This proposal is issued under Marketing Order No. 985 (7 CFR part 985), as amended, regulating the handling of spearmint oil produced in the Far West (Washington, Idaho, Oregon, and designated parts of Nevada and Utah), hereinafter referred to as the “order.” This order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.

This proposal has been reviewed under Executive Order 12988, Civil Justice Reform. Under the provisions of the order now in effect, salable quantities and allotment percentages may be established for classes of spearmint oil produced in the Far West. This proposed rule would establish the quantity of spearmint oil produced in the Far West, by class, that may be purchased from or handled for producers by handlers during the 2002-2003 marketing year, which begins on June 1, 2002. This proposed rule would not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

Pursuant to authority in §§ 985.50, 985.51, and 985.52 of the order, the Committee recommended the salable quantities and allotment percentages for the 2002-2003 marketing year at its October 3, 2001, meeting. For Scotch spearmint oil, in a vote of six in favor, one opposed, and one abstention, the Committee recommended the establishment of a salable quantity and allotment percentage of 849,471 pounds and 45 percent, respectively. For Native spearmint oil, in a vote of seven in favor and one opposed, the Committee recommended the establishment of a salable quantity and allotment percentage of 800,761 pounds and 38 percent, respectively.

This proposed rule would limit the amount of spearmint oil that handlers may purchase from, or handle for, producers during the 2002-2003 marketing year, which begins on June 1, 2002. Salable quantities and allotment percentages have been placed into effect each season since the order's inception in 1980.

The U.S. production of spearmint oil is concentrated in the Far West, primarily Washington, Idaho, and Oregon (part of the area covered by the marketing order). Spearmint oil is also produced in the Midwest. The production area covered by the marketing order currently accounts for approximately 55 percent of the annual U.S. production of Scotch spearmint oil and over 90 percent of the annual U.S. production of Native spearmint oil.

When the order became effective in 1980, the United States produced nearly 100 percent of the world's supply of Scotch spearmint oil, of which approximately 72 percent was produced in the regulated production area in the Far West. The Far West continued to produce an average of about 69 percent of the world's Scotch spearmint oil supply during the period from 1980 to 1990. International production characteristics have changed since 1990, however, with foreign Scotch spearmint oil production contributing significantly to world production. The Far West's market share as a percent of total world sales has averaged about 44 percent since 1990.

During the period between 1996 and 2000, the Committee employed a marketing strategy for Scotch spearmint oil that was intended to foster market stability and expand market share. This marketing strategy was an attempt to remain competitive on an international level by regaining a substantial amount of the Far West's historical share of the global market for this class of oil. In implementing this strategy, the Committee had been recommending the establishment of a salable quantity and allotment percentage for Scotch spearmint oil in excess of the estimated trade demand for each marketing year. In the development of its annual marketing policy statements during this period, the Committee's strategy considered general market conditions for each class of spearmint oil, including the Far West's world market share as it relates to the overall market stability of spearmint oil.

During its deliberations at the October 11, 2000, meeting, however, the Committee concluded that this marketing strategy for Scotch spearmint oil had not been entirely effective. Although sales had increased, the Far West's market share as a percentage of total world sales had not increased on average, and the market price for Scotch spearmint oil had continued to decline throughout this period. During the 1998-1999 and 1999-2000 marketing years, the price paid to producers for Scotch spearmint oil dropped to a low of $7.00 per pound. Although the current price for Scotch oil has increased to between $7.50 and $8.00 per pound, the Committee continues to believe that such returns are generally below the cost of production for most producers, which, according to the Washington State University Cooperative Extension Service (WSU), is currently between $13.87 and $14.62 per pound.

For the 2001-2002 marketing year—the current marketing year—the Committee determined at its October 11, 2000, meeting, that it would attempt to stabilize prices at a reasonable level while still considering global market share. The Committee's transitional recommendation for Scotch spearmint oil for the 2001-2002 marketing year was, therefore, based on a desire to remain competitive on an international level while maintaining the supply of oil at a level that could enhance prices and help producers remain solvent. The 2001-2002 salable quantity is somewhat higher than the estimated trade demand. This shifted the Committee's Scotch spearmint oil market strategy from one considering primarily the Far West's share of the world market to an approach primarily considering current price, supply, and demand. This action made an adequate supply of Scotch spearmint oil available as evidenced by the substantial amount of oil carried into the marketing year.

Although still concerned with global spearmint oil market share, the Committee calculated the 2002-2003 Scotch spearmint oil salable quantity and allotment percentage by primarily utilizing information on price and available supply as they are affected by the estimated trade demand. The recommendation for 2002-2003 implements the Committee's stated intent of keeping adequate supplies available at all times, while trying to bring prices to growers to a level that will help them stay in business and still allow the industry to compete with less expensive oil produced outside the regulated area. The industry continues to be interested in expanding market share. The Committee's calculations are detailed below.

Despite the recent downward trend in the price of both classes of spearmint oil, the Committee believes that the order has contributed extensively to the stabilization of producer prices, which prior to 1980 experienced wide fluctuations from year to year. According to the National Agricultural Statistics Service, for example, the average price paid for both classes of spearmint oil ranged from about $4.00 per pound to about $12.50 per pound during the period between 1968 and 1980. Excluding the most recent three marketing years, prices since the order's inception have generally stabilized at about $11.00 per pound for Native spearmint oil and at about $13.00 per pound for Scotch spearmint oil. Over the last few years, the price has dropped to between $8.00 and $11.00 per pound and $9.00 and $10.00 per pound, respectively, for Scotch and Native spearmint oils despite the Committee's efforts to balance available supplies with demand. Based on comments made at the Committee's meeting, factors that are currently contributing to depressed prices include the general uncertainty being experienced through the U.S. economy and the continuing overall weak farm situation, as well as an abundant global supply of spearmint oil.

Conditions similar to those affecting the Scotch spearmint oil market contributed to the Committee's current recommendation for a salable quantity of 800,761 pounds and an allotment percentage of 38 percent for Native spearmint oil for the 2002-2003 marketing year. The supply and demand characteristics of the current Native spearmint oil market are keeping the price flat at about $9.00 per pound—a level the Committee considers too low for the majority of producers to maintain viability. The WSU study indicates that the cost of producing Native spearmint oil currently ranges from $10.26 to $10.92 per pound. Thus, with over 90 percent of the world production currently located in the Far West, the Committee's method of calculating the Native spearmint oil salable quantity and allotment percentage continues to primarily utilize information on price and available supply as they are affected by the estimated trade demand. The Committee's stated intent is to make adequate supplies available to meet market needs and improve producer prices.

The Committee based its recommendation for the proposed salable quantity and allotment percentage for each class of spearmint oil for the 2002-2003 marketing year on the information discussed above, as well as the data outlined below.

(A) Estimated carry-in on June 1, 2002—260,181 pounds. This figure is the difference between the estimated 2001-2002 marketing year trade demand of 860,000 pounds and the revised 2001-2002 marketing year total available supply of 1,120,181 pounds. The 2001-2002 marketing year total available supply was revised due to differences in the carry-in estimated on October 11, 2000, and the actual carry-in on June 1, 2001, as well as producer deficiencies on June 1, 2001. A producer is deficient when the producer is unable to produce oil equal to his or her salable quantity and is unable to fill this deficiency from reserve pool oil or excess oil from another producer. When prices are below the producer's costs of production, they reduce acres and produce less oil.

(B) Estimated trade demand for the 2002-2003 marketing year—875,000 pounds. This figure represents the Committee's estimate based on the average of the estimates provided by producers at five Scotch spearmint oil production area meetings held in September 2001, as well as estimates provided by handlers and others at the meeting. Handler trade demand estimates for the 2002-2003 marketing year ranged from 675,000 to 900,000 pounds. The last five year average sales were 936,000 pounds.

(C) Salable quantity required from the 2002-2003 marketing year production—614,819 pounds. This figure is the difference between the estimated 2002-2003 marketing year trade demand (875,000 pounds) and the estimated carry-in on June 1, 2002 (260,181 pounds).

(D) Total estimated allotment base for the 2002-2003 marketing year—1,887,713 pounds. This figure represents a one-percent increase over the revised 2001-2002 total allotment base. This figure is generally revised each year on June 1 due to producer base being lost based on the provisions of § 985.53(e). The revision is usually minimal.

(E) Computed allotment percentage—32.6 percent. This percentage is computed by dividing the required salable quantity by the total estimated allotment base.

(F) Recommended allotment percentage—45 percent. This recommendation is based on the Committee's determination that a decrease from the current season's allotment percentage of 48 percent to the computed 32.6 percent would be too drastic a reduction in a single year. The recommended level of 45 percent is also only slightly below the 5-year average sales, and if sales in 2002-2003 are average or better, the carry-out would be reduced.

(G) The Committee's recommended salable quantity—849,471 pounds. This figure is the product of the recommended allotment percentage and the total estimated allotment base.

(H) Estimated available supply for the 2002-2003 marketing year—1,109,652 pounds. This figure is the sum of the 2002-2003 recommended salable quantity (849,471 pounds) and the estimated carry-in on June 1, 2002 (260,181 pounds).

(A) Estimated carry-in on June 1, 2002—198,583 pounds. This figure is the difference between the estimated 2001-2002 marketing year trade demand of 929,000 pounds and the revised 2001-2002 marketing year total available supply of 1,127,583 pounds.

(B) Estimated trade demand for the 2002-2003 marketing year—960,000 pounds. This figure is based on input from producers at the four Native spearmint oil production area meetings held in September 2001, from handlers, and from Committee members and other meeting participants at the October 3, 2001, meeting. The average estimated trade demand at the four production area meetings was 975,000 pounds.

(C) Salable quantity required from the 2002-2003 marketing year production—761,417 pounds. This figure is the difference between the estimated 2002-2003 marketing year trade demand (960,000 pounds) and the estimated carry-in on June 1, 2002 (198,583 pounds).

(D) Total estimated allotment base for the 2002-2003 marketing year—2,107,267 pounds. This figure represents a one percent increase over the revised 2001-2002 total allotment base. This figure is generally revised each year on June 1 due to producer base being lost based on the provisions of § 985.53(e). The revision normally involves a minimal amount of spearmint oil.

(E) Computed allotment percentage—36.1 percent. This percentage is computed by dividing the required salable quantity by the total estimated allotment base.

(F) Recommended allotment percentage—38 percent. This is the Committee's recommendation based on the computed allotment percentage, the average of the computed allotment percentage figures from the four production area meetings (38.1 percent), and input from producers and handlers at the October 3, 2001, meeting.

(G) The Committee's recommended salable quantity—800,761 pounds. This figure is the product of the recommended allotment percentage and the total estimated allotment base.

(H) Estimated available supply for the 2002-2003 marketing year—999,344 pounds. This figure is the sum of the 2002-2003 recommended salable quantity (800,761 pounds) and the estimated carry-in on June 1, 2002 (198,583 pounds).

The salable quantity is the total quantity of each class of spearmint oil which handlers may purchase from or handle on behalf of producers during a marketing year. Each producer is allotted a share of the salable quantity by applying the allotment percentage to the producer's allotment base for the applicable class of spearmint oil.

The Committee's recommended Scotch and Native spearmint oil salable quantities and allotment percentages of 849,471 pounds and 45 percent and 800,761 and 38 percent, respectively, are based on the Committee's goal of maintaining market stability by avoiding extreme fluctuations in supplies and prices and the anticipated supply and trade demand during the 2002-2003 marketing year. The proposed salable quantities are not expected to cause a shortage of spearmint oil supplies. Any unanticipated or additional market demand for spearmint oil which may develop during the marketing year can be satisfied by an increase in the salable quantities. Both Scotch and Native spearmint oil producers who produce more than their annual allotments during the 2002-2003 season may transfer such excess spearmint oil to a producer with spearmint oil production less than his or her annual allotment or put it into the reserve pool.

This proposed regulation, if adopted, would be similar to those which have been issued in prior seasons. Costs to producers and handlers resulting from this proposed action are expected to be offset by the benefits derived from a stable market and improved returns. In conjunction with the issuance of this proposed rule, the Committee's marketing policy statement for the 2002-2003 marketing year has been reviewed by USDA. The Committee's marketing policy statement, a requirement whenever the Committee recommends volume regulations, fully meets the intent of § 985.50 of the order. During its discussion of potential 2002-2003 salable quantities and allotment percentages, the Committee considered: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) prospective production of each class of oil; (4) total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Conformity with the USDA's “Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders” has also been reviewed and confirmed.

The establishment of these salable quantities and allotment percentages would allow for anticipated market needs. In determining anticipated market needs, consideration by the Committee was given to historical sales, as well as changes and trends in production and demand. This rule also provides producers with information on the amount of spearmint oil which should be produced for next season in order to meet anticipated market demand.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are 7 spearmint oil handlers subject to regulation under the order, and approximately 118 producers of Class 1 (Scotch) spearmint oil and approximately 107 producers of Class 3 (Native) spearmint oil in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $5,000,000, and small agricultural producers are defined as those whose annual receipts are less than $750,000.

Based on the SBA's definition of small entities, the Committee estimates that 2 of the 7 handlers regulated by the order could be considered small entities. Most of the handlers are large corporations involved in the international trading of essential oils and the products of essential oils. In addition, the Committee estimates that 30 of the 118 Scotch spearmint oil producers and 19 of the 107 Native spearmint oil producers could be classified as small entities under the SBA definition. Thus, a majority of handlers and producers of Far West spearmint oil may not be classified as small entities.

The Far West spearmint oil industry is characterized by producers whose farming operations generally involve more than one commodity, and whose income from farming operations is not exclusively dependent on the production of spearmint oil. A typical spearmint oil-producing operation has enough acreage for rotation such that the total acreage required to produce the crop is about one-third spearmint and two-thirds rotational crops. An average spearmint oil-producing farm has to have considerably more acreage than is planted to spearmint during any given season. Crop rotation is an essential cultural practice in the production of spearmint oil for weed, insect, and disease control. To remain economically viable with the added costs associated with spearmint oil production, most spearmint oil-producing farms fall into the SBA category of large businesses.

This proposed rule would establish the quantity of spearmint oil produced in the Far West, by class, that handlers may purchase from, or handle for, producers during the 2002-2003 marketing year. The Committee recommended this rule to help maintain stability in the spearmint oil market by avoiding extreme fluctuations in supplies and prices. Establishing quantities to be purchased or handled during the marketing year through volume regulations allows growers to plan their mint planting and harvesting to meet expected market needs. This action is authorized by the provisions of §§ 985.50, 985.51 and 985.52 of the order.

Small spearmint oil producers generally are not as extensively diversified as larger ones and as such are more at risk to market fluctuations. Such small farmers generally need to market their entire annual crop and do not have the luxury of having other crops to cushion seasons with poor spearmint oil returns. Conversely, large diversified producers have the potential to endure one or more seasons of poor spearmint oil markets because incomes from alternate crops could support the operation for a period of time. Being reasonably assured of a stable price and market provides small producing entities with the ability to maintain proper cash flow and to meet annual expenses. Thus, the market and price stability provided by the order potentially benefit the small producer more than such provisions benefit large producers. Even though a majority of handlers and producers of spearmint oil may not be classified as small entities, the volume control feature of this order has small entity orientation.

Demand for spearmint oil tends to be relatively stable from year-to-year. The demand for spearmint oil is expected to grow slowly for the foreseeable future because the demand for consumer products that use spearmint oil will likely expand slowly, in line with population growth.

Demand for spearmint oil at the farm level is derived from retail demand for spearmint-flavored products at retail such as chewing gum, toothpaste, and mouthwash. The manufacturers of these products are by far the largest users of mint oil. However, spearmint flavoring is generally a very minor component of the products in which it is used, so changes in the raw product price have no impact on retail prices for those goods.

Spearmint oil production tends to be cyclical. Years of large production, with demand remaining reasonably stable, have led to periods in which large producer stocks of unsold spearmint oil have depressed producer prices for a number of years. Shortages and high prices may follow in subsequent years, as producers respond to price signals by cutting back production.

The wide fluctuations in supply and prices that result from this cycle, which was even more pronounced before the creation of the marketing order, can create liquidity problems for some producers. The marketing order was designed to reduce the price impacts of the cyclical swings in production. However, producers have been less able to weather these cycles in recent years because of the decline in prices of many of the alternative crops they grow. As noted earlier, almost all spearmint oil producers diversify by growing other crops.

Instability in the spearmint oil subsector of the mint industry is much more likely to originate on the supply side than the demand side. Fluctuations in yield and acreage planted from season-to-season tend to be larger than fluctuations in the amount purchased by buyers.

