This rule is issued under Marketing Agreement No. 124 and Order No. 916, both as amended (7 CFR part 916), regulating the handling of nectarines grown in California, hereinafter referred to as the “order.” The marketing agreement and order are 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 rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, California nectarine handlers are subject to assessments. Funds to administer the orders are derived from such assessments. It is intended that the assessment rate as issued herein would be applicable to all assessable nectarines beginning on March 1, 2002, and continue until amended, suspended, or terminated. This rule will 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 the Secretary 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. Such handler is afforded the opportunity for a hearing on the petition. After the hearing the 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 the 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.

This rule decreases the assessment rate established for the committee for the 2002-03 and subsequent fiscal periods from $0.20 to $0.19 per 25-pound container or container equivalent of nectarines.

The nectarine marketing order provides authority for the committee, with the approval of the USDA, to formulate an annual budget of expenses and collect assessments from handlers to administer the program. The members of the committee are producers of California nectarines. They are familiar with the committee's needs, and with the costs for goods and services in their local area and are, thus, in a position to formulate an appropriate budget and assessment rate. The assessment rate is formulated and discussed in a public meeting. Thus, all directly affected persons have an opportunity to participate and provide input.

For the 2001-02 fiscal period, the committee recommended, and the Department approved, an assessment rate that would continue in effect from fiscal period to fiscal period unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the committee or other information available to USDA.

The committee met on May 1, 2002, and unanimously recommended 2002-03 expenditures of $4,671,342 and an assessment rate of $0.19 per 25-pound container or container equivalent of nectarines. In comparison, last year's budgeted expenditures were $4,338,744. The recommended rate is $0.01 lower than the rate currently in effect.

The decrease was recommended because the crop is expected to be larger than estimated earlier this year. In early spring, the crop was estimated to be 22 million containers or container equivalents of nectarines. The crop is now estimated to be more than 23 million containers or container equivalents. Assessment income and funds from the committee's operating reserve will be adequate to cover approved committee expenses in 2002-03.

The major expenditures recommended by the committee for 2002-03 include $505,000 for salaries and benefits, $309,039 for general expenses, $1,050,000 for inspection, $138,018 for research, and $2,574,160 for domestic and international promotion.

Budgeted expenses for these items in 2001-02 were $423,176 for salaries and benefits, $157,821 for general expenses, $1,000,000 for inspection, $169,393 for research, and $2,429,000 for domestic and international promotion.

To determine the applicable 2002-03 assessment rate, the committee considered the total expenses of $4,671,342, and the assessable nectarines estimated at 23,248,000 25-pound containers or container equivalents. At that rate, assessment income for 2002-03 will be $4,417,120. The committee began 2002-03 with $684,368 in operating reserves and expects to end the fiscal period with $350,000. Section 916.42 authorizes a reserve equal to about one fiscal period's expenses. Funds from the committee's operating reserve will be kept within the maximum permitted.

The assessment rate established in this rule will continue in effect indefinitely unless modified, suspended, or terminated by the USDA upon recommendation and information submitted by the committee or other available information.

Although this assessment rate would be in effect for an indefinite period, the committee will continue to meet prior to each fiscal period to recommend a budget of expenses and meet during each fiscal period to consider recommendations for modification of the assessment rate. The dates and times of committee meetings are available from the committee or USDA.

Committee meetings are open to the public and interested persons may express their views at these meetings. USDA will evaluate committee recommendations and other available information to determine whether modification of the assessment rate is needed. Further rulemaking will be undertaken as necessary. The committee's 2002-03 budget and those for subsequent fiscal periods would be reviewed and, as appropriate, approved by the Department.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule 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 the 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 approximately 300 California nectarine handlers subject to regulation under the order covering nectarines grown in California, and about 1,800 producers of nectarines grown in California. Small agricultural service firms, which include handlers, are defined by the Small Business Administration (13 CFR 121.201) as those whose annual receipts are less than $5,000,000. Small agricultural producers are defined by the Small Business Administration as those having annual receipts of less than $750,000. A majority of these handlers and producers may be classified as small entities.

In the 2001 season, the average handler price received was $9.00 per container or container equivalent of nectarines. A handler would have to ship at least 555,556 containers or container equivalents of nectarines to have annual receipts of $5,000,000. Based on shipment data maintained by the committee's staff, it is estimated that small handlers of nectarines represent approximately 94 percent of the handlers within the industry.

In the 2001 season, the average producer price received was $5.50 per container or container equivalent of nectarines. A producer would have to produce at least 136,364 containers or container equivalents of nectarines to have annual receipts of $750,000. Based on data maintained by the committee's staff, it is estimated that small producers represent approximately 78 percent of the nectarine producers within the industry.

This rule decreases the assessment rate established for the committee and collected from handlers for the 2002-03 and subsequent fiscal periods from $0.20 to $0.19 per 25-pound container or container equivalent of nectarines. The committee unanimously recommended 2002-03 expenditures of $4,671,342 and an assessment rate of $0.19 per 25-pound container or container equivalent of nectarines. The recommended assessment rate is $0.01 lower than the current rate. The quantity of assessable nectarines for the 2002-03 fiscal year is estimated at 23,248,000 25-pound containers or container equivalents. Thus, the $0.19 rate should provide $4,417,120 in assessment income. Income derived from handler assessments, along with other income and funds from the committee's authorized reserve would be adequate to cover budgeted expenses.

The major expenditures recommended by the committee for the 2002-03 year include $505,000 for salaries and benefits, $309,039 for general expenses, $1,050,000 for inspection, $138,018 for research, and $2,574,160 for domestic and international promotion.

Budgeted expenses for these items in 2001-02 were $423,176 for salaries and benefits, $157,821 for general expenses, $1,000,00 for inspection, $169,393 for research, $2,429,000 for domestic and international promotion.

The decrease was recommended because the crop is expected to be larger than estimated earlier in the year. The crop estimate in early spring was 22 million containers or container equivalents of nectarines. The crop is now estimated to be more than 23 million containers or container equivalents. The committee reviewed and unanimously recommended 2002-03 expenditures of $4,671,342.

Prior to arriving at this budget, the committee considered information and recommendations from various sources, including, but not limited to: the Management Services Committee, the Research Subcommittee, the International Programs Subcommittee, the Grade and Size Subcommittee, the Domestic Promotion Subcommittee, and the Grower Relations Subcommittee. The assessment rate of $0.19 per 25-pound container or container equivalent is expected to result in an operating reserve of $350,000, which is less than the committee generally recommends, but considered adequate to meet the committee's financial needs in the early part of the 2003 season.

A review of historical and preliminary information pertaining to the upcoming fiscal period indicates that the grower price for the 2002-03 season could range between $5.50 and $6.00 per 25-pound container or container equivalent of nectarines. Therefore, the estimated assessment revenue for the 2002-03 fiscal period as a percentage of total grower revenue could range between 3.17 and 3.45 percent.

This action decreases the assessment obligation imposed on handlers. Assessments are applied uniformly on all handlers, and some of the costs may be passed on to producers. However, decreasing the assessment rate reduces the burden on handlers, and may reduce the burden on producers. In addition, the committee's meeting was widely publicized throughout the California nectarine industry and all interested persons were invited to attend the meeting and participate in committee deliberations on all issues. Like all committee meetings, the May 1, 2002, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

This action imposes no additional reporting or recordkeeping requirements on either small or large handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule. 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.

After consideration of all relevant material presented, including the information and recommendation submitted by the committee and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect, and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) This assessment rate is lower than the assessment rate currently in effect; (2) the committee needs to have sufficient funds to pay its expenses which are incurred on a continuous basis; (3) the 2002-03 fiscal period began on March 1, 2002, and the marketing order requires that the rate of assessment for each fiscal period apply to all assessable nectarines handled during such fiscal period; (4) handlers are aware of this action which was unanimously recommended by the committee at public meetings and is similar to other assessment rate actions issued in past years; and (5) this interim final rule provides a 60-day comment period, and all comments timely received will be considered prior to finalization of this rule.

Commission regulation 4.26(b), which was adopted in 1995, 1 required a commodity pool operator (“CPO”) to attach the most current account statement and annual report for the pool to the disclosure document used to solicit prospective participants. As an alternative to attaching the account statement, the COP was permitted to provide information concerning the performance of the pool that was current within 60 days of the date the disclosure document was distributed.

In July 2000, the Commission proposed changes to its rules to permit CPOs to use a summary or “profile” comment prior to delivery of the pool's disclosure document, in accordance with rules proposed by NFA. 2 The sole change the Commission proposed to Rule 4.26 was to extend to profile documents the provision requiring correction of a materially inaccurate or incomplete disclosure document. The Commission received only one comment letter on the proposed changes, which supported the amendments. The comment letter did not address the proposed change to Rule 4.26.

The commission adopted final rules that were essentially the same as those proposed. 3 Subsequent to publication of these rules, it has come to the Commission's attention that the revised text was inadvertently substituted for section 4.26(b) rather than 4.26(c). Today's amendment restores the text of 4.26(b), which requires that the most recent account statement and annual report be attached to commodity pool disclosure documents, and deletes the text of 4.26(c) that was intended to be replaced.

Section 553(b) of the Administrative Procedure Act (“APA”), 5 U.S.C. 553(b), generally requires that notice of proposed rulemaking be published in the Federal Register and that an opportunity for public comment be provided when an agency promulgates new rules. APA § 553(b)(B) provides an exception to this requirement “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” Commission staff have been advised by National Futures Association, the designated self-regulatory association (“DSRO”) for CPOs, that despite the inadvertent amendment of Rule 4.26(b), CPOs have been following the rule as though the requirement for the most current account statement and annual report had not been eliminated. Thus, the Commission has determined that publication of this correction for comment is unnecessary because CPOs, the entities subject to the rule, have been operating as though the rule had been in effect.

The Regulatory Flexibility Act (“RFA”), 5 U.S.C. 601-611 (1994), requires that agencies, in proposing rules, consider the impact of those rules on small businesses. The Commission has previously established certain definitions of “small entities” to be used by the Commission in evaluating the impact of its rules on such entities in accordance with the RFA. 4 The Commission previously has determined that registered CPOs are not small entities for the purpose of the RFA. 5 Therefore, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the action taken herein will not have a significant economic impact on a substantial number of small entities.

This rule does not contain information collection requirements. Filing requirements regarding the disclosure document and information that must be distributed with it are included in section 4.21 and 4.22, which are part of an approved paperwork collection [OMB Control No. 3038-0005].

Section 15 of the Commodity Exchange Act, as amended by section 119 of the CFMA, requires the Commission, before promulgating a new regulation under the Act, to consider the costs and benefits of the Commission's action. Section 15 further specifies that costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission may, in its discretion, give greater weight to any one of the five enumerated areas of concern and may, in its discretion, determine that, notwithstanding its costs, a particular regulation was necessary or appropriate to protect the public interest or to effectuate any of the provisions or to accomplish any of the purposes of the Act.

The main area of concern relevant to this rulemaking is the first set forth in the Act, “protection of market participants and the public.” The other factors are inapplicable to this rule. The Commission concludes that the benefit to the public of receiving the financial information specified above outweighs the costs of providing the information.

On November 19, 2001, the President signed into law the Aviation and Transportation Security Act (Act), Public Law 107-71. Section 115 of that law amended 49 U.S.C. 44909, to add a new paragraph (c) in order to provide, in part, that, not later than 60 days after the date of enactment of the Act, each air carrier, foreign and domestic, operating a passenger flight in foreign air transportation to the United States must electronically transmit to Customs, in advance of the arrival of the flight, a related passenger manifest and a crew manifest containing certain required information pertaining to the passengers and crew on the flight (49 U.S.C. 44909(c)(1), (c)(2) and (c)(4)). Furthermore, pursuant to 49 U.S.C. 44909(c)(3), these carriers are also required to make Passenger Name Record information available to Customs upon request. The availability of PNR information to Customs is necessary for purposes of ensuring aviation safety and protecting national security.

By a document published in the Federal Register (66 FR 67482) on December 31, 2001, as T.D. 02-01, Customs issued an interim rule that added a new § 122.49a to the Customs Regulations (19 CFR 122.49a) in order to implement the requirement in 49 U.S.C. 44909(c)(1), (c)(2) and (c)(4) for the electronic presentation to Customs of a passenger manifest and a crew manifest in advance of the arrival of each passenger flight in foreign air transportation to the United States. In particular, § 122.49a requires air carriers, for each flight subject to the statute, to transmit to Customs, by means of an electronic data interchange system approved by Customs, a passenger manifest and, by way of a separate transmission using the same system, a crew manifest.

