed to carry out these requirements and prohibitions in authorized States, including the issuance of permits, until the State is granted authorization to do so.

Today's proposal would be promulgated pursuant to sections 3004 (g)(4) and (m) of RCRA. It either directly implements these provisions or, in the case of the provisions relating to classification of K088 treatment devices and their outputs, is necessary to implement the section 3004 (g) and (m) K088 treatment standards. Therefore, when promulgated, the Agency would add the rule to Table 1 in 40 CFR 271.1(j), which identifies the Federal program requirements that are promulgated pursuant to HSWA. This rule would be effective in all States immediately pursuant to RCRA section 3006(g). States may apply for final authorization for the HSWA provisions in Table 1, as discussed in the following section of this preamble.

As noted above, when promulgated, EPA will implement today's rule in authorized States until they modify their programs to adopt these rules and the modification is approved by EPA. Because today's rule would be promulgated pursuant to HSWA, a State submitting a program modification may apply to receive interim or final authorization under RCRA section 3006(g)(2) or 3006(b), respectively, on the basis of requirements that are substantially equivalent or equivalent to EPA's. However, with respect to the classification of K088 thermal treatment devices as Subpart X units for permitting purposes, we note that many states already have authorization to issue Subpart X permits. Therefore, as a practical matter, these States would continue to be the appropriate permitting authority for K088 thermal treatment devices after promulgation of this rule. If a state is not yet authorized for Subpart X permitting, we encourage those States to apply for Subpart X authority as soon as possible after issuance of this proposal and not wait until promulgation of the final rule. The procedures and schedule for State program modifications for final authorization are described in 40 CFR 271.21. All HSWA interim authorizations will expire January 1, 2003. (See § 271.24 and 57 FR 60132, December 18, 1992.)

Under Executive Order 12866, (58 FR 51735, October 4, 1993) the Agency must determine whether a regulatory action is “significant” and therefore subject to OMB review and the requirements of the Executive Order. The Order defines a “significant regulatory action” as one that is likely to result in a rule that may:

Pursuant to the terms of Executive Order 12866, it has been determined that this rule is a “significant regulatory action” because of novel policy reasons. As such, this action was submitted to OMB for review. Changes made in response to OMB suggestions or recommendations will be documented in the public record. The Agency estimated the costs of today's proposed rule to determine if it is a significant regulation as defined by the Executive Order. Because the treatment standards for K088 promulgated in the September 28, 1998 final rule (Interim Treatment Standards for Spent Aluminum Potliners from Primary Aluminum Reduction) have remained in effect, treatment costs for spent aluminum potliner have already been accounted for. Accordingly, EPA believes that there are no costs associated with the existing treatment standards in today's proposed rule. (According to the Court, none of the standards measured by means other than TCLP were affected by the ruling, 139 F.3d at 923, so no costs should be attributed to treating constituents other than cyanide and fluoride under this rule in any case.) Incremental annual treatment costs for cyanide and fluoride attributed to today's proposed rule range from a low estimate of $12.4 million to a high estimate of $36.8 million. The high treatment estimate of $36.8 million is not economically significant according to the definition in Executive Order 12866. These treatment estimates represent only direct expenditures for treatment of cyanide and fluoride attributable to today's proposed rule.

Discussion of the methodology used for estimating the costs and economic impacts attributable to today's proposed rule for K088 wastes may be found in the background document “Economic Assessment for Revised LDR Treatment Standards for Spent Aluminum Potliner (K088)” which was placed in the docket for today's proposed rule. EPA requests comments on the analytical approach to estimate the costs of today's proposed rule, as well as on the economic analysis background document. Further, EPA requests data (cost and/or engineering) to further refine assumptions underlying the implementation of Vortec. Of particular interest to EPA is information on actual commercial costs of the Vortec technology.

The Agency examined reported values for K088 generation from prior Agency estimates in the Phase III LDR final rule to estimate the volumes of K088 affected by today's rule, to determine the national level incremental costs (for both the baseline and three post-regulatory scenarios) and economic impacts. Economic impacts were estimated based upon incremental costs as a percent of sales for three different scenarios. It should be noted that these are hypothetical scenarios, and do not necessarily predict the actual course of action potentially taken by any particular treatment facility. The Agency believes these three hypothetical scenarios to be a reasonable representation of the potential range of possible outcomes of this proposed rule. However, scenario two is thought to be the least likely of the three hypothetical scenarios, and is presented primarily for illustrative purposes. Scenario's one and three represent the range of anticipated responses given the current political environment in which the aluminum industry operates: on-site or off-site treatment in the northwest U.S. versus commercial treatment at the Reynolds Aluminum, Gum Springs, Arkansas facility. The Agency requests comments on these three hypothetical scenarios as well as any alternative scenarios in response to the proposed rule.

Scenario 1: Assumes two facilities will be available for treating K088, one owned by Reynolds, and one storage facility owned by CWMNW. Both facilities are assumed to be retrofitted with the Vortec technology to meet the revised treatment standards;

Scenario 2: Assumes only the treatment facility owned by Reynolds will be available. This facility is assumed to be retrofitted with the Vortec technology; and

Scenario 3: Assumes that facilities in the Pacific Northwest treat on-site using the Vortec technology (using a cost structure similar to the Ormet facility in Hannibal, Ohio), and assumes that the Reynolds facility also will be retrofitted with the Vortec technology.

The basis for the baseline thresholds are the engineering design capacity for one facility and current treatment rates at another. Under the baseline, the existing Reynolds off-site thermal treatment system located in Gum Springs, Arkansas has a design treatment capacity of 120,000 tons per year. Only, 48,455 tons of this capacity were utilized in 1998. The existing CWMNW off-site storage/treatment facility located near Arlington, Oregon has a treatment capacity of 60,000 tons per year based on a communication with the facility that they currently are treating K088 at a rate of 5,000 tons per month.

Unit costs for crushers, impact mills, hammer mills, and on-site Vortec Combustion Melt Systems are scaled based on cost estimates known or developed for certain capacities. Capital costs are scaled to the 0.6 power and operation & maintenance costs are scaled to the 0.9 power to reflect economies of scale with varying capacities. In its simplest form, the equations are as follows:

For off-site Vortec Combustion Melt Systems, unit prices are not scaled based on capacity. Instead a range of unit costs (based on vitrification and incineration market pricing assumed to be high estimates) are used to represent the range of potential commercial pricing that may occur within the post-regulation K088 treatment market.

EPA knows of only two full-scale Vortec systems that have been constructed to date. One plant treats radioactive-contaminated soil and the other treats K088. They have capacities of 12,950 tons per year and 7,000 tons per year, respectively. The Vortec technology has been licensed to Japan's Mitsubishi Kasei Engineering Co. for the treatment of municipal incinerator ash which is typically generated in larger amounts than K088 annually. This indicates that larger design capacities are likely feasible. The economic assessment estimates costs for systems ranging in capacity from 3,150 tons per year to 85,000 tons per year. We have assumed that, similar to other larger vitrification technologies, Vortec capacities can be built through multiple lines and combining storage requirements. Costs will be higher for multiple lines because not all fixed costs can be shared among lines. These potentially higher costs have been captured within the range of market price proxies used based on vitrification and incineration commercial operations to estimate potential cost impacts.

EPA chose a rate of 50 percent debt to 50 percent equity (or 1.0 debt-equity ratio) as a proxy for actual industry debt-equity structures. The debt-equity ratio may shed some light on the cost of financing the capital expenditures to fully comply with the proposed rule. While the cost of debt financing (interest expenditures) is readily apparent, the cost of equity financing may be more difficult to discern. While many of the larger companies are less reliant on debt financing ( e.g., Reynolds Metals and ALCOA have respective debt-equity ratio of approximately 0.7 and 0.5), some of the publicly traded firms are heavily reliant on debt capital ( e.g., Kaiser Aluminum has a debt-equity ratio of 35). Data were not obtained for closely-held companies in the industry; EPA assumes that these companies' debt-equity positions would be similar to other aluminum industries ( e.g., extruded aluminum, aluminum foundries, die-cast aluminum and secondary nonferrous metals) for which data are available. A review of consolidated financial statements in these related industries (as published in Robert Morris Associates Annual Statement Studies) showed debt-equity ratios in the 1.0 to 1.5 range. We selected a debt-equity ratio of 1.0 rather than other values because it is near the midpoint of the 0.5 to 0.7 (Reynolds Metals and ALCOA) and 1.0 to 1.5 (Robert Morris Associates Annual Statement Studies) ranges. We request comment on the appropriateness of these debt-equity ratios for use in the aluminum industry.

Crusher, impact mill, and hammer mill cost estimates include the following capital cost elements:

• Access road,

• Site preparation (grading),

• Concrete slab on grade,

• Structural steel,

• Conveyor,

• Storage silo (1-day),

• Hopper,

• Crusher, impact mill, or hammer mill equipment purchase and installation costs,

• Pilot test of crusher, impact mill or hammer mill,

• Vibratory screen,

• Instrumentation and electrical,

• Indirect capital cost allowances (permits at 1.25%, insurance and bonding at 2%, construction management at 6%, engineering design at 5%, project management at 2.5%, and overhead and profit at 20%), and

• Contingency on direct and indirect capital costs at 15%.

Crusher, impact mill, and hammer mill cost estimates include the following operation and maintenance cost elements:

• Operator oversight,

• Maintenance labor,

• Maintenance material at 7% of capital,

• Electricity,

• Indirect O&M allowances (project management at 5%), and

• Contingency on direct and indirect O&M costs at 10%.

On-site Vortec Combustion Melting System cost estimates were not developed from the ground up similar to the crushing and milling cost estimates. They were estimated based on scaling aggregate costs obtained from literature. The Department of Energy (DOE) spent $11.6 million to construct a 12,950 ton per year system to treat radioactively contaminated soil in Paducah, Kentucky. EPA assumed that this cost estimate included all the capital cost components listed. In a recent communication with Ormet Primary Aluminum Corporation on February 1, 2000, it was estimated that it would cost $10 million today to construct a similar-sized 7,000 ton per year system to the one they are operating currently. Ormet had to make several modifications to the system and actually spent more than $10 million. Others likely can learn from their experience which is why they estimated only $10 million. EPA did not modify the Paducah cost estimate even though it may be a high estimate for future construction given the others will learn from their experience thus lowering their costs. For O&M costs, we assumed a unit cost at the high end of the $150-$300/ton range estimated for a NHW vitrification system. In recent communication with Ormet, they estimate it cost them less than $300 per ton (excluding depreciation) to operate and maintain their systems.

Off-site Vortec Combustion Melting System cost estimates were not developed from the ground up similar to the crushing and milling cost estimates. Unit price estimates were developed using market unit price estimates for commercial vitrification and commercial incineration as a proxy for the range of potential market pricing. This range of commercial unit prices should account for all the potential costs included in the list of cost elements in the question.

Under Scenario 3, EPA assumed crusher, impact mill, and hammer mill capacity based on current K088 generation rates for that plant. EPA further assumed that additional capacity could be added in the future in generation rates increased. “Site-specific” was changed to “current K088 generation.” However, for the Vortec Combustion Melting System, a design capacity that is 40 percent greater than the plants current K088 generation rate was assumed. EPA assumed it would be more difficult to add capacity in the future for the Vortec system and that the initial investment for additional capacity will be made now rather than later.

a. Volume Results. EPA estimated an average of 87,746 tons annually for purposes of assessing cost and economic impacts from today's proposed rule. This estimate is based upon the total reported generated quantity managed in 1997, including the 1995 reported quantity for Kaiser Aluminum & Chemical Corporation, Mead, Washington. 32 Moreover, spent potliner (SPL) generation is in the range of 80,000 to 100,000 tons annually. 33 An additional 20,000 tons reported in the 1997 BRS (including leachate and wastestreams that carried other EPA waste codes) were excluded from the economic analysis as they were determined not to be within the scope of today's rule. Previous analyses were based upon generation of an estimated 120,000 tons of SPL annually. This estimate was based upon available data sources from the Phase III Land Disposal Restrictions Final Rule (61 FR 15566, April 8, 1996.). The current K088 treatment standards became effective in September 1998, therefore, several of the reported management practices ( i.e. , off-site incineration, on-/off-site landfill, and off-site stabilization) did not meet the standard.

The baseline scenario assumes that of the 87,746 tons of spent aluminum potliner generated annually, 47,724 tons currently go to the Reynolds facility for treatment and Subtitle C disposal; 34,854 tons to the CWMNW facility for storage, and 5,170 tons are generated and treated on-site (non-commercially) using the Vortec technology at the Ormet facility. To establish the baseline management unit costs for the economic impact analysis, transportation costs were determined for each aluminum smelter.

b. Cost Results. As stated above, because this rule only modifies the treatment standard for cyanide and establishes a treatment standard for fluoride, the Agency believes that this rule does not impose significant incremental treatment costs associated with treating K088. EPA has estimated transportation, permitting, and treatment costs for K088. Incremental annual treatment costs attributable to today’s proposed rule range from $12.4 million under Scenario 1 to $36.8 million under Scenario 2. Capacity currently exists at the CWMNW to treat all stored K088 to current treatment standards, therefore, costs of storage are not included in cost estimates.  34 Transportation and permitting costs are estimated to range from $4.5 million to $11.8 million. EPA previously estimated treatment costs between $6.4 million and $42 million for the LDR Phase III final rule. 61 FR 15566,15591(April 8, 1996). EPA notes that new K088 treatment technologies are currently being developed that may significantly lower K088 treatment costs nationally.  35 EPA does not believe that this proposed rule will create barriers to market entry for firms wishing to provide alternative treatment capacity for spent aluminum potliner. Estimated economic impacts reflect direct expenditures to construct using Vortec and do not reflect the full costs of compliance.