The significant variability is illustrated by the fact that between 1980 and 2000, production tended to vary by 25 percent above and below the average production level of 1,888,810 pounds. The 25 percent figure (469,321 pounds) is the standard deviation around the average production level. Production in the shortest crop year was about 48 percent of the 21-year average and the largest crop was approximately 163 percent. A key consequence is that in years of oversupply and low prices, the season average producer price of spearmint oil is below the average cost of production (as measured by the Washington State University Cooperative Extension Service).

In an effort to stabilize prices, the spearmint oil industry uses the volume control mechanisms authorized under the order. This authority allows the Committee to recommend a salable quantity and allotment percentage for each class of oil for the upcoming marketing year. The salable quantity for each class of oil is the total volume of that oil which producers may sell during the marketing year. The allotment percentage for each class of spearmint oil is derived by dividing the salable quantity by the total allotment base.

Each producer is then issued an annual allotment certificate, in pounds, for the applicable class of oil, which is calculated by multiplying the producer's allotment base by the applicable allotment percentage. This is the amount of oil for the applicable class that the producer can sell.

By November 1 of each year, the Committee identifies any oil that individual producers have produced above the volume specified on their annual allotment certificates. This excess oil is placed in a reserve pool administered by the Committee.

There is a reserve pool for each class of oil which may not be sold during the current marketing year unless the Secretary approves a Committee recommendation to make a portion of the pool available. However, limited quantities of reserve oil are typically sold to fill deficiencies. A deficiency occurs when on-farm production is less than a producer's allotment. In that case, a producer's own reserve oil can be sold to fill that deficiency. Excess production (higher than the producer's allotment) can be sold to fill other producers' deficiencies.

In any given year, the total available supply of spearmint oil is composed of current production plus carry-over stocks from the previous crop. The Committee seeks to maintain market stability by balancing supply and demand, and to close the marketing year with an appropriate level of carry-out. If the industry has production in excess of the salable quantity, then the reserve pool absorbs the surplus quantity of spearmint oil, which goes unsold during that year, unless the oil is needed for unanticipated sales.

Under its provisions, the order may attempt to stabilize prices by (1) limiting supply and establishing reserves in high production years, thus minimizing the price-depressing effect that excess producer stocks have on unsold spearmint oil, and (2) ensuring that stocks are available in short supply years when prices would otherwise increase dramatically. The reserve pool grown in large production years and stocks are drawn down in short crop years.

An econometric model was used to assess the impact that volume control has on the prices producers receive for their commodity. Without volume control, spearmint oil markets would likely be over-supplied, resulting in low producer prices and a large volume of oil stored and carried over to the next crop year. The model estimates how much lower producer prices would likely be in the absence of volume controls.

The Committee estimated the available supply for both classes of oil at 2,108,996 pounds, and that the expected carry-in will be 458,764 pounds. Therefore, with volume control, sales by producers for the 2002-2003 marketing year should be limited to 1,650,232 pounds (the recommended salable quantity for both classes of spearmint oil).

The recommended salable percentages, upon which 2002-2003 producer allotments are based, are 45 percent for Scotch and 38 percent for Native. Without volume controls, producers would not be limited to these allotment levels, and could produce and sell additional spearmint. The econometric model estimated a $1.66 decline in average grower price per pound (from both classes or spearmint oil) resulting from the higher quantities produced and marketed without volume control. Northwest grower prices for both classes of spearmint oil for 1999 and 2000 averaged $9.13, based on National Agricultural Statistics Service data. The severe surplus situation for the spearmint oil market that would exist without volume controls in 2002-2003 would also likely dampen prospects for improved grower prices in future years because of the buildup in stocks.

The use of volume controls allows the industry to fully supply spearmint oil markets while avoiding the negative consequences of over-supplying these markets. The use of volume controls is believed to have little or no effect on consumer prices of products containing spearmint oil and will not result in fewer retail sales of such products.

The Committee discussed alternatives to this rule including higher and lower levels for the salable quantities and allotment percentages for both classes of oil, as well as not regulating the handling of spearmint oil during the 2002-2003 marketing year. The Committee also noted that the operation of the marketing order provides valuable statistical information on domestic and foreign markets to producers and other industry factors.

The Committee discussed and rejected the idea of not regulating Scotch spearmint oil, because of the severe price-depressing effects that would occur without volume control.

The Committee also considered alternative regulation levels for Scotch spearmint oil. The Committee explored maintaining the Scotch spearmint oil allotment percentage at the same level as the current year (48 percent) or increasing the percentage, allowing even more product into the market. These options were discussed at length by the Committee, producers, and handlers in attendance at the meeting. Both options were rejected because current supplies are very abundant and resultant prices are considered too low for general producer viability.

Finally, the Committee discussed recommending a level of regulation as low as a 32.6 percent allotment percentage. As noted earlier, the Committee determined that a drop in the allotment percentage for Scotch spearmint oil from 48 percent during the current year to 32.6 percent would likely be too extreme an adjustment in one marketing year. The Committee opted for a much smaller decline of 3 percentage points, to a salable percentage of 45 percent. The recommended salable quantity is 849,971 pounds.

One Committee member, however, voted against the recommended Scotch spearmint oil salable quantity and allotment percentage in support of a lower level. In consideration of the current, relatively depressed price for Scotch spearmint oil, he felt a more restrictive level of regulation would help to enhance returns to producers.

The general consensus of the individuals commenting during the meeting indicated strong support for a shift in Scotch spearmint oil marketing strategy from one considering primarily the Far West's share of the world market to an approach primarily considering current price, supply, and demand. The Committee's belief that the Scotch spearmint oil market can be improved and stabilized is reflected in its recommendation to establish the salable quantity and allotment percentage at 849,471 pounds and 45 percent, respectively.

The Committee discussed alternative allotment percentage levels for the other class of spearmint oil (Native) ranging from a low of about 35 percent to a high of about 41 percent. With the current price for Native spearmint oil lower than the 20-year average, and demand fairly flat, the Committee, after considerable discussion, determined that 800,761 pounds and 38 percent would be the most effective salable quantity and allotment percentage, respectively, for the 2002-2003 marketing year.

The one dissenting member stated that 38 percent is too great a change from the current season's allotment percentage of 45 percent, and that demand generally supports more supply than would be released at 38 percent. After a great deal of discussion, the Committee recommended the lower percentage as a means of balancing supplies with market needs. If more supplies are needed during the marketing year, the percentage could be increased.

The Committee's recommendation to establish salable quantities and allotment percentages for both classes of spearmint oil was made after careful consideration of all available information, including: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) prospective production of each class of oil; (4) total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Based on its review, the Committee believes that the salable quantity and allotment percentage levels recommended would achieve the objectives sought.

Without any regulations in effect, the Committee believes the industry would return to the pronounced cyclical price patterns that occurred prior to the order, and that prices in 2002-2003 would decline substantially below current levels.

As stated earlier, the Committee believes that the order has contributed extensively to the stabilization of producer prices, which prior to 1980 experienced wide fluctuations from year-to-year. National Agricultural Statistics Service records show that the average price paid for both classes of spearmint oil ranged from about $4.00 per pound to about $12.50 per pound during the period between 1968 and 1980. Prices have been consistently more stable since the marketing order's inception in 1980. Excluding the most recent three marketing years, prices since the order's inception have generally stabilized at about $13.00 per pound for Scotch spearmint oil and about $11.00 per pound for Native spearmint oil.

Over the last three years, however, large production and carry-in inventories have contributed to declining prices, despite the Committee's efforts to balance available supplies with demand. Over the last three years, prices have ranged from $8.00 to $11.00 per pound for Scotch spearmint oil and between $9.00 to $10.00 per pound for Native spearmint oil.

According to the Committee, the recommended salable quantities and allotment percentages are expected to achieve the goals of market and price stability, and price improvement.

As stated earlier, annual salable quantities and allotment percentages have been issued for both classes of spearmint oil since the order's inception. Reporting and recordkeeping requirements have remained the same for each year of regulation. These requirements have been approved by the Office of Management and Budget under OMB Control No. 0581-0065. Accordingly, this action would not impose any additional reporting or recordkeeping requirements on either small or large spearmint oil producers and handlers. All reports and forms associated with this program are reviewed periodically in order to avoid unnecessary and duplicative information collection by industry and public sector agencies. The USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this proposed rule.

The Committee's meeting was widely publicized throughout the spearmint oil industry and all interested persons were invited to attend and participate on all issues. In addition, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab.html. Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

A 15-day comment period is provided to allow interested persons the opportunity to respond to the proposal, including any regulatory and informational impacts of this action on small businesses. Fifteen days is deemed appropriate because this rule would need to be effective as soon as possible to provide producers sufficient time prior to the beginning of the 2002-2003 marketing year to adjust their cultural and marketing plans accordingly. All written comments received within the comment period will be considered before a final determination is made on this matter.

For the reasons set forth in the preamble, 7 CFR part 985 is proposed to be amended as follows:

On April 30, 1985 (50 FR 18267), the NRC published a notice of receipt of a petition for rulemaking (PRM-60-2) filed by the States of Nevada and Minnesota (petitioners) on January 21, 1985. The petition requested that the NRC amend its regulations in 10 CFR Part 60 that govern disposal of HLW in geologic repositories. The petitioners requested that NRC amend its regulations to add assurance requirements proposed by the EPA (40 CFR 191.14) in EPA's proposed rule (47 FR 58196; December 29, 1982) to establish generally applicable environmental standards for the management and disposal of spent nuclear fuel, HLW and transuranic wastes. EPA published its final environmental standards on September 19, 1985 (50 FR 38066). 1 The final standards included the assurance requirements of concern to petitioners (e.g., institutional controls and post-permanent closure monitoring), but EPA did not impose these requirements on facilities regulated by the NRC ( see 40 CFR 191.14 (1985)). The petitioners subsequently filed an amended petition with the NRC on September 30, 1985 (PRM-60-2A) and the NRC published a notice of receipt of the amended petition on December 19, 1985 (50 FR 51701).

The amended petition requested that NRC amend 10 CFR part 60 to: (1) incorporate regulations that are substantively equivalent to EPA's 1985 assurance requirements, and (2) incorporate regulations pertaining to NRC's potential adoption of the Final Environmental Impact Statement (FEIS) to be prepared by the U.S. Department of Energy (DOE) as part of its site recommendation of a potential geologic repository. In the notice of the amended petition, the NRC noted that rulemaking actions currently underway, when finalized, would address the concerns expressed by petitioners (50 FR 51703). The actions included proposed amendments to 10 CFR part 60 to eliminate inconsistencies between NRC's generic regulations and EPA's 1985 standards, and proposed amendments to 10 CFR part 51 on the adoption of DOE's FEIS. Accordingly, the notice advised readers that further consideration of the issues raised by petitioners would be deferred for consideration in these rulemakings. On July 3, 1989 (54 FR 27864), the NRC published a final rule, “NEPA Review Procedures for Geologic Repositories for High-Level Waste.” In that rulemaking, the NRC denied the portion of the amended petition proposing specific regulations to govern the process for adopting DOE's FEIS, but considered the concerns raised by petitioners on this issue in the process of formulating the final rule (54 FR 27868).

The notice of receipt of the petition for rulemaking invited interested persons to submit comments. The comment period closed on July 1, 1985, for PRM-60-2, and February 18, 1986, for PRM-60-2A. The NRC received eight comment letters on the petition and the amendment from seven commenters (one commenter provided comments on both PRM-60-2 and 60-2A). There were six comment letters on PRM-60-2 and two comment letters on PRM-60-2A. Of the seven commenters, five were from States and two were from representatives of the nuclear power industry. The State commenters agreed with petitioners that assurance requirements should be included in NRC regulations whereas the industry commenters believed that assurance provisions should be in guidance rather than the regulations.

Subsequent to submission of the petitions, two events occurred which substantially altered the legal landscape of the Government's program for the disposal of HLW. These events resulted in the Commission's withdrawal of its proposed amendments to conform 10 CFR part 60 to EPA's 1985 standards (63 FR 66498; December 2, 1998). First, in 1987, Congress amended the Nuclear Waste Policy Act of 1982 (NWPA) in the Nuclear Waste Policy Amendments Act (Public Law 100-203), to provide, among other things, that only the site at Yucca Mountain, Nevada, (YM) would be characterized for possible selection as a geologic repository. Second, in the Energy Policy Act of 1992 (Public Law 102-486), Congress required that EPA issue public health and environmental radiation protection standards that would apply solely to the YM site and that NRC modify its technical requirements and criteria to be consistent with the EPA standards. Pursuant to these statutory changes, the EPA issued its final standards applicable to YM in a new 40 CFR Part 197 on June 13, 2001 (66 FR 32074) and the NRC issued its final conforming requirements in a new 10 CFR part 63—“Disposal of High-Level Radioactive Wastes in a Proposed Geologic Repository at Yucca Mountain, Nevada” (66 FR 55732; November 2, 2001). In its rulemaking, the NRC also amended 10 CFR part 60 to make it clear that 10 CFR part 60 only applies to the licensing of repositories at sites other than Yucca Mountain.

The NRC is denying the petition, as amended, for the following reasons:

1. The petitioners' concerns were considered in the rulemaking establishing 10 CFR part 63 and the regulations in 10 CFR part 60 no longer apply to a repository at YM. Therefore, the petition, even if granted, would not affect the regulatory regime now in place for the licensing of a potential repository at the YM site.

The NRC has established a new set of regulations applicable specifically and exclusively to a proposed repository at YM in 10 CFR part 63. The issues raised by the petitioners were considered in the course of this rulemaking as explained below. However, the petitioners' requested amendments were specifically directed to the provisions contained in 10 CFR part 60, “Disposal of High-Level Radioactive Wastes in Geologic Repositories.” At the time the petition was filed, these regulations were applicable to any potential HLW repository that would be sited, constructed or operated under the NWPA, including one at YM. However, 10 CFR part 60 now has been amended, in light of the statutory changes brought about by the 1987 amendments to the NWPA and by the Energy Policy Act of 1992, to apply to any potential repository except one at YM.

2. There is no immediate need for revising 10 CFR part 60 and doing so would unnecessarily expend limited Commission resources.

In the rulemaking to establish separate requirements for a repository at YM, the Commission chose to leave its existing generic requirements intact and in place. The Commission acknowledged that if a need arises to apply the existing generic requirements at 10 CFR part 60, those requirements would need to be revised to account for developments in the capability of technical methods for assessing the performance of a geologic repository. See 64 FR 8641, 8643; February 22, 1999. However, the Commission expressed confidence that it would be afforded adequate time and resources in future years to amend its generic regulations for any additional repository site that might be authorized. Should it become necessary to revise these regulations, petitioners would have ample opportunity to suggest amendments. Barring such an eventuality, however, there is no immediate need to amend 10 CFR part 60 and doing so would unnecessarily expend limited Commission resources.

Although the Commission is denying the petition for the reasons stated above, the Commission considered the substantive issues raised in the petition in the development of NRC's final 10 CFR part 63 rule. A summary of how the petitioners' proposals are addressed in 10 CFR part 63 is provided below:

The petitioners proposed revisions to the regulations that provide further specification to the requirements for the monitoring program to be implemented after the repository has been permanently sealed ( i.e., post-permanent closure). Generally, the petitioners requested that post-permanent closure monitoring provide substantive confirmatory information regarding long-term repository performance at the time of license termination, post-permanent closure monitoring will not degrade repository performance, and that minimum requirements for the description of the monitoring program be established in the regulation ( e.g., parameters to be monitored and monitoring devices). The Commission's new regulations in 10 CFR part 63 address the petitioners' concerns in the requirements for a performance confirmation program and a program for post-permanent closure monitoring.

Although both the performance confirmation program and the post-permanent closure monitoring program include monitoring, the Commission considers these two programs to be distinctly different because each program addresses very distinct regulatory periods and decisions. The performance confirmation program is conducted up to the time of the decision to permanently close the repository. Thus, the performance confirmation data is used to inform and increase confidence in the Commission's decision on permanent closure of the repository. Objectives and requirements of the performance confirmation program are specified in subpart F of part 63 that are consistent with the petitioners' recommendations ( e.g., the performance confirmation program: monitors and evaluates subsurface conditions against design assumptions; confirms natural and engineered barriers are functioning as intended and anticipated; monitors and analyzes changes from the baseline condition of parameters that could affect repository performance; and is conducted in a manner that does not adversely affect repository performance). When DOE files an application to amend the license for permanent closure, it is required, by § 63.51(a)(1), to update its performance assessment of the repository with the performance confirmation data. Consistent with NRC's licensing procedures, this information and associated analyses will be available to all stakeholders.

