This proposed rule has been determined to be not significant for purposes of Executive Order 12866, and, therefore, has not been reviewed by the Office of Management and Budget (OMB).

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. This proposed rule would not preempt any state or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. There are no administrative procedures which must be exhausted prior to any judicial challenge to the provisions of this rule.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), AMS has considered the economic impact of this action on small entities and has determined that its implementation will not have a significant economic impact on a substantial number of small entities.

The New York Cotton Future Market traders include the entire cotton industry: farmers, merchants, and textile mill owners. There are an estimated 3,000 traders. This proposed rule would affect all such traders. The majority of the traders are small businesses under the criteria established by the Small Business Administration. Amending the regulations to change the designated spot markets for determining tenderable differences will not significantly affect small businesses as defined under the RFA because:

(1) The information gathered will be more reflective of the cotton traded for cotton futures contracts and add more transparency to the market;

(2) The competitive position or market access of small entities in the cotton industry would not be affected;

(3) No new costs would be imposed on the affected industry.

In compliance with Office of Management and Budget (OMB) regulations (5 CFR part 1320) which implement the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq. ) the information collection requirements contained in the regulation to be amended have been previously approved by OMB and were assigned control number 0581-0029 under the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ).

The Secretary of Agriculture is authorized under the U.S. Cotton Futures Act (7 U.S.C. 15b) to make such regulations as determined necessary to carry out the provisions of the Act. The Act provides for the designation of at least five bona fide spot markets from which spot cotton price information can be collected. Presently, there are seven such designated markets that qualify under the Cotton Futures Act requirements. The seven designated markets are as follows: Southeastern, North Delta, South Delta, East Texas and Oklahoma, West Texas, Desert Southwest and San Joaquin Valley. For the purposes of determining settlement of futures contracts five of the seven spot markets are used. They are Southeastern, North Delta, South Delta, East Texas and Oklahoma, and Desert Southwest. The Cotton Program of the Agricultural Marketing Service provides market information from these spot markets under the Cotton Statistics and Estimates Act (7 U.S.C. 473b) and the Agricultural Marketing Act of 1946 (7 U.S.C. 1622(g)).

The Commodity Futures Trading Commission, in an effort to better reflect market transparency, approved a request from the New York Board of Trade to change the spot markets used to calculate commercial differences in Cotton Futures Exchange deliveries. This proposed rule would change the designation of the spot markets which are used daily to calculate price differences for cotton futures contracts. The current designations were published in the Federal Register on August 4, 1988 (53 FR 29327). As previously stated, differences are quoted for those qualities of cotton which are tenderable on active futures contracts in five designated markets. These differences are averaged to obtain the differences quoted for futures settlement.

This proposed rule would provide that differences would continue to be quoted for those qualities of cotton which are tenderable on active futures contracts in all of the five markets currently designated for this purpose. However, the West Texas spot market would be added as a bone fide spot market for the settlement of futures contracts, and the North Delta and South Delta spot markets would be combined and averaged together when used for this purpose of calculating differences of tenderable qualities for the settlement of futures contracts. This proposed rule would change the calculation of differences of tenderable qualities for the settlement of futures contracts to be the average of the differences of (1) the Southeastern spot market; (2) the East Texas/Oklahoma spot market; (3) the West Texas spot market; (4) the Desert Southwest spot market; and (5) the combination and averaging of the North Delta and South Delta spot markets. The remaining designated spot markets would not change. These proposed modifications are expected to more accurately reflect the trading value of tenderable cotton on futures contracts and add more transparency in the market.

For the reasons set forth in the preamble, 7 CFR Part 27 is proposed to be amended as follows:

This proposed rule is issued under Marketing Agreement No. 98 and Marketing Order No. 945, both as amended (7 CFR part 945), regulating the handling of Irish potatoes grown in certain designated counties in Idaho, and Malheur County, Oregon, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

This proposed rule also is issued under § 608e of the Act, which provides that whenever certain specified commodities, including potatoes, are regulated under a Federal marketing order, imports of these commodities into the United States are prohibited unless they meet the same or comparable grade, size, quality, or maturity requirements as those in effect for the domestically produced commodities.

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

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. This action is not intended to have retroactive effect. This proposed rule would not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

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

There are no administrative procedures which must be exhausted prior to any judicial challenge to the provisions of import regulations issued under § 608e of the Act.

Sections 945.51 and 945.52 of the order provide authority for the establishment and modification of regulations applicable to the handling of potatoes. Section 945.341 establishes minimum maturity and pack requirements for potatoes handled subject to the order. Current requirements provide, in part, that all potatoes packed in cartons shall be inspected and certified as meeting U.S. No. 1 grade or better. All varieties shall meet the maturity requirement of slightly skinned (except the Norgold variety from August 1-15, and the White Rose and red skinned varieties from August 1-December 31 can be moderately skinned). During other periods of the year, the White Rose and red skinned varieties are not subject to maturity requirements. Size shall be conspicuously marked on all cartons (except when used as a master container). The grade requirements are based on the U.S. Standards for Grades of Potatoes (7 CFR 51.1540-51.1566), and the size must be marked consistent with § 51.1545 of the standards.