In T.D. 02-01, (66 FR at 67483), Customs stated that the requirement in 49 U.S.C. 44909(c)(3) that air carriers make Passenger Name Record information available to Customs upon request would be the subject of a separate document published in the Federal Register .

Accordingly, Customs is now issuing an interim rule that adds a new § 122.49b to the Customs Regulations (19 CFR 122.49b) in order to implement 49 U.S.C. 44909(c)(3).

Unlike 49 U.S.C. 44909(c)(1), (c)(2) and (c)(4), where the requirement that air carriers transmit passenger and crew manifests to Customs is expressly limited to those passenger flights in foreign air transportation that are destined for the United States, section 44909(c)(3) has no such limitation in requiring air carriers to make Passenger Name Record (PNR) information available to Customs upon request. Rather, if an air carrier, foreign or domestic, is engaged in foreign air transportation to the United States, section 44909(c)(3) authorizes Customs to request access to PNR information. Accordingly, this section applies to PNR information for inbound or outbound flights in foreign air transportation.

Thus, under § 122.49b, each air carrier must, upon request, provide Customs with electronic access to Passenger Name Record information that is contained in the carrier's automated reservation/departure control systems in connection with passenger flights in foreign air transportation either to or from the United States, including flights to the United States where the passengers have already been pre-inspected or pre-cleared at the foreign location for admission to the U.S. In order to readily provide Customs with such access to requested PNR data, each air carrier must ensure that its electronic reservation/departure control systems correctly interface with the U.S. Customs Data Center, Customs Headquarters.

Passenger Name Record information that air carriers would need to make available to Customs upon request under section 44909(c)(3) and § 122.49b refers to reservation information contained in an air carrier's electronic reservation system and/or departure control system that sets forth the identity and travel plans of each passenger or group of passengers included under the same reservation record number with respect to any passenger flight in foreign air transportation to or from the United States.

The air carrier, upon request, must electronically provide Customs with access to any and all PNR data elements concerning the identity and travel plans of a passenger for any flight in foreign air transportation to or from the United States, to the extent that the carrier in fact possesses the requested data elements in its reservation system and/or departure control system. The following list of PNR data elements is intended merely to be illustrative of those data elements to which Customs may request access in relation to a passenger:

(1) Last name; first name; date of birth; address(es); and phone number(s);

(2) Passenger name record locator (reservation) number;

(3) Reservation date (or dates, if multiple reservations made), or if no advance reservation made (“go show”);

(4) Travel agency/agent, if applicable;

(5) Ticket information;

(6) Form of payment for ticket;

(7) Itinerary information;

(8) Carrier information for the flight, including but not limited to: carrier information for each segment of the flight if not continuous; the flight number(s); and date(s) of intended travel;

(9) Seating; and

(10) PNR history.

It is emphasized that there is no requirement that an air carrier collect any other Passenger Name Record information than the particular PNR data that the carrier already collects on its own and maintains in its electronic reservation/departure control systems. Generally speaking, the PNR information contained in an air carrier's automated PNR database may consist of as few as 5 data elements or in excess of 50 data elements, depending upon the particular record and carrier.

As previously indicated, in furnishing Customs with electronic access to requested Passenger Name Record data, the air carrier's electronic reservation/departure control systems must correctly interface with the U.S. Customs Data Center, Customs Headquarters. To fully and effectively accomplish this interface between the air carrier's electronic reservation/departure control systems and the Customs Data Center, the carrier must do the following:

(1) Provide Customs with an electronic connection to its reservation system and/or departure control system. (This connection can be provided directly to the Customs Data Center, Customs Headquarters, or through a third party vendor that has such a connection to Customs.);

(2) Provide the Customs Data Center with the necessary airline reservation/departure control systems' commands that will enable Customs to:

(a) Connect to the carrier's reservation/departure control systems;

(b) Obtain the carrier's schedules of flights;

(c) Obtain the carrier's passenger flight lists; and

(d) Obtain data for all passengers listed for a specific flight; and

(3) Provide technical assistance to Customs as required for the continued full and effective interface of the carrier's electronic reservation/departure control systems with the Customs Data Center, in order to ensure the proper response from the carrier's systems to requests for data that are made by Customs.

Customs is aware that a number of air carriers have not yet taken steps to properly connect their automated reservation/departure control systems with the Customs Data Center. Consequently, any air carrier that has not yet done so must fully and effectively interface its automated PNR database with the Customs Data Center, as described, within 30 days from the date that Customs contacts the carrier and requests that the carrier effect such an interface. However, an air carrier may apply in writing to the Assistant Commissioner, Office of Field Operations (OFO), for an additional extension of the period in which to properly interface its electronic reservation/departure control systems with the Customs Data Center. Following receipt of the application, the Assistant Commissioner, OFO, may, in writing, allow the carrier an extension of this period for good cause shown. The Assistant Commissioner's decision as to whether and/or to what extent to grant such an extension is final.

Passenger Name Record information under 49 U.S.C. 44909(c)(3) that is made available to Customs electronically may, upon request, be shared with other Federal agencies for the purpose of protecting national security (49 U.S.C. 44909(c)(5)) or as otherwise authorized by law.

Under § 122.49a(c)(2), Customs Regulations (19 CFR 122.49a(c)(2)), in pertinent part, each air carrier must electronically transmit to Customs the United States visa number for each applicable passenger and crew member on a passenger flight covered by § 122.49a(a). Under § 122.49a(c)(3), this information is to be obtained by electronically transmitting to Customs the U.S. non-immigrant visa travel document. This transmission is in fact accomplished through the use of an electronic machine reader that scans the travel document and transmits the information on it to Customs.

However, it has been determined that the visa number is not located in the machine-readable zone of the U.S.-issued non-immigrant visa travel document, and thus the visa number on this document cannot be transmitted to Customs with the use of a machine reader. By contrast, the travel document number for the U.S.-issued visa is located in the machine-readable zone of that document, and, as such, this number can be transmitted to Customs under the existing system.

Hence, § 122.49a(c)(2) is changed by deleting the requirement for the U.S. visa number, and instead requiring that the carrier electronically transmit to Customs the travel document number for the U.S.-issued visa, that is located in the machine-readable zone of that document.

Before adopting this interim regulation as a final rule, consideration will be given to any written comments that are timely submitted to Customs. Customs specifically requests comments on the clarity of this interim rule and how it may be made easier to understand. Comments submitted will be available for inspection in accordance with the Freedom of Information Act (5 U.S.C. 552), § 1.4, Treasury Department Regulations (31 CFR 1.4), and § 103.11(b), Customs Regulations (19 CFR 103.11(b)), at the U.S. Customs Service, 799 9th Street, NW., Washington, DC during regular business hours. Arrangements to inspect submitted comments should be made in advance by calling Mr. Joseph Clark at (202) 572-8768.

This interim regulation has been determined to be urgently needed for purposes of ensuring aviation safety and protecting national security. For these reasons, Customs finds that good cause exists for dispensing with the notice and public comment procedures of the Administrative Procedure Act (5 U.S.C. 553) as being contrary to the public interest pursuant to 5 U.S.C. 553(b)(B). For the same reasons, pursuant to 5 U.S.C. 553(d)(3), a delayed effective date is not required. Because this document is not subject to the requirements of 5 U.S.C. 553, as noted, it is not subject to the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Nor does this interim regulation result in a “significant regulatory action” under E.O. 12866.

Section 217.9 of the regulations of the Board provides for the effective period of an application. This rule amends § 217.9(b) to permit a spouse application, when filed simultaneously with the employee's application for a disability annuity, to be filed more than three months in advance of the earliest annuity beginning date. This rule also makes a conforming amendment to § 217.30 concerning the reasons for denial of an application, and provides greater clarity for such denials.

The Board published the proposed rule on November 29, 2001 (66 FR 59548), and invited comments by January 28, 2002. No comments were received. Accordingly, the proposed rule has been redrafted as a final rule without change.

The Board, with the concurrence of the Office of Management and Budget, has determined that this is not a significant regulatory action under Executive Order 12866. Therefore, no regulatory analysis is required. Information collections associated with § 217.9 have been approved by the Office of Management and Budget under control number 3220-0002.

In a notice published in the Federal Register of November 17, 1989 (54 FR 47828), FDA announced that a food additive petition (FAP 9A4175) had been filed by Enzyme Bio-Systems Ltd., International Plaza, Route 9W, Englewood Cliffs, NJ 07632. The petition proposed to amend the food additive regulations to provide for the safe use of dimethylamine-epichlorohydrin copolymer (DEC) and acrylamide-acrylic acid resin (AAR) as fixing agents for immobilizing glucose isomerase enzyme.

DEC and AAR will be used, individually or together, to immobilize glucose isomerase enzymes for the purpose of converting glucose to a mixture of glucose and fructose for the production of high fructose corn syrup (HFCS). The glucose isomerase immobilized with the petitioned polymers may be used as a substitute for one or more of the immobilized glucose isomerases currently in use.

In its evaluation of the safety of the petitioned substances, FDA has reviewed the safety of the additives and the chemical impurities that may be present in them resulting from the manufacturing processes. Although the petitioned polymers have not been shown to cause cancer, they may contain minute amounts of carcinogenic impurities resulting from their manufacture. DEC may contain traces of unreacted epichlorohydrin and its degradation product, 1,3-dichloro-2-propanol. AAR may contain minute amounts of the unreacted monomer, acrylamide. These chemical impurities have been shown to cause cancer in test animals. Residual amounts of reactants and their impurities commonly are found as contaminants of chemical products, including food additives.

Under the general safety standard of the Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C. 348(c)(3)(A)), a food additive cannot be approved for a particular use unless a fair evaluation of the data available to FDA establishes that the additive is safe for that use. FDA's food additive regulations (21 CFR 170.3(i)) define safe as a “reasonable certainty in the minds of competent scientists that the substance is not harmful under the intended conditions of use.”

The food additives anticancer, or Delaney, clause of the act (21 U.S.C. 348(c)(3)(A)) provides that no food additive shall be deemed safe if it is found to induce cancer when ingested by man or animal. Importantly, however, the Delaney clause applies to the additive itself and not to impurities in the additive. That is, where an additive itself has not been shown to cause cancer, but contains a carcinogenic impurity, the additive is evaluated properly under the general safety standard using risk assessment procedures to determine whether there is reasonable certainty that no harm will result from the intended use of the additive ( Scott v. FDA , 728 F.2d 322 (6th Cir. 1984)).

FDA has estimated that the petitioned use of the additives, DEC and AAR, will result in a daily intake of 210 micrograms per person per day (μg/p/d) and 83 μg/p/d, respectively (Ref. 1).

FDA has evaluated the safety of DEC and AAR under the general safety standard and concludes that the estimated dietary exposure to the additives resulting from the petitioned uses is safe. In reaching this conclusion, FDA reviewed all available toxicological data and used risk assessment procedures to estimate the upper-bound limit of lifetime human risk presented by the carcinogenic impurities that may be present in the petitioned additives. The chemical impurities considered are acrylamide in AAR and epichlorohydrin and 1,3-dichloro-2-propanol in DEC.

The risk evaluation of the carcinogenic impurities has two aspects: (1) Assessment of exposure to the impurities from the petitioned use of the additives; and (2) extrapolation of the risk observed in the animal bioassays to the conditions of exposure to humans.

FDA has estimated the upper-bound exposure to acrylamide from the petitioned use of AAR to be 2 nanograms per person per day (ng/p/d), corresponding to a dietary concentration of 0.67 part-per-trillion (pptr) in the daily diet (3 kg) (Ref. 2). This estimate is conservative, as it does not account for the removal of impurities, including acrylamide, from the crude HFCS during the purification process.

Acrylamide is a recognized neurotoxin. To derive the safe exposure level to acrylamide as a neurotoxin, the agency used a study by J. D. Burek et al. (Ref. 3). FDA, using an uncertainty factor of 1,000 (equivalent to a safety factor), determined the acceptable daily intake of acrylamide with respect to neurotoxicity to be 12 μg/p/d based on the neurotoxicity evaluation and absence of a neurotoxic effect (Refs. 4 and 5). Therefore, based on the agency's estimate that the exposure to acrylamide will not exceed 2 ng/p/d, FDA concludes that the exposure to acrylamide from the petitioned use of AAR does not pose a neurotoxic risk.