The program of post-permanent closure monitoring begins after the performance confirmation program ends ( i.e., after the time of permanent closure). The program for post-permanent closure monitoring would only occur if the Commission reaches a positive finding on the amendment for permanent closure. If an amendment for permanent closure is granted, it is expected that the performance confirmation program would have provided further information to increase confidence that repository performance is expected to comply with the regulations. Post-permanent closure monitoring is not considered an extension of the confirmation program, but is intended as a more general program expected to monitor a variety of conditions (e.g., land-use controls established under § 63.121(b), safeguards information, and potential release of radionuclides into ground water) to ensure public health and safety is protected. The Commission did not specify details for the post-permanent closure monitoring program in 10 CFR part 63, as was provided for the performance confirmation program. DOE's development and NRC review of the post-permanent closure monitoring program, submitted as part of the license amendment for permanent closure, will benefit from the results of the performance confirmation program (anticipated to extend over tens of years). Therefore, the Commission considers the general requirement for a post-permanent closure monitoring program to be appropriate and additional details are neither necessary nor warranted at this time. As part of a license amendment for permanent closure [§ 63.51(a)(2)], the details of the post-permanent closure monitoring program will be subject to regulatory review and the NRC's licensing process.

The petitioners provided additional text for 10 CFR part 60 that would clarify the regulatory approach for institutional controls. First, the petitioners proposed definitions for active and passive institutional controls. The Commission agrees with the concepts for active and passive institutional controls as proposed by the petitioners and has included the essential elements of the petitioner's definitions in 10 CFR part 63. Specifically, 10 CFR part 63 includes a definition for passive institutional controls (§ 63.302) and provides specific requirements for active institutional controls in the regulation. Active institutional controls are specific actions required during, and beyond, the operational phase of a potential repository that are more appropriate as regulatory requirements rather than as parts of a definition. Specific aspects of the petitioner's proposed definition for “active institutional control” are provided in 10 CFR part 63, such as: (1) requirements for ownership and control of interests in land (§ 63.121); (2) program to control and monitor radioactive effluents during operations (§ 63.21); (3) performance confirmation program (Subpart F); and (4) plans for decontamination of surface facilities (§ 63.52). In addition, pursuant to the Energy Policy Act of 1992, DOE is required to provide post-closure oversight to prevent any activity at the site that poses an unreasonable risk of breaching the repository's engineered or geologic barriers or increasing exposures of the public beyond allowable limits. A detailed description of DOE's post-closure oversight program is required at § 63.51(a)(3).

Second, the petitioners requested a new section be added to 10 CFR part 60 clarifying that institutional controls will not assure compliance beyond 100 years after disposal, but that passive institutional controls may be considered in assessing the likelihood and consequences of processes and events affecting the geologic setting. A more restrictive approach for institutional controls has been implemented in EPA's final standards in 40 CFR part 197 and NRC's final standards in 10 CFR part 63 than was proposed in the petition. DOE is not allowed to rely on institutional controls to assure compliance and 10 CFR part 63 does not permit passive institutional controls to be considered in assessing the likelihood and consequences of processes and events. Both EPA's approach in 40 CFR part 197 and the Commission's approach in 10 CFR part 63 are based primarily on recommendations by the National Academy of Sciences (NAS).

In 1992, Congress directed EPA, at Section 801 of the Energy Policy Act of 1992, Public Law 102-486 (EnPA), to contract with the NAS to advise EPA on the appropriate technical basis for public health and safety standards governing the Yucca Mountain repository. On August 1, 1995, the NAS published its report entitled “Technical Bases for Yucca Mountain Standards.” The EnPA specifically asked the NAS to address the issue of the effectiveness of institutional controls to prevent breaching of the repository's engineered or geologic barriers as a result of human intrusion. The NAS concluded that it was not reasonable to assume that institutional controls will prevent breaching of the repository's barriers. Thus, the NAS recommended a stylized calculation be used to determine whether or not a human intrusion would substantially degrade repository performance as an approach to understand potential impacts to the repository. EPA's final standards in 40 CFR part 197 generally adopted the NAS approach. Consistent with statute, the NRC incorporated the EPA human intrusion standard in 10 CFR part 63. The regulations in 40 CFR part 197 require DOE to determine the earliest time after disposal that the waste package would degrade sufficiently that a stylized human intrusion could occur without recognition by the drillers. DOE must then analyze in a stylized scenario the consequences of a potential intrusion into the repository, whether such intrusion occurs before or after 10,000 years after disposal. EPA noted in the preamble to its final rule (66 FR 32073, at 32104, June 13, 2001) that “DOE's waste package performance estimates indicate that a waste package would be recognizable to a driller for at least thousands of years.” The petitioners' recommendation that passive institutional controls could be considered in assessing processes and events affecting the geologic setting is contrary to the NAS determination that it is not possible to make scientifically supportable predictions of the probability that a repository barrier will be breached as a result of human intrusion. Consistent with EPA's standards in 40 CFR part 197, the Commission has not included any provisions for the use of active or passive institutional controls to be used in determining the likelihood of processes and events. EPA's and NRC's final regulations for Yucca Mountain provide further details with regard to the adopted approach to human intrusion (66 FR 32073, at 32104, June 13, 2001; 66 FR 55732, at 55760, November 2, 2001).

The petitioners requested performance requirements for the multiple barrier system of the repository specify that each barrier should be designed or selected so that it complements the others and can significantly compensate for uncertainties about the performance of one or more of the other barriers. The regulations in 10 CFR part 63 require the repository to be comprised of multiple barriers (at least one engineered and one natural) and requires DOE to identify each barrier important to waste isolation, describe each barrier's capability to isolate waste, and provide the technical basis for each barrier's capability. In arriving at this approach, the Commission provided a technical basis in the proposed rule for 10 CFR part 63 (64 FR 8647; February 22, 1999) and considered public comments in the final rule for 10 CFR part 63 (66 FR 55758; November 2, 2001). This approach provides the Commission the information necessary to understand how all components of the repository system work together to ensure that the repository system is robust and not wholly dependent on a single barrier. The petitioners' request to include additional qualifying words such as “significantly compensate for uncertainties” are neither necessary nor warranted to ensure the Commission is provided sufficient information to make its regulatory decision.

The petitioners requested that the presence of significant concentrations of any naturally occurring material not widely available from other sources be added as a potentially adverse condition to be considered under siting criteria. Siting criteria were provided for in 10 CFR part 60, in part, to provide a basis for comparing different sites. The regulations in 10 CFR part 63 do not contain such criteria because the need for siting criteria was removed when the Nuclear Waste Policy Amendments Act directed DOE to characterize a single site. Therefore, the petitioners' suggestion is not relevant to 10 CFR part 63.

This section of the petition was reviewed by the Commission and denied in the NRC's final rule, “NEPA Review Procedures for Geologic Repositories for High-Level Waste” (54 FR 27864; July 3, 1989).

For the reasons cited in this document, the NRC denies this petition.

Interested persons are invited to participate in the making of these proposed special conditions by submitting such written data, views, or arguments as they may desire. Communications should identify the regulatory docket or notice number and be submitted in duplicate to the address specified above. All communications received on or before the closing date for comments will be considered by the Administrator. The proposals described in this notice may be changed in light of the comments received. All comments received will be available in the Rules Docket for examination by interested persons, both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerning this rulemaking will be filed in the docket. Persons wishing the FAA to acknowledge receipt of their comments submitted in response to this notice must include with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. CE173.” The postcard will be date stamped and returned to the commenter.

On July 12, 2001, Eclipse Aviation Corporation applied for a type certificate for their Model 500 airplane.

The Eclipse Model 500 airplane design includes digital electronic engine control systems, which were not envisaged and are not adequately addressed in 14 CFR part 23. The applicable existing regulations do not address electronic control systems since those were not envisioned at the time. Even though the engine control system will be certificated as part of the engine, the installation of an engine with an electronic control system requires evaluation due to the possible effects on or by other airplane systems (e.g., radio interference with other airplane electronic systems, shared engine and airplane power sources). The regulatory requirements were not applicable to sysems certificated as part of the engine (ref. § 23.1309(f)(1)). Also, electronic control systems often require inputs from airplane data and power sources and outputs to other airplane systems. Although the parts of the system that are not certificated with the engine could be evaluated using the criteria of § 23.1309, the integral nature of systems such as these makes it unfeasible to evaluate the airplane portion of the system without including the engine portion of the system. However, § 23.1309(f)(1) again prevents complete evaluation of the installed airplane system since evaluation of the engine system's effects is not required.

Under the provisions of 14 CFR § 21.17, Eclipse Aviation Corporation must show that the Eclipse Model 500 airplane meets the following:

(1) Applicable provisions of 14 CFR part 23, effective December 18, 1964, as amended by Amendments 23-1 through 23-54 (September 14, 2000).

(2) Part 34 of the Federal Aviation Regulations effective September 10, 1990, plus any amendments in effect on the date of type certification.

(3) Part 36 of the Federal Aviation Regulations effective December 1, 1969, as amended by Amendment 36-1 through the amendment in effect on the date of type certification.

(4) Noise Control Act of 1972.

(5) Special conditions that are not relevant to these proposed special conditions, if any;

(6) Exemptions, if any;

(7) Equivalent level of safety findings, if any; and

(8) Special conditions adopted by this rulemaking action.

If the Administrator finds that the applicable airworthiness regulations (i.e., part 23) do not contain adequate or appropriate safety standards for the Eclipse Model 500 airplane because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

Special conditions, as appropriate, as defined in § 11.19, are issued in accordance with § 11.38 after public notice and become part of the type certification basis in accordance with § 21.17(a)(2).

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, the special conditions would also apply to the other model under the provisions of § 21.101.

The Eclipse Model 500 airplane will incorporate the following novel or unusual design features: Digital electronic engine control systems. This notice proposes a special condition for a digital electronic engine control system on the Eclipse Model 500 airplane.

As discussed above, these special conditions are applicable to the Eclipse Model 500 airplane. Should Eclipse Aviation Corporation apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design feature, the special conditions would apply to that model as well under the provisions of § 21.101.

This action affects only certain novel or unusual design features on one model of airplanes. It is not a rule of general applicability, and it affects only the applicant who applied to the FAA for approval of these features on the airplane.

The authority citation for these special conditions is as follows:

Accordingly, the Federal Aviation Administration (FAA) proposes the following special conditions as part of the type certification basis for the Eclipse Aviation Corporation Model 500, airplane.

The installation of the electronic engine control system must comply with the requirements of § 23.1309(a) through (e) at Amendment 23-49. The intent of this requirement is not to re-evaluate the inherent hardware reliability of the control itself, but rather determine the effects, including environmental effects addressed in § 23.1309(e), on the airplane systems and engine control system when installing the control on the airplane. When appropriate, engine certification data may be used when showing compliance with this requirement.

Interested persons are invited to participate in the making of these proposed special conditions by submitting such written data, views, or arguments as they may desire. Communications should identify the regulatory docket or notice number and be submitted in duplicate to the address specified above. All communications received on or before the closing date for comments will be considered by the Administrator. The proposals described in this notice may be changed in light of the comments received. All comments received will be available in the Rules Docket for examination by interested persons, both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerning this rulemaking will be filed in the docket. Persons wishing the FAA to acknowledge receipt of their comments submitted in response to this notice must include with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to CE166.” The postcard will be date stamped and returned to the commenter.

On January 28, 2001, CAP Aviation applied for a type certificate for their new Model CAP 222. The CAP 222 is a two-place tandem seat, all carbon fiber composite made (wing and fuselage) low wing with no high lift devices. It is a fixed gear, unpressurized MTOW 1,600 pound airplane with aerobatic capabilities from −10g to +10g and a roll rate of 500 degrees per second. A single 200 horsepower Textron-Lycoming AEIO-360-A1E engine and two-bladed MT propeller, type MTV-12-B-C/C-183-17e, comprise the propulsion system.

Since the airplane is designed for high performance acrobatic maneuvers with a design flight envelope of +10g, special conditions are required to address the expanded flight envelope. Current 14 CFR Part 23 acrobatic category design requires that the flight envelope shall not be less than +6.0g, −3.0g.

Under the provisions of 14 CFR § 21.17, § 21.29, and § 21.183(c), CAP Aviation must show that the CAP Model 222 meets the applicable provisions of part 23, as amended by Amendments 23-1 through 23-53; 14 CFR part 36, effective December 1, 1969, including amendments 36-1 through the amendment effective on the date of type certification. In addition, the certification basis includes exemptions, if any, equivalent level of safety findings, if any, and the special conditions adopted by this rulemaking action.

If the Administrator finds that the applicable airworthiness regulations (i.e., part 23) do not contain adequate or appropriate safety standards for the CAP Model 222 because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

Special conditions, as appropriate, become part of the type certification basis in accordance with § 21.17(a)(2). Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, the special conditions would also apply to the other model under the provisions of § 21.101(a)(1).

The CAP Model 222 will incorporate the following novel or unusual design features:

An analysis of world championship acrobatic sequences shows a significant number of occurrences of high load factors up to ±10g.

For airplanes capable of performing “flick rolls” (snap rolls), the wing should be designed for 100/0 percent maximum wing load distribution, in addition to the roll maneuver criteria of § 23.349(b), unless lower values can be substantiated. These load conditions are based on a V A and C r max corresponding to the selected positive 10g design load factor. Unbalanced aerodynamic moments about the center of gravity must be reacted in a rational or conservative manner, considering the principal masses furnishing the reacting inertia forces. Furthermore, consideration should be given to the fact that pilots may make significant aileron control input above V A ; therefore, a warning prohibiting unrestricted control system input above V A should be included in the Pilot Operating Handbook/Airplane Flight Manual (POH/AFM) and on a cockpit placard.

For airplanes capable of performing “flick rolls” (snap rolls), the empennage should be designed for 100/0 percent maximum load distribution unless lower values can be substantiated. The use of rational flight test results is preferred as a basis for design. Pilots may make significant rudder and elevator controls inputs above V A , therefore, adequate pilot warnings such as discussed above are necessary.

Rational chord load distributions should be used for the vertical and horizontal tail surfaces. These may be developed by flight test data, wind tunnel test data, theoretical analysis, or a combination thereof.

Since the airplane will be performing maneuvers that generate high pitch and yaw rates, the airplane, including the engine, engine mount, and fuselage attachment, must be designed for rational gyroscopic forces generated in specific acrobatic maneuvers.

The fatigue load should be developed from representative sequences and cross country flight profiles.

As discussed above, these special conditions are applicable to the Model CAP 222. Should CAP Aviation apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design feature, the special conditions would apply to that model as well under the provisions of § 21.101(a)(1).

This action affects only certain novel or unusual design features on the CAP Model 222 airplane. It is not a rule of general applicability, and it affects only the applicant who applied to the FAA for approval of these features on the airplane.

The authority citation for these special conditions is as follows:

Accordingly, the Federal Aviation Administration (FAA) proposes the following special conditions as part of the type certification basis for CAP Model 222 airplanes.

1. Wing. For the “flick roll” condition in § 23.347(b), a 100/0 percent wing load distribution should be used for wing design. Accurate flight test load measurements may be used in lieu of the 100/0 percent maximum airload distribution. A notation shall be placed in the Limitations Section of the POH/AFM, and an appropriate warning placard shall be installed on the main instrument panel prohibiting full or abrupt control inputs above V A .

2. Empennage. The horizontal tail and its attachments to the fuselage, and the aft fuselage must be designed for the worst case load condition using either accurate flight test load measurements or an acceptable analytical method. Unsymmetrical load combinations acting on the wing and on the horizontal tail are assumed to be turning the airplane in the same direction around the roll axis. A notation shall be placed in the limitation section of the POH/AFM, and an appropriate warning placard shall be installed on the main instrument panel prohibiting full or abrupt control inputs above V A . Rational chord load distributions should be used for the vertical and horizontal tail surfaces. Appropriate data must be used to develop unsymmetrical loading of the horizontal tail surface and as a basis for fuselage torsion. This must include simultaneous application of full rudder and elevator input.

3. Gyroscopic Forces. The airplane, including the engine, engine mount, and fuselage attachment, must be designed for rational gyroscopic forces generated in acrobatic maneuvers.

4. Fatigue. Representative acrobatic sequences and cross-country flight profiles must be used in establishing a rational fatigue load spectrum.

Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications should identify the Rules Docket number and be submitted to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this action may be changed in light of the comments received.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the proposed rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report summarizing each FAA-public contact concerned with the substance of this proposal will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this action must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 92-ANE-56-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, New England Region, Office of the Regional Counsel, Attention: Rules Docket No. 92-ANE-56-AD, 12 New England Executive Park, Burlington, MA 01803-5299.