EPA has also estimated the potential value of the fluoride-rich baghouse dust that is a by-product of the Vortec process. In 1994, approximately 73% of reported fluorspar consumed in the U.S. was used in the production of hydrofluoric acid; 10% as a fluxing agent in steelmaking; and, 17% in aluminum fluoride manufacture, primary aluminum production, glass manufacture, enamels, welding-rod coatings, and other miscellaneous end uses or products. Fluorspar prices are driven to a large extent by activities in China, including major increases in Chinese exports and the resulting competition between Chinese exporters and the introduction of Chinese export quotas and license fees. The average U.S. Gulf port price per ton, dry basis, for acid grade fluorspar is $122. The current licensing fee for Chinese (acid grade) fluorspar is $39. This price per ton represents the average delivered price of Chinese, Mexican, and South African acid grade at Gulf port.

About 90,000 tons of K088 waste were reported managed in the U.S. in 1997. The estimated cost per ton of the Vortec system (excluding permitting prices) ranges from $483 to $693. The Agency has assumed that this estimated treatment cost per ton includes both the generation cost of fluoride-rich material, as well as cyanide removal. The Agency does not have data to isolate the cost of cyanide removal; this cost is included in the overall treatment cost using the Vortec process. Annual cost impacts of the proposed rule were estimated to range from about $12 million to $37 million in aggregate for all facilities. About 5,250 tons of fluoride-rich material (assuming 100% of the fluoride baghouse dust is marketed as fluorspar) are generated annually in the U.S. Based upon the $122 price per ton for acid grade fluorspar, the resulting estimated value of the fluoride-rich baghouse dust is $640,500.

c. Economic Impact Results. To estimate potential economic impacts resulting from today's proposed rule, EPA has used first order economic impact measures such as the estimated incremental management unit costs of today's final rule as a percentage of affected firms' sales and/or revenues. Individual facilities were considered in the analysis. Annual sales for each facility were estimated from overall industry production data and industry capacity. Total industry capacity estimates were taken from USGS data. Industry production divided by industry capacity determined the overall capacity utilization. Sales for each facility were approximated assuming that they each produced aluminum at this capacity utilization rate of approximately 88 percent. When the annual costs of regulation are less than one percent of a firms annual sales or revenues, this analysis presumes that the regulation does not pose a significant economic impact on the affected facilities absent information to the contrary. In 1997, U.S., primary aluminum production was an estimated 4.0 million metric tons of aluminum at an average market price of $1,542 per ton yielding total sales of $6.1 billion. 36 The $36.8 million high estimate of the incremental treatment cost estimate represents only 0.6 percent of the total value of the aluminum sold by primary aluminum producers. It is likely, as discussed, that treatment costs will decrease as new firms develop commercial technologies for K088. As a result, this proposed rule will not pose a significant economic impact on primary aluminum producers in the United States. More detailed information on this estimate can be found in the economic assessment placed into today's docket.

d. Benefits Assessment. EPA has not conducted a quantitative assessment of actual benefits from this proposed rule. Because today's proposed rule promulgates a revised treatment standard for cyanide and establishes a treatment standard for fluoride in K088, the Agency believes that there may be a reduction in the levels of cyanide and fluoride in leachate, which may reduce human health risks in the event of a landfill liner failure and subsequent actual exposure by any nearby populations.

Since the proposed rule is technology-based (and not risk-based) the Agency has not conducted a data collection and analysis of actual cyanide contamination. However, the Agency has reviewed the available actual damage incidents with respect to the potential for spent aluminum potliner to release free cyanide, and cyanide's mobility and persistence following release. Specifically, the July 7, 1980 background document for the original spent aluminum potliner (K088) listing identified a damage case involving Kaiser Aluminum's Mead Works. Kaiser's facility is situated 150 feet above the Spokane aquifer which is used for private wells and drains into the Little Spokane River. Leachate from a lagoon containing potliners and sludge leached through the ground and contaminated the aquifer with cyanide. Eighteen wells were contaminated, some having cyanide levels in excess of 1,000 ppb. Kaiser had to provide alternative sources of drinking water to the affected owners and upgrade and seal the leaking lagoon.

The RFA 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 the reasons stated above, in the estimated costs discussion of section X.A.2, the Agency does not believe that today's proposed rule will have a significant impact on a substantial number of small entities. The overall economic impact of today's proposed rule to promulgate revised treatment standards for total and amenable cyanide and establish a treatment standard for fluoride in spent aluminum potliner results in annual incremental costs ranging from $12.4 million to $36.8 million.

The proposed rule will affect an estimated 22 aluminum smelting companies. Of the companies in question, 21 are expected to incur costs. For purposes of assessing the impacts of today's proposed rule on small entities, small entity is defined as: a small business that has less than 1,000 employees; (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. No more than one facility is estimated to be small according to the Small Business Administration definition for small for SIC 3334 (Primary Production of Aluminum). After considering the economic impacts of today's proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. We have determined that the preliminary estimate of the impact on affected facilities indicates compliance costs may exceed 1% of sales for this facility. The overall impact to the entire affected population of facilities is expected to range from 0.0 to 1.9 percent of sales, however, only under the assumption that the only K088 management facility will be the Reynolds facility in Arkansas.

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 has sought data to determine available treatment technologies for establishment of treatment standards for cyanide and fluoride, as well as available markets for recycled K088.

We continue to be interested in the potential impacts of the proposed rule on small entities and welcome comments on issues related to such impacts. More information on this analysis can be found in the background document “Economic Assessment for Revised LDR Treatment Standards for Spent Aluminum Potliner (K088)” placed in the public docket.

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 this rule does not include a Federal mandate that may result in estimated costs of $100 million or more in the aggregate to either State, local, or tribal governments or the private sector in one year. The rule would not impose any federal intergovernmental mandate because it imposes no enforceable duty upon State, tribal or local governments. States, tribes and local governments would have no compliance costs under this rule. It is expected that states will adopt similar rules, and submit those rules for inclusion in their authorized RCRA programs, but they have no legally enforceable duty to do so. For the same reasons, EPA also has determined that this rule contains no regulatory requirements that might significantly or uniquely affect small governments. In addition, as discussed above, the private sector is not expected to incur costs exceeding $100 million. EPA has fulfilled the requirement for analysis under the Unfunded Mandates Reform Act.

Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997), applies to any rule that: (1) is determined to be “economically significant” as defined under E.O. 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 rule is not subject to the Executive Order because this is not an economically significant regulatory action as defined by Executive Order 12866, and because the Agency does not have reason to believe the environmental health or safety risks addressed by this action present a disproportionate risk to children. The Agency has concluded this because this rulemaking proposes treatment standards for hazardous constituents in spent aluminum potliner that minimizes both short-term and long-term threats to human health and the environment. The environmental health risks or safety risks addresses by this action do not have a disproportionate effect on children.

The public is invited to submit or identify peer-reviewed studies and data, of which the Agency may not be aware, that assessed the results of early life exposure to K088 waste or its regulated constituents of concern, e.g., cyanide, fluoride, arsenic, and polycyclic aromatic hydrocarbons.

EPA is committed to addressing environmental justice concerns and is assuming a leadership role in environmental justice initiatives to enhance environmental quality for all residents of the United States. The Agency's goals are to ensure that no segment of the population, regardless of race, color, national origin, or income bears disproportionately high and adverse human health and environmental impacts as a result of EPA's policies, programs, and activities, and that all people live in clean and sustainable communities. In response to Executive Order 12898 and to concerns voiced by many groups outside the Agency, EPA's Office of Solid Waste and Emergency Response formed an Environmental Justice Task Force to analyze the array of environmental justice issues specific to waste programs and to develop an overall strategy to identify and address these issues (OSWER Directive No. 9200.3-17).

Today's proposed rule covers K088 spent potliner wastes from primary aluminum operations. It is not certain whether the environmental problems addressed by this rule could disproportionately effect minority or low income communities, due to the location of primary aluminum operations. Because today's proposed rule establishes treatment standards for K088 being land disposed, the Agency does not believe that today's rule will increase risks from K088. It is, therefore, not expected to result in any disproportionately negative impacts on minority or low income communities relative to affluent or non-minority communities.

To the extent that this rule imposes any information collection requirements under existing RCRA regulations promulgated in previous rulemakings, those requirements have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. , and have been assigned OMB control numbers 2050-120 (ICR No. 1573, Part B Permit Application); 2050-120 (ICR 1571, General Facility Standards); 2050-0028 (ICR 261, Notification to Obtain an EPA ID); 2050-0034 (ICR 262, Part A Permit Application); 2050-0039 (ICR 801, Hazardous Waste Manifest); 2050-0035 (ICR 820, Generator Standards); and 2050-0024 (ICR 976, Biennial Report).

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Pub. L. No. 104-113, § 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

This proposed rulemaking involves technical standards. Existing determination methods are employed for the analysis of cyanide in the treated waste and fluoride in the deionized water leachate from the treated waste. As stated above, today's action proposes a revised treatment standard for fluoride in nonwastewaters, based on a recognized version of the toxicity characteristic leaching procedure, ASTM Method D3987-85 (1999) Standard Test Method for Shake Extraction of the Solid Waste With Water. This is a consensus method.

Under Executive Order 13084, EPA may not issue a regulation that is not required by statute, that significantly or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments. If the mandate is unfunded, EPA must provide to the Office of Management and Budget, in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected and other representatives of Indian tribal governments “to provide meaningful and timely input to the development of regulatory policies on matters that significantly or uniquely affect their communities.”

Today's rule does not significantly or uniquely affect the communities of Indian tribal governments. Aluminum potliners are not currently generated or treated on any known Indian tribal lands. Today's proposal does not create a mandate on State, local or tribal governments. The proposal would not impose any enforceable duties on these entities. Accordingly, the requirements of section 3(b) of Executive Order 13084 do not apply to this proposed rule.

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 implication.” “Policies that have federalism implication” is defined in the Executive Order to include regulation 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.” Under Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local government, or EPA consults with State and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation that has federalism implications and that preempts State law unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

If EPA complies by consulting, Executive Order 13132 requires EPA to provide to the Office of Management and Budget (OMB), in a separately identified section of the preamble to the rule, a federalism summary impact statement (FSIS). The FSIS must include a description of the extent of EPA's prior consultation with State and local officials, a summary of the nature of their concerns and the Agency's position supporting the need to issue the regulation, and a statement of the extent to which the concerns of State and local officials have been met. Also when EPA transmits a draft final rule with federalism implication to OMB for review pursuant to Executive Order 12866, EPA must include a certification from the Agency's Federalism Official stating that EPA has met the requirements of Executive Order 13132 in a meaningful and timely manner.

This proposed rule 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. Thus, the requirements of section 6 of the Executive Order do not apply to this proposed rule.

For the reasons set out in the preamble, title 40, chapter I of the Code of Federal Regulations is proposed to be amended as follows:

For additional information, please see the immediate final rule published in the “Rules and Regulations” section of this Federal Register .

This is a summary of the Further Notice of Proposed Rule Making (FNPRM) portion of the Commission's Memorandum Opinion and Order and Further Notice of Proposed Rulemaking in WT Docket No. 99-168 and CS Docket No. 98-120, FCC 00-224, adopted June 22, 2000, and released June 30, 2000. The Memorandum Opinion and Order (MO&O) portion of the decision is summarized elsewhere in this edition of the Federal Register . The complete text of the MO&O/FNPRM is available on the Commission's Internet site at www.fcc.gov. It is also available for inspection and copying during normal business hours in the FCC Reference Information Center, Courtyard Level, 445 12th Street, SW, Washington, DC, and may be purchased from the Commission's copy contractor, International Transcription Services, Inc., CY-B400, 445 12th Street SW, Washington, DC. Comments may be sent as an electronic file via the Internet to http://www.fcc.gov/e-file/ecfs.html, or by e-mail to ecfs@fcc.gov.

1. The Commission, through the FNPRM, solicits comment on four aspects of the spectrum clearance process initiated in the First Report and Order (First R&O) in this proceeding (65 FR 3139, January 20, 2000). The First R&O adopted a band plan and associated service rules for the assignment of licenses in 30 megahertz of the 700 MHz band (747-762 and 777-792 MHz). In the First R&O, the Commission concluded that it would consider specific regulatory requests needed to implement voluntary agreements reached between incumbent licensees and new licensees that would compensate incumbents for clearing the band or otherwise accommodating the new licensees. In the FNPRM, the Commission seeks comment on other potential mechanisms to further the goals of transitioning the 700 MHz band to wireless services and accelerating the transition to digital television.

2. The FNPRM first invites comment on whether to adopt cost-sharing rules that would spread the cost of clearing the 700 MHz band for use by the new licensees among 700 MHz licensees that benefit from the process. Specifically, the Commission invites comment on the following issues: (1) Would cost-sharing rules would expedite clearing the 700 MHz band for use by the new licensees and the transition to DTV by incumbent broadcasters, or should, as the Commission tentatively concludes, cost-sharing arrangements should be left to negotiations among successful auction bidders? and (2) If the Commission adopts cost-sharing rules, how should the Commission calculate the costs that benefiting 700 MHz licensees would be required to pay. The Commission also tentatively concludes that if it were to adopt cost-sharing rules, licensees of the public safety spectrum would not be required to pay a share of the clearing costs, and invites comment on this tentative conclusion.