To estimate the upper-bound limit of lifetime human risk from exposure to acrylamide as a carcinogen resulting from the petitioned use of AAR, the agency used published data from a long-term rat bioassay on acrylamide, conducted by Johnson et al., in addition to unpublished data from this bioassay in the agency's files (Refs. 6 and 7). The authors of this bioassay reported that acrylamide administered to rats via drinking water is associated with statistically significant increased incidences of thyroid follicular adenomas and testicular mesotheliomas in male rats, and of mammary tumors (adenomas or adenocarcinomas, fibromas or fibroadenomas, adenocarcinomas alone), central nervous system tumors (brain astrocytomas, brain or spinal cord glial tumors), and uterine tumors (adenocarcinomas) in female rats.

Based on the agency's estimate that exposure to acrylamide will not exceed 2 ng/p/d, FDA estimates that the upper-bound limit of lifetime human risk from exposure to acrylamide from the petitioned use of the subject additive is 2.2 x 10 -8 or 22 in 1 billion (Ref. 8). Considering that this estimated upper-bound risk is based on very conservative assumptions, the agency believes that the probable lifetime human risk would be significantly less than the estimated upper-bound limit of lifetime human risk. Therefore, the agency concludes that there is reasonable certainty that no harm from exposure to acrylamide would result from the petitioned use of AAR.

FDA has estimated the exposure to epichlorohydrin from the petitioned use of DEC to be 2.1 ng/p/d or 0.7 pptr of the daily diet (Refs. 1 and 9). This estimate is conservative, as it does not account for the removal of residual impurities, including epichlorohydrin, during the processing of the crude HFCS.

The agency used data from a carcinogenesis bioassay conducted by Konishi et al. (Ref. 10), on rats fed epichlorohydrin via their drinking water, to estimate the upper-bound limit of lifetime human risk from exposure to this chemical resulting from the petitioned use of DEC. The authors reported that the test material caused significantly increased incidence of stomach papillomas and carcinomas in rats.

Based on the agency's estimate that exposure to epichlorohydrin will not exceed 2.1 ng/p/d, FDA estimates that the upper-bound limit of lifetime human risk from exposure to epichlorohydrin resulting from the petitioned use of the subject additive is 9.5 x 10 -11 or 95 in 1 trillion (Ref. 8). Considering that this upper-bound estimated risk is based on very conservative assumptions, the agency believes that the probable lifetime human risk would be significantly less than the estimated upper-bound limit of lifetime human risk. Therefore, FDA concludes that there is reasonable certainty that no harm from exposure to epichlorohydrin would result from the petitioned use of DEC.

DCP is the product of epichlorohydrin degradation in water. The current regulation for the use of DEC resin establishes a residual limit for DCP at 1,000 ppm in the DEC resin (21 CFR 173.60 (b)(3)). The agency has estimated that exposure to DCP from the petitioned use for DEC will not exceed 210 ng/p/d (Refs. 1 and 9). This estimate is conservative, as it does not account for the removal of residual impurities, including DCP, during the processing of the crude HFCS.

The agency used data from a 1986 drinking water bioassay in rats (Ref. 11) to estimate the worst case upper-bound lifetime cancer risk from exposure to DCP from the petitioned use of DEC. This risk was calculated as 1.2 x 10 -7 or 12 in 100 million (Refs. 12 and 13). Considering that this upper-bound estimated risk is based on very conservative assumptions, the agency believes that the probable lifetime human risk would be significantly less than the upper-bound limit of lifetime human risk. Therefore, FDA concludes that there is reasonable certainty that no harm from exposure to DCP would result from the petitioned use of DEC.

The agency also has considered whether specifications are necessary to control the amount of acrylamide present as an impurity in AAR and epichlorohydrin and DCP in DEC. The agency finds that specifications are not necessary for the following reasons:

1. The agency would not expect these impurities to become components of food at other than extremely low levels because of the low levels at which acrylamide, epichlorohydrin, and DCP may be expected to remain as impurities following production and purification of the additives and HFCS, and

2. The upper-bound limits of lifetime human risk from exposure to acrylamide, epichlorohydrin, and DCP are very low, 2.2 x 10 -8 , 9.5 x 10 -11 , and 1.2 x 10 -7 respectively.

FDA has evaluated data in the petition and other relevant material. Based on this information, the agency concludes that: (1) The proposed use of the additives as fixing agents in the immobilization of glucose isomerase enzyme preparations is safe, (2) that the additives will achieve their intended technical effect, and therefore, (3) the regulations in § 173.357 (21 CFR 173.357) should be amended as set forth below.

In accordance with § 171.1(h) (21 CFR 171.1(h)), the petition and the documents that FDA considered and relied upon in reaching its decision to approve the petition are available for inspection at the Center for Food Safety and Applied Nutrition by appointment with the information contact person. As provided in § 171.1(h), the agency will delete from the documents any materials that are not available for public disclosure before making the documents available for inspection.

The agency has determined under 21 CFR 25.32(j) that this action is of a type that individually or cumulatively does not have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This final rule contains no collection of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.

Any person who will be adversely affected by this regulation may at any time file with the Dockets Management Branch (see ADDRESSES ) written objections by July 25, 2002. Each objection shall be separately numbered, and each numbered objection shall specify with particularity the provisions of the regulation to which objection is made and the grounds for the objection. Each numbered objection on which a hearing is requested shall specifically so state. Failure to request a hearing for any particular objection shall constitute a waiver of the right to a hearing on that objection. Each numbered objection for which a hearing is requested shall include a detailed description and analysis of the specific factual information intended to be presented in support of the objection in the event that a hearing is held. Failure to include such a description and analysis for any particular objection shall constitute a waiver of the right to a hearing on the objection. Three copies of all documents are be submitted and are to be identified with the docket number found in brackets in the heading of this document. Any objections received in response to the regulation may be seen in the Dockets Management Branch between 9 a.m. and 4 p.m., Monday through Friday.

The following references have been placed on display in the Dockets Management Branch (see ADDRESSES ) and may be seen by interested persons between 9 a.m. and 4 p.m., Monday through Friday.

Akey, Inc., P.O. Box 607, Lewisburg, OH 45338, has informed FDA of a change of name and address to North American Nutrition Companies, Inc., C.S. 5002, 6531 St., Rt. 503, Lewisburg, OH 45338. Accordingly, the agency is amending the regulations in 21 CFR 510.600(c) to reflect the change.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

In the Federal Register of March 17, 1995 (60 FR 14403), the Office of the Secretary of Defense published for public comment a proposed rule regarding a number of changes relating to organ transplants. We received comments from government agencies that by law CHAMPUS is required to consult with during the rule making process. Following is a summary of the changes included in the proposed rule, an analysis of the comments received and provisions of the final rule.

Provisions of the Proposed Rule. The proposed rule established coverage for heart-lung, single or double lung and combined liver-kidney transplantation. Section 199.4, paragraph (e)(5) of 32 CFR allows Basic Program benefits to be extended for otherwise covered services or supplies in connection with an organ transplant procedure, provided such transplant procedure generally is in accordance with accepted professional medical standards and is not considered to be experimental or investigational. Based on recommendations from the National Heart Lung and Blood Institute (NHLBI) on heart-lung, single and double lung transplantation and technology assessments from the Agency for Health Care Policy and Research (AHCPR) on heart-lung, single and double lung transplantation and combined liver-kidney transplantation, TRICARE determined it could no longer deny coverage for these transplant procedures as investigational since safety, efficacy and superiority to conventional treatments had been established.

Analysis of Major Public Comments. Several commentors brought to our attention that we incorrectly stated HCFA, renamed the Centers for Medicare and Medicaid Services (CMS), requested the Agency for Health Care Policy and Research (AHCPR) to perform assessments on lung and heart-lung transplantation when it was the Office of Civilian Health and Medical Program of the Uniformed Services (OCHAMPUS), renamed TRICARE Management Activity, who initiated the requests.

Response: It is hereby noted the commentor's statements are correct.

In the preamble of the proposed rule, we stated the findings of the AHCPR assessment indicated that combined liver-kidney transplantation is an effective intervention in improving survival in patients with end-stage renal and hepatic disease. A commentor from AHCPR indicated the language should be changed to read: “The findings of the AHCPR assessment indicated that the combined liver-kidney transplantation may be an effective intervention in improving survival in patients with end-stage renal and hepatic disease, but also discussed that factors related to patient selection and institutional criteria must be considered.”

Response: Although the preamble language of the proposed rule is not included in the final rule, we concur with the comment and note it accordingly.

One commentor felt the proposed rule language regarding liver transplantation coverage for primary liver tumors should be more explicit.

Response: As stated below in the Provisions of the Final Rule, all covered transplant procedures and the patient selection criteria has more appropriately been placed in the TRICARE/CHAMPUS Policy Manual. The information in the TRICARE/CHAMPUS Policy Manual is more explicit than that contained in 32 CFR part 199. The TRICARE/CHAMPUS Policy Manual can be accessed through TRICARE's Web site at www.tricare.osd.mil.

A commentor suggested we ask CMS, formerly HCFA, to describe its method of calculating and charging acquisition costs for kidneys because the proposed rule incorrectly states that all kidney recipients pay the “same standard” costs.

Response: We contacted CMS, formerly HCFA, and were advised the information regarding kidney acquisition costs is correct. The proposed regulatory language did state standard acquisition costs for live donors is different than that of cadavers.

A commentor believed the transportation cost of a living donor should be considered a TRICARE benefit.

Response: Transportation except by ambulance is specifically excluded under paragraph 199.4(g)(67).

One commentor questioned whether the effective date of July 1, 1983, for liver transplantation is correct.

Response: The July 1, 1983, date is correct.

Another commentor asked whether denying coverage for liver transplantation for those patients with “active alcohol and other substance abuse” preclude paying for a liver transplantation for someone with alcoholic cirrhosis? The same question was applied to combined liver-kidney transplantation.

Response: Coverage may be allowed if the patient has documented abstinence prior to transplantation and there is no evidence of other major organ debility. In addition, there must be evidence of ongoing participation in a social support group such as Alcoholics Anonymous; and evidence of a supportive family/social environment. These criteria are detailed in the TRICARE/CHAMPUS Policy Manual and can be accessed through TRICARE's Web site at www.tricare.osd.mil.

Several commentors suggested changing the phrase “medically necessary and generally accepted practice . . .” to terms such as “medically necessary because it represents generally accepted practice . . .” or “reasonable and necessary.” It was also suggested the term “non-investigational,” was confusing and should not be used.

Response: The phrase “medically necessary and generally accepted practice . . .” has been changed to read “. . . medically necessary for the treatment of the condition for which it is administered, according to accepted standards of medical practice.” The term “non-investigational” has been removed.

Provisions of the Final Rule. When the CHAMPUS final rules on Liver and Heart Transplants were published in 1986, the science of solid organ transplants was relatively new, therefore, detailed guidelines for these transplants were published in paragraph 199.4 (e)(5). The purpose of the Code of Federal Regulations is to provide broad guidelines and policies; the publishing of detailed guidelines in paragraphs 199.4 (e)(5)(v) and (e)(5)(vi) for liver and heart transplants has proved difficult to maintain. For example, one of the contraindications listed in paragraph 199.4 (e)(5)(v)(B) for liver transplants is viral-induced liver disease when viremia is still present. Recent studies show liver transplants for patients with end-stage liver failure resulting from hepatitis B and C is safe, effective and comparable to standard treatment.

Many transplant procedures are no longer considered unproven and are covered under TRICARE. To assist our beneficiaries in obtaining coverage for new transplant procedures in a timely manner, detailed policy and patient selection criteria for each covered transplant has more appropriately been placed in the TRICARE/CHAMPUS Policy Manual. The TRICARE/CHAMPUS Policy Manual contains operational policy necessary to efficiently implement 32 CFR part 199. The TRICARE/CHAMPUS Policy Manual augments 32 CFR part 199 and must be used in conjunction with the CFR for complete policy information. The TRICARE/CHAMPUS Policy Manual can be accessed through TRICARE's Web site at www.tricare.osd.mil.

Paragraph (e)(5) continues to allow Basic Program benefits to be extended for otherwise covered services or supplies in connection with an organ or stem cell transplant procedure, provided such transplant procedure generally is in accordance with accepted professional medical standards and is not considered unproven.