On June 5, 1992, the FAA issued a priority letter AD 92-12-10, applicable only to Textron Lycoming Series TIO-540-S1AD engines, which requires inspecting, and if necessary, replacing the externally mounted fuel injector fuel lines. The FAA subsequently determined that similar externally mounted fuel injector fuel line configurations existed on other Textron Lycoming fuel injected engines. Since an unsafe condition was identified that was likely to exist or develop on other Textron Lycoming engines of the same type design, the FAA issued AD 93-02-05, Amendment 39-8487 (58 FR 26056, dated April 30, 1993), to require inspecting, and if necessary replacing, the fuel injector fuel lines. That action was prompted by reports of failures of fuel injector fuel lines that were missing support clamps. The requirements of that AD were intended to prevent failure of the fuel injector fuel lines allowing fuel to spray into the engine compartment, resulting in an engine fire.

Since that AD was issued, the FAA has identified models AEIO-320, AIO-320, IO-320, LIO-320, AEIO-360, AIO-360, HIO-360, IO-360, IVO-360, LIO-360, TIO-360, IGO-480, AEIO-540, IGO-540, IO-540, IVO-540, LTIO-540, TIO-540, TIVO-540, and IO-720 series engines that require inspecting, and if necessary replacing externally mounted fuel lines.

The FAA has reviewed and approved the technical contents of Textron Lycoming Mandatory Service Bulletin (MSB) No. 342D, dated July 10, 2001, that describes procedures for inspecting, and if necessary replacing the fuel injector fuel lines. Textron Lycoming MSB No. 342D supersedes Textron Lycoming MSB No. 342C, MSB No. 342B, Supplement No. 1 to MSB 342B, MSB 342A, and MSB 342.

Since an unsafe condition has been identified that is likely to exist or develop on other Textron Lycoming engines of this same type design, the proposed AD would supersede AD 93-02-05 to add additional Textron Lycoming engine models to the applicability of the AD. The actions would be required to be done in accordance with the service bulletin described previously.

There are about 4,160 engines of the affected design in the worldwide fleet. The FAA estimates that 2,496 engines installed on aircraft of U.S. registry would be affected by this proposed AD, that it would take about 1 work hour to inspect and replace all lines on a four-cylinder engine, 1.5 work hours to inspect and replace all lines on a six-cylinder engine, and 2 hours to inspect and replace all lines on an eight-cylinder engine, and that the average labor rate is $60 per work hour. Required parts would cost about $440.00 for a four-cylinder engine, $660.00 for a six-cylinder engine, and $880.00 for an eight-cylinder engine. Based on these figures, the total cost per airplane of the proposed AD on U.S. operators is estimated as follows:

• $500.00 for a four-cylinder engine.

• $750.00 for a six-cylinder engine.

• $1000.00 for an eight-cylinder engine.

This proposal does not have federalism implications, as defined in Executive Order 13132, because it would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, the FAA has not consulted with state authorities prior to publication of this proposal.

For the reasons discussed above, I certify that this proposed regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

The FAA invites comments on this proposed rule. You may submit whatever written data, views, or arguments you choose. You need to include the rule's docket number and submit your comments to the address specified under the caption ADDRESSES. We will consider all comments received on or before the closing date. We may amend this proposed rule in light of comments received. Factual information that supports your ideas and suggestions is extremely helpful in evaluating the effectiveness of this proposed AD action and determining whether we need to take additional rulemaking action.

The FAA specifically invites comments on the overall regulatory, economic, environmental, and energy aspects of this proposed rule that might suggest a need to modify the rule. You may view all comments we receive before and after the closing date of the rule in the Rules Docket. We will file a report in the Rules Docket that summarizes each contact we have with the public that concerns the substantive parts of this proposed AD.

If you want FAA to acknowledge the receipt of your comments, you must include a self-addressed, stamped postcard. On the postcard, write “Comments to Docket No. 2002-CE-03-AD.” We will date stamp and mail the postcard back to you.

The FAA has received reports of three occurrences where cracks were found on the left hand upper longeron and upper diagonal support tubes intersect on the left hand side of the fuselage frame just forward of the vertical fin front spar attachment point on Model AT-602 airplanes. The crack starts at the forward edge of the weld where the tubes come together. We have determined that the cracks are a result of high vertical tail loads during repeated hard turns. The cracks were found by the pilot and/or ground crew when they noticed excessive movement in the empennage due to the loss of torsional rigidity.

This condition, if not corrected, could cause the fuselage to fail. Such failure could result in loss of control of the airplane.

Air Tractor has issued the following:

These service bulletins include procedures for:

After examining the circumstances and reviewing all available information related to the incidents described above, we have determined that:

This proposed AD would require you to repetitively inspect the upper longeron and upper diagonal tube on the left hand side of the aft fuselage structure for cracks, repair any cracks found, and modifying this area by installing reinforcement parts.

The Air Tractor AT-400, AT-500, and AT-800 series airplanes have a similar design in the upper longeron in the aft fuselage structure. However, we have not received any reports of damage to this area on those airplanes. The only reports of damage are those previously referenced on the Model AT-602 airplanes.

Air Tractor is currently researching this subject on the AT-400, AT-500, and AT-800 series airplanes. Based on this research and if justified, we may propose additional rulemaking on this subject for these other airplanes.

We estimate that this proposed AD affects 91 airplanes in the U.S. registry.

We estimate the following costs to accomplish the proposed inspection(s):

We estimate the following costs to accomplish the proposed modification:

The regulations proposed herein would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this proposed rule would not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this proposed action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A copy of the draft regulatory evaluation prepared for this action has been placed in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES .

Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy related aspects of the proposal. Communications should identify the airspace docket number and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this action must submit, with those comments, a self-addressed stamped postcard on which the following statement is made: “Comments to Airspace Docket No. 01-ANM-17.” The postcard will be date/time stamped and returned to the commenter. All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this action may be changed in the light of comments received. All comments submitted will be available for examination at the address listed above both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

Any person may obtain a copy of this NPRM by submitting a request to the Federal Aviation Administration, Airspace Branch, ANM-520, 1601 Lind Avenue SW, Renton, Washington 98055-4056. Communications must identify the docket number of this NPRM. Persons interested in being placed on a mailing list for future NPRM's should also request a copy of Advisory Circular No. 11-2A, which describes the application procedure.

The FAA is considering an amendment to Title 14 Code of Federal Regulations, part 71 (14 CFR part 71) by modifying existing Class E airspace at Newport, OR. Newly developed RNAV RWY 16 SIAP at the Newport Municipal Airport and newly installed 24-hour weather reporting equipment has made this proposal necessary. Additional Class E 700-feet and E 1,200-feet controlled airspace, above the surface of the earth is required to contain aircraft executing the Instrument Flight Rules (IFR) operations, at Newport Municipal Airport. Newport Municipal Airport currently has part-time Class E-2 airspace due to the lack of weather reporting. New weather reporting equipment has been installed and certified; therefore, this proposal also changes the Class E-2 Airspace at Newport, OR, to a 24-hour operation. The FAA establishes Class E airspace where necessary to contain aircraft transitioning between the terminal and en route environments. The intended effect of this proposal is designed to provide for the safe and efficient use of the navigable airspace. This proposal would promote safe flight operations under IFR at the Newport Municipal Airport and between the terminal and en route transition stages.

The area would be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. Class E airspace designated as surface area for an airport, are published in Paragraph 6002; Class E airspace areas extending upward from 700-feet or move above the surface of the earth, are published in Paragraph 6005, of FAA Order 7400.9J, dated August 31, 2001, and effective September 16, 2001, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11013; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

Pursuant to its authorities in Section 7 of the Rivers and Harbors Act of 1917 (40 Stat. 266; 33 U.S.C. 1) and Chapter XIX, of the Army Appropriations Act of 1919 (40 Stat. 892; 33 U.S.C. 3) the Corps proposes to amend the restricted area regulations in 33 CFR part 334 by adding section 334.845 which establishes a danger zone in Lake Michigan offshore from Manitowoc and Sheboygan Counties, Wisconsin. The public currently has unrestricted access to the waters of Lake Michigan in close proximity to WiANG's exercise area. To better protect fishermen and mariners, the WiANG has requested the Corps of Engineers establish this danger zone that will enable the WiANG to continue to use this area to maintain its combat mission readiness.

This proposed rule is issued with respect to a military function of the Defense Department and the provisions of Executive Order 12866 do not apply.

These proposed rules have been reviewed under the Regulatory Flexibility Act (Public Law 96-354) which requires the preparation of a regulatory flexibility analysis for any regulation that will have a significant economic impact on a substantial number of small entities (i.e., small businesses and small Governments). The Corps expects that the economic impact of the reestablishment of this danger zone would have practically no impact on the public, no anticipated navigational hazard or interference with existing waterway traffic and accordingly, certifies that this proposal if adopted, will have no significant economic impact on small entities.

An environmental assessment has been prepared for this action. We have concluded, based on the minor nature of the proposed danger zone regulations, that this action, if adopted, will not have a significant impact to the quality of the human environment, and preparation of an environmental impact statement is not required. The environmental assessment may be reviewed at the District office listed at the end of FOR FURTHER INFORMATION CONTACT paragraph above.

This proposed rule does not impose an enforceable duty among the private sector and, therefore, it is not a Federal private sector mandate and it is not subject to the requirements of either Section 202 or Section 205 of the Unfunded Mandates Act. We have also found under Section 203 of the Act, that small Governments will not be significantly and uniquely affected by this rulemaking.

For the reasons set out in the preamble, the Corps proposes to amend 33 CFR part 334, as follows:

Under existing statutes and regulations, a claimant who disagrees with a decision by a Veterans Service Center may appeal that decision by filing a NOD. Upon receipt of a NOD, VA must “take such development or review action as it deems proper under the provisions of regulations not inconsistent with [title 38 U.S. Code].” 38 U.S.C. 7105(d)(1). If this development or review does not resolve the disagreement, either by VA granting the claim or the claimant withdrawing the NOD, then VA must issue a Statement of the Case (SOC). After receiving the SOC, the claimant may continue their appeal, to the Board of Veterans' Appeals, by filing a Substantive Appeal.

Title 38 CFR 3.2600 allows claimants who have filed a timely NOD to obtain a de novo review by Veterans Service Center personnel. This new, optional review process was established through a final regulation published May 2, 2001 (66 FR 21871-21874). This document proposes to amend 38 CFR 3.2600 to reduce the time limit in which claimants may request a de novo review (a new and complete review with no deference given to the decision being reviewed) by Veterans Service Center personnel. Section 3.2600(b) currently states that unless a claimant has requested review under § 3.2600 with his or her NOD, VA will, upon receipt of the NOD, notify the claimant in writing of his or her right to a review under this section. Section 3.2600(b) further states that to obtain such a review, the claimant must request it not later than 60 days after the date VA mails the notice and that this time limit may not be extended. It also states that if the claimant fails to request de novo review within 60 days, VA will proceed with the traditional appellate process by issuing a SOC.

This rulemaking proposes to reduce that 60-day period to 15 days, in order to eliminate unnecessary delays in the appeals process. Under current § 3.2600(b), VA must wait up to 60 days from the date on which VA notifies a claimant of their right to a de novo review, before it may issue a SOC. If the claimant does not wish to have the Veterans Service Center review the claim de novo , this delays the appeals process by 60 days.

In VA's experience, many claimants or their representatives request de novo review along with their NOD. For those who do not, we believe that 15 days is enough time to decide whether to request a de novo review. Furthermore, by reducing the period during which VA will accept a request for de novo review from 60 to 15 days, we reduce the time needed to process an NOD by 45 days, no matter which option the claimant chooses.

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3520).

This document has been reviewed by the Office of Management and Budget under Executive Order 12866.

The Secretary hereby certifies that the adoption of this proposed rule would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. The proposed rule does not directly affect any small entities. Only VA beneficiaries are directly affected. Therefore, pursuant to 5 U.S.C. 605(b), these amendments are exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

The Catalog of Federal Domestic Assistance program numbers are 64.100, 64.101, 64.104, 64.105, 64.106, 64.109, 64.110, and 64.127.

For the reasons set forth in the preamble, 38 CFR part 3 is proposed to be amended as follows:

This is a summary of the Commission's Notice of Proposed Rulemaking in CC Docket No. 96-45 released on February 15, 2002 (NPRM). The NPRM is related to an Order that was released as part of the same document. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 12th Street, SW, Washington, DC, 20554.

1. In this NPRM, the Commission seeks comment on the issues from the Ninth Report and Order, 64 FR 67416, December 1, 1999, remanded by the United States Court of Appeals for the Tenth Circuit. The Ninth Report and Order established a federal high-cost universal service support mechanism for non-rural carriers based on forward-looking economic costs. The court remanded the Ninth Report and Order to the Commission for further consideration and explanation of its decision. Specifically, the court remanded the Ninth Report and Order to the Commission to “establish an adequate legal and factual basis for the Ninth Order and, if necessary, to reconsider the operative mechanism promulgated in that Order.” In particular, the court concluded that the Commission did not (1) define adequately the key statutory terms “reasonably comparable” and “sufficient'; (2) adequately explain setting the funding benchmark at 135 percent of the national average; (3) provide inducements for state universal service mechanisms; or (4) explain how this funding mechanism will interact with other universal service programs. The Commission seeks comment on the first three issues and refers the record collected in this proceeding to the Federal-State Joint Board on Universal Service (Joint Board) for a recommended decision in the Order, released with the NPRM.

2. The Commission seeks comment on a number of issues that will enable the Commission to better explain or modify the forward-looking high-cost universal service support mechanism implemented in the Ninth Report and Order consistent with the court's decision. Specifically, the Commission seeks comment on: (1) How the Commission should define certain key statutory terms; (2) whether, in light of the interpretation of those key statutory terms, the Commission can and should maintain the previously established benchmark or, in the alternative, should adopt a new benchmark or benchmarks; and (3) how the Commission should induce states to implement state universal service policies.

3. The Commission seeks comment on how it should define reasonably comparable for the purpose of achieving reasonable comparability of rates. Section 254 of the Communications Act of 1934, as amended (Act), suggests that rates in rural, insular and high cost areas should be compared to rates in urban areas to determine reasonable comparability. The Commission makes a two step inquiry. First, when determining whether rates are reasonably comparable, the Commission seeks comment on what should be compared. For example, such a comparison could be: “urban” rates compared to all other rates, “rural” rates compared to all other rates, or specifically defined urban and rural rates compared to each other. The Commission seeks comment on appropriate definitions of urban and rural. If commenters suggest that urban and/or rural should be defined by geographical areas, the Commission requests comment on the particular breakdown of such areas. For example, urban and rural could be defined in terms of population density. Urban and rural also could be defined by number of lines per wire center. If the line count per wire center is used, would small wire centers in large cities be defined as rural? Is it possible to adequately define reasonable comparability without adopting a definition for urban and rural? Second, the Commission seeks comment on what a fair range of rates would be to determine whether rates are reasonably comparable. The court suggested that rates differing 70 to 80 percent would not be within a fair range of rates that could be considered reasonably comparable. In this regard, the Commission notes that costs in rural areas may be one hundred times greater than costs in urban areas. Taking into account such cost differences, what is a reasonable range of rates? What other factors should be considered when determining reasonable comparability of rates? The Commission seeks empirical evidence of the range of rates in rural and urban areas based on the definition of those terms provided by commenters.

4. The Commission also seeks comment on what it means for federal support for universal service to be “sufficient.” Specifically, if the Commission determines that high-cost support results in rural rates that are reasonably comparable to urban rates, is that level of support sufficient under section 254 of the Act, or should the Commission take a broader examination of sufficiency? In establishing the support mechanism, the Commission attempted to balance the goal of ensuring that consumers in high-cost areas have affordable access to quality service, against the goal of ensuring that the fund is no larger than necessary to minimize the burdens on the carriers that contribute. Because the Commission must weigh several principles in determining the sufficiency of its support, the Commission seeks comment on whether it should give more weight to the principle of reasonable comparability of rates, or should the Commission continue to give weight equally to other principles listed in section 254(b) of the Act. In addition, assuming that states will implement mechanisms to support universal service, as suggested by the court and described, the Commission seeks comment on whether sufficiency should be determined by considering federal support only, or state support as well.