3. The FNPRM solicits comment on whether there are mechanisms other than cost-sharing rules that the Commission could implement to facilitate voluntary band clearing. In particular, the Commission seeks comment on whether there are market-oriented mechanisms that might be more efficient to facilitate voluntary band clearing than the negotiation of individual band clear agreements by each 700 MHz licensee and each incumbent.

4. One alternative on which the FNPRM solicits comment is three-way voluntary transition agreements that would provide for TV incumbents on television channels 59-69 to relocate to lower band TV channels that, in turn would be voluntarily cleared by the lower band TV incumbents. The Commission seeks comment on whether and under what conditions such agreements should be approved. The Commission, in the FNPRM seeks comment on how the Commission should evaluate possible loss of service in reviewing specific requests for voluntary relocations, and on whether the Commission should consider steps other than the review and approval or disapproval of voluntary agreements.

5. The FNPRM also invites comment on the use of “secondary auctions” in conjunction with this or future auctions in the band as another tool for facilitating band clearing agreements. In a secondary auction, competitive bidding would be used to determine the price that would be paid by 700 MHz licensees to TV incumbents who agree to clear their channels in the 700 MHz band. The FNPRM seeks comment on this alternative, on whether such an auction should be conducted on a private basis, whether the Commission has legal authority to conduct a secondary auction, and, if a secondary auction were to be conducted by the Commission, how it should be organized.

6. Finally, the Commission, through the FNPRM solicits comment on whether additional proposals should be considered to accelerate the digital television transition. For example, should the Commission allow incumbent broadcasters on television channels 59-69 and 700 MHz new service providers to share spectrum in time and/or bits? Lastly, the FNPRM seeks comment on whether any of the enhanced band clearing proposals discussed in the FNPRM for incumbents on channels 59-69 should also apply to incumbents on channels 58 and lower.

7. This is a synopsis of the Initial Regulatory Flexibility Act Statement in the Further Notice of Proposed Rulemaking (FNPRM). The full text of Initial Regulatory Flexibility Act Statement may be found in Appendix C of the full Memorandum Opinion and Order and NPRM.

8. As required by the Regulatory Flexibility Act (RFA)( see 5 U.S.C. 603. The RFA has been amended by the Contract With America Advancement Act of 1996, Public Law 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)) the Commission has prepared the Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities by certain policies and rules proposed in the FNPRM. Pursuant to the Consolidated Appropriations Act, 2000, the requirements of the RFA do not apply to the rules and competitive bidding procedures governing assignments to commercial entities of frequencies in the 746 MHz to 806 MHz band. Accordingly, the IRFA does not include an analysis of the possible economic impacts that might result from such rules and procedures. Written public comments are requested on the IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments on the FNPRM. The Commission will send a copy of the Memorandum Opinion and Order and FNPRM, including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration.

9. The Congressional plan set forth in Sections 336 and 337 of the Act and in the 1997 Budget Act is to transition the 700 MHz band from its current use for broadcast services to commercial use and public safety services as expeditiously as possible. In the FNPRM, the Commission moves towards this goal by seeking comment on whether mechanisms other than those adopted in the First R&O might further facilitate the voluntary clearing of TV incumbents from the band. Further discussion of the need for and objectives of the proposed rules can be found at paragraph 2 of the full text of the IRFA.

10. This action is authorized under Sections 1, 4(i), 7, 10, 301, 303, 307, 308, 309(j), 309(k), 316, 331, 332, 336, 337 and 614 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 157, 160, 301, 303, 307, 308, 309(j), 309(k), 316, 331, 332, 336, 337, and 534, and the Consolidated Appropriations Act, 2000, Public Law 106-113, 113 Stat. 1501, Section 213.

11. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that will be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act, unless the Commission has developed one or more definitions that are appropriate for its activities. Under the Small Business Act, a “small business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) meets any additional criteria established by the Small Business Administration (SBA). According to SBA reporting data, there were approximately 4.44 million small business firms nationwide in 1992. A small organization is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 1992, there were approximately 275,801 small organizations. “Small governmental jurisdiction” generally means “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than 50,000.” As of 1992, there were approximately 85,006 such jurisdictions in the United States. This number includes 38,978 counties, cities, and towns; of these, 37,566, or 96 percent, have populations of fewer than 50,000. The Census Bureau estimates that this ratio is approximately accurate for all governmental entities. Thus, of the 85,006 governmental entities, we estimate that 81,600 (91 percent) are small entities.

12. The policies and rules proposed in the FNPRM discussed in the IRFA would affect all small entities that seek to acquire licenses in wireless services in the 698-746 MHz band (“lower 700 MHz band”) currently used for television broadcasts on Channels 52-58, or that are incumbent television broadcasters.

13. The Commission has not yet developed a definition of small entities applicable to the lower 700 MHz band. Therefore, the applicable definition is the one under the Small Business Administration rules applicable to Communications Services, Not Elsewhere Classified. This definition provides that a small entity is one with $11.0 million or less in annual receipts. However, no channelization plan or licensing plan has been proposed or adopted for the lower 700 MHz band. Therefore, the number of small entities that may apply to acquire licenses in the lower 700 MHz band is unknown.

14. The SBA defines a television broadcasting station that is independently owned and operated, is not dominant in its field of operation, and has no more than $10.5 million in annual receipts as a small business. Television broadcasting stations consist of establishments primarily engaged in broadcasting visual programs by television to the public, except cable and other pay television services. Included in this industry are commercial, religious, educational, and other television stations. Also included are establishments primarily engaged in television broadcasting and which produce taped television program materials. There were 1,509 television stations operating in the nation in 1992. In 1992, there were 1,155 television station establishments that produced less than $10.0 million in revenue (76.5 percent). As of May 31, 1998, official Commission records indicate that 1,579 full power television stations, 2089 low power television stations, and 4924 television translator stations were licensed. We conclude that a similarly high percentage of current television broadcasting licensees are small entities (76.5 percent).

15. At this time, the Commission does not anticipate the imposition of new reporting, recordkeeping, or other compliance requirements as a result of the FNPRM. If the Commission later finds a need to impose new reporting, recordkeeping or other compliance requirements as a result of deciding to adopt any of the proposals contained in the FNPRM, a period of public and agency comment will be established at that time.

16. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives: (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 such small entities; (3) the use of performance rather than design standards; and (4) any exemption from coverage of the rule, or any part thereof, for such small entities.

17. The Commission seeks comment on the economic impact that the proposals described in the FNPRM might have on small entities. With the exception of the cost-sharing rules, the proposals on which the FNPRM seeks comment are based on the voluntary participation of both new 700 MHz licensees and incumbent television broadcasters. Cost-sharing rules, if adopted, would require those new 700 MHz licensees that benefit from a clearing agreement with a TV incumbent to share the costs of that agreement. Insofar as small entities could not afford to enter into clearing agreements without the costs being shared by other 700 MHz licensees, the cost-sharing rules would provide a positive economic benefit to small entities. To the extent that other licensees would enter into clearing agreements without the costs being shared by small entities, thereby giving the small entities a “free ride,” cost-sharing rules would produce a significant economic impact on small entities. Finally, to the extent that small entities would prefer not to enter into clearing agreements but to wait until the incumbent TV licensee was required to clear the band by statute, and cost-sharing rules would require small entities to share the costs of clearing agreements, cost-sharing rules would also produce a significant economic impact on small entities. As a general matter, cost-sharing rules must apply to all licensees in order for them to operate as intended. Moreover, without a channelization plan for the lower 700 MHz band, it is not possible at this time to determine whether the Commission could exempt some or all small entities from any cost-sharing rules adopted, or otherwise minimize the impact on small entities. One significant alternative the Commission is considering is not to adopt any cost-sharing rules.

18. None.

19. Notice is hereby given of the proposed regulations described in the FNPRM , and that comment is sought on these proposals.

20. The Commission's Office of Public Affairs, Reference Operations Division, shall send a copy of the MO&O and FNPRM, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with section 603(a) of the Regulatory Flexibility Act of 1980, Public Law 96-354, 94 Stat. 1164, 5 U.S.C. 601-612 (1980).

The Morro shoulderband snail was first described as Helix walkeriana by Hemphill (1911) based on collections made “near Morro, California.” He also described a subspecies, based on sculptural features of the shell, Helix walkeriana, Helix var. morroensis, that was collected “near San Luis Obispo City” (Roth 1985). The Morro shoulderband snail is also commonly known as the banded dune snail and belongs to the Class Gastropoda and Family Helminthoglyptidae.

The shell of the Morro shoulderband snail is slightly translucent (clear) and has 5-6 whorls. Its dimensions are 18 to 29 millimeters (mm) (0.7 to 1.1 inches (in.)) in diameter and 14 to 25 mm (0.6 to 1.0 in.) in height. The Morro shoulderband snail can be distinguished from the Big Sur shoulderband snail ( Helminthoglypta umbilicata ), another native snail in the same area, by its more globose (globe shaped) shell shape and presence of incised (deeply cut) spiral grooves (Roth 1985). The shell of the Big Sur shoulderband snail tends to be flatter and shinier. The brown garden snail ( Helix aspersa ) also occurs in Los Osos with the Morro shoulderband snail and has a marbled pattern on its shell, whereas the Morro shoulderband snail has one narrow dark brown spiral band on the shoulder. The Morro shoulderband's spire is low-domed, and half or more of the umbilicus (the cavity in the center of the base of a spiral shell that is surrounded by the whorls) is covered by the apertural (small opening) lip (Roth 1985).

The Morro shoulderband snail is found only in western San Luis Obispo County. At the time of its addition to the List of Endangered and Threatened Wildlife on December 15, 1994 (59 FR 64613), the Morro shoulderband snail was known to be distributed near Morro Bay. Its currently known range includes areas south of Morro Bay, west of Los Osos Creek and north of Hazard Canyon. Historically, the species has also been reported near the city of San Luis Obispo (type locality for “ morroensis ”) and south of Cayucos (Roth 1985).

The Morro shoulderband snail occurs in coastal dune and scrub communities and maritime chaparral. Through most of its range, the dominant shrub associated with the snail's habitat is mock heather ( Ericameria ericoides ). Other prominent shrub and succulent species are buckwheat ( Eriogonum parvifolium ), eriastrum ( Eriastrum densifolium ), chamisso lupine ( Lupinus chamissonis ), dudleya ( Dudleya sp.), and in more inland locations, California sagebrush ( Artemisia californica ) and black sage ( Salvia mellifera ) (Roth 1985).

Away from the immediate coast, immature scrub in earlier successional stages may offer more favorable shelter sites than mature stands of coastal dune scrub. The immature shrubs provide canopy shelter for the snail, whereas the lower limbs of larger older shrubs may be too far off the ground to offer good shelter. In addition, mature stands produce twiggy litter that is low in food value (Roth 1985).

No studies or documented observations exist on the feeding behaviors of the Morro shoulderband snail. Hill (1974) suggested that the snail probably feeds on the fungal mycelia (webs or mats of non-reproductive fungal strands) growing on decaying plant litter. The Morro shoulderband snail is not a garden pest and is essentially harmless to gardens (Chambers 1997).

Sarcophagid flies (family of flies that rely on a host to complete its life-cycle) have been observed to parasitize the Morro shoulderband snail. Empty puparia (“cases” left behind by adult flies emerging from pupae) were observed in empty snail shells by Hill (1974), Roth (1985), and Kim Touneh (Service, pers. comm. 1997). Hill (1974) and Roth (1985) suggested that mortality from infestations of larvae of this parasitic fly often occurs before the snails reach reproductive maturity. The flies may have a significant impact on the population of the snail (Roth 1985). Seasonal drought and/or heat may contribute to the snail's egg mortality (Roth 1985). Based on shell examination, Roth (1985) also suggested that rodents may prey on the snail.

The Morro shoulderband snail is threatened by destruction of its habitat due to increasing development and by degradation of its habitat due to invasion of nonnative plant species ( e.g., veldt grass ( Ehrharta calycino )), structural changes to its habitat due to maturing of dune vegetation, and recreational use ( e.g., heavy off-highway activity). In addition to the known threats, possible threats to the snail include competition for resources with the nonnative brown garden snail (although no assessment has been made of possible dietary overlap between the species); the small and isolated nature of the remaining populations; the use of pesticides (including snail and slug baits); and the introduction of nonnative predatory snails.

We entered into a contract with the Sierra Club Foundation, San Francisco, California, to investigate the status of California land snails. A final report dated August 25, 1975, contained data indicating that several of the snails studied could be considered candidates for listing as threatened or endangered species. On April 28, 1976, we proposed endangered or threatened status for 32 land snails in the Federal Register (41 FR 17742). This proposal included the Morro shoulderband snail (under the common name “banded dune snail”) as endangered. However, we withdrew the proposed rulemaking on December 10, 1979 (44 FR 70796), because of the 1978 amendments to the Act, which required the withdrawal of proposals over 2 years old.

In 1984, we undertook a status review of the snail, which ended in a report by Roth (1985). Based on that report, we included the Morro shoulderband snail as a category one species in the Animal Notices of Review of May 22, 1984 (40 FR 675); January 6, 1989 (54 FR 554); and November 21, 1991 (56 FR 58820). A category one species is one on which we have sufficient information to support a listing.