Since publication of the proposed rule, a final rule clarifying the exclusion of unproven drugs, devices and medical treatments and procedures was published in the Federal Register on January 6, 1997 (62 FR 625). The final rule adopted the use of the term “unproven” instead of investigational or experimental, therefore, we have replaced the terms investigational and experimental with the term unproven.

Provisions of the Proposed Rule: Wishing to protect beneficiaries and providers from significant financial risks as a result of noncovered care related to organ transplantation and to ensure the prudent expenditure of public funds, the proposed rule established preauthorization requirements for: (1) High dose chemotherapy and stem cell transplantation; (2) all initial and retransplanted solid organs, except kidney and cornea; and (3) advanced life support air ambulance and certified advanced life support attendant for lung or heart-lung candidates.

Analysis of Major Public Comments. One commentor expressed concern regarding the proposed preauthorization time requirement for organ transplants occur “not fewer than two business days prior to the planned admission.”

Response: The reference to “not fewer than two business days prior to the planned admission” was removed prior to publication of the proposed rule in the Federal Register .

Provisions of the Final Rule: The paragraph on preauthorization requirements at Paragraph (e)(5)(ii) has been removed from the final rule, as preauthorization procedures are outlined in § 199.7 (f)(1)(ii) and § 199.15 (b)(4)(ii)(C).

Provisions of the Proposed Rule. TRICARE coverage of cardiac rehabilitation for those patients who have had heart-valve surgery, heart or heart-lung transplantation is based on an assessment conducted by the AHCPR on “Cardiac Rehabilitation Programs: Heart Transplant, Percutaneous Transluminal Coronary Angioplasty, and Heart Valve Surgery Patient”, establishing cardiac rehabilitation programs as safe and effective for these patients.

Analysis of Major Public Comments. One commentor suggested we make reference to AHCPR's assessment on cardiac rehabilitation programs if TMA, formerly OCHAMPUS, used the assessment in arriving at the decision to expand the cardiac rehabilitation benefit.

Response: It is hereby noted that TMA, formerly OCHAMPUS, did use the AHCPR's assessment in arriving at the decision to expand the cardiac rehabilitation benefit to include those patients who have had heart-valve surgery, heart or heart-lung transplantation.

Provisions of the Final Rule. The final rule is consistent with the proposed rule.

Provisions of the Proposed Rule. The proposed rule outlined specific requirements for those institutional providers who wish to be certified as a TRICARE approved organ transplant center for heart-lung and single or double lung transplantation.

Analysis of Major Public Comments. One commentor questioned if there is a time period for which the liver transplant center should “have at least a 70 percent one year actuarial survival rate . . .?'

Response: The transplant center should have a 70 percent actuarial survival rate based on the preceding 12-month period.

Provisions of the Final Rule: When the CHAMPUS final rules on Liver and Heart Transplants were published in 1986, there were not very many institutional providers performing these transplants, therefore, detailed procedures for qualifying as a CHAMPUS-approved heart or liver transplant center were published in 32 CFR, Section § 199.6 (b)(4)(ii) and (b)(4)(iii). As stated above, the purpose of the Code of Federal Regulations is to provide broad guidelines and policies; the publishing of detailed guidelines in § 199.6 (b)(4)(ii) and (b)(4)(iii) for heart and liver transplant centers has proved difficult to maintain. For example, the one year actuarial survival rate for liver transplants is currently over 70 percent, whereas § 199.6 (b)(4)(ii)(A)( 3 ) states a liver transplant center must have at least a 50 percent one-year survival rate for ten cases. Publishing the required actuarial survival rates in the CFR does not allow the flexibility of easily updating the survival percentages as they improve, thus assuring our beneficiaries receive transplants at centers meeting the current actuarial survival rates. The certification requirements for transplant centers have more appropriately been placed in the TRICARE/CHAMPUS Policy Manual. The TRICARE/CHAMPUS Policy Manual contains operational policy necessary to efficiently implement the 32 CFR part 199. The TRICARE/CHAMPUS Policy Manual augments the 32 CFR part 199 and must be used in conjunction with the CFR for complete policy information. The TRICARE/CHAMPUS Policy Manual can be accessed through TRICARE's Web site at www.tricare.osd.mil. § 199.6 (b)(4)(ii) provides broad policy guidelines for approving organ transplant centers.

Provisions of the Proposed Rule: The proposed rule allows TRICARE to recognize pediatric facilities as authorized transplant centers when they belong to a pediatric consortium program whose combined experience and survival data meet the TRICARE criteria for qualifying as a certified TRICARE organ transplant center.

Analysis of Major Public Comment: Several commentors expressed concern about TRICARE's approach to consortium programs. One commentor asked us to explain the basis for differences between TRICARE and CMS, formerly HCFA, in our decision to certify as an authorized institutional provider those individual facilities that qualify only on the basis of combined experience and survival rates of a consortium. The commentor explained CMS, formerly HCFA, requires the individual facilities of a consortia meet these criteria separately.

Response: We failed to make clear in the language of the proposed rule that the consortium concept is being advocated on the part of pediatric transplantation centers. Our rationale for certifying individual pediatric facilities on the basis of combined experience and survival rates of a consortium is because pediatric facilities performing organ transplants are generally not able to meet TRICARE standards for certification as an authorized transplant center because of the number of transplants performed. Since TRICARE's beneficiary population is younger than Medicare's we needed to develop a process to recognize pediatric facilities as TRICARE authorized transplant centers.

Provisions of the Final Rule: As stated above, the certification requirements for transplant centers, including pediatric organ transplant centers have more appropriately been placed in the TRICARE/CHAMPUS Policy Manual. § 199.6 (b)(4)(iii) provides broad policy guidelines for approving individual pediatric organ transplant centers.

Provisions of the Proposed Rule. The proposed rule allows an exception to the requirement that patients be transported to the closest appropriate facility when the patient is an organ transplantation candidate to be transported to a certified TRICARE organ transplant center.

Provisions of the Final Rule. Since publication of the proposed rule, military health care has undergone major reforms from a dual delivery system consisting of direct military treatment and civilian health care, to a fully integrated managed health care system; it is no longer appropriate to restrict coverage/payment of MTF ordered ambulance transfers. Based on this, the payment restrictions for MTF ordered ambulance transfers is being eliminated from the final rule language.

Provisions of the Proposed Rule. The proposed rule extends coverage for pulmonary rehabilitation for beneficiaries whose conditions are considered appropriate according to guidelines adopted by the Executive Director, TMA, or a designee.

Provisions of the Final Rule. The final rule is consistent with the proposed rule.

Analysis of Major Comment: One commentor states CHAMPUS is not exempt from the Paperwork Reduction Act on the grounds that hospitals would not find the reporting intrusive. The commentor informs us the law allows no such exception.

Response: The commentor is correct. The TMA is aware of the Paperwork Reduction Act requirements. The Paperwork Reduction Act requirements do not apply in this case as the collection of information is standardized and will affect less than nine entities per year.

Executive Order 12866 requires that a regulatory impact analysis be performed on any major rule. A “major rule” is defined as one that would result in the annual effect on the national economy of $100 million or more, or have other substantial impact. The Regulatory Flexibility Act (RFA) requires that each Federal Agency prepare, and make available for public comment, a regulatory flexibility analysis when the agency issues regulations which would have a significant impact on a substantial number of small entities.

This final rule is not major rule under the Congressional Review Act. The changes set forth in this final rule are minor revisions to existing regulation. The changes made in this final rule involve an expansion of TRICARE benefits. In addition, this final rule will have minor impact and will not significantly affect a substantial number of small entities. In light of the above, no regulatory impact analysis is required.

The rule has been designated as significant and has been reviewed by the Office of Management and Budget as required under the provisions of Executive Order 12866.

The final rule will not impose additional information collection requirements on the public under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 55).

It has been determined that 32 CFR part 341 is not a significant regulatory action. The rule does not:

(1) Have an annual effect to the economy of $100 million or more or adversely affect in a material way the economy; a section 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 this Executive Order.

It has been certified that this rule does not contain a Federal mandate that may result in the expenditure by State, local and tribal governments, in aggregate, or by the private sector, of $100 million or more in any one year.

It has been certified that this rule is not subject to the Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities because it does not change existing DoD practices and it primarily affects the internal activities of the Department of Defense.

It has been certified that this rule does impose reporting or recordkeeping requirements under the Paperwork Reduction Act of 1995. The reporting and recordkeeping requirements have been submitted to OMB for review.

It has been certified that this rule does not have federalism implications, as set forth in Executive Order 13132. This rule does not have substantial direct effects on:

(1) The States;

(2) The relationship between the National Government and the States; or

(3) The distribution of power and responsibilities among the various levels of government.

The Coast Guard is implementing the permanent safety zones in 33 CFR 165.907 (66 FR 27868, May 21, 2001), for fireworks displays in the Captain of the Port Detroit Zone during July 2002. The following safety zones are in effect for fireworks displays occurring in the month of July 2002:

(1) City of Wyandotte Fireworks, Wyandotte, MI. Location: The waters off the breakwall between Oak & Van Alstyne St., Detroit River bounded by the arc of a circle with a 300-yard radius with its center in approximate position 42°12′ N, 083°09′ W on July 2, 2002 from 9:15 p.m. until 10:15 p.m.

(2) Caseville Fireworks, Caseville, MI. Location: The waters off the Caseville breakwall, Saginaw River bounded by the arc of a circle with a 300-yard radius with its center in approximate position 43°55′ N, 083°17′ W, on July 3, 2002, from 10 p.m. until 11 p.m.

(3) Lake Erie Metro Park Fireworks. Location: The waters off the Brownstown Wave Pool area, Lake Erie bounded by the arc of a circle with a 300-yard radius with its center in approximate position 42°03′ N, 083°11′ W, on July 4, 2002, from 10 p.m. until 11 p.m.

(4) Trenton Fireworks Display, Trenton, MI. Location: All waters of the Trenton Channel within a 300-yard radius of the fireworks barge in approximate position 42°09′ N, 083°10′ W, about 200 yards east of Trenton, in the Trenton Channel on July 4, 2002, from 10 p.m. until 11 p.m.

(5) Port Sanilac Fireworks, Port Sanilac, MI. Location: The waters off the South Harbor breakwall, Lake Huron bounded by the arc of a circle with a 300-yard radius with its center in approximate position 43°25′ N, 082°31′ W on July 4, 2002, from 10 p.m. until 11 p.m.

(6) City of Ecorse Water Festival Fireworks, Ecorse, MI. Location: All waters of the Ecorse Channel within a 300-yard radius of the fireworks barge in approximate position 42°14′ N, 083°09′ W, at the northern end of Mud Island, Ecorse, on July 4, 2002, from 10 p.m. until 11 p.m.

(7) Port Austin Fireworks. Location: The waters off the Port Austin breakwall on Lake Huron, bounded by the arc of a circle with a 300-yard radius with its center in approximate position 43°03′ N, 082°40′ W, on July 4, 2002, from 10 p.m. until 11 p.m.

(8) Tawas City 4th of July Fireworks, Tawas, MI. Location: The waters off the Tawas City Pier, Lake Huron bounded by the arc of a circle with a 300-yard radius with its center in approximate position 44°13′ N, 083°30′ W, on July 4, 2002 from 10 p.m. until 11 p.m.

(9) Belle Maer Harbor 4th of July Fireworks, Harrison Township, MI. Location: All waters of Lake St. Clair within a 300-yard radius of the fireworks barge in approximate position 42°36′ N, 082°47′ W, about 400 yards east of Belle Maer Harbor, Lake St. Clair—Anchor Bay on July 4, 2002, from 10 p.m. until 11 p.m.

(10) Grosse Ile Yacht Club Fireworks, Grosse Ile, MI. Location: The waters off the Grosse Ile Yacht Club deck, Detroit River bounded by the arc of a circle with a 300-yard radius with its center approximately located at 42°05′ N, 083°09′ W on July 4, 2002 from 9 p.m. to 10 p.m.

(11) Oscoda Township Fireworks. Location: The waters off the DNR Boat Launch at the mouth of the Ausable River bounded by the arc of a circle with a 300-yard radius with its center in approximate position 44°19′ N, 083°25′ W, on July 4, 2002, from 10 p.m. until 11 p.m.