This rule would remove the reference to Norgold variety potatoes from the maturity requirements in the handling regulation. The Norgold variety is specifically referenced to establish less restrictive maturity requirements for early season shipments. Norgold variety potatoes are no longer produced in the production area covered under the marketing order. As required under § 608e of the Act, the maturity requirements for potato imports would change accordingly. This rule would also remove outdated language and make other conforming changes to the handling and import regulations.

The Idaho-Eastern Oregon Potato Committee (Committee), the agency responsible for local administration of the order, met on November 9, 1999, and unanimously recommended the removal of reference to Norgold variety potatoes from the handling regulations.

Currently, the Norgold variety of potatoes is specifically referenced in the handling regulations so a less restrictive maturity requirement (moderately skinned) can be applied during a 15-day period (August 1-August 15) at the beginning of each shipping season. This proposed rule would remove the reference to Norgold potatoes as a separate variety from the minimum maturity requirements of the handling regulations. The Committee recommended this change in the regulations because Norgold variety potatoes are no longer produced in the production area.

Production of this long type variety was discontinued due in part to the Norgold variety's inherent propensity to have lighter, thinner skin early in the season compared to the varieties produced today. Newer replacement varieties are less prone to early season maturity problems, which enables the industry to maintain a consistent maturity level throughout the entire shipping season.

In addition, buyers are accustomed to long type potatoes having a higher maturity level than this minimum requirement allowed. To meet buyer expectations, all varieties of long type potatoes currently produced are required to be of a higher maturity level (slightly skinned) throughout the marketing year. The degree of skinning or maturity is differentiated by the amount of loss of the outer surface or skin layer. “Slightly skinned” means that up to 10 percent of the potatoes in any inspected lot can have one-fourth of the outer skin missing, while “moderately skinned” potatoes can have one-half of the skin missing.

This proposed change would not have any economic impact upon producers or handlers, but would simply update the current handling regulations to recognize that the Norgold variety is no longer being produced within the production area.

As mentioned earlier, § 608e of the Act requires that, when certain domestically produced commodities, including Irish potatoes, are regulated under a Federal marketing order, imports of that commodity must meet the same or comparable grade, size, quality, or maturity requirements. Section 608e also provides that whenever two or more marketing orders regulating the same commodity produced in different areas of the United States are concurrently in effect, a determination must be made as to which of the areas produces the commodity in most direct competition with the imported commodity. Imports must then meet the minimum requirements established for that particular area.

Grade, size, quality, and maturity regulations have been issued regularly under the order since it was established. The current import regulation in § 980.1 specifies that import requirements for long type potatoes be based on those in effect for potatoes grown in certain designated counties in Idaho, and Malheur County, Oregon, during each month of the marketing year. This proposal would remove reference to Norgold variety potatoes from the maturity requirements of the handling regulation.

While no changes are required in the language of § 980.1, imports of Norgold variety potatoes from August 1-15 would be required to meet the modified maturity requirement of “slightly skinned.” This proposal is not expected to have any economic impact upon importers. Nearly all potato imports come from Canada, and representatives of USDA's Market News Service have indicated that their contacts in Canada have reported that Norgold variety potatoes are no longer commercially produced in Canada.

This proposed rule also removes § 945.130 of the rules and regulations which is obsolete, and revises and updates language in § 980.1, Import regulations; Irish potatoes. Sections 945.22 and 945.23 of the order, regarding committee membership districts within the production area and redistricting and committee reapportionment, were amended on June 5, 1995 (60 FR 29724), and § 945.130 is no longer needed. In addition, this rule would remove references in the potato import regulation to the terminated marketing orders for Red River Valley and Maine potatoes, remove outdated language regarding import regulations in effect during 1970 and 1971, update the list and addresses of inspection offices for imports, and update the references in the import regulation to government agencies.

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

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

There are approximately 63 handlers of Idaho-Eastern Oregon potatoes who are subject to regulation under the order and about 1,600 potato producers in the regulated area. There are approximately 161 importers of potatoes. Small agricultural service firms, which include potato handlers and importers, are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $5,000,000, and small agricultural producers are defined as those whose annual receipts are less than $750,000. A majority of these handlers, importers, and producers may be classified as small entities.

This rule would remove the reference to Norgold variety potatoes from the maturity requirements in the handling regulation. The Norgold variety is specifically referenced to establish less restrictive maturity requirements for early season shipments. Norgold variety potatoes are no longer produced in the production area covered under the marketing order. As required under § 608e of the Act, the maturity requirements for potato imports would be changed accordingly.

The Committee met on November 9, 1999, and unanimously recommended the removal of the reference to Norgold variety potatoes from the handling regulations.