On December 23, 1991, we published a proposed rule in the Federal Register (56 FR 66400) to list five plants and the Morro shoulderband snail as endangered. We reopened the comment period on June 8, 1992 (57 FR 24221). On December 15, 1994, we published a final rule adding the Morro shoulderband snail and four plants to the List of Endangered and Threatened Wildlife as endangered species (59 FR 64613). We published a final recovery plan in September 1998.

At the time of listing, we concluded that designation of critical habitat for the Morro shoulderband snail was not prudent because such designation would not benefit the species. We were also concerned that critical habitat designation would likely result in an increased threat of vandalism or collection of the species. However, we have determined that instances of vandalism have not increased since the listing of the Morro shoulderband snail, and the threats to this species and its habitat from specific instances of collection and habitat destruction do not outweigh the broader educational, potential regulatory, and other possible benefits that designation of critical habitat would provide for this species. A designation of critical habitat can provide educational benefits by formally identifying those areas essential to the conservation of the species. These areas were already identified in the recovery plan as the focus of our recovery efforts for the Morro shoulderband snail.

On March 4, 1999, the Southwest Center for Biological Diversity, the Center for Biological Diversity, and Christians Caring for Creation filed a lawsuit in the Northern District of California against the U.S. Fish and Wildlife Service and Bruce Babbitt, Secretary of the Department of the Interior (Secretary), for failure to designate critical habitat for seven species: the Alameda whipsnake ( Masticophis lateralis euryxanthus ), the Zayante band-winged grasshopper ( Trimerotropis infantilis ), the Morro shoulderband snail ( Helminthoglypta walkeriana ), the arroyo southwestern toad ( Bufo microscaphus californicus ), the San Bernardino kangaroo rat ( Dipodomys merriami parvus ), the spectacled eider ( Somateria fischeri ), and the Steller's eider ( Polysticta stelleri ) (Southwest Center for Biological Diversity v. U.S. Fish and Wildlife, CIV 99-1003 MMC). On November 5, 1999, William Alsup, U.S. District Judge, dismissed the plaintiffs' lawsuit pursuant to a settlement agreement entered into by the parties. Publication of this proposed rule is consistent with that settlement agreement.

Critical habitat is defined in section 3 of the Act as: (i) The specific areas within the geographic area occupied by a species, at the time it is listed in accordance with the Act, on which are found those physical or biological features (I) essential to the conservation of the species and (II) that may require special management considerations or protection; and (ii) specific areas outside the geographic area occupied by a species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. “Conservation” means the use of all methods and procedures that are necessary to bring an endangered species or a threatened species to the point at which listing under the Act is no longer necessary.

Section 4(b)(2) of the Act requires that we base critical habitat proposals upon the best scientific and commercial data available, after taking into consideration the economic impact, and any other relevant impact, of specifying any particular area as critical habitat. We may exclude areas from critical habitat designation when the benefits of exclusion outweigh the benefits of including the areas within critical habitat, provided the exclusion will not result in extinction of the species (section 4(b)(2) of the Act).

Designation of critical habitat can help focus conservation activities for a listed species by identifying areas that contain the physical and biological features that are essential for conservation of that species. Designation of critical habitat alerts the public as well as land-managing agencies to the importance of these areas.

Critical habitat also identifies areas that may require special management considerations or protection, and may provide protection to areas where significant threats to the species have been identified. Critical habitat receives some protection from destruction or adverse modification through required consultation under section 7 of the Act. See “Section 7 Consultation” below. Aside from the protection that may be provided under section 7, the Act does not provide other forms of protection to lands designated as critical habitat.

Designating critical habitat does not, in itself, lead to recovery of a listed species. Designation does not create a management plan, establish numerical population goals, prescribe specific management actions (inside or outside of critical habitat), or directly affect areas not designated as critical habitat. Specific management recommendations for areas designated as critical habitat are most appropriately addressed in recovery, conservation, and management plans, and through section 7 consultations and section 10 permits.

In determining areas that are essential to conserve the Morro shoulderband snail, we used the best scientific and commercial data available. This included data from research and survey observations published in peer-reviewed articles, recovery criteria outlined in the recovery plan, regional Geographic Information System (GIS) vegetation coverages, and data collected from reports submitted by biologists holding section 10(a)(1)(A) recovery permits.

In accordance with section 3(5)(A)(i) of the Act, and regulations at 50 CFR 424.12, in determining which areas to propose as critical habitat, we are required to consider those physical and biological features (primary constituent elements) that are essential to the conservation of the species. These include, but are not limited to, space for individual and population growth and for normal behavior; food, water, or other nutritional or physiological requirements; cover or shelter; sites for breeding and reproduction; and habitats that are protected from disturbance or are representative of the historic and ecological distributions of a species.

The primary constituent elements of critical habitat for the Morro shoulderband snail are those habitat components that are essential for the primary biological needs of foraging, sheltering, reproduction, and dispersal. The areas we are proposing to designate as critical habitat provide some or all of the primary constituent elements, which are: sand or sandy soils; a slope not greater than 10 percent; and the presence of, or the capacity to develop, native coastal dune scrub vegetation. This vegetation is typically represented, but not exclusively, by mock heather, buckwheat, eriastrum, chamisso lupine, dudleya, and in more inland locations, California sagebrush and black sage. Some of the habitat in the proposed units could be improved through habitat rehabilitation or improved management ( e.g., removal of nonnative species).

In an effort to map areas that have the features essential to the conservation of the species, we used data on known Morro shoulderband snail locations and conservation planning areas that were identified in the final recovery plan (Service 1998) as essential for the recovery of the species. All of the proposed critical habitat areas are occupied.

We did not map critical habitat in sufficient detail to exclude all developed areas such as towns, housing developments, and other lands unlikely to contain primary constituent elements essential for Morro shoulderband snail conservation. Areas of existing features and structures within the unit boundaries, such as buildings, roads, aqueducts, railroads, airports, and paved areas, will not contain one or more of the primary constituent elements. Federal actions limited to these areas, therefore, would not trigger a section 7 consultation, unless they affect the species and/or the primary constituent elements in adjacent critical habitat.

We also considered the existing status of lands in designating areas as critical habitat. The Morro shoulderband snail is known to occur on State, county, and private lands. Section 10(a) of the Act authorizes us to issue permits for the taking of listed species incidental to otherwise lawful activities. An incidental take permit application must be supported by a habitat conservation plan (HCP) that identifies conservation measures that the permittee agrees to implement for the species to minimize and mitigate the impacts of the requested incidental take. Non-Federal and private lands that are covered by an existing operative HCP and an executed implementation agreement (IA) for Morro shoulderband snail under Section 10(a)(1)(B) of the Act receive special management and protection under the terms of the HCP/IA and therefore are not proposed for inclusion in critical habitat since then do not meet the definition of critical habitat in section 3(5) of the Act.

Critical habitat designation is not intended to discourage the development of HCPs to protect essential habitat areas for the Morro shoulderband snail on non-Federal lands. To the contrary, we consider HCPs to be one of the most important methods through which non-Federal landowners can help conserve listed species while resolving potential land-use conflicts. We provide technical assistance and work closely with applicants throughout development of HCPs to help identify special management considerations for listed species. We intend that HCPs provide a package of protection and management measures sufficient to address the conservation needs of the species.

The approximate area encompassing proposed critical habitat by land ownership is shown in Table 1. Proposed critical habitat includes Morro shoulderband snail habitat throughout the species' existing range in the United States ( i.e., San Luis Obispo County, California). Lands proposed are under private and State and local ownership. The species is not known to occur or to have historically occurred on Federal lands. Lands proposed as critical habitat have been divided into three Critical Habitat Units. Brief descriptions of each unit, and our reasons for proposing it as critical habitat, are presented below.

Unit 1 encompasses areas managed by Montaña de Oro State Park (Dunes Natural Preserve) and the City of Morro Bay (north end of spit), including the length of the spit and the foredune areas extending south toward Hazard Canyon. The unit is occupied by the Morro shoulderband snail, and it provides dune scrub habitat for the species. The spit's windward side and its north end are nonvegetated; patches of vegetation occur along its leeward side on Morro Bay. The West Pecho portion of this unit lies to the east of the Morro Spit Conservation Planning Area and is bounded on the east by Pecho Road and the community of Los Osos. It extends north to the Bay and south to Hazard Canyon. Elevations range from sea level on the Bay to about 75 meters (m) (250 feet (ft)) along its southeastern edge. Vegetation associations include coastal dune scrub, with coastal sage scrub closer to Hazard Canyon. The California Department of Fish and Game owns an ecological reserve in this unit, which is managed cooperatively with adjoining State Park property. Privately owned lands occur to the northeast in the community of Los Osos, but no private lands are included in this unit and are not reflected in the approximate area of the critical habitat proposed. Approximately 676 hectares (ha) (1,670 acres (ac)) occur on State land, and 65 ha (160 ac) occur on local government land.

Unit 2 is bounded on the north and east by residential development in the community of Los Osos and agricultural fields. The area on the lower slopes of the Irish Hills, where the vegetation is composed of maritime chaparral, is currently occupied by the Morro shoulderband snail and is considered essential. We are designating approximately 130 ha (320 ac) of this area as critical habitat. This area is privately owned.

The Northeast Los Osos Critical Habitat Unit includes undeveloped areas between Los Osos Creek and Baywood Park and is divided by South Bay Boulevard. Its elevation range is from sea level to about 30 m (100 ft). Vegetation is dominated by variants of coastal sage and dune scrub, with scattered stands of manzanita ( Arctostaphylos spp.) and coast live oak ( Quercus agrifolia ). The Morro shoulderband snail is known to occupy this unit. This unit includes the State-and county-owned Elfin Forest Preserve, portions of Morro Bay State Park, and privately owned lands. The Los Osos Center, Hord Residential, and MCI/Worldcom HCPs fall within the unit boundaries, but areas where take has been authorized are not being proposed for critical habitat. Approximately 49 ha (121 ac) of proposed critical habitat in this unit occur on State land, and 119 ha (295 ac) occur on private land.

Section 7(a)(2) of the Act requires Federal agencies, including the Service, to ensure that actions they fund, authorize, or carry out do not destroy or adversely modify critical habitat to the extent that the action appreciably diminishes the value of the critical habitat for the survival and recovery of the species. When multiple units of critical habitat are designated, each unit may serve as the basis of a jeopardy analysis if protection of different facets of the species' life cycle or its distribution are essential to the species as a whole for both its survival and recovery. Individuals, organizations, States, local governments, and other non-Federal entities are affected by the designation of critical habitat only if their actions occur on Federal lands, require a Federal permit, license, or other authorization, or involve Federal funding.

Section 7(a) of the Act requires Federal agencies to evaluate their actions with respect to any species that is proposed or listed as endangered or threatened and with respect to its critical habitat, if any is designated or proposed. Regulations implementing this interagency cooperation provision of the Act are codified at 50 CFR part 402. In 50 CFR 402.02, “jeopardize the continued existence” (of a species) is defined as engaging in an activity likely to result in an appreciable reduction in the likelihood of survival and recovery of a listed species. “Destruction or adverse modification” (of critical habitat) is defined as a direct or indirect alteration that appreciably diminishes the value of critical habitat for the survival and recovery of the listed species for which critical habitat was designated. Thus, the definitions of “jeopardy” to the species and “adverse modification” of critical habitat are nearly identical.

Section 7(a)(4) requires Federal agencies to confer with us on any action that is likely to jeopardize the continued existence of a proposed species or result in destruction or adverse modification of proposed critical habitat. Conference reports provide conservation recommendations to assist the agency in eliminating conflicts that may be caused by the proposed action. The conservation recommendations in a conference report are advisory.

We may issue a formal conference report if requested by a Federal agency. Formal conference reports on proposed critical habitat contain a biological opinion that is prepared according to 50 CFR 402.14, as if critical habitat were designated. We may adopt the formal conference report as a biological opinion if the critical habitat is designated, if no significant new information or changes in the action alter the content of the opinion (see 50 CFR 402.10(d)).

Under section 7(a)(2), if a Federal action may affect a listed species or its critical habitat, the responsible Federal agency must enter into consultation with us. Through this consultation, we would advise the agencies whether the permitted actions would likely jeopardize the continued existence of the species or adversely modify critical habitat.

When we issue a biological opinion concluding that a project is likely to result in the destruction or adverse modification of critical habitat, we also provide reasonable and prudent alternatives to the project, if any are identifiable. Reasonable and prudent alternatives are defined at 50 CFR 402.02 as alternative actions identified during consultation that can be implemented in a manner consistent with the intended purpose of the action, that are consistent with the scope of the Federal agency's legal authority and jurisdiction, that are economically and technologically feasible, and that the Director believes would avoid the likelihood of jeopardizing the continued existence of listed species or resulting in the destruction or adverse modification of critical habitat. Reasonable and prudent alternatives can vary from slight project modifications to extensive redesign or relocation of the project. Costs associated with implementing a reasonable and prudent alternative are similarly variable.

Regulations at 50 CFR 402.16 require Federal agencies to reinitiate consultation on previously reviewed actions in instances where critical habitat is subsequently designated and the Federal agency has retained discretionary involvement or control over the action or such discretionary involvement or control is authorized by law. Consequently, some Federal agencies may request reinitiation of consultation or conferencing with us on actions for which formal consultation has been completed, if those actions may affect designated critical habitat or adversely modify or destroy proposed critical habitat.