5. The Commission seeks comment on whether it should adopt a different benchmark or benchmarks or whether it should continue to use the 135 percent benchmark. If commenters suggest that the Commission should adopt a new benchmark or benchmarks, the Commission seeks comment on how it should determine the new benchmark(s). Commenters should provide both reasoned analysis and empirical data to show that their proposed benchmarks support reasonable comparability of rates and sufficient high-cost support. The Commission also notes that the high-cost loop support mechanism for rural carriers does not use a single benchmark but, rather, uses a step function. The step function has multiple benchmarks with greater percentages of support provided as costs increase. The Commission seeks comment on whether it should adopt a step function (or some formula that provides a larger percentage of support as costs increase) in the federal high-cost support mechanism for non-rural carriers as well. Commenters should describe precisely how the step function would operate, the range and intervals of steps, and provide the empirical support and analysis for how such a function would support reasonable comparability of rates and sufficiency of support. To the extent commenters advocate that the Commission should retain the 135 percent benchmark, commenters should provide both reasoned analysis and empirical data to show that the 135 percent benchmark supports reasonable comparability of rates and sufficiency of support. In this regard, the Commission notes that the 135 percent benchmark is consistent with an average of the benchmarks used in the high-cost loop support mechanism, which previously provided support to all carriers (and currently provides support to rural carriers). The Commission seeks comment on whether an average of benchmarks is appropriate for the non-rural high-cost mechanism.

6. The Commission also seeks comment on whether it should continue to use a benchmark based on nationwide average cost and compare it to statewide average costs. Although the court rejected Qwest's argument that the use of statewide and national averages is necessarily inconsistent with section 254, the court suggested that such a comparison would not be consistent with the statutory comparison of urban and rural rates without evidence that the benchmark actually produced comparable rates. If the Commission continues to use nationwide and statewide averages, how should the Commission measure reasonable comparability when rural costs are included in the nationwide average? In the alternative, should the Commission use a benchmark or benchmarks based on urban-only costs? Will definitions of “urban” and “rural” be required to determine an urban-only benchmark? To the extent the Commission decides to implement a benchmark based only on urban and/or rural costs, should this definition be the same as discussed above in section II.A.? The Commission also seeks comment on how the terms “urban” and “rural” should be defined— e.g., by wire centers of a certain size, by certain density zones, urban versus non-urbanized areas or some other criterion. Commenters should provide empirical support and analysis showing how their proposed benchmark or benchmarks result in reasonably comparable urban and rural rates and define precisely the statutory terms, urban, rural, and reasonably comparable in their proposed methodology.

1. The Commission seeks comment on how it should induce states to implement mechanisms to support universal service. Specifically, the Commission seeks comment on whether it should: (1) implement a state share requirement, similar to that of the Seventh Report and Order, 64 FR 30917, June 9, 1999; (2) condition federal support on some form of state action; (3) enter into a binding cooperative agreement with states as suggested by the court; or (4) adopt some other form of state inducement. To the extent that commenters suggest the Commission should adopt one of these options, commenters should provide specific descriptions of their proposals and recommendations for implementation. If the Commission were to condition federal support on state action, in what manner and to what extent should federal support be so conditioned? The Commission also seeks comment on what kind of state action should be required. If the Commission were to enter into binding cooperative agreements with states, what form should the agreements take? Would the Commission enter into such an agreement with individual states or with the states collectively? How would such an agreement be enforced? In addition, how would the Commission induce and enforce the inducement of states to implement universal service support mechanisms in states that do not receive federal universal service support under the non-rural high-cost mechanism?

8. This is a permit but disclose rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided that they are disclosed as provided in the Commission's rules.

9. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Commission has prepared this present Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on a substantial number of small entities by the policies and rules proposed in this NPRM. Written public comments are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments on the NPRM provided in paragraph number 21 of the item. The Commission will send a copy of the NPRM, including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (SBA). In addition, the NPRM and IRFA (or summaries thereof) will be published in the Federal Register .

10. In the First Report and Order, 62 FR 32862, June 17, 1997, the Commission adopted a plan for universal service support for rural, insular, and high cost areas to replace longstanding federal subsidies to incumbent local telephone companies with explicit, competitively neutral federal universal service mechanisms. In doing so, the Commission adopted the recommendation of the Joint Board that an eligible carrier's support should be based upon the forward-looking economic cost of constructing and operating the network facilities and functions used to provide the services supported by the federal universal service mechanism. In the Ninth Report and Order, the Commission adopted a federal high-cost universal service support mechanism for non-rural carriers based on forward-looking economic costs. The U.S. Court of Appeals for the Tenth Circuit remanded the Ninth Report and Order to the Commission for further explanation of its decision.

11. In the NPRM, the Commission seeks comment on issues from the Ninth Report and Order , remanded by the United States Court of Appeals for the Tenth Circuit. Specifically, the Commission seeks comment on: (1) How the Commission should define the key statutory terms “reasonably comparable” and “sufficient'; (2) whether, in light of the interpretation of those key statutory terms, the Commission can and should maintain the previously established benchmark or, in the alternative, should adopt a new benchmark or benchmarks; and (3) how the Commission should induce states to implement state universal service policies. The objective of the NPRM is to assemble a record, to refer the record collected in this proceeding to the Joint Board for a recommended decision, and to consider the record and Joint Board recommendations in formulating a response to the court's remand. The Commission expects that, upon receipt of a recommended decision from the Joint Board, the Commission will be able adopt an order implementing a high-cost support mechanism that will be sufficient to enable non-rural carriers' rates for service to remain affordable and reasonably comparable in all regions of the nation.

12. This rulemaking action is supported by sections 1-4, 201-205, 214, 218-220, 254, 303(r), 403 and 410 of the Communications Act of 1934, as amended.

13. The RFA generally defines “small entity” as having the same meaning as the term “small business,” “small organization,” and “small government 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 to its activities. Under the Small Business Act, a “small business concern” is one that: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) meets any additional criteria established by the SBA.

14. The SBA has defined a small business for Standard Industrial Classification (SIC) category 4813 (Telephone Communications Except Radiotelephone) to be a small entity when it has no more than 1,500 employees.

15. The Commission has included small incumbent local exchange carriers in this present RFA analysis. As noted above, a “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard ( e.g. , a telephone communications business having 1,500 or fewer employees), and “is not dominant in its field of operation.” The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent local exchange carriers are not dominant in their field of operation because any such dominance is not “national” in scope. The Commission has therefore included small incumbent local exchange carriers in this RFA analysis, although the Commission emphasizes that this RFA action has no effect on Commission analyses and determinations in other, non-RFA contexts.

16. With respect to reporting and recordkeeping, the NPRM seeks comment on issues concerning the Ninth Report and Order , that have been remanded by the court, as described above. Changes in recordkeeping, if any, will primarily occur in the area of benchmark issues. If the Commission upholds the mechanism adopted in the Ninth Report & Order , there will be no changes. If the Commission changes the current high-cost support mechanism, however, adoption of new rules or requirements may require additional recordkeeping. For example, if the Commission adopts a mechanism that compares “urban” and/or “rural” costs or rates in order to determine an appropriate benchmark, additional information from all non-rural carriers may be necessary, such as line count information for urban and rural areas.

17. 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 (among others): (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 or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

18. The proposals resulting from the NPRM could have varying positive or negative impacts on telecommunications carriers, including any such small carriers. Public comments are welcomed in the NPRM that would reduce any potential impacts on small entities. Specifically, suggestions are sought on different compliance or reporting requirements that would take into account the resources of small entities. Comments are also sought on possibilities for clarification, consolidation, or simplification of compliance and reporting requirements for small entities that would be subject to the rules, and on whether waiver or forbearance from the rules for small entities would be feasible or appropriate. Comments should be supported by specific economic analysis.

19. The Commission does not believe that any final result in any area of the proposed rules under consideration will have a differential impact on small entities. With the request for comments in the NPRM, however, the commenters may present the Commission with various proposals that may have varying impacts on small entities. The Commission seeks comment on whether any proposals, if implemented, may result in an unfair burden.

20. None.

21. The Commission invites comment on the issues and questions set forth in the Notice of Proposed Rulemaking and Initial Regulatory Flexibility Analysis contained herein. Pursuant to applicable procedures set forth in §§ 1.415 and 1.419 of the Commission's rules, interested parties may file comments on or before April 10, 2002, and reply comments on or before April 25, 2002. All filings should refer to CC Docket No. 96-45. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies.

22. Comments filed through ECFS can be sent as an electronic file via the Internet to <http://www.fcc.gov/e-file/ecfs.html> . Generally, only one copy of an electronic submission must be filed. In completing the transmittal screen, commenters should include their full name, Postal Service mailing address, and the applicable docket number, which in this instance is CC Docket No. 96-45. Parties may also submit an electronic comment by Internet e-mail. To receive filing instructions for e-mail comments, commenters should send an e-mail to ecfs@fcc.gov , and should include the following words in the body of the message: get form <your e-mail address>. A sample form and directions will be sent in reply.

23. Parties who choose to file by paper must file an original and four copies of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, commenters must submit two additional copies for each additional docket or rulemaking number. Parties who choose to file by paper are hereby notified that effective December 18, 2001, the Commission's contractor, Vistronix, Inc., will receive hand-delivered or messenger-delivered paper filings for the Commission's Secretary at a new location in downtown Washington, DC. The address is 236 Massachusetts Avenue, NE, Suite 110, Washington, DC, 20002. The filing hours at this location will be 8:00 am to 7:00 pm. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes must be disposed of before entering the building. This facility is the only location where hand-delivered or messenger-delivered paper filings for the Commission's Secretary will be accepted. Accordingly, the Commission will no longer accept these filings at 9300 East Hampton Drive, Capitol Heights, MD, 20743. Other messenger-delivered documents, including documents sent by overnight mail (other than United States Postal Service (USPS) Express Mail and Priority Mail), must be addressed to 9300 East Hampton Drive, Capitol Heights, MD, 20743. This location will be open 8:00 a.m. to 5:30 p.m. The USPS first-class mail, Express Mail, and Priority Mail should continue to be addressed to the Commission's headquarters at 445 12th Street, SW, Washington, DC, 20554. The USPS mail addressed to the Commission's headquarters actually goes to our Capitol Heights facility for screening prior to delivery at the Commission.

All filings must be sent to the Commission's Acting Secretary: William F. Caton, Office of the Secretary, Federal Communications Commission, 445 12th Street, SW, Suite TW-A325, Washington, DC 20554.

24. Parties who choose to file by paper should also submit their comments on diskette to Sheryl Todd, Accounting Policy Division, Common Carrier Bureau, Federal Communications Commission, 445 12th Street, SW, Room 5-B540, Washington, DC 20554. Such a submission should be on a 3.5-inch diskette formatted in an IBM compatible format using Microsoft Word or compatible software. The diskette should be accompanied by a cover letter and should be submitted in “read only” mode. The diskette should be clearly labeled with the commenter's name, proceeding (including the docket number, in this case, CC Docket No. 96-45), type of pleading (comment or reply comment), date of submission, and the name of the electronic file on the diskette. The label should also include the following phrase “Disk Copy—Not an Original.” Each diskette should contain only one party's pleading, preferably in a single electronic file. In addition, commenters must send diskette copies to the Commission's copy contractor, Qualex International, Portals II, 445 12th Street, SW, Room CY-B402, Washington, DC 20554.

25. Regardless of whether parties choose to file electronically or by paper, parties should also file one copy of any documents filed in this docket with the Commission's copy contractor, Qualex International, Inc., Portals II, 445 12th Street, SW, Room CY-B402, Washington, DC 20554. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 12th Street, SW, Washington, DC 20554. In addition, the full text of the document is available for public inspection and copying during regular business hours at the FCC Reference Information Center, Portals II, 445 12th Street, SW, Room CY-A257, Washington, DC, 20554. The document may also be purchased from the Commission's duplicating contractor, Qualex International, Portals II, 445 12th Street, SW, Room CY-B402, Washington, DC 20554, telephone 202-863-2893, facsimile 202-863-2898, or via e-mail qualexint@aol.com.

26. Comments and reply comments must include a short and concise summary of the substantive arguments raised in the pleading. Comments and reply comments must also comply with section 1.49 and all other applicable sections of the Commission's rules. The Commission directs all interested parties to include the name of the filing party and the date of the filing on each page of their comments and reply comments. All parties are encouraged to utilize a table of contents, regardless of the length of their submission. The Commission also strongly encourages parties to track the organization set forth in the NPRM in order to facilitate its internal review process.

27. Alternative formats (computer diskette, large print, audio recording, and Braille) are available to persons with disabilities by contacting Brian Millin at (202) 418-7426 voice, (202) 418-7365 TTY, or bmillin@fcc.gov. This NPRM can also be downloaded in Microsoft Word and ASCII formats at http://www.fcc.gov/ccb/universal_service/highcost.

28. Pursuant to sections 1-4, 201-205, 214, 218-220, 254, 303(r), 403 and 410 of the Communications Act of 1934, as amended, 47 U.S.C. 151-154, 201-205, 214, 218-220, 254, 303(r), 403 and 410, the Notice of proposed rulemaking is hereby Adopted.

29. The Commission's Consumer Information Bureau, Reference Information Center, Shall send a copy of the NPRM, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

This is a synopsis of the Commission's Notice of Proposed Rule Making, MM Docket No. 02-45, adopted March 1, 2002, and released March 6, 2001. The full text of this document is available for public inspection and copying during regular business hours in the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. This document may also be purchased from the Commission's duplicating contractor, Qualex International, Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone 202-863-2893, facsimile 202-863-2898, or via-e-mail qualexint@aol.com .

Provisions of the Regulatory Flexibility Act of 1980 do not apply to this proceeding.

Members of the public should note that from the time a Notice of Proposed Rule Making is issued until the matter is no longer subject to Commission consideration or court review, all ex parte contacts are prohibited in Commission proceedings, such as this one, which involve channel allotments. See 47 CFR 1.1204(b) for rules governing permissible ex parte contacts.

For information regarding proper filing procedures for comments, see 47 CFR 1.415 and 1.420.

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 CFR part 73 as follows:

This is a synopsis of the Commission's Notice of Proposed Rule Making, MM Docket No. 02-40, adopted February 13, 2002, and released

February 22, 2002. The full text of this Commission decision is available for inspection and copying during regular business hours in the FCC's Reference Information Center at Portals II, 445 12th Street, SW, CY-A257, Washington, DC, 20554. This document may also be purchased from the Commission's duplicating contractors, Qualex International, Portals II, 445 12th Street, SW, Room CY-B402, Washington, DC, 20554, telephone 202-863-2893, facsimile 202-863-2898, or via e-mail qualexint@aol.com .

The provisions of the Regulatory Flexibility Act of 1980 do not apply to this proceeding.

Members of the public should note that from the time a Notice of Proposed Rule Making is issued until the matter is no longer subject to Commission consideration or court review, all ex parte contacts are prohibited in Commission proceedings, such as this one, which involve channel allotments. See 47 CFR 1.1204(b) for rules governing permissible ex parte contacts.

For information regarding proper filing procedures for comments, See 47 CFR 1.415 and 1.420.

Congress created the Corporate Average Fuel Economy (CAFE) program when it enacted the Energy Policy and Conservation Act of 1975 (Pub. L. 94-163; Dec. 22, 1975). The CAFE statutory provisions, now codified in Chapter 329 of Title 49 of the United States Code (49 U.S.C. 32901 et seq. ), mandate fuel economy standards that must be met by vehicle manufacturers. These standards apply separately to each manufacturer's annual fleet of passenger cars and to its annual fleet of light trucks under 8,500 lbs. gross vehicle weight rating, instead of applying to individual vehicles. Each manufacturer's average fuel economy is determined by the Environmental Protection Agency in accordance with procedures set forth in 49 U.S.C. 32904. Those procedures provide for determining the fuel economy of a manufacturer's model types produced in a particular model year and calculating a weighted fuel economy average for the manufacturer.

Congress amended the CAFE provisions when it enacted the Alternative Motor Fuels Act of 1988 (“AMFA”) (Pub. L. 100-94; October 14, 1988). The purposes of AMFA were to encourage the development and use of methanol, ethanol and natural gas as transportation fuels and to promote the production of alternative fuel vehicles (AFVs). For the latter purpose, AMFA provides special procedures for calculating the fuel economy of “dedicated” alternative fuel vehicles and “dual-fueled” vehicles that meet specified eligibility criteria. “Dedicated vehicles” are cars or light trucks designed to operate exclusively either on natural gas or on a methanol or ethanol fuel mixture composed of at least 85 percent of either substance. “Dual-fueled vehicles” have the capability to operate on conventional petroleum and the capability to operate on an alternative fuel. Most dual-fueled vehicles produced to date are capable of operating on E85 (a blend of 85 percent ethanol and 15 percent gasoline) and either gasoline or diesel. The special calculation procedures used in determining the fuel economy of alternative fuel vehicles substantially increase the fuel economy ratings of these vehicles.