(12) Grosse Pointe Yacht Club 4th of July Fireworks, Grosse Pointe Shores, MI. Location: All waters of Lake St. Clair within a 300-yard radius of the fireworks barge in approximate position 42°25′ N, 082°52′ W, about 400 yards east of the Grosse Pointe Yacht Club seawall, Lake St. Clair on July 4, 2002, from 9:30 p.m. until 11 p.m.

(13) City of St. Clair Fireworks. Location: The waters off St. Clair City Park, St. Clair River bounded by the arc of a circle with a 300-yard radius with its center in approximate position 42°49′ N, 082°29′ W, on July 4, 2002, from 9:30 p.m. until 11:30 p.m.

(14) Algonac Pickerel Tournament Fireworks, Algonac, MI. Location: All waters of the St. Clair River within a 300-yard radius of the fireworks barge in approximate position 42°37′ N, 082°32′ W, between Algonac and Russell Island, St. Clair River—North Channel, on July 5, 2002, from 9:45 p.m. until 10:30 p.m.

(15) Lexington Independence Festival Fireworks, Lexington, MI. Location: All waters of Lake Huron within a 300-yard radius of the fireworks barge in approximate position 43°13′ N, 082°30′ W, about 300 yards east of the Lexington breakwall, Lake Huron, on July 6, 2002, from 7 p.m. until 12 a.m.

All coordinates are North American Datum 1983. In order to ensure the safety of spectators and transiting vessels, these safety zones will be in effect for the duration of the events. In cases where shipping is affected, commercial vessels may request permission from the Captain of the Port Detroit to transit the safety zone. Approval will be made on a case-by-case basis. Requests must be made in advance and approved by the Captain of the Port before transits will be authorized. The Captain of the Port may be contacted via U.S. Coast Guard Group Detroit on channel 16, VHF-FM.

We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking (CGD01-02-069), indicate the specific section of this document to which each comment applies, and give the reason for each comment. You may submit your comments and material to the Coast Guard at the address under ADDRESSES. If you submit them by mail or hand delivery, submit them in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying and electronic filing. If you submit them by mail and would like to know they reached the Coast Guard, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this rule in view of them.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553 (b)(3), the Coast Guard finds that good cause exists for not publishing an NPRM. The U.S. Army Corps of Engineers is conducting an extensive navigation improvement project in Kill Van Kull and Newark Bay, New York and New Jersey. The project, which is being conducted in nine distinct phases, began in April 1999 and will continue through approximately April 2005. In anticipation of the project and its probable impact on navigation, the Coast Guard worked with local pilots and maritime users to develop restrictions on vessels transiting the area during dredging operations. As a result of that cooperative process, we published a notice of proposed rulemaking (NPRM) in the Federal Register (63 FR 72219) on December 31, 1998, discussing our intention to establish a Regulated Navigation Area (RNA) for Kill Van Kull Channel, Newark Bay Channel, South Elizabeth Channel, Elizabeth Channel, Port Newark Channel and New Jersey Pierhead Channel, New York and New Jersey. We received no letters commenting on the proposed rule. No public hearing was requested and none was held. On April 15, 1999, we published a Final Rule in the Federal Register (64 FR 18577) codifying the RNA at 33 CFR 165.165.

Now that dredging operations have begun in the Bergen Point portion of the navigation improvement project, it has become evident that the existing RNA is insufficient to ensure the interests of safe navigation on that portion of the waterway. On May 16, 2002, Kill Van Kull Channel Lighted Buoys 10 and 12 (LLNR 37300 and 37310) and Bergen Point Lighted Buoy 14 (LLNR 37325) had to be relocated to facilitate dredging of the Kill Van Kull. Since these buoys were relocated, the Bergen Point Buoy has been hit and moved off-station requiring Coast Guard assets to be diverted from other safety and security missions in the Port of New York and New Jersey while re-establishing the buoy on-station. More importantly, other vessels have been unable to navigate within the temporary channel boundaries. More than half of the vessels over 700 feet long transiting this area were unable to safely navigate the narrow southern channel during periods of high current and moderate winds. And there have been several near collisions between tugs and barges operating in the area. Unless additional regulations are established for vessels operating in the vicinity of Bergen Point, the likelihood of similar future mishaps will increase as continued dredging operations impinge upon the navigable portion of the channel.

In light of the foregoing, we have determined that immediate action is required to establish additional regulations for vessels operating in the vicinity of Bergen Point while U.S. Army Corps of Engineers dredging operations continue. These circumstances provide good cause for not publishing an NPRM. Similarly, the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Any delay encountered in this rule's effective date would be unnecessary and contrary to public interest since immediate action is needed to restrict commercial vessel transits in the waterway and protect the maritime public from the hazards associated with changing vessel traffic patterns during this dredging project.

The United States Army Corps of Engineers and the Port Authority of New York/New Jersey commenced an extensive channel-dredging project in the Kill Van Kull in April 1999. On May 16, 2002, Kill Van Kull Channel Lighted Buoys 10 and 12 (LLNR 37300 and 37310) and Bergen Point Lighted Buoy 14 (LLNR 37325) were relocated to facilitate dredging of the Bergen Point West Reach of the Kill Van Kull. Since these buoys were relocated, one vessel collided with the Bergen Point Buoy and moved it off-station requiring Coast Guard assets to be diverted from other safety and security missions in the Port of New York and New Jersey while re-establishing the buoy on its assigned location. More than half of the vessels over 700 feet long transiting this area were unable to safely navigate the narrow southern channel during periods of high current and moderate winds. Instead, they had to depart from the temporary boundaries of the channel and proceed through a portion of the closed area north of the Kill Van Kull Lighted Buoy 10. There have also been several near collisions between tugs and barges in this area. In order to protect life, property and the marine environment, the Coast Guard is establishing the following additional requirements for commercial vessels transiting Bergen Point West Reach of the Kill Van Kull:

Tug Requirements: All vessels 350 feet in length, or greater, excluding tugs with tows, require one assist tug. All vessels 700 feet in length, or greater, excluding tugs with tows, require two assist tugs. All vessels 900 feet in length, or greater, excluding tugs with tows, require three assist tugs.

Tidal Current Restrictions: Vessels 700 feet in length, or greater, are restricted to movements within one hour before or after slack water, as measured from the Bergen Point current station.

Astern Tows: Hawser tows are not permitted unless an assist tug accompanies the tow.

Wind Conditions: In sustained winds from 20 to 34 knots: (1) Cargo ships may not transit; (2) tankers in ballast may not transit; (3) tugs pushing or towing alongside tank barges 350 feet in length, or greater, in light condition, require an assist tug. In sustained winds greater than 34 knots, vessels 300 gross tons or greater and all tugs with tows are prohibited from transiting.

Nearly identical restrictions were imposed during a previous dredging project conducted in the same area from 1991 to 1992. They were instituted after three groundings, which resulted in one oil spill and one channel blockage. In anticipation of the current dredging project, the Coast Guard worked closely with local pilots and commercial waterway users to devise a system of regulations that would reduce the likelihood of similar mishaps from recurring. We sought to determine whether less restrictive regulations could be developed that would adequately ensure the interests of safe navigation. After extensive consultation, computer simulations and other analysis, we concluded that the regulations codified at 33 CFR 165.165 would adequately protect the interests of safe navigation in the vicinity of Bergen Point during the U.S. Army Corps of Engineers navigation improvement project. As previously discussed, recent, actual experience with those regulations demonstrates the need for these additional restrictions on commercial vessels operating in that area. Vessel Traffic Service New York has already met with Pilots and Tug companies operating in the port to explain the need for these restrictions. These restrictions will be in place until March 30, 2003. They will be cancelled if dredging operations in the vicinity of Bergen Point conclude before that date.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040, February 26, 1979).

We expect the economic impact of this rule to be so minimal that a full Regulatory Evaluation under paragraph 10e of the regulatory policies and procedures of DOT is unnecessary. This finding is based on the fact that the overwhelming majority of vessels transiting through the Bergen Point portion of the Kill Van Kull that would be required by this rule to utilize tug assistance are already employing that service as a matter of prudence; only those vessels not observing this “best practice” will be affected. Vessels 700 feet in length, or greater, could encounter slight delays while awaiting optimal tidal currents. Those delays can be mitigated or avoided by appropriate arrival and departure planning. The actual impact of this rule is minimal insofar as each of the provisions of this rule could be imposed, on a case-by-case basis, upon individual vessels transiting through Bergen Point under Vessel Traffic Services New York's existing authority to establish VTS Measures pursuant to 33 CFR 161.11. Rather than rely upon ad hoc measures, we believe that the maritime public is better served by having advance, certain knowledge of these requirements to facilitate ready-reference and planning. Advance notifications will be made to the local maritime community by the Local Notice to Mariners, marine information broadcasts, and at New York Harbor Operations Committee meetings.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which might be small entities: the owners or operators of commercial vessels intending to transit Bergen Point West Reach of the Kill Van Kull. This RNA will not have a significant economic impact on a substantial number of small entities for the following reasons: Kill Van Kull accommodates approximately 26,000 vessels transits annually; the overwhelming majority of vessels that would be required to utilize tug assistance while transiting the Bergen Point portion of the Kill Van Kull are already employing that service as a matter of prudence; only the small percentage of vessels not observing this “best practice” will be affected by this regulation; we know of no specific small entities among that small number. Any small entities that might be affected by this rule are invited to submit comments, which may result in modifications to the rule.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), the Coast Guard wants to assist small entities in understanding this final rule so that they can better evaluate its potential effects on them and participate in the rulemaking. If your small business or organization would be affected by this rule and you have questions concerning its provisions or options for compliance, please call Lieutenant Commander C. Nichols, Vessel Traffic Service, Coast Guard Activities New York at (718) 354-4191. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance, with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that might disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that Order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have considered the environmental impact of this rule and concluded that, under figure 2-1, paragraph 34(g), of Commandant Instruction M16475.1D, this rule is categorically excluded from further environmental documentation. This rule fits paragraph 34(g) as it revises a Regulated Navigation Area. A “Categorical Exclusion Determination” is available in the docket for inspection or copying where indicated under ADDRESSES.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows:

Throughout this document, “we,” “us” and “our” refer to EPA.

Table 1 lists the rule we are approving with the dates that it was adopted by the local air agencies and submitted by the California Air Resources Board (CARB).

On March 15, 2002, this rule submittal was found to meet the completeness criteria in 40 CFR part 51, appendix V, which must be met before formal EPA review.

On October 22, 2001, EPA reviewed and gave a limited approval and limited disapproval to Rule 4603 ( see 66 FR 53340) when incorporating the September 21, 2000 version of Rule 4603 within the SIP. CARB has made no intervening submittals of Rule 4603.

SJVUAPCD's December 20, 2001 amendments to Rule 4603 served two purposes. The first purpose was to remedy the deficiencies noted in our October 2001 limited approval and limited disapproval. These remedies will be discussed in the following section II.B. The second purpose was to incorporate organic solvent use, disposal, and storage requirements within the rule. These changes are summarized below.

Generally, SIP rules must be enforceable ( see section 110(a) of the Act), must require Reasonably Available Control Technology (RACT) for major sources in nonattainment areas ( see section 182(a)(2)(A)), and must not relax existing requirements ( see sections 110(l) and 193). The SJVUAPCD regulates an ozone nonattainment area ( see 40 CFR part 81), so Rule 4603 must fulfill RACT.

Guidance and policy documents that we used to help evaluate specific enforceability and RACT requirements consistently include the following:

1. Portions of the proposed post-1987 ozone and carbon monoxide policy that concern RACT, 52 FR 45044, November 24, 1987.

2. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations; Clarification to Appendix D of November 24, 1987 Federal Register Document,” (Blue Book), notice of availability published in the May 25, 1988 Federal Register .

3. “Control of Volatile Organic Emissions from Existing Stationary Sources Volume VI: Surface Coating of Miscellaneous Metal Parts and Products,” USEPA, June 1978, EPA-450/2-78-015.

We believe the rule is consistent with the relevant policy and guidance regarding enforceability, RACT, and SIP relaxations.

Several portions of the September 21, 2000 version of Rule 4603 were inconsistent with EPA policy and guidance. On October 22, 2001, EPA reviewed and gave a limited approval and limited disapproval to Rule 4603 when incorporating the September 21, 2000 version of Rule 4603 within the SIP. CARB's February 20, 2002 submittal is in part to cure the deficiencies noted in our limited disapproval. SJVUAPCD has corrected these deficiencies in the manner described below.