Activities on private or State lands requiring a permit from a Federal agency, such as a permit from the U.S. Army Corps of Engineers (USACE) under section 404 of the Clean Water Act or a section 10(a)(1)(B) permit from the Service, or some other Federal action, including funding ( e.g., from the Federal Highway Administration (FHA), Environmental Protection Agency (EPA), or Federal Emergency Management Agency (FEMA)), will also be subject to the section 7 consultation process. Federal actions not affecting listed species or critical habitat, and actions on non-Federal lands that are not federally funded, authorized, or permitted, do not require section 7 consultation.

Section 4(b)(8) of the Act requires us to briefly evaluate and describe in any proposed or final regulation that designates critical habitat those activities involving a Federal action that may destroy or adversely modify such habitat, or that may be affected by such designation. Activities that may destroy or adversely modify critical habitat include those that alter the primary constituent elements to an extent that the value of critical habitat for both the survival and recovery of the Morro shoulderband snail is appreciably reduced. We note that such activities may also jeopardize the continued existence of the species.

Activities that, when carried out, funded, or authorized by a Federal agency, may destroy or adversely modify critical habitat include, but are not limited to:

(1) Activities that result in excavation, mechanized land clearing, or uncontrolled burning of coastal dune scrub vegetation; and

(2) Activities that could lead to the introduction of exotic species into occupied Morro shoulderband snail habitat.

To properly portray the effects of critical habitat designation, we must first compare the section 7 requirements for actions that may “result in the destruction or adverse modification of”critical habitat with the requirements for actions that may “jeopardize the continued existence of” a listed species. Common to both definitions is an appreciable detrimental effect on both survival and recovery of a listed species. Given the similarity of these definitions, actions likely to destroy or adversely modify critical habitat would almost always result in jeopardy to the species concerned, particularly when the area of the proposed action is occupied by the species concerned. In those cases, the ramifications of its designation are few or none. Designation of critical habitat in areas occupied by the Morro shoulderband snail is not likely to result in a regulatory burden above that already in place due to the presence of the listed species. When critical habitat is designated in unoccupied areas, the designation could result in an increase in regulatory requirements on Federal agencies; however, all of the proposed critical habitat for the Morro shoulderband snail is occupied.

Federal agencies already consult with us on activities in areas currently occupied by the species to ensure that their actions do not jeopardize the continued existence of the species. The actions we consult on include, but are not limited to:

(1) Activities conducted by the USACE ( e.g., ordnance removal);

(2) Road construction and maintenance funded by the FHA; and

(3) Other activities funded or permitted by Federal agencies (e.g., EPA, FEMA).

Several habitat conservation planning efforts have been completed within the range of the Morro shoulderband snail. The Los Osos Center HCP, Hord Residential HCP, and MCI/Worldcom HCP contributed funds toward the purchase and perpetual management of several acres to serve as conservation sites for the Morro shoulderband snail. Because the snail habitat preserved in these existing HCP planning areas will be managed for the benefit of the snail under the terms of the individual HCPs, no additional management considerations or protections are required for those lands. Therefore, we have determined that non-Federal lands within approved HCP planning areas for the Morro shoulderband snail do not meet the definition of critical habitat in the Act, and we are not proposing designation of such lands as critical habitat.

HCPs currently under development are intended to provide for protection and management of habitat areas essential for the conservation of the Morro shoulderband snail, while directing development and habitat modification to nonessential areas of lower habitat value. The HCP development process provides an opportunity for more intensive data collection and analysis regarding the use of particular habitat areas by the snail. The process also enables us to conduct detailed evaluations of the importance of such lands to the long-term survival of the species in the context of constructing a biologically configured system of interlinked habitat blocks. We fully expect that HCPs undertaken by local jurisdictions ( e.g., counties, cities) and other parties will identify, protect, and provide appropriate management for those specific lands within the boundaries of the plans that are essential for the long-term conservation of the species. We believe and fully expect that our analyses of these proposed HCPs and proposed permits under section 7 will show that covered activities carried out in accordance with the provisions of the HCPs and permits will not result in destruction or adverse modification of critical habitat.

We provide technical assistance and work closely with applicants throughout the development of HCPs to identify appropriate conservation management and lands essential for the long-term conservation of the Morro shoulderband snail. Several HCP efforts are now under way for listed species in areas within the range of the Morro shoulderband snail in areas we propose as critical habitat. These HCPs, coupled with appropriate adaptive management, should provide for the conservation of the species. However, since these HCP are not completed these areas have been included in this proposed critical habitat designation. We are soliciting comments on whether future approval of HCPs and issuance of section 10(a)(1)(B) permits for the Morro shoulderband snail should trigger revision of designated critical habitat to exclude lands within the HCP area and, if so, by what mechanism (see Public Comments Solicited section).

If you have questions regarding whether specific activities will constitute adverse modification of critical habitat, contact the Field Supervisor, Ventura Fish and Wildlife Office (see ADDRESSES section). Requests for copies of the regulations on listed wildlife, and inquiries about prohibitions and permits may be addressed to the U.S. Fish and Wildlife Service, Branch of Endangered Species, Eastside Federal Complex, 911 N.E. 11th Ave, Portland, OR 97232 (telephone 503/231-2063; facsimile 503/231-6243).

Section 4(b)(2) of the Act requires us to designate critical habitat on the basis of the best scientific and commercial information available, and to consider the economic and other relevant impacts of designating a particular area as critical habitat. We may exclude areas from critical habitat upon a determination that the benefits of such exclusions outweigh the benefits of specifying such areas as critical habitat. We cannot exclude such areas from critical habitat when such exclusion will result in the extinction of the species. We will conduct an analysis of the economic impacts of designating these areas as critical habitat prior to a final determination. When completed, we will announce the availability of the draft economic analysis with a notice in the Federal Register , and we will open a 30-day comment period at that time.

We intend that any final action resulting from this proposal will be as accurate and as effective as possible. Therefore, we solicit comments or suggestions from the public, other concerned governmental agencies, the scientific community, industry, or any other interested party concerning this proposed rule. We particularly seek comments concerning:

(1) The reasons why any habitat should or should not be determined to be critical habitat as provided by section 4 of the Act, including whether the benefits of designation will outweigh any benefits of exclusion;

(2) Specific information on the amount and distribution of Morro shoulderband snail habitat, and what habitat is essential to the conservation of the species and why;

(3) Land use practices and current or planned activities in the subject areas and their possible impacts on proposed critical habitat;

(4) Any foreseeable economic or other impacts resulting from the proposed designation of critical habitat, in particular, any impacts on small entities or families; and,

(5) Economic and other values associated with designation of critical habitat for the Morro shoulderband snail, such as those derived from nonconsumptive uses ( e.g., hiking, camping, bird-watching, “existence values,” improved air quality, increased soil retention, and changes in administration i.e. maintenance of area).

In this proposed rule, we do not propose to designate critical habitat on non-Federal and private lands within the boundaries of an existing approved HCP with an executed IA for Morro shoulderband snail approved under section 10(a)(1)(B) of the Act because the existing HCP provides for long-term commitments to conserve the species and areas essential to the conservation of the snail. We believe that such areas do not meet the definition of critical habitat because they do not need special management considerations or protection. However, we are specifically soliciting comments on the appropriateness of this approach, and on the following or other alternative approaches for critical habitat designation in areas covered by existing approved HCPs:

(1) Designate critical habitat without regard to existing HCP boundaries and allow the section 7 consultation process on the issuance of the incidental take permit to ensure that any take we authorized will not destroy or adversely modify critical habitat; or

(2) Designate as critical habitat reserves, preserves, and other conservation lands identified by approved HCPs on the premise that they encompass areas that are essential to conservation of the species within the HCP area and will continue to require special management protection in the future. Under this approach, all other lands covered by existing approved HCPs where incidental take for the Morro shoulderband snail is authorized under a legally operative permit pursuant to section 10(a)(1)(B) of the Act would be excluded from critical habitat.

The amount of critical habitat we designate for the Morro shoulderband snail in a final rule may either increase or decrease, depending upon which approach we adopt for dealing with designation in areas of existing approved HCPs.

We are also seeking comments on critical habitat designation relative to future HCPs. Several conservation planning efforts are now under way within the range of the Morro shoulderband snail, and other listed and nonlisted species, in areas we are proposing as critical habitat. For areas where HCPs are currently under development, we are proposing to designate critical habitat for areas that we believe are essential to the conservation of the species and need special management or protection. We invite comments on the appropriateness of this approach.

In addition, we invite comments on the following or other approaches for addressing critical habitat within the boundaries of future approved HCPs upon issuance of section 10(a)(1)(B) permits for the Morro shoulderband snail:

(1) Retain critical habitat designation within the HCP boundaries and use the section 7 consultation process on the issuance of the incidental take permit to ensure that any take we authorize will not destroy or adversely modify critical habitat;

(2) Revise the critical habitat designation upon approval of the HCP and issuance of the section 10(a)(1)(B) permit to retain only preserve areas, on the premise that they encompass areas essential for the conservation of the species within the HCP area and require special management and protection in the future. Assuming that we conclude, at the time an HCP is approved and the associated incidental take permit is issued, that the plan protects those areas essential to the conservation of the Morro shoulderband snail, we would revise the critical habitat designation to exclude areas outside the reserves, preserves, or other conservation lands established under the plan. Consistent with our listing program priorities, we would publish a proposed rule in the Federal Register to revise the critical habitat boundaries;

(3) As in (2) above, retain only preserve lands within the critical habitat designation, on the premise that they encompass areas essential for conservation of the species within the HCP area and require special management and protection in the future. However, under this approach, the exclusion of areas outside the preserve lands from critical habitat would occur automatically upon issuance of the incidental take permit. The public would be notified and have the opportunity to comment on the boundaries of the preserve lands and the revision of designated critical habitat during the public review and comment process for HCP approval and permitting;

(4) Remove designated critical habitat entirely from within the boundaries of an HCP when the plan is approved (including preserve lands), on the premise that the HCP establishes long-term commitments to conserve the species, and no further special management or protection is required. Consistent with our listing program priorities, we would publish a proposed rule in the Federal Register to revise the critical habitat boundaries; or

(5) Remove designated critical habitat entirely from within the boundaries of an HCP when the plan is approved (including preserve lands), on the premise that the HCP establishes long-term commitments to conserve the species, and no additional special management or protection is required. This exclusion from critical habitat would occur automatically upon issuance of the incidental take permit. The public would be notified and have the opportunity to comment on the revision of designated critical habitat during the public notification process for HCP approval and permitting.

Please submit comments as an ASCII file format and avoid the use of special characters and encryption. Please also include “Attn: [RIN number]” and your name and return address in your e-mail message. If you do not receive a confirmation from the system that we have received your e-mail message, contact us directly by calling our Ventura Office at phone number 805/644-1766.

Our practice is to make comments, including names and home addresses of respondents, available for public review during regular business hours. Individual respondents may request that we withhold their home address from the rulemaking record, which we will honor to the extent allowable by law. In some circumstances, we would withhold from the rulemaking record a respondent's identity, as allowable by law. If you wish for us to withhold your name and/or address, you must state this request prominently at the beginning of your comment. However, we will not consider anonymous comments. We will make all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, available for public inspection in their entirety.

In accordance with our policy published in the Federal Register on July 1, 1994 (59 FR 34270), we will seek the expert opinions of at least three appropriate and independent specialists regarding this proposed rule. The purpose of such review is to ensure listing decisions are based on scientifically sound data, assumptions, and analyses. We will send these peer reviewers copies of this proposed rule immediately following publication in the Federal Register . We will invite these peer reviewers to comment, during the public comment period, on the specific assumptions and conclusions regarding the proposed designation of critical habitat.

We will consider all comments and information received during the 60-day comment period on this proposed rule during preparation of a final rulemaking. Accordingly, the final decision may differ from this proposal.

The Act provides for one or more public hearings on this proposal, if requested. Requests for public hearings must be made at least 15 days prior to the close of the public comment period. Such requests must be made in writing and be addressed to the Field Supervisor of our Ventura Fish and Wildlife Office (see ADDRESSES section). We will schedule public hearings on this proposal, if any are requested, and announce the dates, times, and places of those hearings in the Federal Register and local newspapers at least 15 days prior to the first hearing.

Executive Order 12866 requires each agency to write regulations/notices that are easy to understand. We invite your comments on how to make proposed rules easier to understand including answers to questions such as the following: (1) Are the requirements in the document clearly stated? (2) Does the proposed rule contain technical language or jargon that interferes with the clarity? (3) Does the format of the proposed rule (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce its clarity? (4) Is the description of the proposed rule in the SUPPLEMENTARY INFORMATION section of the preamble helpful in understanding the proposed rule? What else could we do to make the proposed rule easier to understand?

In accordance with Executive Order 12866, this document is a significant rule and has been reviewed by the Office of Management and Budget (OMB), under Executive Order 12866.

(a) This rule will not have an annual economic effect of $100 million or more or adversely affect an economic sector, productivity, jobs, the environment, or other units of government. The Morro shoulderband snail was listed as an endangered species in 1994. In fiscal years 1994 through 1999, we conducted nine formal section 7 consultations with other Federal agencies to ensure that their actions would not jeopardize the continued existence of the snail.