In creating the incentive program for dual-fueled vehicles, Congress expressly limited both the extent to which a manufacturer can avail itself of the incentive in any model year as well as the duration of the incentives. 1 For the 1993-2004 model years, the maximum increase in CAFE available to a manufacturer for producing qualifying dual-fueled vehicles is 1.2 miles per gallon.

AMFA provides that by December 31, 2001, the agency either extend the program beyond the 2004 model year or issue a notice of termination ending it at the close of that model year. An extension of up to four model years is authorized. If the program were extended, the maximum increase in CAFE attributed to the incentive would be limited to .9 miles per gallon in any of those model years.

AMFA further directs that NHTSA evaluate the dual-fuel incentive program and provide a report to Congress analyzing the success of the incentive program and preliminary conclusion regarding extension of the program beyond the 2004 model year.

NHTSA is proposing that the dual-fuel incentive program be extended by four years, i.e., through the end of the 2008 model year. We are proposing this extension for several reasons. Domestic energy security is more important than ever. The vehicles affected by the program operate on ethanol, a domestic fuel. To the extent that domestic fuels can be used, we can decrease our reliance on foreign petroleum. We recognize the potential value to domestic energy security of having a fleet of vehicles that can be operated on non-petroleum fuels. This value would be realized in times of petroleum shortages. We are mindful that the vehicle manufacturers would not likely maintain their current level of efforts to produce alternative fuel vehicles in the absence of the incentive program. As we recommend in our report to Congress that steps be taken to enhance the infrastructure, we want to maintain the program while efforts are made to identify and implement those steps. The proposed four-year extension would give Congress, other executive branch agencies, regional authorities, and the private sector ample time to identify, adopt and implement such steps. NHTSA is also concerned that an extension of less four years would not allow sufficient time to begin to realize the potential benefits from the operation of the dual fuel incentive program. For a variety of reasons, significant numbers of dual fuel capable vehicles have only recently begun to appear in the marketplace. It is, therefore, not yet clear whether the continuing presence of these vehicles, their ability to use alternative fuels, programs intended to increase the use and production of alternative fuels and other conditions will stimulate the expansion of the alternative fuel infrastructure as envisioned by Congress in creating the dual fuel incentive program. The development of a viable alternative fuel infrastructure, particularly one based on domestically produced ethanol fuel, would reduce the nation's dependence on imported oil. The realization of this significant benefit, in our view, may require nothing less than a full four-year extension of the incentive program.

In proposing this extension, we recognize that the incentive program, as it is now operating, potentially may be having some negative energy effects. By upwardly adjusting the calculated level of fuel efficiency of dual-fueled vehicles, the incentive program allows manufacturers to build less fuel efficient conventionally fueled vehicles without paying CAFE penalties. If manufacturers do so, have no other means of meeting CAFE standards in the absence of the incentive, and choose not to allow their CAFE to fall to the level where they would have to pay penalties, the incentive program provides a means for producing a less fuel efficient fleet. Under the foregoing conditions, if dual-fueled vehicles are operated almost exclusively on petroleum, the net impact is, in effect, to reduce the CAFE levels that are achieved by manufacturers and increase the consumption of petroleum. However, in order to conclude that the incentive program has a negative energy impact, one must make certain assumptions about the various actions that manufacturers may take in meeting CAFE, including the notion that manufacturers would not, in the face of increasing demand for less efficient vehicles, have simply chosen to pay CAFE penalties in order to meet that demand. As NHTSA has, until recently, been constrained from collecting data regarding manufacturer capabilities and any analysis of manufacturer capabilities and choices is necessarily complex, the agency cannot state with any certainty that the incentive program has, or will, have negative energy effects.

Any increased costs resulting from the operation of the incentive program must, if the program is to be extended, be offset by actual or potential benefits. As noted above, one such benefit is having a fleet of vehicles that can operate on alternative fuels. Use of alternative fuels by these vehicles reduces dependence on foreign oil and would help to lessen demand for conventional fuels, thereby helping to keep fuel prices low. If sufficient numbers of dual fuel vehicles exist and continue to spur development of an alternative fuel infrastructure, the nation would, to a degree, be insulated from the impacts of “oil shocks” resulting from sudden disruptions to the petroleum supply.

In 1988, Congress enacted the Alternative Motor Fuels Act (AMFA). Section 6 of that Act amended the fuel economy provisions of the Motor Vehicle Information and Cost Savings Act by adding a new section, section 513, providing incentives for the manufacture of vehicles designed to operate on alternative fuels, including dual-fueled vehicles. The section provides that incentive by establishing special procedures for calculating the fuel economy of those vehicles. These special procedures result in alternative fuel vehicles being assigned a higher fuel economy value for CAFE compliance purposes than they would have under the procedures used for calculating the fuel economy of other vehicles. Manufacturers choosing to build such vehicles can use the fuel economy of their alternative fuel vehicles to raise the calculated level of their CAFE.

Dual-fueled vehicles generally are vehicles that can operate either on alternative fuel and either gasoline or diesel fuel, or on natural gas and either gasoline or diesel fuel. Section 513(h) specifically defined a “dual energy automobile” as one that meets a minimum driving range and:

A “natural gas dual energy” automobile was defined as a vehicle that met a specified minimum driving range, and:

The Energy and Policy Act of 1992 added new provisions to section 513. The definition of “alternative fuel” was expanded to include liquefied petroleum gas, hydrogen, liquid fuels derived from coal and biological materials, electricity and any other fuel that the Secretary of Transportation determines to be substantially non-petroleum based and have environmental and energy security benefits. The 1992 Act also revised terminology by replacing “dual energy” and “natural gas dual energy” with “alternative fueled vehicles” in order to reflect the expanded list of fuels.

The 1988 AMFA amendments established the eligibility criteria and procedures for calculation of the incentive benefits. Manufacturers of alternative fuel vehicles that met the minimum driving range and energy efficiency criteria could use a special procedure for calculating the fuel economy of these vehicles for the 1993 through 2004 model years. The special calculation procedure substantially raises the fuel economy of the vehicle. For instance, a dedicated alternative fuel vehicle achieving 15 miles per gallon while operating on alcohol would, based on the special calculation procedures, be deemed to have a fuel economy of 100 miles per gallon. 2

The special calculation procedure for alternative fuel dual-fueled vehicles is based on the assumption that those vehicles will operate 50 percent of the time on the alternative fuel and 50 percent of the time on conventional fuel, resulting in a fuel economy figure that is based on a harmonic average of alternative and conventional fuel. For example, an alternative dual-fueled model that achieves 15 miles per gallon operating on an alcohol fuel and 25 mpg on the conventional fuel would, based on the special calculation procedure, be calculated to have a CAFE fuel economy of 40 miles per gallon. 3

The CAFE values for a natural gas alternative fuel vehicle are calculated in a similar fashion. For the purposes of this calculation, the fuel economy is equal to the weighted average of the vehicle fuel economy while operating on natural gas and the vehicle fuel economy while operating on either gasoline or diesel fuel. Section 32905(c) specifies the energy equivalency of 100 cubic feet of natural gas to be equal to 0.823 gallons of gasoline, with the gallon equivalent of natural gas to be considered to have a fuel content equal to 0.15 gallons of fuel.

Since alternative fuel vehicles will, for CAFE purposes, have a higher calculated fuel economy rating than their conventionally fueled counterparts, production of alternative fuel vehicles allows manufacturers to boost their CAFE ratings. The opportunity for raising a manufacturer's calculated CAFE through this incentive program is limited to 1.2 miles per gallon per model year for the 1993 through 2004 model years. If the program is extended beyond the 2004 model year, the CAFE increase is limited to 0.9 miles per gallon per model year.

Sections 32905(b) and (d) specify that the dual-fuel incentives apply to vehicles produced in the 1993 through 2004 model years. The incentives may, however, be extended. Section 32905(f) provides that the Secretary of Transportation shall, no later than December 31, 2001, either complete rulemaking to extend the incentive program for up to four more consecutive model years or issue a notice of termination ending it.

In anticipation of the decision regarding extension, section 32905(g) directed the Secretary, in consultation with the Secretary of Energy and the Administrator of the Environmental Protection Agency, to submit a report to Congress containing the results of a study of this alternative fuel vehicle mileage credit incentive policy and providing preliminary conclusions whether the program should be extended for up to an additional four (4) model years. In preparing this study and report, the Secretary is required to consider the following factors:

In response to the directive in section 32905(g), NHTSA is submitting a report to Congress simultaneously with the issuance of this notice. This report, which contains the agency's findings regarding the impacts and effectiveness of the dual-fuel incentive program, was preceded by a request for comments that the agency published in the Federal Register on May 9, 2000 (65 FR 26805) (Docket No. NHTSA 2000-7087). The request for comments asked a number of questions regarding the impact of the incentive program on the production and development of dual-fueled vehicles, the costs of producing these vehicles, vehicle performance and reliability and the efforts made to market the vehicles. Other questions asked for information on future product plans for the production of dual-fueled vehicles, the impact that the incentives have had on the availability of alternative fuels, consumer awareness of alternative fuels, obstacles to alternative fuel use, potential modifications to the incentive program and whether the incentive program should be extended or discontinued.

The agency received comments from three automobile manufacturers—General Motors (GM), Ford Motor Company (Ford) and DaimlerChrysler (DC); five associations—Alliance of Automobile Manufacturers (Alliance), Renewable Fuels Association (RFA), National Ethanol Vehicle Coalition (NEVC), Clean Fuels Development Coalition (CFDC), and Ethanol Producers and Consumers (EPAC); one state agency—the Missouri Department of Natural Resources Energy Center (DNREC); the governors of New Mexico, Missouri, Kansas, and Wisconsin; Senators J. Robert Kerrey, Tom Daschle, Wayne Allard, Evan Bayh, John Ashcroft, Carl Levin, Charles E. Grassley, Christopher S. Bond, and Chuck Hagel; the Congressional Auto Caucus; and joint comments from the American Council for an Energy-Efficient Economy (ACEEE), Center for Auto Safety (CAS), the Sierra Club, and the U.S. Public Interest Research Group (USPIRG).

With the exception of the joint ACEEE—CAS—Sierra Club—USPIRG letter, all of the commenters voiced strong support for continuation of the incentive program from the end of the 2004 model year to the end of the 2008 model year. The supporting commenters unanimously indicated that the incentive program was primarily responsible for the development and production of alternative fuel vehicles in high volumes and was also responsible for the development of the existing refueling infrastructure. The comments also reflected a consensus that availability and price of alternative fuels continued to be the most significant obstacle to their use. Two commenters, DNREC and Governor Gary E. Johnson of New Mexico, indicated that extension of the incentive program is desirable for government entities that are required to purchase and use alternative fuel vehicles. DNREC and Governor Johnson both expressed concern that termination of the incentive program could impact the price and availability of alternative fuel vehicles and of the fuels that these vehicles use.

The joint ACEEE—CAS—Sierra Club—USPIRG letter opposed any extension of the incentive program. These commenters indicated that the incentive program had not resulted in any expansion of alternative fuel infrastructure. In their view, the primary impact of the incentive program was to allow manufacturers to produce less fuel-efficient vehicles. Based on this assessment, the signatories to the letter indicated that the incentive program increased petroleum consumption and increased emissions. They further urged that the incentive program be terminated unless availability of the incentive could actually be linked to alternative fuel consumption.

Ford, GM, DC, and the Alliance all indicated that the existence of the incentive program had a major influence on decisions by some vehicle manufacturers to produce dual-fueled vehicles in high volumes. Ford and DC indicated that they offered dual-fueled vehicles at no additional cost to consumers, while GM indicated that pricing was subject to a large number of factors. All three of these manufacturers indicated that present technology allowed production of reliable and usable dual-fueled vehicles. However, DC noted that alcohol fuels presented problems with starting in low temperatures. GM observed that early alcohol fuels presented corrosion problems. RFA indicated its belief that performance of dual-fueled vehicles operating on alternative fuels could be improved by tuning the engine management system to use these fuels more efficiently. The Alliance and each manufacturer also indicated that continued production of alternative fuel vehicles would be a part of their efforts to meet the CAFE standards and that such production would be adversely affected by termination of the incentive program.

Following consideration of the comments and other data, NHTSA issued its report. The agency's report indicates that the dual-fuel incentive program has had a positive impact on the production and availability of dual-fueled vehicles. However, the increased availability of these vehicles has not stimulated any meaningful growth in the availability and use of the alternative fuels used in dual-fueled vehicles. Few dual-fueled vehicles are being operated on alternative fuels. Since the incentive program rewards manufacturers for producing qualifying vehicles through an upward adjustment of their fleet fuel economy, the primary effect of the program, if manufacturers produced less fuel efficient vehicles only because the incentive program allowed them to do so, has been to increase petroleum consumption without producing a corresponding increase in the availability or use of alternative fuels (Report to Congress: Effects of the Alternative Motor Fuels Act CAFE Incentives Policy, Executive Summary (hereinafter cited as Report)).

The report finds that, by the end of the 2000 model year, the population of dual-fueled alternative fuel vehicles had increased to over 1.2 million vehicles. This growth, including 115,000 passenger cars and 1,077,000 light trucks using E85 ethanol fuel, occurred in less than five years (Report, Sec. III). By 2000, close to 8 percent of all new light trucks were dual-fueled vehicles as compared to virtually no dual-fueled light trucks two years before. About 1.4 percent of passenger cars produced in the 2000 model year were dual-fueled vehicles (compared to .025 percent in 1993) (Report, Sec. III). As the number of dual-fueled vehicles increased, the manufacturers building these vehicles grew closer to gaining the maximum CAFE increase permitted under the incentive program. For the 2000 model year, both Ford and DaimlerChrysler approached the 0.9-mpg maximum benefit level that would be allowed if the dual-fueled vehicle CAFE credit provision were extended. Similarly, GM increased its production of dual-fueled vehicles in order to benefit from the incentive program (Report, Executive Summary).

The agency's report finds that the increased production of dual-fueled vehicles had stimulated some growth in the use and availability of alternative fuels. NHTSA found that alternative fuel use in alternative fuel vehicles in the U.S. has been rising over the past decade. In 1992, a total of 230 million gasoline gallon equivalents of alternative fuel were used in alternative fuel vehicles; for 2000, that number is projected to rise to 368 million gasoline gallon equivalents, or an increase of roughly 6 percent per year. In comparison, the highway use of gasoline and diesel increased roughly 2 percent per year. However, alternative fuel use only accounts for 0.23 percent of total highway fuel use.

One factor limiting greater expansion of alternative fuel use is the availability of alternative fuels. As of May 2001, there were 5,236 alternative fuel refueling sites, with sites in all 50 states (Report, Sec. IV). Of the existing alternative fuel refueling stations, the vast majority offered liquefied petroleum gas (LPG). Natural gas refueling sites—1,217 compressed natural gas (CNG) and 44 liquefied natural gas (LNG)—had increased from 1,065 CNG refueling sites in 1995. The number of ethanol refueling sites, which provide the E85 fuel used in most dual fuel vehicles, had grown to 121 from 37 in the five years from 1995-2001. In the same period, the number of methanol (M85) refueling stations dropped from 105 to 37 as the number of M85 flexible-fuel vehicles decreased. (Report, Sec. IV).

Our report indicates that despite the fact that the incentive program had led to sales of more than one million ethanol flexible-fuel vehicles through the 2000 model year, the small number of E85 stations and the limited amount of E85 produced strongly suggest that these vehicles were being operated almost exclusively on gasoline.

The report also notes that conducting an assessment of the energy and environmental impacts of the incentive program is complicated by uncertainty about the behavior and capabilities of vehicle manufacturers. While the use of alternative fuels can reduce petroleum consumption and greenhouse gas emissions, the energy consumption and environmental impacts cannot be determined with any reasonable amount of certainty because it is difficult to determine what manufacturers would have done in the absence of the credit incentive.

In an effort to evaluate the effects of the incentive program up to the year 2000, the Environmental Protection Agency (EPA), performed an analysis comparing a baseline case in which no incentive program existed with a case where the incentive program was in place. In the incentive program case, it was assumed that one percent of the fuel used by dual-fueled vehicles during the years from 1996 to 2000 was an alternative fuel. The model also assumed that the enhanced fuel efficiency of dual-fueled vehicles resulting from application of the CAFE incentive allowed manufacturers to produce fewer fuel efficient conventional vehicles and still meet the CAFE standards and avoid civil penalties. Estimates were made of both conventional and alternative fuel use, total motor fuel consumption, and greenhouse gas emissions. These estimates were compared to the baseline analysis, in which the absence of an incentive program or consumer demand for lower mpg vehicles compelled manufacturers to make more fuel-efficient conventional vehicles. A comparison of the two models indicated that when dual-fueled vehicles are only operated on alternative fuel one percent of the time, the incentive program increases the consumption of petroleum in two ways. First, dual-fueled vehicles operating on petroleum consume petroleum themselves. Second, the production of the dual-fueled vehicles allows manufacturers to build less efficient petroleum fueled vehicles than they would without the incentive program. Through 2000, the CAFE incentives policy was estimated to have resulted in an increase in alternative fuel use (almost all E85) and a slight increase in gasoline consumption (about 1 percent)(Report Sec. V).