In conclusion, SJVUAPCD corrected the three deficiencies that provoked our earlier limited disapproval. The TSD has more detailed information on our evaluation.

We have no recommendations.

As authorized in section 110(k)(3) of the Act, EPA is fully approving the submitted rule because we believe it fulfills all relevant requirements. We do not think anyone will object to this approval, so we are finalizing it without proposing it in advance. However, in the Proposed Rules section of this Federal Register, we are simultaneously proposing approval of the same submitted rule. If we receive adverse comments by July 25, 2002, we will publish a timely withdrawal in the Federal Register to notify the public that the direct final approval will not take effect and we will address the comments in a subsequent final action based on the proposal. If we do not receive timely adverse comments, the direct final approval will be effective without further notice on August 26, 2002. This will incorporate this rule into the federally enforceable SIP.

VOCs help produce ground-level ozone and smog, which harm human health and the environment. Section 110(a) of the CAA requires states to submit regulations that control VOC emissions. Table 2 lists some of the national milestones leading to the submittal of these local agency VOC rules.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by August 26, 2002. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

The EPA is approving a rule that revises Wisconsin's ozone SIP. The rule requires major stationary sources of VOC in the Milwaukee nonattainment area to pay a fee to the state if the area fails to attain the one-hour national ambient air quality standard for ozone by 2007. The fee must be paid beginning in 2008 and in each calendar year thereafter, until the area is redesignated to attainment of the one-hour ozone standard.

The EPA is approving this rule because it is consistent with the requirements of the Clean Air Act. This approval finalizes EPA's March 6, 2002 proposed approval.

We received no comments on our March 6, 2002 proposal to approve Wisconsin's excess emissions fee rule.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain an unfunded mandate, nor does it significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTA), 15 U.S.C. 272 note, requires federal agencies to use technical standards that are developed or adopted by voluntary consensus to carry out policy objectives, so long as such standards are not inconsistent with applicable law or otherwise impracticable. In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Absent a prior existing requirement for the state to use voluntary consensus standards, EPA has no authority to disapprove a SIP submission for failure to use such standards, and it would thus be inconsistent with applicable law for EPA to use voluntary consensus standards in place of a SIP submission that otherwise satisfies the provisions of the Act. Therefore, the requirements of section 12(d) of the NTTA do not apply.

As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing Wisconsin's rule in today's notice, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings' issued under the executive order, and has determined that the rule's requirements do not constitute a taking. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq.

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by August 26, 2002. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

Part 52, chapter I, title 40 of the Code of Federal Regulations is amended as follows:

This is a summary of the Commission's Second Report and Order, ET Docket 99-231, FCC 02-151, adopted May 16, 2002 and released May 30, 2002. The full text of this document is available for inspection and copying during regular business hours in the FCC Reference Center (Room CY-A257), 445 12th Street, SW., Washington, DC 20554. It is also available on the Commission's internet site at www.fcc.gov. The complete text of this document also may be purchased from the Commission's duplication contractor Qualex International, (202) 863-2893 voice, (202) 863-2898 Fax, qualexint@aol.com email, Portals II, 445 12th Street, SW, Room CY-B402, Washington, DC 20554.

1. Digital Systems. In the Further Notice of Proposed Rule Making (“ FNPRM ”) 66 FR 31585, June 12, 2001, in this proceeding, we observed that a number of new digital modulation technologies have been developed that have spectrum characteristics similar to direct sequence spread spectrum systems. The digital systems spread their transmitted energy across a wide bandwidth, thereby minimizing the amount of energy transmitted in any one portion of the occupied frequency band. Therefore, such digital modulation systems may exhibit no more potential to cause interference to other devices than direct sequence systems. However, because digital modulation systems do not meet the Commission's definition of a spread spectrum system, they have not been allowed to operate under § 15.247. In the FNPRM , we proposed to amend § 15.247 to provide for use of these new digital technologies in the 915 MHz, 2.4 GHz, and 5.7 GHz bands. We invited comment on whether these technologies should be allowed to operate at the same power levels as direct sequence spread spectrum systems, specifically 1 Watt maximum output power with a maximum power spectral density of 8 dBm per 3 kHz.

2. Based on analysis of the record, we conclude that systems using digital modulation techniques can operate under the same rules as direct sequence spread spectrum devices in the 915 MHz, 2.4 GHz, and 5.7 GHz band without posing additional risk of interference. Therefore, we will remove any regulatory distinction between direct sequence spread spectrum systems and systems using other forms of digital modulation. We amend part 15 to replace references to “direct sequence spread spectrum” with the term “digital modulation” and permit all types of digitally modulated systems to be regulated under § 15.247. “Digital modulation” in the context of 47 CFR 15.247 will have the same meaning as defined in 47 CFR 15.403(b). This change will permit the authorization of newly developing high data rate technologies. Under the new rules, digital modulation systems will be subject to the same power output maximum, 1 Watt, and power spectral density limits, 8 dBm per 3 kHz, as direct sequence spread spectrum systems.

3. Processing Gain. The rules currently require direct sequence spread spectrum devices to have a processing gain of at least 10 dB. Processing gain represents the improvement to the received signal-to-noise ratio, after filtering to the information bandwidth, from the spreading/dispreading function. The processing gain is also a measure of a direct sequence systems ability to withstand interference. In the FNPRM we stated that as the spread spectrum industry has matured, it is not clear that the processing gain requirement continues to be necessary. Manufacturers have an incentive to design their systems to include processing gain in order for their device to operate properly when located near other radio frequency devices. We further noted that it has become increasingly difficult to determine true processing gain of certain direct sequence spread spectrum systems due in part to a diversity of opinion within the industry as to the definition of processing gain for these systems and the proper way to measure it. We also noted that uncertainties about the processing gain requirement can be a significant impediment to the introduction of new technologies. In light of these factors, the FNPRM proposed to eliminate the processing gain requirement for direct sequence spread spectrum systems.

4. Consistent with our decision to allow operation of digital modulation systems with spectrum characteristics similar to those of spread spectrum systems, we find that it is no longer desirable to maintain the processing gain requirement for direct sequence systems. The processing gain requirement was incorporated into the rules to ensure that systems taking advantage of the higher power levels afforded spread spectrum systems were indeed direct sequence spread spectrum systems and therefore have some tolerance to interference. We believe that manufacturers have a market-driven incentive to design their systems with the ability to operate properly when located near other radio frequency devices.

5. Frequency Hopping Spread Spectrum Systems. We will allow frequency hopping spread spectrum systems to use as few as fifteen hopping channels with bandwidths up to 5 MHz and no minimum band occupancy requirements, provided output power is reduced to 125 mW. This modification of our regulations for frequency hopping systems will provide greater flexibility without significantly increasing the risk of interference to other users. In the First Report and Order, 66 FR 57557, September 25, 2000, in this proceeding, we determined that frequency hopping systems with bandwidths between 1 MHz and 5 MHz may operate in the 2.4 GHz band with a minimum of 15 hopping channels and 125 mW output power with minimal interference potential. Nothing in the record of this proceeding demonstrates that frequency hopping systems with bandwidths of 1 MHz or less cannot also operate effectively with a minimum of fifteen hopping channels with a similar power reduction. The reduction of maximum peak power from 1 Watt to 125 mW will offset any increased potential for interference caused by use of the reduced hopset, regardless of channel bandwidth. We find it unnecessary to require frequency hopping systems to occupy a minimum percentage of the 2.4 GHz band. Our primary concern for the operation of devices in the 2.4 GHz band is interference avoidance. Although a minimum bandwidth occupancy requirement may, in some cases, reduce the interference potential of frequency hopping systems, it is not the only method by which the systems can efficiently share the band. Indeed, such a requirement may actually negate the possibility for system designers to implement more efficient spectrum sharing techniques as they see fit. The simple, unambiguous rules we are adopting in this Second Report and Order will allow manufacturers the freedom to design an array of frequency hopping systems that effectively share the 2.4 GHz band.

6. We will not require frequency hopping systems that use a reduced hopset to employ adaptive hopping techniques. The power reduction we are adopting for these devices is sufficient to mitigate any possible increase in interference potential due to the smaller number of hopping channels. Furthermore, operation pursuant to the modified rules will not pose a greater interference threat than systems authorized under our former rules. We note that § 15.247(h) of the rules permits the use of intelligent or adaptive hopping techniques in order to avoid transmitting on occupied frequencies. We believe that § 15.247(h) provides sufficient flexibility for manufacturers to design products which incorporate adaptive hopping in circumstances where it would be beneficial. The amended rules would permit manufacturers to build products that include adaptive techniques such as a product that includes both a digital and a frequency hopping transmitter, where the frequency hopping transmitter avoids or suppresses its transmissions when the digital transmitter is operating.

7. As required by the Regulatory Flexibility Act (“RFA”), 1 an Initial Regulatory Flexibility Analysis (“IRFA”) was incorporated in the Further Notice of Proposed Rule Making (“ FNPRM ”) in this proceeding, ET Docket 99-231. 2 The Commission sought written public comment on the proposals in the FNPRM , including comment on the IRFA. As described more fully below, we find that the rules we adopt in the Second Report and Order will not have a significant economic impact on a substantial number of small entities. 3 We have nonetheless provided this Final Regulatory Flexibility Analysis (“FRFA”) to provide a fuller record in this proceeding. This FRFA conforms to the RFA. 4

8. The Commission's spread spectrum rules have been a tremendous success. A wide variety of devices have been introduced under these rules for business and consumer use including cordless telephones and computer local area networks. Moreover, the past few years have witnessed the development of industry standards, such as IEEE 802.11b, Bluetooth, and Home RF, that promise to greatly expand the number and variety of devices that will operate in the 2.4 GHz band. We anticipate the introduction of wireless headsets and computer connections for cellular and PCS phones, wireless computer peripherals such as printers and keyboards, and a host of new wireless Internet appliances that will use this band.

9. The rules adopted in the Second Report and Order provide for the introduction of new digital transmission technologies, eliminate unnecessary regulations for spread spectrum systems, and improve spectrum sharing by unlicensed devices operating in the 915 MHz (902-928 MHz), 2.4 GHz (2400-2483.5 MHz), and 5.7 GHz (5725-5850 MHz) bands. Specifically, the Second Report and Order revises § 15.247 of the Commission's rules to allow new digital transmission technologies and direct sequence spread spectrum systems to operate under the same rules in the 915 MHz, 2.4 GHz, and 5.7 GHz bands. 5 We also remove the requirement that direct sequence spread spectrum systems must demonstrate at least 10 dB of processing gain. Finally, the Second Report and Order modifies the rules for frequency hopping spread spectrum systems operating in the 2.4 GHz band to reduce the amount of spectrum that must be used with certain types of operation. We take these actions to facilitate the continued development and deployment of new wireless devices for businesses and consumers.

10. Only the Information Technology Industry Council (“ITI”) filed comments in response to the IRFA. 6 ITI supports the Commission's proposal. They state that the proposals contained in the FNPRM will significantly improve sharing of the spectrum by wireless devices operating in the 2.4 GHz band.

11. ITI supports the proposal to modify § 15.247 of the Commission's rules governing frequency hopping spread spectrum devices in the 2.4 GHz band to allow as few as fifteen hopping channels. However, ITI requests that the Commission consider further modifications to permit even fewer than fifteen channels. It states that wireless devices using less than fifteen channels can be designed not to interfere with other equipment. It further states that adopting a minimum limit of hopping channels is contrary to the Commission's intent to improve flexibility for manufacturers an does not contribute to additional clarifying rulemakings.

12. ITI also supports the Commission's other proposals. Specifically, ITI urges the Commission to modify its rules to accommodate new digital modulation systems in the 915 MHz, 2.4 GHz, and 5.7 GHz bands. It states that the changes will provide manufacturers with flexibility to design non-interfering products for these bands without the need for frequent rule changes to address each new technology. Finally, ITI supports the proposal to remove the requirement that direct sequence spread spectrum systems must demonstrate at least 10 dB of processing gain. It states that the requirement is no longer necessary since manufacturers have an incentive to include processing gains to ensure that their devices operate properly when located near other radio frequency devices.