Under the Act, critical habitat may not be adversely modified by a Federal agency action; critical habitat does not impose any restrictions on non-Federal persons unless they are conducting activities funded or otherwise sponsored, authorized, or permitted by a Federal agency (see Table 2 below). Section 7 requires Federal agencies to ensure that they do not jeopardize the continued existence of the species. Based upon our experience with the species and its needs, we conclude that any Federal action or authorized action that could potentially cause an adverse modification of the proposed critical habitat would currently be considered as “jeopardy” under the Act. Accordingly, the designation of currently occupied areas as critical habitat does not have any incremental impacts on what actions may or may not be conducted by Federal agencies or non-Federal persons that receive Federal authorization or funding. Non-Federal persons that do not have a Federal “sponsorship” of their actions are not restricted by the designation of critical habitat (however, they continue to be bound by the provisions of the Act concerning “take” of the species).

(b) This rule will not create inconsistencies with other agencies' actions. As discussed above, Federal agencies have been required to ensure that their actions do not jeopardize the continued existence of the Morro shoulderband snail since the listing in 1994. The prohibition against adverse modification of critical habitat is not expected to impose any additional restrictions to those that currently exist because all of the proposed critical habitat occurs in occupied areas. Because of the potential for impacts on other Federal agency activities, we will continue to review this proposed action for any inconsistencies with other Federal agency actions.

(c) This rule will not materially affect entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients. Federal agencies are currently required to ensure that their activities do not jeopardize the continued existence of the species, and, as discussed above, we do not anticipate that the adverse modification prohibition (resulting from critical habitat designation) will have any incremental effects in areas of occupied habitat.

(d) This rule will not raise novel legal or policy issues. The proposed rule follows the requirements for determining critical habitat contained in the Act.

In the economic analysis (under section 4 of the Act), we will determine whether designation of critical habitat will have a significant effect on a substantial number of small entities. As discussed under Regulatory Planning and Review above, this rule is not expected to result in any restrictions in addition to those currently in existence for areas of occupied critical habitat. As indicated on Table 1 (see Proposed Critical Habitat Designation section), we designated property owned by State and local governments, and private property.

Within these areas, the types of Federal actions or authorized activities that we have identified as potential concerns are:

(1) Activities conducted by the USACE ( e.g. ordnance removal);

(2) Road construction and maintenance funded by the FHA; and

(3) Other activities funded or permitted by Federal agencies ( e.g., EPA, FEMA).

Many of these activities sponsored by Federal agencies within the proposed critical habitat areas are carried out by small entities (as defined by the Regulatory Flexibility Act) through contract, grant, permit, or other Federal authorization. As discussed above, these actions are currently required to comply with the listing protections of the Act, and the designation of critical habitat is not anticipated to have any additional effects on these activities.

For actions on non-Federal property that do not have a Federal connection (such as funding or authorization), the current restrictions concerning take of the species remain in effect, and this rule will have no additional restrictions.

In the economic analysis, we will determine whether designation of critical habitat will cause (a) any effect on the economy of $100 million or more, (b) any increases in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (c) any significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. As discussed above, we anticipate that the designation of critical habitat will not have any additional effects on these activities in areas of critical habitat occupied by the species.

In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 et seq. ):

(a) This rule will not “significantly or uniquely” affect small governments. A Small Government Agency Plan is not required. Small governments will be affected only to the extent that any programs having Federal funds, permits, or other authorized activities must ensure that their actions will not adversely affect the critical habitat. However, as discussed above, these actions are currently subject to equivalent restrictions through the listing protections of the species, and no further restrictions are anticipated to result from critical habitat designation of occupied areas.

(b) This rule will not produce a Federal mandate of $100 million or greater in any year; that is, it is not a “significant regulatory action” under the Unfunded Mandates Reform Act. The designation of critical habitat imposes no obligations on State or local governments.

In accordance with Executive Order 12630, the rule does not have significant takings implications. A takings implication assessment is not required. As discussed above, the designation of critical habitat affects only Federal agency actions. The rule will not increase or decrease the current restrictions on private property concerning take of the Morro shoulderband snail. Due to current public knowledge of the species protection, the prohibition against take of the species both within and outside of the designated areas, and the fact that critical habitat provides no incremental restrictions in areas of occupied critical habitat, we do not anticipate that property values will be affected by the critical habitat designation. Additionally, critical habitat designation does not preclude development of HCPs and issuance of incidental take permits. Landowners in areas that are included in the designated critical habitat will continue to have the opportunity to utilize their property in ways consistent with the survival of the Morro shoulderband snail.

In accordance with Executive Order 13132, the rule does not have significant Federalism effects. A Federalism assessment is not required. In keeping with Department of the Interior policy, we requested information from and coordinated development of this critical habitat proposal with appropriate State resource agencies in California. The designation of critical habitat in areas currently occupied by the Morro shoulderband snail imposes no additional restrictions to those currently in place and, therefore, has little incremental impact on State and local governments and their activities. The designation may have some benefit to these governments in that the areas essential to the conservation of the species are more clearly defined and the primary constituent elements of the habitat necessary to the survival of the species are specifically identified. By making this definition and identification, we would not alter where and what federally sponsored activities may occur. However, having this information may assist these local governments in long-range planning (rather than waiting for case-by-case section 7 consultations to occur).

In accordance with Executive Order 12988, the Office of the Solicitor has determined that the rule does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order. We propose to designate critical habitat in accordance with the provisions of the Act, and plan public hearings, if requested, on the proposed designation during the comment period. The rule uses standard property descriptions and identifies the primary constituent elements within the designated areas to assist the public in understanding the habitat needs of the Morro shoulderband snail.

This rule does not contain any information collection requirements that require Office of Management and Budget (OMB) approval under the Paperwork Reduction Act. An agency may not conduct or sponsor, and a person is not required to respond to collection of information unless it displays a currently valid OMB control number. OMB has up to 60 days to approve or disapprove the information collection but may respond after 30 days. Therefore, to ensure maximum consideration, you must send your comments to OMB by the above referenced date.

We have determined that we do not need to prepare an Environmental Assessment and/or an Environmental Impact Statement as defined by the National Environmental Policy Act of 1969 in connection with regulations adopted pursuant to section 4(a) of the Act. We published a notice outlining our reasons for this determination in the Federal Register on October 25, 1983 (48 FR 49244).

In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951) and 512 DM 2, we understand that Federally recognized Tribes must be related to on a Government-to-Government basis.

We determined that no Tribal lands are essential for the conservation of the Morro shoulderband snail because no Tribal lands support populations of snails or suitable habitat. Therefore, we are not proposing to designate critical habitat for the Morro shoulderband snail on Tribal lands.

Chambers, S.M. 1997. Channel Islands and California desert snail fauna. Pages 25-27, 52, 53 in Mac, M.J., P.A. Opler, C.E. Puckett Haecker, and P.D. Doran, eds. Status and trends of the Nation's biological resources. U.S. Department of the Interior, U.S. Geological Survey, Washington D.C.

Hemphill, H. 1911. Descriptions of some varieties of shells with short notes on the geographical range and means of distribution of land shells. Transactions of the San Diego Society of Natural History (1):99-108.

Hill, D.L. 1974. Helminthoglypta walkeriana: A rare and endangered land mollusc. Senior Project, California Polytechnic State University, San Luis Obispo. 21 pp.

Roth, B. 1985. Status survey of the banded dune snail, Helminthoglypta walkeriana . Unpublished report prepared for U.S. Fish and Wildlife Service, Sacramento, California. 27 pp. + figures.

U.S. Fish & Wildlife Service. 1998. Recovery plan for the Morro shoulderband snail and four plants from western San Luis Obispo County, California. U.S. Fish and Wildlife Service, Portland, Oregon. 75 pp.

The primary authors of this document are Greg Sanders and Ron Popowski of our Ventura Fish and Wildlife Office (see ADDRESSES section).

For the reasons given in the preamble, we propose to amend 50 CFR part 17 as set forth below:

Scutellaria montana is a perennial herb with solitary, erect, four-angled, hairy stems usually from 30 to 50 centimeters (cm) (11 to 19 inches (in)) tall. The leaves are lanceolate (shaped like a lance-head, several times longer than wide, broadest above the base and narrowed to the apex) to ovate (egg-shaped, with the broader end at the base), on 1 to 2 cm (0.4 to 0.8 in) petioles (the stalk of a leaf that attaches it to the stem), with blades (the expanded portion of a leaf) 5 to 8 cm (2 to 3 in) long and 3 to 5 cm (1 to 2 in) wide. The leaf margins (the edge of the leaf) are crenate (rounded, tooth-like edges) to serrate (having sharp teeth pointing forward) and hairy on both surfaces. The inflorescence (the flowering part of a plant) is a terminal (at the end of the stalk), leafy-bracted (a “modified” leaf) raceme (simple flower), with or without paired lateral racemes at the base. The calyx (the outer part of the flower) is two-lobed with a “cap” just above the base of the upper lobe (characteristic of the genus Scutellaria ). The corolla (petals) is relatively large, 2.6 to 3.5 cm (1 to 1.4 in) long, blue and white, and lacking a fleshy ridge (annulus) within the corolla tube near the top of the calyx. Flowering occurs from mid-May to early June, and fruits mature in June and early July.

Bridges (1984) stated, “The genus Scutellaria can be easily recognized by its distinctive calyx, with a protrusion, or ‘cap’ on the upper lobe.” Scutellaria montana could be confused with other species of Scutellaria. Bridges (1984) also listed some important characters of Scutellaria montana : (1) A terminal inflorescence; (2) a large corolla at least 2.5 cm (1 in) long; (3) tapering or truncate (ending abruptly) leaf bases, never cordate (heart shaped); (4) a midstem with at least some stipitate (short stem) glandular hairs; (5) no sessile (without a footstalk of any kind) glands on the upper leaf surface, (6) a fairly densely pubescent (hairy) lower leaf surface, often with glandular hairs; and (7) a corolla tube lacking an annulus within.

Dr. A. W. Chapman described Scutellaria montana in 1878. Since then, the taxonomy of Scutellaria montana has undergone a period of debate. Penland (1924) reduced the taxon to a variety of Scutellaria serrata. Leonard (1927) later reinstated the species, but he made no distinction between Scutellaria pseudoserrata and Scutellaria montana (Collins unpublished). Epling (1942) restored the taxon to full species status and clarified the questions regarding the taxonomic differences between Scutellaria pseudoserrata and Scutellaria montana.

In the field, Scutellaria montana is most likely to be confused with Scutellaria pseudoserrata. The two species have a similar range and habitat and are sometimes found growing together. Scutellaria montana is the only species of Scutellaria that lacks an annulus within the corolla tube. Further, Scutellaria pseudoserrata has transparent sessile glands on the upper leaf surface and hairs only on the veins and leaf margins. In contrast, Scutellaria montana has a fine, even-mixed glandular and nonglandular “velvety” pubescence on the upper and lower leaf surface. Two other skullcaps that can occur in the same region are Scutellaria elliptica and Scutellaria ovata, both of which have smaller flowers and branching inflorescences. Scutellaria elliptica tends to have leaf margins with rounded teeth and noticeably longer hairs on the leaf, and Scutellaria ovata has strongly cordate leaf bases and flowers later in the season.

The pollination biology of this species has not been described. Collins (unpublished) and Cruzan (Shea and Hogan 1998) observed bees ( Apiodea ) visiting plants, and Kemp and Knauss (1990) observed butterflies, wasps, and hummingbirds occasionally visiting the plants.

Scutellaria montana is known from the southern portion of the Ridge and Valley Physiographic Province in Marion and Hamilton Counties in Tennessee; Dade, Floyd, Chattooga, Gordon, Catoosa, and Walker Counties in Georgia; and the Cumberland Plateau Province in Sequatchie, Marion, and Hamilton Counties in Tennessee.

According to Bridges (1984), the geological strata underlying the sites for Scutellaria montana include most of the major slope-forming formations of the region: shale, chert, limestone, and sandstone from Cambrian to Pennsylvanian in age. Most sites in Tennessee occur on the Upper Mississippian Pennington Formation and Lower Pennsylvanian sandstones and shales. Most of the sites in the Lookout Mountain portion of the Chickamauga-Chattanooga National Military Park are found on Fort Payne, St. Lewis, Warsaw, Monteagle, and Bangor Formations that underlie the Pennington Formations (McKerrow and Pyne 1993). The Georgia portion of the Ridge and Valley is underlain by Paleozoic rock such as sandstone, shales, and limestone (Lipps and DeSelm 1969). The Georgia sites are found on Mississippian Formations including Rome, Red Mountain, and Rockwood (Collins unpublished). Site elevations range from 189 meters (620 feet) to 562 m (1844 ft) above sea level.

All populations occur on colluvial soils over bedrock composed of shale, chert, or limestone. The soils are generally rocky, shallow, well-drained, and slightly acidic. Soil depth ranges from deep to a thin layer, no more than 3 cm (1.2 in) deep, over bedrock. In Georgia, the soil is generally stony, shaley, or cherty silt loam or silty clay loam ranging in depth from 0.2 m (8 in) to 1.4 m (55 in). The average pH is 5.6 and ranges from 4.5 to 6.3 (Collins unpublished).

Bridges (1984) described the habitat of Scutellaria montana as “. . . rocky, submesic to xeric, well-drained, slightly acidic slope, ravine and stream bottom forests in the Ridge and Valley and Cumberland Plateau provinces of Northwestern Georgia, and adjacent southeastern Tennessee (and probably Alabama).” Bridges (1984) also listed distinguishing characteristics of the forests where Scutellaria montana is found as: (1) A history of some natural pine occurrence; (2) a canopy dominated by oaks and hickories; (3) a mostly deciduous shrub layer with some evergreen Vaccinium ; (4) a moderately dense herb layer with mesic and xeric species; and (5) the site occurring on well-consolidated paleozoic to precambrian strata, often with some exposed rock.