The analysis also attempted to predict the effect of an extension of the incentive program on the environment and energy consumption. The effects of extending the CAFE credit to 2008 under four basic scenarios were evaluated under the assumption that manufacturers would continue to be constrained by CAFE and choose not to build less efficient vehicles and pay CAFE penalties in response to consumer demand. Two different production rates for flexible-fuel vehicles were considered: One based on a maximum benefit of 0.9 mpg and, due to a then pending legislative proposal to amend the existing limit, one based on 1.2 mpg. Two different rates of E85 fuel consumption were then considered under the aforementioned two production rates (one based on the current rate of about 1 percent and one based on a steady increase in use from the current 1 percent to 50 percent in 2008) in an attempt to bound the range of possible outcomes. All four scenarios would result in increases in petroleum use and greenhouse gases if the incentive program were extended to 2008. The analysis also considered additional scenarios under which flexible-fuel vehicles would use E85 an average of 50 percent of the time and 100 percent of time). In the 50 percent case, petroleum consumption would not increase if the credit were extended to 2008. However, the amount of greenhouse gases produced would still increase, if the credit were extended, compared to the option of allowing the program to expire in 2004. If flexible-fuel vehicles used E85 100 percent of the time, petroleum consumption would decline, although greenhouse gases would still increase. The increase in greenhouse gases in both cases would stem from the overall increase in petroleum use by conventional vehicles allowed by the incentive program and the fact that flexible-fuel vehicles burning E85 would still generate some greenhouse gas emissions (Report Sec. V). 4

The preceding analysis assumes that in the absence of the incentive program, manufacturers would not have produced larger, less fuel efficient vehicles. It is also possible that manufacturers might have responded to strong consumer demand for performance and utility and produced the same vehicles without the provision as they did with it. In this case, manufacturers would have chosen to pay civil penalties rather than meet the CAFE standard. Under this scenario, the main effect of the program has been to greatly expand the population of vehicles that have the potential to use alternative fuels.

In assessing the dual-fuel incentive program, the report finds that the credit program has been successful in stimulating a significant increase in the availability of alternative fuel vehicles. The existence of the incentive program was a major factor in the development and production of alternative fuel vehicles in high volumes. The existence of these vehicles has not, however, stimulated a corresponding increase in the availability of alternative fuels. The report also finds that the nation's limited capacity for producing E85 fuel could be further limited by the possibility that a gasoline additive, Methyl Tertiary-Butyl Ether (MTBE), could be replaced by ethanol. This would further constrain any future expansion of E85 use. Given the slow rate of growth in the alternative fuel infrastructure, the report states that if the incentive program were used by manufacturers to meet CAFE standards in lieu of producing more efficient vehicles, energy conservation and environmental benefits will only be realized through the extension of the incentive provisions if other incentives, programs, or market conditions stimulate the production, distribution, and use of E85 fuel. Therefore, the agency's report indicates that a number of other actions might be considered to improve the program and its chances for success.

Specific actions by Congress or others might include any or all of the following:

In the last year, several events have transpired related to CAFE and the credit incentive provision. These are summarized below.

On May 17, 2001, the Energy Policy Development Group, led by Vice President Dick Cheney, issued its National Energy Policy. This report made recommendations to President Bush regarding the path that the administration's energy policy should take and included specific recommendations regarding vehicle fuel economy and CAFE. The report recommends that the President direct the Secretary of Transportation to

Like the appropriations acts for the preceding five years, the fiscal year 2001 DOT Appropriations Act included the rider prohibiting the Department from revising the CAFE standards. However it also included a provision directing the Department to fund a National Academy of Sciences study on the effectiveness and impacts of CAFE standards. On July 30, 2001, the National Academy of Sciences released a preliminary report entitled, “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards.” This report included 15 findings and seven recommendations. Recommendation 5 stated that, “Credits for dual-fuel vehicles should be eliminated, with the provision that NHTSA's notice of such action provides enough lead-time to limit adverse impacts on the automotive industry.”

On August 2, 2001, the U.S. House of Representatives passed H.R. 4, which is entitled the Securing America's Future Energy (SAFE) Act of 2001. This bill, which has been placed on the Senate legislative calendar, includes provisions in Section 203, Dual Fueled Automobiles, which alter the AMFA CAFE credit incentive program by extending it for an additional four model years to 2008 and by extending the 1.2 mpg limitation on the maximum allowable CAFE credit that can be earned by a specific manufacturer's fleet through model year 2008 as well. The deadline for making a decision whether to extend the program beyond 2008 would be December 31, 2005, with the report on the effects of the program due on September 30, 2004.

In July 2001, Secretary Mineta sent a letter to Congress asking that the freeze on CAFE standards be lifted immediately so NHTSA could resume its CAFE rulemaking responsibilities. However, the freeze was not lifted until December 2001, when the Appropriations Act for the Department of Transportation, for the first time in six years, did not include a rider freezing CAFE standards. NHTSA immediately resumed its CAFE rulemaking responsibilities. The FY 2003 DOT budget request includes $1,000,000 to support CAFE program activities to meet those responsibilities.

The United States met 15 percent of its oil needs in 1955 through imports. The import share reached 36.8 percent by 1975, the year CAFE standards were authorized by Congress, and then peaked at 46.4 percent in 1977. Although the share declined to below 30 percent in the mid-1980's, lately, the United States has again become increasingly dependent on imported oil. Imports totaled 43.6 percent in 1992 and are anticipated to be at or over 50 percent in 2001. The Middle East controls about 65 percent of the world's oil reserves and about 35 percent of the world's natural gas reserves. North American reserves of oil amount to just 6-7 percent of world reserves, and the Department of Energy estimates that the U.S. will import 62 percent of its oil by the year 2010. Since the petroleum “shocks” of the 1970s, the inflation-adjusted price of crude oil has generally declined. Since the oil shocks of the 1970s several events combined to keep oil prices low: the end of the Cold War; a diminution in the market power of OPEC due to an increase in petroleum production from non-OPEC nations; and the cementing of U.S. security ties to the most important oil-exporting nations. The growing dependence of the U.S. on imported petroleum offsets the positive developments that have occurred in the global petroleum market over the past 20 years and the potential impact of a petroleum shock on the U.S. is growing.

The transportation sector remains overwhelmingly dependent on petroleum-based fuels and on technologies that provide virtually no flexibility for employing alternative to petroleum. Transportation currently accounts for approximately two-thirds of all U.S. petroleum use and roughly one-fourth of total U.S. energy consumption. Highway transportation petroleum consumption has risen from 121 billion gallons per year in 1979 to 155 billion gallons per year in 1999 (28 percent over 20 years). Given the dependency of our nation's transportation network on petroleum use, substitution of conventional petroleum fuels by non-petroleum-based fuels, including alternative fuels, could reduce America's vulnerability to disruptions in petroleum supply.

Increased use of alternative fuels can yield other economic benefits as well as improving the nation's energy security. Displacing petroleum with alternative and replacement transportation fuels helps hold down petroleum prices in two ways. First, reducing the demand for petroleum decreases the world price for oil—a 1 percent decrease in U.S. petroleum demand could, in the long term, reduce world oil price by about 0.5 percent. Short-run impacts could be even greater, due to the short-run inelasticity of oil supply and demand. An additional benefit of increased alternative or replacement fuel use is the potential to reduce the impact of a supply shortage on prices. As evidenced in the industrial and utility sectors, the existence of alternatives to oil provides potential substitutes for oil in the event of a production cutback. Since it is precisely the non-responsiveness of transportation oil demand to oil production cutbacks that makes oil price shocks possible, increasing competition for oil by using alternative fuels reduces the ability of oil suppliers to constrain supply in order to increase the price of oil.

Alternative fuel use in the U.S. has grown significantly since the passage of AMFA alternative fuel incentives. In 1992, alternative fuel use in the U.S. amounted to 230 million gasoline gallon equivalents; in 2000, alternative fuel use is estimated to be 368 million gasoline gallon equivalents, an overall increase of 60 percent. With the exception of methanol and E95 blend ethanol, all of the alternative fuels in use have seen notable increases in use between 1992 and 2000. An increasing number of CNG and LNG vehicles are available from original-equipment manufacturers and electricity has also enjoyed a large increase, due to the OEM offerings of electric vehicles in the Southwest. Alternative fuel use in alternative fuel vehicles has been rising at a rate three times faster than the total highway use of gasoline and diesel. Nonetheless, alternative fuel use only accounts for 0.23 percent of total highway fuel use.

The National Energy Policy Development Group, in its May 17, 2001, report on the National Energy Policy states that, “The lack of infrastructure for alternative fuels is a major obstacle to consumer acceptance of alternative fuels and the purchase of alternative fuel vehicles.” The lack of infrastructure is one of the main reasons why most alternative fuel vehicles actually operate on petroleum fuels. As the report noted, “ethanol vehicles offer tremendous potential if ethanol production can be expanded.” However, the report also states that, “a considerable enlargement of ethanol production and distribution capacity would be required to expand beyond their current base in the Midwest in order to increase use of ethanol-blended fuels.”

The National Renewable Energy Laboratory reports that there are 5,236 alternative fuel refueling sites as of May 2001, with alternative fuel refueling sites in all 50 states. Unfortunately, while most dual-fuel vehicles use ethanol as an alternative fuel, less than three percent of U.S. alternative fuel refueling stations sell ethanol. As of May 2001, there were 121 public E85 refueling outlets in operation, up from 37 in 1995. For LPG, the most widely available alternative fuel, although it has availability in all states, there are only 3,270 outlets in the U.S. For other gaseous alternative fuels, there are 1,237 Compressed Natural Gas (CNG) outlets in the U.S and 44 Liquified Natural Gas (LNG) refueling sites.

The Federal government, specifically DOE, the General Services Administration and the Department of Agriculture are involved with efforts to promote the use and expansion of alternative fuels and the alternative fuel infrastructure. A major focus of these efforts is the development of different feedstocks for ethanol and on partnerships that result in the expansion of the ethanol fuel infrastructure. DOE administers the Clean Cities Program, the Office of Fuels Development (OFD) alternative fuel program, and, in conjunction with the General Services Administration (GSA), the Federal AFV USER Program. Efforts by DOE are underway in Minnesota to help construct a number of ethanol refueling sites. In August 2001, the USDA announced that its agencies will use ethanol fuels in their fleet vehicles where practicable and reasonable in cost.

As ethanol fuels are generally more expensive than gasoline, cost remains an impediment to the more widespread demand that would stimulate development of the necessary infrastructure. Although the trend in alternative fuels is in the direction of E85 use, the infrastructure has been slow to develop because these vehicles also use conventional fuel. However, even if relatively few of these vehicles are actually being operated on E85, the existence of a dual fuel capable fleet could spur an increase in the number of E85 refueling sites, and provide consumers an alternative if there are gas shortages or gas prices increase significantly. The small number of outlets available today points out the need to intensify the E85 refueling infrastructure. In addition, it is safe to say that many people who have purchased flexible-fuel vehicles do not know they could use E85. More public education in areas where E85 refueling stations exist is needed to inform people so that they are aware they can use E85.

Future alternative fuel use may be affected by supply as well as demand. Water quality concerns involving the use of MTBE and the rapidly increasing number of E85 flexible-fuel vehicles may, if ethanol production is diverted to the production of an MTBE substitute, lead to insufficient ethanol to meet demand. Current ethanol supply capacity, as well as that represented by ethanol plants now planned or under construction, indicates that domestic ethanol production is now about 1.72 billion gallons per year. Plants under construction can add another 123 million gallons per year, and plants in the engineering and planning stages can add another 149 million gallons per year. If all the present and building plants are producing ethanol as planned in 2003, total ethanol production capacity that year will be about 1.99 billion gallons of ethanol per year. Capacity in 2010 could reach 2.6 billion gallons per year. However, if MTBE is banned as a gasoline additive and fuel producers replace MTBE with ethanol, it is uncertain if there will be enough refinery capacity to both replace MTBE and to fuel flexible-fuel vehicles a substantial portion of the time with E85.

Section 32905(f) directs NHTSA to take one of the following actions on or before December 31, 2001: Either complete a rulemaking extending the dual-fuel incentive program or issue a notice of termination ending it. The agency's ability to extend the program is not unlimited—it may only extend the incentives for Anot more than 4 consecutive model years immediately after model year 2004 * * *.”

On December 31, 2001, NHTSA issued a notice of intent to issue a notice of proposed rulemaking that was published in the Federal Register on January 7, 2002 (67 FR 713). In that notice, the agency explained that it was providing notice of its intention to issue a notice of proposed rulemaking to extend the dual fuel incentive program from one to four years.

The agency is proposing to extend the dual-fuel incentive program for four model years, from the 2005 through the 2008 model years. NHTSA has tentatively concluded that extension of the dual-fuel incentive program for four model years would be appropriate and consistent with the goals of both the incentive program and the CAFE program as a whole.

The dual-fuel incentive program, which envisions a reduction in petroleum dependence through the development of alternative fuels, accepts an interim increase in the consumption of petroleum fuels in pursuit of that end. When Congress conceived the incentive program, it was aware of the risk that manufacturers would avail themselves of gains in fleet fuel economy by building dual-fueled vehicles regardless of whether the vehicles ever used an alternative fuel. Concern about this possibility and the increase in the use of petroleum that could result, led to the enactment of two limits on the incentive program. One of these limits, now at issue, was to make the incentive available for the 1993-2004 model years, with the possibility of an extension of up to four model years, i.e., through the 2008 model year. The other limit was to place a cap of 1.2 mpg on the maximum increase in fleet fuel economy available from the use of the incentives for the 1993-2004 model years and 0.9 mpg for any of the model year(s) to which the program was extended by NHTSA. The existence and nature of these limits indicates that Congress understood that the incentive program could result in increased petroleum use, that any increases in petroleum use would be limited to the life of the program, and that, if the program were extended, that the extent of increased petroleum use would be controlled.

The existence of the dual-fuel incentives has spurred a large increase in the production of these vehicles in recent years. Technologies have been developed to the degree that dual-fueled vehicles are as reliable and as useful as their conventionally fueled counterparts. Fleet operators and others with access to gaseous fuels are, to a limited extent, using gaseous dual-fueled vehicles. Liquid fueled dual-fueled vehicles capable of operating on E85 or gasoline are being produced in significant numbers. These E85 vehicles may use either gasoline or E85 interchangeably with no input required from the vehicle operator, save the selection of the fuel to be used when filling the tank. With the exception of decreased range resulting from the slightly lower energy content of E85, a liquid dual-fueled vehicle performs as well on E85 as it does on gasoline.

Production of E85 vehicles steadily increased through the 2000 model year, but slightly decreased in the 2001 model year, as dual-fuel technology has matured and manufacturers rely on the incentives to assist them in meeting CAFE requirements. For example, no liquid fuel dual-fueled light trucks were produced in 1997. However, over 1.4 million dual-fueled light trucks were produced in the 1998—2001 model years. In the 2000 model year, close to 7.6 percent, and in the 2001 model year, 4.6 percent of all light trucks produced were dual-fueled vehicles. About 1.4 percent of passenger cars produced in the 2000 model year and 0.8 percent produced in the 2001 model year were dual-fueled vehicles (compared to .025 percent in 1993). As of the 2001 model year, 217,000 E-85 dual-fueled passenger cars and 1,446,000 E-85 dual-fueled light trucks had been produced. Comments submitted in response to the agency's request for information prior to preparation of NHTSA's report to Congress indicate that manufacturers plan to produce increasing numbers of dual-fueled vehicles as part of their overall strategy for meeting CAFE requirements.

NHTSA notes that almost all of the dual-fueled vehicles produced in the U.S. have been built since the 1997 model year. While the incentive program has been in place since the 1993 model year, manufacturer efforts in the first several years of the incentive program were primarily directed at the development of methanol-fueled (M85) vehicles. While these efforts met with some success, methanol's corrosive properties, problems with the quality of methanol fuels and increased demand for methanol in conventional fuel additives led to a change in direction toward the development and production of ethanol (E85) vehicles. The first production E85 dual-fueled vehicles appeared in the 1998 model year and are the only vehicles that have been produced in significant quantities since the inception of the incentive program.