13. The RFA directs agencies to provide a description of, and, where feasible, an estimate of the number of small entities that may be affected by the rules adopted. 7 The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdictions.” 8 In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. 9 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 Small Business Administration (“SBA”). 10

14. The Commission has not developed a definition of small entities specifically directed toward manufacturers of unlicensed communications devices. Therefore, we will utilize the SBA definition applicable to manufacturers of Radio and Television Broadcasting and Communications Equipment. According to the SBA regulations, unlicensed transmitter manufacturers must have 750 or fewer employees in order to qualify as a small business concern. 11 Census Bureau data indicates that there are 858 U.S. companies that manufacture radio and television broadcasting and communications equipment, and that 778 of these firms have fewer than 750 employees and would be classified as small entities. 12 This action will not have a negative impact on small entities that manufacture unlicensed spread spectrum devices.

15. According to SBA regulations, an electronic computer manufacturer must have 1,000 or fewer employees in order to qualify as a small entity. 13 Census Bureau data indicates that there are 716 firms that manufacture electronic computers. Of those, 659 have fewer than 500 employees and qualify as small entities. 14 The remaining 57 firms have 500 or more employees; however, we unable to determine how many of those have 1,000 or fewer employees and therefore also qualify as small entities under the SBA definition.

16. According to SBA regulations, a computer terminal manufacturer must have 1,000 or fewer employees in order to qualify as a small entity. 15 Census Bureau data indicates that there are 757 firms that manufacture computer terminals. Of those, 162 have fewer than 500 employees and qualify as small entities. 16 The remaining 11 firms have 500 or more employees; however, we unable to determine how many of those have 1,000 or fewer employees and therefore also qualify as small entities under the SBA definition.

17. According to SBA regulations, a computer peripheral equipment manufacturer must have 1,000 or fewer employees in order to qualify as a small entity. 17 Census Bureau data indicates that there are 757 firms that manufacture computer terminal equipment. Of those, 701 have fewer than 500 employees and qualify as small entities. 18 The remaining 56 firms have 500 or more employees; however, we unable to determine how many of those have 1,000 or fewer employees and therefore also qualify as small entities under the SBA definition.

18. According to SBA regulations, a manufacturer of household appliances must have 500 or fewer employees in order to qualify as a small entity. 19 Census bureau indicates that there are 55 firms that manufacture household equipment in the “catch all” category for such data. Of those, 42 have fewer than 500 employees and qualify as small entities. 20 The remaining 13 firms have 500 or more employees, and therefore, unless one or more has exactly 500 employees do not qualify as small entities under the SBA definition.

19. Part 15 transmitters are already required to be authorized under the Commission's certification procedure as a prerequisite to marketing and importation. See 47 CFR 15.101, 15.201, 15.305, and 15.405. The new regulations will add permissible methods of operation for frequency hopping spread spectrum systems and permit systems that use digital modulation techniques to operate in the bands formerly reserved for spread spectrum operation. No new reporting or recordkeeping requirements will be required for the manufacturers of frequency hopping spread spectrum devices or systems using digital modulation.

20. This Second Report and Order removes the requirement that direct sequence spread spectrum systems exhibit a minimum 10 db of processing gain. Therefore, manufacturers will no longer be required to test products and submit confirmation of compliance with this regulation.

21. The rule modifications made in this Second Report and Order will facilitate the continued development and deployment of new wireless devices for business and consumers. These actions will benefit manufacturers of digitally modulated unlicensed devices and direct sequence and frequency hopping spread spectrum devices, including small entities.

24. In the FNPRM, we proposed to amend § 15.247 of the Commission's rules to provide for the use of systems which use new digital modulation technologies. Specifically, we proposed to allow these devices to operate in the 915 MHz, 2.4 GHz, and 5.7 GHz bands under the same technical requirement as spread spectrum systems. We invited comment on whether these technologies should be allowed to operate at the same power levels as direct sequence spread spectrum systems, specifically 1 Watt maximum output power with a maximum power spectral density of 8 dBm per 3 kHz. We also noted that the proposals for new digital devices are similar to the rules for Unlicensed National Information Infrastructure (U-NII) devices contained in Subpart E of part 15, and sought comment on whether these new digital technologies could be accommodated under those rules.

25. Based on analysis of the record, including comments from small business concerns, we have concluded that systems using digital modulation technologies may operate in the 915 MHz, 2.4 GHz, and 5.7 GHz bands under the same rules as direct sequence spread spectrum devices without posing a risk of creating additional interference. We declined to regulate these devices under an alternative set of rules.

26. The FNPRM also proposed to remove the requirement that direct sequence spread spectrum systems demonstrate a minimum of 10 dB of processing gain. One alternative the Commission considered was to decline to remove the requirement. However, we determined that retaining the requirement would unnecessarily hinder the introduction of new non-interfering devices in the bands.

27. The First Report and Order (“ First R&O ”) in this proceeding amended the spread spectrum rules to allow frequency hopping spread spectrum systems in the 2.4 GHz band to use bandwidths greater than 1 MHz but less than 5 MHz at a reduced power output of up to 125 mW. 21 These wideband frequency hopping systems are allowed to use as few as fifteen non-overlapping channels provided that the total span of hopping channels is at least 75 MHz. Frequency hopping systems with a bandwidth of up to 1 MHz were still required to use at least 75 non-overlapping hopping channels. In response to the First R&O, thirteen parties filed a Joint Petition for Clarification or, in the Alternative, Partial Reconsideration (“Joint Petition”). 22 The Joint Petition requested that the Commission clarify the rules adopted in the First R&O to specify a minimum of 15 hopping channels for any system that uses adaptive hopping techniques to avoid operating on occupied frequencies and limits its output power to 125 mW, regardless of hopping channel bandwidth. 23 In the FNPRM, we proposed to adopt the changes requested in the Joint Petition.

28. The majority of the commenters support the proposal to allow frequency hopping systems to use as few as fifteen hopping channels with output power not exceeding 125 mW. 24 The commenters generally agree that a reduction in maximum allowed power from 1 Watt to 125 mW is an acceptable compromise in exchange for using fewer hopping channels.

29. Proxim objects to allowing as few as fifteen hopping channels for systems in the 2.4 GHz band. Proxim believes that this proposal could lead to frequency hopping systems that do not spread their energy through a wide portion of the band, and therefore increase interference potential to other receivers. It points to the 5.7 GHz band and notes that systems operating in that band use up to 60% of the available bandwidth. 25 Proxim proposes that frequency hopping systems in the 2.4 GHz band also be required to use at least 60% of the available band. It contends that the 60% threshold would serve the needs of manufacturers while preserving the underlying sharing philosophy of the part 15 rules. Ademco also proposes that a minimum amount of bandwidth be used. Although Ademco does support the proposed reduction in the minimum number of hopping channels, it states that the fifteen channels should be required to be spread over a minimum of 90% of the band. 26 It submits that such a requirement would prevent any segment of the 2.4 GHz band from being over used.

30. We will allow frequency hopping spread spectrum systems to use as few as fifteen hopping channels with bandwidths up to 5 MHz and no minimum band occupancy requirements, provided output power is reduced to 125 mW. This modification of our regulations for frequency hopping systems will provide greater flexibility without significantly increasing the risk of interference to other users. The reduction of maximum peak power from 1 Watt to 125 mW will offset any increased potential for interference caused by use of the reduced hopset, regardless of channel bandwidth. In addition, we find it unnecessary to require frequency hopping systems to occupy a minimum percentage of the 2.4 GHz band as Proxim and Ademco suggest. Our primarily concern for the operation of devices in the 2.4 GHz band is interference avoidance. Although a minimum bandwidth occupancy requirement may, in some cases, reduce the interference potential of frequency hopping systems, it is not the only method by which the systems can efficiently share the band. Indeed, such a requirement may actually negate the possibility for system designers to implement more efficient spectrum sharing techniques as they see fit. The simple, unambiguous rules we are adopting in this Second Report and Order will allow manufacturers the freedom to design an array of frequency hopping systems that effectively share the 2.4 GHz band.

31. We will not require frequency hopping systems that use a reduced hopset to employ adaptive hopping techniques. We agree with those parties who contend that the power reduction we are adopting for these devices is sufficient to mitigate any possible increase in interference potential due to the smaller number of hopping channels. Furthermore, operation pursuant to the modified rules will not pose a greater interference threat than systems already authorized under our rules. 27 We also note that § 15.247(h) of the rules permits the use of intelligent or adaptive hopping techniques in order to avoid transmitting on occupied frequencies. 28 We believe that § 15.247(h) provides sufficient flexibility for manufacturers to design products which incorporate adaptive hopping in circumstances where it would be beneficial. In accordance with the rules, manufacturers may design devices that incorporate both a frequency hopping spread spectrum transmitter and a digital modulation transmitter. Each transmitter must individually comply with applicable rules. However, the frequency hopping transmitter may adapt its hopset in order to avoid causing interference to the digital modulation transmitter.

32. Report to Congress. The Commission will send a copy of the Second Report and Order, including this FRFA, in a report to Congress pursuant to the Congressional Review Act. 29 In addition, the Commission will send a copy of the Second Report and Order, including the FRFA, to the Chief Counsel for Advocacy of the SBA. 30

33. Pursuant to the authority contained in Sections 4(i), 301, 302, 303(e), 303(f), and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. Sections 154(i), 301, 302, 303(e), 303(f), and 303(r), parts 2 and 15 of the Commission's rule are amended.

34. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Second Report and Order, including the Final Regulatory Flexibility Act, to the Chief, Counsel for Advocacy of the Small Business Administration.

This is a summary of the Commission's Order in CC Docket Nos. 96-262 and 94-1 released on June 5, 2002. The full text of this document is available on the Commission's website in the Electronic Comment Filing System and for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street, SW., Washington, DC 20554.

In the May 2000 CALLS Order, the Commission adopted comprehensive interstate access charge and universal service reforms for incumbent local exchange carriers (LECs) subject to price cap regulation. Consistent with the goals and principles of the Communications Act, the purpose of these reforms is to promote competition by removing implicit subsidies from access charges, while ensuring affordable and reasonably comparable rates through explicit universal service support. Among other things, the Commission adopted a schedule to reduce the implicit subsidies in access rates while gradually increasing the cap on the subscriber line charge (SLC), a flat-rated charge imposed by LECs on end users to recover the interstate-allocated portion of local loop costs. Under the rules adopted in the CALLS Order, the SLC cap for residential and single-line business lines will increase to $6.00 on July 1, 2002, and to $6.50 on July 1, 2003. To verify that the increases above the current $5.00 cap are appropriate, the Commission stated that it would conduct a cost review proceeding prior to any scheduled increases above this cap to examine forward-looking cost information associated with the provision of retail voice-grade access to the public switched telephone network. The Commission subsequently concluded that, if the cost review proceeding verified that increases were appropriate for price cap carriers, then the same increases were appropriate for carriers subject to rate-of-return regulation because these carriers generally have higher costs than price cap carriers.

Under the Communications Act, the Commission has a statutory duty to regulate the interstate rates of common carriers, including the interstate access rates charged by incumbent LECs. In performing that duty, the Commission is required to balance the Communications Act's goals of promoting competition and preserving and advancing universal service. More specifically, the Communications Act directs us to convert implicit subsidies, such as those found in access charges, into explicit support, while simultaneously promoting the goals of affordability and reasonable comparability of rates throughout the nation. To promote economically efficient competition and to avoid cross-subsidization, the Commission has recognized that, to the extent possible, LECs should recover costs of interstate access in the same way that they are incurred. Thus, traffic-sensitive costs should be recovered through corresponding per-minute access rates. Similarly, non-traffic-sensitive costs, such as loop costs, should be recovered through fixed, flat-rated fees.

To address the affordability concerns of universal service, however, the Commission has limited the amount of interstate costs that LECs can recover directly from residential and business customers through the flat-rated SLC. Specifically, the SLC is subject to a cap that, particularly for residential customers, is often too low to enable the LECs to recover the entire interstate-allocated cost of the local loop. The remaining loop costs that LECs cannot recover from the SLC are recovered through charges imposed on interexchange carriers (IXCs), which pass these charges on to their customers. Thus, long-distance customers subsidize the rates that LECs charge to residential and single-line business end users. In addition to the inefficient implicit subsidies in the rate structure, LECs historically have averaged their SLCs over relatively large geographic areas. Geographic rate averaging means that customers in low-cost areas are subsidizing the rates of customers in high-cost areas. To the extent the SLC cap is set below cost, it inhibits a LEC's ability to deaverage its SLC rates, thus maintaining implicit subsidies running from low-cost areas to high-cost areas.