Forest composition data has been collected on sites in the Marshall Forest and Marion County populations (Faulkner 1993; Collins, unpublished; Lipps 1966). Data from the sites where Scutellaria montana was first studied indicated that it occurred in late-successional forests. Studies of other sites suggest that it is more of a mid- to late-successional species (Bridges 1984; Collins, unpublished; Lipps 1966). At a Marion County, Tennessee, site, Faulkner (1993) observed Scutellaria montana persisting in an area where timbering activities had occurred and where the plants had been subjected to low-intensity ground fires. He concluded that, while individual plants established before the disturbance may survive, recruitment into disturbed sites is not likely. Fail and Sommers (1993) conducted a study on the Marshall Forest that suggests the associated species Quercus prinus (Chestnut oak) and Oxydendrum arboreum (Sourwood) may be producing toxic compounds that may be inhibiting growth and germination of Scutellaria montana near them.

Scutellaria montana does not appear to compete well with other herbaceous species, especially colonial plants that can propagate from extensive root structures, and is not found in thick herbaceous cover (Bridges 1984). While optimal light conditions are not yet known, plants grow in areas that receive a relatively greater amount of light at ground level, generally due to canopy disturbance (Sutter 1993). Nix (1993) states that “canopy coverage is probably the most important environmental factor that influences growth and survival.” However, disturbances to the canopy accompanied by disturbances to the soil can lead to increases in other herbaceous species that could be detrimental to Scutellaria montana.

When we listed Scutellaria montana in 1986, 10 populations were known; 7 in Georgia (4 in Floyd County, 2 in Walker County, and 1 in Gordon County) and 3 in Tennessee (2 in Hamilton County and 1 in Marion County). Now 32 populations are known. A population is being defined as an “occurrence” that is at least 0.5 miles from other occurrences, but we must take into account physical barriers (ridges, highways, etc.), contiguous habitat (occurrences could be 1 mile apart on the same ridge or slope), and richness or diversity of the occurrence. Based on criteria in the Large-flowered Skullcap Recovery Plan, a population is considered self-sustaining, or viable if it has a minimum of 100 individuals.

Georgia is now known to have 15 populations. In Floyd County, there are 7 known populations that range in size from a few plants to about 1,300 plants. Three of these populations are considered self-sustaining. Two of the three self-sustaining populations are protected on lands owned by The Nature Conservancy. Catoosa County, Georgia, is currently known to have 4 populations ranging in size from 10 to about 200 plants. One population (100-200 plants) is self-sustaining and is protected (Catoosa County Park). Walker County, Georgia, has 2 populations of 5 and 60 plants respectively, which do not meet the minimum criteria of 100 individuals for self-sustaining status. Additionally, there is an introduced population on the Chattahoochee National Forest in Walker County (not included in recovery criteria for downlisting). A single, nonviable population of 15 plants occurs in Dade County, Georgia, near the Lookout Mountain population in Tennessee. Another single nonviable population of an estimated 50 plants occurs in Chattooga County, Georgia. One population known from Gordon County, Georgia, was extirpated when the area was clearcut in 1986.

Tennessee is now known to have 17 populations. Hamilton County has 13 known populations, 7 of which are considered self-sustaining. These populations range in size from just a few plants to more than 2,000 plants. Several Hamilton County populations are made up of several subpopulations, some of which are large enough to constitute self-sustaining populations by themselves but do not meet the necessary criteria of being separated by at least 0.5 miles from each other. Marion County, Tennessee, now has 2 populations ranging in size from about 50 plants to more than 40,000 plants at the Tennessee River Gorge. The Tennessee River Gorge is a population made up of 8 subpopulations, 2 of which contain more than 20,000 plants. The smaller Marion County site is protected, and 6 of the 8 subpopulations in the Tennessee River Gorge are protected (less than 1 percent of the plants are not protected). Two populations of 2 and 50 plants respectively, are known from Sequatchie County, Tennessee. Neither is protected nor considered self-sustaining.

Federal Government actions on this species began with section 12 of the Act (16 U.S.C. 1531 et seq. ), which directed the Secretary of the Smithsonian Institution (Smithsonian) to prepare a report on plants considered endangered, threatened, or extinct. This report, designated House Document No. 94-51, was presented to Congress on January 9, 1975. On July 1, 1975, we published a notice (40 FR 27823) that formally accepted the Smithsonian report as a petition within the context of section 4(c)(2) (now Section 4(b)(3)) of the Act. By accepting this report as a petition, we also acknowledged our intention to review the status of those plant taxa named within the report. Scutellaria montana was included in the Smithsonian report and the July 1, 1975, Notice of Review.

We published a revised Notice of Review for Native Plants on December 15, 1980 (45 FR 82480); Scutellaria montana was included as a category-1 species. Category 1 species were those for which we had information on file to support proposing them as endangered or threatened. On November 28, 1983, we published a supplement to the Notice of Review for native plants in the Federal Register (48 FR 53640). Scutellaria montana was changed to a category-2 species in this supplement. Category-2 species were those for which we had information indicating that proposing to list them as endangered or threatened may be appropriate but for which substantial data on biological vulnerability and threats were not currently known or on file to support the preparation of proposed listing rules. Subsequent to this notice, we received a draft status report on Scutellaria montana (Collins unpublished manuscript). This report and other available information indicated that the addition of Scutellaria montana to the Federal List of Threatened and Endangered species was appropriate.

All plants included in the comprehensive plant notices are treated as under petition. Section 4(b)(3)(B) of the Act, as amended in 1982, requires the Secretary to make certain findings on pending petitions within 12 months of their receipt. Section 2(b)(1) of the 1982 amendments further requires that all petitions pending on October 13, 1982, be treated as having been newly submitted on that date. This situation was the case for Scutellaria montana because of the acceptance of the 1975 Smithsonian report as a petition. On October 13, 1983, October 12, 1984, and October 11, 1985, we found that the petitioned listing of Scutellaria montana was warranted but precluded by other listing actions of higher priority and that additional data on vulnerability and threats were still being gathered. On September 27, 1985, Scutellaria montana was again included as a Category 1 species in the revised Notice of Review (50 FR 39526) and on November 13, 1985, we published in the Federal Register (50 FR 46797) a proposal to list Scutellaria montana as an endangered species. That proposal constituted the next 1 year finding as required by the 1982 amendments to the Endangered Species Act. A final rule placing Scutellaria montana on the Federal List of Threatened and Endangered Plants as an endangered species was published in the Federal Register on June 20, 1986 (51 FR 22521).

Since listing, Federal actions have included a variety of recovery actions funded or carried out by the Tennessee Valley Authority (TVA), National Park Service (NPS), U.S. Forest Service, and the Service, including searches for additional populations, habitat studies, translocations, and land management.

We have conducted numerous consultations under section 7 of the Act involving Scutellaria montana. More than 50 consultations have taken place in Tennessee, principally concerning road and bridge construction or maintenance. Most potential conflicts have been resolved early in the informal portion of the consultation process resulting in concurrence by us with “not likely to adversely affect” determinations. One formal consultation was conducted that resulted in a “no jeopardy” biological opinion. There have been three informal section 7 consultations regarding this species in Georgia, one of which is ongoing.

A recovery plan was completed for Scutellaria montana in 1996 (U.S. Fish and Wildlife Service 1996). The recovery plan provides the following criteria for downlisting. “If numbers of discrete populations increase to 25 (because of the discovery/establishment of additional populations) or the number of protected and managed self-sustaining populations becomes 10 or more (distributed throughout the known geographic range), the species will be considered for downlisting to threatened status.” The recovery plan also provides a description of protected and managed self-sustaining populations as follows: “A population will be considered adequately protected when it is legally protected and all needed active management is provided. A population will be considered “self-sustaining” if monitoring data support the conclusion that it is reproducing successfully and is stable or increasing in size. The minimum number of individuals necessary for a self-sustaining population should be considered at least 100 until otherwise determined by demographic studies.”

The criteria for downlisting have been met through both the number of known populations (32) and the number of self-sustaining, protected populations (11) distributed throughout the range of the species. Though no formal written agreements have been developed with the principle landowners where protected, self-sustaining populations occur (The Nature Conservancy, the States of Georgia and Tennessee, Tennessee Valley Authority and National Park Service), managers of these lands are committed to the conservation of these populations and are actively involved as part of the recovery team.

Section 4(a)(1) of the Act (16 U.S.C. 1531 et seq. ) and regulations promulgated to implement the listing provisions of the Act (50 CFR Part 424) set forth five criteria to be used in determining whether to add, reclassify, or remove a species from the list of threatened and endangered species. These factors and their application to Scutellaria montana (large-flowered skullcap) are as follows:

In 1986, when Scutellaria montana was listed as endangered, there were 7 populations known in Georgia and 3 in Tennessee. Over 90 percent of the 7,000 individual plants known in 1986 occurred at only two sites, neither of which was completely protected. At the time of listing the most significant threats were logging, wildfires, livestock grazing, and residential development. In 1986, 80 percent of the site with the largest known population had been subdivided and was being offered for sale. A large portion of the second-largest population at that time was on land owned by The Nature Conservancy and was therefore afforded protection. The third largest population occurred on privately owned land and had no protection from potential land use changes. All remaining 1986 populations were extremely small, consisting of 4 to 60 plants, and were vulnerable to even the slightest modification of their remaining habitat. It was thought at the time of listing that one population had possibly been destroyed by timber operations conducted prior to the landowner becoming aware of the presence of Scutellaria montana on the property.

This species status has improved largely due to the fact that 20 (63 percent) of the 32 known populations are currently afforded protection through occurrence on lands owned by conservation organizations, county parks, or on Federal lands (11 of these protected populations are considered viable), and through the discovery of additional populations. However, threats to the species' habitat and future security still exist. Further, most of the plants (more than 85 percent) continue to occur in only two populations.

Habitat destruction caused by logging, residential development, clearing of wooded areas for pasture, grazing, and wildfire all continue to pose some degree of threat to the species. One population of Scutellaria montana, described in the final rule for this species, was lost due to clearcutting activities. Damage caused by off-road vehicles and hikers (trampling) has been noted at several sites, and the maintenance (widening) or rerouting of hiking trails is also a potential threat. Rapid urbanization in and around the Chattanooga area also poses a significant threat.

In 1986, Scutellaria montana was not a significant component of the commercial trade in native plants. Significant commercial trade in Scutellaria montana is not currently known to occur or expected in the future, and no significant import or export is expected. Therefore, taking of Scutellaria montana for these purposes is not considered a threat.

While predation by animals, especially deer, has been observed at several sites, predation does not appear to be a factor affecting the continued existence of the species at this time. Some individual plants have been affected by disease, but this factor appears to affect only a few individuals and is not a threat to the species.

Though there is less protection afforded to threatened plants than to endangered plants under section 9 of the Act, the protection currently afforded and that would continue to be afforded this species under the Act is significant enough that inadequate regulatory protection cannot be considered a threat. Further, both Georgia (Ga. Code Ann. §§ 27-3-130 et seq. ) and Tennessee (Tenn. Code Ann. §§ 70-8-301 et seq. ) have rare plant protection laws that also protect this species.

Half (16) of the known Scutellaria montana populations occur on privately owned lands. Of these, 12 populations receive no protection. All of two populations and a portion of two others are owned by conservation groups that are active in management for the conservation of Scutellaria montana.

Of the populations that are not on privately owned land, one population occurs on county land (on a nature park), a portion of one other population occurs on city-owned land, and two entire populations and a portion of three others occur on state-owned land. Except for the portion of one population occurring on city-owned land, all of these populations are being actively managed (Shea and Hogan 1998). In addition, nine entire populations and portions of three others occur on Federal land (TVA, NPS, and Department of Defense-U.S. Army) where they receive the protection afforded by section 7 of the Act.

Invasive species, such as Japanese honeysuckle ( Lonicera japonica ) and privet ( Ligustrum vulgare ), are currently a problem for some populations of Scutellaria montana. These non-native species are likely to continue to be a problem where disturbance allows these species to become established in proximity to Scutellaria montana on some smaller public areas and privately owned sites.

Several investigators have noted a low reproductive capacity for Scutellaria montana. The percentage of flowers that form fruit has been recorded at 30 and 44 percent in the Marshall Forest (Kemp and Knauss 1990), and, in another study, 91.5 percent of the plants did not form fruits (Kemp 1987). This reproductive rate is extremely low compared with other Scutellaria species that have 75 to 93 percent of the flowers producing mature nutlets (Collins 1976).

Scutellaria montana also produces fewer seeds per fruit compared with other members of the genus. Kemp and Knauss (1990) found that the fruit averaged 2.2-2.3 seeds rather than the 4 seeds that are possible. Similarly, Cruzan ( in Shea and Hogan 1998) found pollen present on 60 percent of the styles, but only 15 percent of these flowers set fruit with an average of 2 seeds per fruit.

We have carefully assessed the best scientific and commercial information available regarding the past, present, and future threats faced by Scutellaria montana in determining to propose this rule. Based on this evaluation, the preferred action is to reclassify Scutellaria montana from an endangered species to a threatened species. The Recovery Plan for Scutellaria montana states that the species is qualified for downlisting to threatened “. . . If numbers of discrete populations increase to 25 (because of the discovery/establishment of additional populations) or the number of protected and managed self-sustaining populations becomes 10 or more (distributed throughout the known geographic range) . . .” The criteria for downlisting have been met through both the number of known populations (32) and the number of viable (self-sustaining), protected populations (11) distributed throughout the range of the species.