In terms of stimulating dual-fueled vehicle production, the incentive program appears to be meeting the expectations of Congress. Reliable dual-fueled vehicles that perform well while operating on an alternative fuel are becoming available in increasing numbers. In some instances, manufacturers are producing enough dual-fueled vehicles to enable them to obtain close to the maximum benefit under the incentive. Although these vehicles, the vast majority of which are E85 dual-fueled vehicles, have only begun to be produced in significant numbers, the comments submitted in response to NHTSA's May 9, 2000 request for comments indicate that the incentive program is the principal impetus for their development and manufacture. The incentive program has therefore begun to satisfy one component of AMFA's overall goal of encouraging the development of alternative fuel vehicles.

The success of the incentive program in stimulating the production of vehicles has not yet resulted either in increased demand for alternative fuels or a corresponding increase in availability of these fuels. Despite the presence of approximately 1.7 million E85 capable dual-fueled vehicles in the U.S. fleet, owners of these vehicles are unlikely to be able to use E85 fuel, particularly if they live in one of the 32 states without any E85 fuel stations. At present, there are less than 140 E85 stations in the U.S. The majority of these stations are located in the Midwestern and north central states with 60 stations in Minnesota, 13 in Illinois, 10 in Iowa, 8 in Michigan, 7 apiece in South Dakota, Nebraska and Kentucky and 5 in Missouri. 5 While the number of E85 stations has increased during the course of the incentive program, the growth that has occurred has not yet resulted in a degree of expansion suggesting that E85 is likely to serve as a viable alternative to petroleum fuels in the near future.

In one sense, the lack of development of an alternative fuel infrastructure is indicative of the technology and marketing of dual-fueled vehicles. Dual-fueled vehicles perform as well when operated on gasoline as conventionally fueled vehicles. It is possible that owners of these vehicles often remain unaware that the vehicle can be operated on an alternative fuel or, in those areas where alternative fuel is available, where they can purchase alternative fuel. Although some manufacturers have made efforts to improve owner awareness of the unique capability of these dual-fueled vehicles, the fact remains that the dual-fuel capabilities of these vehicles are often not well known.

Owner unawareness of dual-fuel capability is not the only obstacle to increased alternative fuel use. As noted above, there are presently very few E85 stations in the United States. Even in those locations where E85 is available, it has not historically been price competitive with gasoline, particularly when the price is adjusted to reflect E85's lower energy content. The lower energy content of E85 also results in a slight reduction in driving range when compared with gasoline. Those consumers who are aware of their vehicle's ability to use an alternative fuel most likely will not choose to use alternative fuels unless they are more attractive than gasoline.

Development of an alternative fuel infrastructure is also dependent on the supply of alternative fuels. As noted above, current ethanol production in the United States is approximately 1.7 billion gallons per year. As that capacity increases, ethanol production is projected to reach approximately 2 billion gallons per year. A substantial percentage of this production capacity is used to produce additives for conventional gasoline or to produce gasohol (90 percent gasoline/10 percent ethanol). As NHTSA notes in its report to Congress, about 400 million gallons of ethanol were available for use in E85 fuel for dual-fueled vehicles in 2000. The agency also notes that it anticipates that the amount of ethanol available for E85 dual-fueled vehicles would rise to approximately 1 billion gallons in 2010.

Future availability of ethanol for the E85 fuel used by most dual-fueled vehicles is further complicated by changes in the formulation of petroleum fuels. Much of the ethanol produced now is used for conventional fuel additives. This use may increase dramatically due to concerns about methyl tertiary butyl ether (MTBE). MTBE is an additive that has been used in U.S. gasoline as an octane enhancer since 1979. Because MTBE use in gasoline reduces certain emissions, it has been used in higher concentrations since 1992 in certain geographic areas to fulfill the oxygenate requirements set by Congress in the 1990 Clean Air Act Amendments. Recent concerns about MTBE in groundwater resulting from leaking underground storage tanks has led to a reexamination of policies regarding its use.

While a variety of approaches are being considered, there is a possibility that the use of ethanol as an MTBE substitute may spur a substantial increase in demand for ethanol. If this were to occur, the increased demand for ethanol as an additive might restrict the availability of ethanol as a fuel until production capacity is increased. However, once the demand for ethanol-based additives stabilized, the increased production capacity might make more ethanol available as fuel. NHTSA is concerned that the increased demand for ethanol additives might restrict the availability of ethanol fuel, particularly in the next few years. As temporary shortages of ethanol might impact the success of the incentive program in the near term, NHTSA believes that a full four-year extension of the program might be necessary to allow ethanol production to grow sufficiently to meet the demand for additives to petroleum fuel and ethanol fuel itself.

The agency's proposal to extend the incentive program for four years is an attempt to reconcile the promise of an increasingly large fleet of dual-fueled vehicles with the constraints preventing the development of the dual-fuel infrastructure envisioned by Congress. The existence of the incentive program has provided considerable impetus to the development and refinement of both gaseous and liquid fueled dual-fueled vehicles. After efforts in the early years of the incentive program revealed technological barriers to practical methanol fueled vehicles, industry efforts turned to the development of ethanol capable vehicles. The maturation of ethanol capable dual-fueled vehicle technology did not occur until well after the incentive program began in the 1993 model year. As dual-fueled vehicle production has only recently begun to result in significant numbers of dual-fueled vehicles in actual use, NHTSA believes that that termination of the incentive program before the end of the 2008 model year would be premature. The added numbers of dual-fueled vehicles now in use, in combination with those that will be produced in the 2002 through 2008 model years, may spur increased consumption and availability of alternative fuels. In addition, the Federal government, and specifically DOE, the General Services Administration and the Department of Agriculture are involved with efforts to promote the use and expansion of alternative fuels and the alternative fuel infrastructure. These programs may also bear fruit in the form of increased alternative fuel use. Unfortunately, NHTSA does not now have the opportunity to wait and examine the impact these vehicles may have.

The agency's tentative decision to extend the incentive program for four years is based on its assessment that the energy and other costs of the incentive program are justified by the potential benefits. We are unable to predict with certainty how much alternative fuel use, which is a critical element to the realization of benefits, will increase. 6 Adoption of the proposed four-year extension entails a risk that manufacturers might be producing dual-fuel vehicles that operate only on petroleum fuel. On the other hand, if the agency were to allow the program to terminate, there would be an equal risk that late-blooming alternative fuel technology and production would be wasted and the opportunities for eventual reductions in petroleum use would be lost. A four-year extension is, in NHTSA's view, a reasonable reconciling of those risks. Such an extension will provide opportunities for further development of measures to encourage alternative fuel use and, if those policies are successful, result in the development of a domestic fuel supply and infrastructure with either little or no increase in petroleum use. As noted above, the maximum incentive benefit available in the 2005 through 2008 model years is an 0.9 mpg increase in a manufacturer's fleet average. This limitation on the maximum benefit modifies the impact of the incentive program's special fuel economy calculation for dual-fueled vehicles. Manufacturers will be required to increase the efficiency of their conventionally fueled fleet to make up for the reduction in the dual-fuel incentive. If alternative fuel use has not increased, the 0.9 mpg cap will restrict the negative impacts of the incentive program.

In the preliminary economic assessment, the agency examined two scenarios examining the impact of extending the incentive program on consumers by projecting the increased fuel costs resulting from less efficient conventionally fueled vehicles being available in the marketplace. One scenario, scenario 1, is based on the 2001 model year combined fuel economy of GM, Ford, and Daimler/Chrysler light trucks of 20.07 mpg. Scenario 1 examined the 2001 model year fuel economy for these manufacturers without operation of the incentive and with the incentive in place. (20.52 mpg versus 20.07 mpg.) As the incentive program allows the production of less fuel efficient vehicles, the lower average fuel economy will result in the average light truck purchaser's vehicle consuming more fuel (on average 308 gallons) over its lifetime and costing $129 more (present discounted value) to operate in fuel over the vehicle's lifetime. Scenario 2 examined the potential credit of 0.9 mpg that could be taken during the extension years, so it compared 20.97 mpg versus 20.07 mpg. From a light truck purchaser's perspective, the lower average fuel economy will result in their vehicle consuming more fuel (on average 411 gallons) over its lifetime and costing $244 more (present discounted value) to operate in fuel over the vehicles' lifetime.

Scenario 1 could result in an additional 1.7 billion gallons of gasoline being used over the lifetime of one model year's fleet of light trucks at a present discounted value of $727 million. Scenario 2 could result in an additional 2.3 billion gallons of gasoline being used over the lifetime of one model year's fleet of light trucks at a present discounted value of $1,375 million.

Because there are a variety of ways to improve fuel economy, and our ability to collect and analyze data had been restricted under the CAFE freeze for the preceding six fiscal years, we are unable at this time to determine what are the benefits to the light truck purchaser to offset the increase in fuel costs. The light truck purchaser may get more choices of large light trucks and sport utility vehicles in the market, perhaps the ability to choose a larger engine, or perhaps savings in initial vehicle prices if weight reductions due to material substitutions, or fuel economy technologies are not added to the vehicle. It is entirely possible that the value vehicle purchasers place on these attributes exceeds the cost of the extra gasoline these vehicles use.

Executive Order 12866, “Regulatory Planning and Review” (58 FR 51735, October 4, 1993), provides for making determinations whether a regulatory action is “significant” and therefore subject to Office of Management and Budget (OMB) review and to 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:

(1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities;

(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

This proposal is economically significant. While the proposal does not require the production of alternative fuel vehicles, it allows manufacturers producing dual-fuel vehicles to produce less efficient conventionally fueled vehicles. The impact of the production of these less efficient vehicles may result in additional annual fuel costs of more than $100 million. Accordingly, it was reviewed under Executive Order 12866. The rule is also significant within the meaning of the Department of Transportation's Regulatory Policies and Procedures.

Because this proposed rule is economically significant, the agency has prepared a Preliminary Economic Analysis (PEA). This analysis is summarized above in the sections on Benefits and Costs. The PEA is available in the docket and has been placed on the agency's website along with the proposal itself.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq. , as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effect of the rule on small entities ( i.e. , small businesses, small organizations, and small governmental jurisdictions). The Small Business Administration's regulations at 13 CFR part 121 define a small business, in part, as a business entity “which operates primarily within the United States.” (13 CFR 121.105(a)). No regulatory flexibility analysis is required if the head of an agency certifies the rule will not have a significant economic impact on a substantial number of small entities. SBREFA amended the Regulatory Flexibility Act to require Federal agencies to provide a statement of the factual basis for certifying that a rule will not have a significant economic impact on a substantial number of small entities.

NHTSA has considered the effects of this proposed rule under the Regulatory Flexibility Act. I certify that this proposed rule would not have a significant economic impact on a substantial number of small entities. The rationale for this certification is that there are not currently any small motor vehicle manufacturers in the United States building vehicles that would be affected by the extension of the dual-fuel incentive credit.

NHTSA has analyzed this rulemaking action for the purposes of the National Environmental Policy Act. The agency has performed a preliminary Environmental Assessment and determined that implementation of this proposed rule will not have a significant impact on the quality of the human environment. Adoption of this proposed rule is likely to result in increased vehicle emissions and an increase in greenhouse gases, depending on the amount of alternative fuel consumed by dual-fueled vehicles manufactured in response to the rule. Such increases will stem largely from the production of larger, less fuel efficient vehicles made possible by the propose extension. However, under any scenario, the amount of increased emissions represents a very small percentage of overall emissions resulting from the consumption of petroleum fuels by highway vehicles.

Executive Order 13132 requires NHTSA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, the agency may not issue a regulation with 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 governments, the agency consults with State and local governments, or the agency consults with State and local officials early in the process of developing the proposed regulation. NHTSA also may not issue a regulation with 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.

The agency has analyzed this proposed rule in accordance with the principles and criteria set forth in Executive Order 13132 and has determined that it would not have sufficient federalism implications to warrant consultation with State and local officials or the preparation of a federalism summary impact statement. The proposal to extend the dual-fuel incentive program through the 2008 model year may result in additional conventional fuel costs for state and local governments. At the same time, extension of the incentive program will ensure that dual fuel vehicles, which state and local governments are required to use by other federal mandates, will be available at lower costs. Any increased costs that would not be offset by the continued availability of lower cost dual fuel vehicles, however, are not direct costs. The agency's proposal would not otherwise have any substantial effects on the States, or on the current Federal-State relationship, or on the current distribution of power and responsibilities among the various local officials.

This proposed amendment would not have any retroactive effect. 49 U.S.C. 30161 sets forth a procedure for judicial review of final rules establishing, amending, or revoking Federal motor vehicle safety standards. That section does not require submission of a petition for reconsideration or other administrative proceedings before parties may file suit in court.

Under the Paperwork Reduction Act of 1995, a person is not required to respond to a collection of information by a Federal agency unless the collection displays a valid OMB control number. This proposed rule would not require any new collections of information as defined by the OMB in 5 CFR part 1320. Data regarding production of dual-fuel vehicles would be submitted to the agency under the existing procedures found in 49 CFR part 537.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272) directs us to use voluntary consensus standards in our regulatory activities unless doing 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, such as the Society of Automotive Engineers (SAE). The NTTAA directs us to provide Congress, through OMB, explanations when we decide not to use available and applicable voluntary consensus standards.

There are no voluntary consensus standards available at this time. However, NHTSA will consider any such standards if they become available.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires Federal agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local or tribal governments, in the aggregate, or by the private sector, of more than $100 million in any one year (adjusted for inflation with base year of 1995). Before promulgating a rule for which a written statement is needed, section 205 of the UMRA generally requires NHTSA 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 NHTSA to adopt an alternative other than the least costly, most cost-effective, or least burdensome alternative if the agency publishes with the final rule an explanation why that alternative was not adopted.

This proposed rule would not result in the expenditure by State, local, or tribal governments, in the aggregate, of more than $100 million annually.

Executive Order 12866 requires each agency to write all rules in plain language. Application of the principles of plain language includes consideration of the following questions:

If you have any responses to these questions, please include them in your comments on this NPRM.

The Department of Transportation assigns a regulation identifier number (RIN) to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN contained in the heading at the beginning of this document to find this action in the Unified Agenda.

NHTSA has determined that it is necessary to provide a comment period of less than 60 days because of the statutory requirement to issue a final rule by December 31, 2001.

We will consider all comments that Docket Management receives before the close of business on the comment closing date indicated above under DATES. To the extent possible, we will also consider comments that Docket Management receives after that date. If Docket Management receives a comment too late for us to consider it in developing a final rule (assuming that one is issued), we will consider that comment as an informal suggestion for future rulemaking action.

Your comments must be written and in English. To ensure that your comments are correctly filed in the Docket, please include the docket number of this document in your comments.

Your comments must not be more than 15 pages long. (49 CFR 553.21). We established this limit to encourage you to write your primary comments in a concise fashion. However, you may attach necessary additional documents to your comments. There is no limit on the length of the attachments.

Please submit two copies of your comments, including the attachments, to Docket Management at the address given above under ADDRESSES.

In addition, given the statutory deadline of December 31, 2001, for issuance of the final rule, for those comments of 4 or more pages in length, we request that you send 10 additional copies, as well as one copy on computer disc, to: Mr. Kenneth Katz, Office of Consumer Programs, National Highway Traffic Safety Administration, 400 Seventh Street, SW, Washington, DC 20590. We emphasize that this is not a requirement. However, we ask that you do this to aid us in expediting our review of all comments. The copy on computer disc may be in any format, although we would prefer that it be in WordPerfect 8 or Word 2000.

You may also submit your comments to the docket electronically by logging onto the Dockets Management System website at http://dms.dot.gov. Click on “Help & Information” or “Help/Info” to obtain instructions for filing the document electronically.

If you wish Docket Management to notify you upon its receipt of your comments, enclose a self-addressed, stamped postcard in the envelope containing your comments. Upon receiving your comments, Docket Management will return the postcard by mail.

If you wish to submit any information under a claim of confidentiality, you should submit three copies of your complete submission, including the information you claim to be confidential business information, to the Chief Counsel, NHTSA, at the address given above under FOR FURTHER INFORMATION CONTACT. In addition, you should submit two copies, from which you have deleted the claimed confidential business information, to Docket Management at the address given above under ADDRESSES. When you send a comment containing information claimed to be confidential business information, you should include a cover letter setting forth the information specified in our confidential business information regulation. (49 CFR part 512.)

You may read the comments received by Docket Management at the address given above under ADDRESSES. The hours of the Docket are indicated above in the same location.

You may also see the comments on the Internet. To read the comments on the Internet, take the following steps:

Please note that even after the comment closing date, we will continue to file relevant information in the Docket as it becomes available. Further, some people may submit late comments. Accordingly, we recommend that you periodically check the Docket for new material.