To reduce the inefficient implicit subsidies caused by the residential and single-line business SLC cap, the Commission in the CALLS Order implemented a schedule of increases to this cap, with corresponding decreases to the charges imposed on IXCs. The cap was $3.50 prior to the CALLS Order, and was raised to $4.35 on July 1, 2000, and to $5.00 on July 1, 2001. The cap is scheduled to increase to $6.00 on July 1, 2002 and to $6.50 on July 1, 2003. In setting these SLC caps, the Commission balanced the goals of removing implicit subsidies and ensuring the affordability of basic telephone service for residential and single-line business customers, and concluded that gradual increases in the SLC could bring substantial benefits that outweigh any affordability concerns. Specifically, the Commission found that increasing the SLC cap would:

• Remove inefficient implicit subsidies in the access charge rate structure by more closely aligning cost recovery with cost causation;

• Remove inefficient implicit subsidies inherent in geographic rate averaging by allowing LECs greater flexibility to deaverage SLCs;

• Promote competition by sending appropriate pricing signals through deaveraged SLCs that more closely reflect the actual costs of providing service; and

• Not jeopardize affordable local telephone rates for qualifying low-income consumers, due to additional Lifeline support available to cover any SLC rate increases resulting from the increased cap.

As stated in the CALLS Order, the Commission initiated the current proceeding to verify that it is appropriate to increase the residential and single-line business SLC caps above $5.00. By Public Notice issued on September 17, 2001, the Commission initiated a proceeding to verify that increases to the residential and single-line business SLC cap above $5.00 are appropriate. Price cap carriers submitted their cost studies on November 16, 2001. Specifically, Aliant, Cincinnati Bell, Iowa Telecom, and Sprint based their cost studies on the Synthesis Model used by the Commission to determine costs for universal service support purposes. The remaining price cap LECs, BellSouth, Citizens, Qwest, SBC, Valor, and Verizon, used other cost models, some of which are proprietary. Parties submitted comments on these studies on January 24, 2002. In addition to filing comments opposing the SLC cap increases, the National Association of State Utility Consumer Advocates (NASUCA) filed a cost study of its own. Parties submitted reply comments on February 14, 2002.

The purpose of the instant proceeding is to verify that increases to the SLC cap above $5.00 are warranted. Specifically, pursuant to the Commission's plan for allowing SLCs to increase gradually, the SLC cap for residential and single-line business lines is scheduled to increase to $6.00 on July 1, 2002, and to $6.50 on July 1, 2003, provided that “such increases are appropriate and reflect higher costs where they are to be applied.” CALLS Order, 65 FR 38684 (June 21, 2000).

To verify that the scheduled SLC cap increases are appropriate, the Commission stated that it would examine the price cap carriers' forward-looking costs of providing retail voice grade access to the public switched telephone network. Forward-looking costs are the costs that an efficient carrier would incur to provide service in a competitive market. Most markets today are not yet competitive and the incumbent LEC is the dominant provider of service for residential and single-line business customers. Even in a fully competitive environment, however, there may be a continued need for a SLC cap because the cost of providing service in certain rural and insular regions is high and will likely continue to be high for the foreseeable future. By examining forward-looking costs in this proceeding, the Commission can verify that increases to the SLC cap would be appropriate if the market were, in fact, competitive. Thus, by evaluating the SLC cap in light of forward-looking costs, we can ensure that the upper limit placed on consumer rates reflects competitive market conditions even though full competition has not yet arrived.

Applying this analysis, we conclude that the scheduled SLC cap increases are appropriate if the record demonstrates that efficient carriers in a competitive market would have a substantial number of lines with forward-looking costs that exceed the current $5.00 SLC cap and the ultimate $6.50 SLC cap. A substantial number of lines with costs that exceed the current $5.00 cap shows that, at a level where affordability is not yet a paramount concern, the current cap is impeding the efficient recovery of costs in a meaningful way. A substantial number of lines with costs that exceed the ultimate $6.50 cap shows that, at a level where affordability becomes a paramount concern, the ultimate cap serves a legitimate purpose by protecting consumers from potentially unaffordable rates. Determining what constitutes a “substantial” number of lines, however, is not an exact science. In making this determination we rely on our expertise in regulating interstate access charges, as well as our discretion in balancing the removal of implicit subsidies with ensuring affordability. We conclude on the record before us—where the most conservative estimate shows at least 27 million non-rural/33 million total residential and single-line business price cap lines with costs above $5.00, and at least 14 million non-rural/20 million total residential and single-line business price cap lines with costs above $6.50—that raising the cap is necessary to enable SLC deaveraging as discussed below. Therefore, we need not determine precisely what figure might require us to override the planned increase of the SLC cap.

As a result of the Commission's prior decisions, there is currently one primary residential and single-line business SLC cap that applies to all carriers. We determine that it is appropriate to retain a single national cap to apply to all incumbent LECs. One cap, as opposed to multiple caps for carriers or regions, promotes reasonable comparability of rates in different geographic areas, and is simpler to administer. In addition, although the SLC cap will increase, SLCs will be constrained by price cap carriers' CMT (common line, marketing and transport interconnection charge) revenues, and by rate-of-return carriers' costs. We therefore decline to adopt the Florida Commission's suggestion that “the SLC be made state-specific for each company” so carriers cannot average rates across their regions. Maintaining one national SLC cap preserves carriers' existing flexibility to average rates across their regions. Eliminating this flexibility would force carriers to recover more of their common line costs through the inefficient subsidy of PICC and CCL charges. Moreover, as discussed above, the Commission in the CALLS Order has provided LECs the flexibility to deaverage their SLCs within study areas once certain conditions are met. Raising the SLC cap will provide LECs with a greater ability to take advantage of study area deaveraging. To the extent carriers do not avail themselves of the opportunity to deaverage their SLCs after the cap reaches $6.50, however, the Commission will have the opportunity to revisit this issue if necessary.

Our decision in this proceeding affects both the price cap carriers regulated under our rules adopted in the CALLS Order, and rate-of-return carriers. Although the access charge reforms, including the SLC cap increases, adopted in the CALLS Order applied only to price cap carriers, in 2001 the Commission implemented a separate access charge reform plan for rate-of-return carriers, which serve roughly 10.9 million lines. Pursuant to the Commission's decision in the Rate-of-Return Access Charge Reform Order, the residential and single-line business SLC cap for rate-of-return carriers is synchronized with the CALLS Order schedule for increases above $5.00, pending the findings of the Commission in the price cap carrier SLC review proceeding. In the Rate-of-Return Access Charge Reform Order, the Commission stated that, if SLC cap increases are justified for price cap carriers, then SLC cap increases also are justified for rate-of-return carriers because rate-of-return carriers generally have higher common line costs than price cap carriers. The Rural Task Force has documented these higher costs, finding that rate-of-return carriers in rural areas have high loop costs because of a lack of economies of scale and density, and total investment in plant per loop is substantially higher for rural carriers than for non-rural carriers. Furthermore, parity in SLC cap levels among price cap and rate-of-return carriers is appropriate to ensure reasonable comparability of rates in urban and rural areas.

After considering the various submissions on the record, we find that the record demonstrates that a substantial number of lines have forward-looking costs above the current $5.00 cap and the ultimate $6.50 cap. The cost studies of the price cap LECs provide results showing the greatest number of lines with costs above $5.00 and $6.50 respectively, but we are disinclined to use those results because of the criticisms of these studies raised by commenters in this proceeding. Proceeding cautiously, and assuming for the sake of argument that these criticisms are valid, we find that NASUCA's more conservative cost study still shows that there are a substantial number of lines above the SLC caps. Commission staff were able to verify NASUCA's results using the cost model and NASUCA's assumptions. In addition, we observe that certain parties that support raising the SLC cap also relied on the Synthesis Model. Although some of these parties modified various parameters of the model, they generally agreed that the model provided a reasonable estimate of forward-looking costs for the limited purpose of this proceeding. The Commission has cautioned parties against using the results of the Synthesis Model to set rates, however, and we emphasize that we are not doing so in this proceeding. Instead, we are relying on NASUCA's cost study because it is the most conservative one in our record addressing the question of whether the proposed SLC cap increases, applicable to all carriers on a national basis, are appropriate.

NASUCA's cost study, although conservative, still amply demonstrates that a substantial number of residential and single-line business lines have forward-looking costs above the current $5.00 SLC cap, and above the fully phased-in $6.50 SLC cap. Specifically, NASUCA's analysis shows that at least 27 million non-rural price cap lines have forward-looking costs above $5.00, and at least 14 million non-rural price cap lines have forward-looking costs above $6.50. The actual number of lines with forward-looking costs above the $5.00 and $6.50 caps presumably is even higher because NASUCA examined the results of only 80 study areas in the Synthesis Model, including only non-rural study areas served by price cap carriers. NASUCA did not include approximately 6 million lines from price cap carriers' rural study areas, which are likely to have relatively high costs. Thus, NASUCA's study is conservative not only as a result of its reliance on the Synthesis Model, which was not intended to be used for ratemaking purposes, but also as a result of its exclusion of high-cost study areas, which introduces a downward bias to its cost estimates. NASUCA's analysis shows that lines with forward-looking costs above the caps are geographically dispersed and exist in every state. Given the substantial number of geographically-dispersed lines above the caps, we find that the scheduled increases in the SLC cap are appropriate.

In the CALLS Order, the Commission rejected commenters' request to combine the multi-line business SLC and the multi-line business PICC, but agreed to revisit the issue during the residential and single-line business SLC cap cost review proceeding. After weighing the competing goals of removing implicit subsidies and maintaining affordable rates for consumers, we determine that it is not appropriate to combine the multi-line business SLC and PICC charged by price cap LECs at this time.

In declining commenters' suggestions to combine the multi-line business SLC and PICC, we observe that the multi-line business PICC will be reduced or eliminated for most carriers when the residential and single-line business SLC cap reaches $6.50. If necessary, we will examine ways to eliminate the multi-line business PICC, as well as another charge containing implicit subsidies, the CCL charge, after the residential and single-line business SLC reaches the cap of $6.50 in July 2003.

In addition, we are concerned with the affordability issues raised by increasing the multi-line business SLC above the current $9.20 cap. Some carriers that operate in high-cost areas still recover their loop costs by charging IXCs up to the full amount of the multi-line business PICC cap of $4.31. The IXCs, in turn, recover the PICC from all of their multi-line business customers, effectively spreading the PICC across a much larger group and thereby lowering the amount recovered from each customer. If we were to combine the charges at this time, some multi-line business customers in high-cost areas would be subject to SLCs at or near $13.51 per line per month. Increasing to this level the SLCs of these customers, who are not eligible for Lifeline support, would raise affordability concerns. Additionally, we are disinclined to recover the subsidy represented by the multi-line business PICC entirely from the narrow class of high-cost multi-line business customers, rather than spreading its effect more broadly by continuing to recover it from IXCs, which have considerable flexibility in how they recover this cost.

At paragraph 154 of the CALLS Order, the Commission adopted an option that allows rural price cap LECs some relief from achieving the required switched access usage charge reductions solely through rate decreases. Specifically, non-Bell Operating Company price cap carriers that have at least 20 percent of total holding company lines operated by rural telephone companies may elect to shift to the common line basket the switched access usage charges necessary to yield those filing entities' proportionate share of the total reduction in switched access usage charge rates. These carriers would include these amounts in the CMT revenue requirement, and, to the extent they cannot recover all of the revenue requirement within a filing entity, they may increase their multi-line business PICCs and multi-line business SLCs in other filing entities within the same holding company, up to the amount of the applicable SLC and PICC cap. The Commission stated that this mechanism was to be reviewed in the instant cost proceeding to determine whether retaining this exception or transferring the additional switched access reduction amounts to the CMT basket is warranted.

We note that no party has raised any objection to retaining the rural price cap exception and we are not aware of any problems created by the exception. We believe that the rationale for adopting it in the CALLS Order remains, i.e., it is in the public interest to allow rural price cap LECs some ability to recover the switched access usage charge reductions through shifting them to the CMT basket. We therefore retain the exception.

Accordingly, it is ordered that, pursuant to sections 1, 4(i) and (j), 201-205, 218-222, 254, 303(r), and 403 of the Communications Act, as amended, 47 U.S.C. 151, 154(i), 154(j), 201-205, 218-222, 254, 303(r), and 403, this Order is hereby adopted.