Half (16) of the known Scutellaria montana populations are privately owned (all of two populations and a portion of two other are owned by conservation groups), one is County-owned, a portion of one is City-owned, and two entire populations and a portion of three others are State-owned. However, nine entire populations and portions of three others are on Federal land (TVA, NPS, and Department of Defense-U.S. Army).

Conservation measures provided to species listed as endangered or threatened under the Act include recognition, recovery actions, requirements for Federal protection, and prohibitions against certain practices. Recognition through listing encourages and results in conservation actions by Federal, State, and private agencies, groups, and individuals. The protection required of Federal agencies and the prohibitions against taking and harm are discussed, in part, below.

Section 7(a) of the Act, as amended, requires Federal agencies to evaluate their actions with respect to any species that is proposed or listed as endangered or threatened and with respect to its critical habitat, if any is being designated. Regulations implementing this interagency cooperation provision of the Act are codified at 50 CFR part 402. If a Federal action may affect a listed species or its critical habitat, the responsible Federal agency must enter into formal consultation with the Service. No critical habitat is being proposed for designation with this proposed rule.

The Act and its implementing regulations set forth a series of general prohibitions and exceptions that apply to all threatened plants. However, unlike endangered plants, not all prohibitions of section 9(a)(2) of the Act apply (50 CFR 17.71). Those prohibitions that do apply, in part, make it illegal for any person subject to the jurisdiction of the United States to import or export, transport in interstate or foreign commerce in the course of a commercial activity, sell or offer for sale in interstate or foreign commerce, or remove and reduce to possession any threatened plant species from areas under Federal jurisdiction.

Under the Act, reclassifying Scutellaria montana from endangered to threatened status will continue to protect Scutellaria montana on areas under Federal jurisdiction. Collection, removal and possession of plants found on Federal land is prohibited. Activities including removal, cutting, digging up, damaging, or destroying threatened plants on non-Federal lands would constitute a violation of State natural resource laws or regulations. Such actions if conducted in the course of violating State criminal trespass laws may also be subject to prosecution.

The Act and 50 CFR 17.72 also provide for the issuance of permits to carry out otherwise prohibited activities involving threatened plants under certain circumstances. Such permits are available for scientific purposes and to enhance the propagation or survival of the species. For threatened plants, permits are also available for botanical or horticultural exhibition, educational purposes, or special activities consistent with the purposes of the Act. We anticipate that few trade permits would ever be sought.

Questions regarding whether specific activities will constitute a violation of section 9 should be directed to the Field Supervisors of either the Service's Asheville Field Office (see the “Addresses” section); the North Georgia Field Office, 380 Meigs St., Athens, Georgia 30601 (706/613-9493); or the Cookeville Field Office, U.S. Fish and Wildlife Service, 446 Neal Street, Cookeville, Tennessee 38501 (615/528-6481). Requests for copies of regulations regarding listed species and inquiries about prohibitions and permits may be addressed to the U.S. Fish and Wildlife Service, Ecological Services Division, 1875 Century Boulevard, Atlanta, Georgia 30345 (Phone 404/679-7088; Fax 404/679-7081).

This proposed rule proposes to change the status of Scutellaria montana at 50 CFR 17.12 from endangered to threatened. If made final, this rule would formally recognize that this species is no longer in imminent danger of extinction throughout all or a significant portion of its range. Reclassification would not significantly alter the protection for this species under the Act. Anyone taking, attempting to take, or otherwise possessing Scutellaria montana in violation of section 9 is still subject to a penalty under section 11 of the Act. There is no difference in penalties for the illegal take of endangered species versus threatened species. Section 7 of the Act would still continue to protect this species from Federal actions that would jeopardize its continued existence.

Finalization of this rule will not be an irreversible commitment on the part of the Service. Reclassifying Scutellaria montana to endangered would be possible should changes occur in management, habitat, or other factors that alter the species' status or increase threats to its survival.

We intend that any final action resulting from this proposal will be as accurate and as effective as possible. Therefore, comments or suggestions from the public, other concerned governmental agencies, the scientific community, industry, or any other interested party concerning this proposed rule are hereby solicited. Comments particularly are sought concerning:

(1) Biological, commercial trade, or other relevant data concerning any threat (or lack thereof) to Scutellaria montana;

(2) The location of any additional populations of Scutellaria montana ;

(3) Additional information concerning the range and distribution of this species; and

(4) Current or planned activities in the subject area and their possible impacts on Scutellaria montana .

In promulgating a final regulation on Scutellaria montana, we will take into consideration the comments and any additional information we receive, and such communications may lead to adoption of a final regulation that differs from this proposal.

The Act provides for a public hearing on this proposal, if requested. Requests must be filed within 45 days of the date of this proposal. Such requests must be made in writing and addressed to the State Supervisor, Asheville Field Office, U.S. Fish and Wildlife Service, 160 Zillicoa Street, Asheville, North Carolina 28801.

This proposed rule does not contain any new collections of information other than those already approved under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. , and assigned Office of Management and Budget clearance number 1018-0094. 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 control number. For additional information concerning permit and associated requirements for threatened species, see 50 CFR 17.72.

We have determined that an Environmental Assessment, as defined under the authority of the National Environmental Policy Act of 1969, need not be prepared in connection with regulations adopted pursuant to section 4(a) of the Act. A notice outlining our reasons for this determination was published in the Federal Register on October 25, 1983 (48 FR 49244).

The primary author of this proposed rule is Mr. J. Allen Ratzlaff (See ADDRESSES section).

We propose to amend part 17, subchapter B of Chapter I, title 50 of the Code of Federal Regulations, as set forth below:

The fisheries for reef fish in the EEZ of the Gulf of Mexico are managed under the Fishery Management Plan for the Reef Fish Resources of the Gulf of Mexico (FMP). The FMP was implemented under the authority of the Magnuson-Stevens Fishery Conservation and Management Act by regulations at 50 CFR part 622.

Entry to the commercial reef fish fishery in the Gulf of Mexico is already limited by a permit system. The fishery is conducted with a variety of gears. The Council is concerned that some of these gears, particularly bottom longline gear, may be so efficient that users of those gears are harvesting a disproportionate share of the commercial grouper quota or are harvesting at a rate that is inconsistent with providing a year-round fishery. Additionally, NMFS' Office of Sustainable Fisheries, Highly Migratory Species Division (HMS Division), and Congress are considering proposals that would restrict the use of pelagic longline gear in the Gulf of Mexico and in the Atlantic. The HMS Division has published a proposed rule that would restrict the use of pelagic longline gear in Atlantic Ocean and Gulf of Mexico waters (64 FR 69982, December 15, 1999). The Council is concerned that these proposals, if implemented, could result in a shift in effort from the pelagic longline fishery to the reef fish bottom longline fishery or other reef fish fisheries. Such effort shift could have an adverse impact on the allocation of the available reef fish resources among historical participants. The Council is also concerned about the incidental mortality of non-targeted species, impacts on essential fish habitat, and ghost fishing of unattended or abandoned gear. For these reasons, the Council is considering the need to evaluate the use of gears in the commercial reef fish fishery, and possibly to recommend limits on the use of some gears to ensure a fair and equitable allocation of the available resources, prevent overfishing and habitat destruction, and minimize bycatch mortality.

Commercial harvest of reef fish from the EEZ of the Gulf of Mexico using several gears or harvest methods is currently prohibited. Under 50 CFR 622.31, explosives and poison may not be used to fish for reef fish, and the possession of explosives onboard a vessel that is fishing in the EEZ for reef fish or that has a Federal vessel fishing permit for reef fish is prohibited. Under 50 CFR 622.39(a)(2), vessels that have trawl gear or entangling net gear onboard are restricted to the recreational bag and possession limits of reef fish (which cannot be sold). FMP Amendment 5 imposed a moratorium in 1994 on the number of vessels authorized to fish for reef fish using fish traps. FMP Amendment 14 established a limited entry system for the fish trap fishery and prohibits the use of fish traps to fish for reef fish in the EEZ after February 7, 2007.

NMFS published a final rule in the Federal Register (64 FR 67511, December 2, 1999) that lists authorized fisheries and fishing gear (LOF) for each fishery under the authority of a regional fishery management council or under the authority of the Secretary of Commerce (Secretary) with respect to Atlantic highly migratory species (HMS). Any person intending to fish with a gear or in a fishery in the EEZ not included in the LOF must give a 90-day advance notice to the appropriate regional fishery management council or to the Secretary with respect to HMS. For the Gulf of Mexico commercial reef fish fishery, the LOF listed the authorized gears as traps, pots, longline, buoy gear, handline, rod-and-reel, bandit gear, spear, powerhead, castnet, and trawl.

Implementation of an effort limitation program for gear used in the Gulf of Mexico reef fish fishery in the EEZ would require the Council's preparation of an FMP amendment and its submission to NMFS for Secretarial review, approval, and implementation. Under Secretarial review, NMFS would make the FMP amendment and its proposed rule available for public comment.

As the Council considers management options, some fishermen who do not currently participate in the commercial reef fish fishery with a particular gear, and have never done so, may decide to use that gear in the fishery for the sole purpose of establishing a record of landings. To avoid this first-time use of gear in order to establish a record of landings, the Council has established July 12, 2000 as a control date for gear eligibility. After that date, anyone not already using a particular gear, may not be eligible to continue using it if a management regime is developed and implemented limiting the number of fishery participants authorized to use that gear.

This notice of control date for gear eligibility applies to all gears listed in the LOF for the commercial reef fish fishery of the Gulf of Mexico, except for pots and traps, castnets, and trawls. Reef fish traps and pots are already under a limited entry system; therefore, application of this control date to reef fish traps and pots is unnecessary and inappropriate. Castnets are included in the LOF to allow fishermen to catch bait while on a reef fish trip but are not used to harvest reef fish directly. It is, therefore, unnecessary to include castnets in this notice of control date for gear eligibility. Bag and possession limits for Gulf reef fish apply to a person aboard a vessel with trawl gear onboard. Because the bag limits cannot be sold, such trawl gear is already excluded from the commercial reef fish fishery. However, groundfish vessels with bottom trawls may include reef fish bycatch in their unsorted catch. Because groundfish trawl vessels land their catch unsorted, it is impracticable to separate and release the reef fish bycatch. Consequently, groundfish vessels are exempted from the requirements for reef fish vessel permits, minimum size limits, bag limits, and quota closures. Groundfish trawls comprise a small fishery in the northern Gulf of Mexico, and are included in the LOF to accommodate the reef fish bycatch.

Announcement of a control date for gear eligibility does not commit the Council or NMFS to any particular management regime or criteria for authorization to use a gear in the commercial reef fish fishery. Fishermen are not guaranteed future participation with that gear in the fishery regardless of their entry date or intensity of participation in the fisheries before or after the control date for gear eligibility under consideration. The Council subsequently may choose a different control date for gear eligibility date or it may choose a management regime that does not make use of such a date. The Council may choose to give variably weighted consideration to fishermen active in the fishery with the gear before and after the control date for gear eligibility. Other qualifying criteria, such as documentation of landings and sales, may be applied for entry. The Council also may choose to take no further action to control use of gear in the fishery, in which case the control date for gear eligibility may be rescinded.

This advanced notice or proposed rulemaking has been determined to be not significant for purposes of E. O. 12866.

After introductions, the meeting will begin with a Stock Assessment Public Review Workshop. Staff from NMFS's Northeast Fisheries Science Center will present an advisory report on the status of monkfish, with brief updates on the scup, summer flounder and ocean quahog resources. A report from the Groundfish Committee will follow. It will include a lengthy discussion of possible management approaches to Amendment 13 to the Northeast Multispecies Fishery Management Plan for purposes of further consideration and development. Updates on management issues concerning spiny dogfish, sea scallops and the Council's Research Steering Committee will occur later in the day.

The second day of the meeting will begin with reports on recent activities from the Council Chairman, the Executive Director, the NMFS Regional Administrator, the Northeast Fisheries Science Center and Mid-Atlantic Fishery Management Council liaisons, and representatives of the Coast Guard, NMFS Enforcement, and the Atlantic States Marine Fisheries Commission. The Council's Magnuson-Stevens Act Committee will review comments developed on the reauthorization bills currently before Congress. During the Herring Committee Report to follow, Council staff will present the annual Stock Assessment and Fishery Evaluation (SAFE) Report for herring. The Council also will discuss the Scientific and Statistical Committee's review of SAFE Report elements and approve the annual herring specification recommendations to be forwarded to NMFS for the 2001 fishing year. The Council meeting will adjourn after addressing any other outstanding business.

Although other non-emergency issues not contained in this agenda may come before this Council for discussion, those issues may not be the subject of formal action during this meeting. Council action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Conservation and Management Act, provided the public has been notified of the Council's intent to take final action to address the emergency.

The New England Council will consider public comments at a minimum of two Council meetings before making recommendations to the National Marine Fisheries Service Regional Administrator on any framework adjustment to a fishery management plan. If she concurs with the adjustment proposed by the Council, the Regional Administrator has the discretion to recommend publication of the action either as proposed or final regulations in the Federal Register . Documents pertaining to framework adjustments are available for public review 7 days prior to a final vote by the Council.

This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Paul J. Howard (see ADDRESSES ) at least five days prior to the meeting date.