Currently, the Norgold variety of potatoes is specifically referenced in the handling regulations so a less restrictive maturity requirement (moderately skinned) can be applied during a 15-day period (August 1-15) at the beginning of each shipping season. This proposed rule would remove the reference to Norgold potatoes as a separate variety from the minimum maturity requirements of the handling regulations. The Committee recommended this change in the regulations because Norgold variety potatoes are no longer produced in the production area. In addition, buyers have become accustomed to long type potatoes (such as Norgold variety potatoes) having a higher maturity level than this minimum requirement allowed. To meet buyer expectations, all varieties of long type potatoes currently produced are required to be of a higher maturity level (slightly skinned) throughout the marketing year. “Slightly skinned” means that up to 10 percent of the potatoes in any inspected lot can have one-fourth of the outer skin missing, while “moderately skinned” potatoes can have one-half of the skin missing. This proposed change would not have any economic impact upon producers or handlers, but would simply update the current handling regulations to recognize that the Norgold variety is no longer being produced within the production area.

As mentioned earlier, section 608e of the Act requires that when certain domestically produced commodities, including Irish potatoes, are regulated under a Federal marketing order, imports of that commodity must meet the same or comparable grade, size, quality, or maturity requirements. The current import regulation specifies that import requirements for long type potatoes be based on those in effect for potatoes grown in certain designated counties in Idaho, and Malheur County, Oregon, during each month of the marketing year. This proposal would remove reference to Norgold variety potatoes from the maturity requirements of the handling regulation. While no changes are required in the language of § 980.1, imports of Norgold variety potatoes from August 1-15 would be required to meet the modified maturity requirement of “slightly skinned.”

This proposal is not expected to have an economic impact upon importers. There are no potato imports during the period of August 1-15. In addition, representatives of the USDA Market News Service have indicated that their contacts in Canada have reported that Norgold variety potatoes are no longer commercially produced in Canada. Nearly all potato imports come from Canada, but there are no shipments until the latter part of September.

The removal of the references to Norgold variety potatoes is not expected to impose any additional costs on handlers, importers, or producers.

As alternatives to the proposal, the Committee discussed leaving the handling regulation as currently issued. The Committee rejected this idea because it would have left outdated language in the rules and regulations.

This rule would not impose any additional reporting or recordkeeping requirements on either small or large potato handlers and importers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sectors. USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this proposed rule.

Further, the Committee's meeting was widely publicized throughout the potato industry, and all interested persons were invited to attend the meeting and participate in Committee deliberations. Like all Committee meetings, the November 9, 1999, meeting was a public meeting and all entities, both large and small, were able to express their views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at the following Web site: 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.

In accordance with section 608e of the Act, the United States Trade Representative has concurred with the issuance of this proposed rule.

A 60-day comment period is provided to allow interested persons to respond to this proposal. All written comments timely received will be considered before a final determination is made on this matter.

For the reasons set forth above, 7 CFR parts 945 and 980 are proposed to be amended as follows:

1. The authority citation for 7 CFR parts 945 and 980 continues to read as follows:

Generally, the FDIC may grant deposit insurance only to depository institutions that are engaged in the business of receiving deposits other than trust funds. 1 The term “depository institution” is defined in the Federal Deposit Insurance Act (FDI Act) to mean any bank or savings association. 2 The term “bank” is also defined in the FDI Act to include any State bank. 3 Finally, “State bank” means

Traditionally, the term “incorporated” has been applied such that only those legal entities that have been identified as corporations under State law have been considered eligible to become insured. However, recently, two banks have expressed interest in obtaining Federal deposit insurance for a State bank that would be chartered as an LLC. Proponents have argued specifically that the term “incorporated” should not be interpreted to preclude an LLC from becoming an insured depository institution. A common understanding of the term “incorporated” is “formed or constituted as a legal corporation.”  5 In addition, Black's Law Dictionary defines “incorporate” as “to form a legal corporation.”  6 The FDI Act provides no definition of the term “incorporated,” and there is no judicial guidance on the meaning of “incorporated” as used in the FDI Act. Consequently, in view of the arguments offered regarding LLCs and the lack of direct legislative or judicial guidance, there is some ambiguity as to the meaning of the word “incorporated.”

At common law there were three types of business entities: proprietorships, partnerships and corporations. Proprietorships and partnerships had no existence separate and apart from their owners. Corporations, on the other hand, were created and existed by virtue of a grant of authority from the sovereign. Although there appears to be no universally accepted definition of “corporation,” most definitions of the term are pervaded by the notion of “an ‘artificial legal creation,' the continuance of which does not depend on that of the component persons, and the being or existence of which is owed to an act of state.”  7 One of the earliest judicial definitions reflecting that notion is that enunciated in the 1819 case of Trustees of Dartmouth College v. Woodward. 8 In Dartmouth College, Chief Justice Marshall stated that

There is also no universal agreement as to the characteristics generally attributed to a modern corporation. This may have resulted from the fact that the characteristics of a modern corporation have evolved over time  10 and also possibly from the fact that the nature of a corporation was subject to the varying notions of the individual State legislatures. However, it is generally accepted that there are four attributes of a corporation that distinguish it from other forms of business entities; they are: perpetual succession, centralized management, limited liability, and free transferability of interests.

Perpetual succession (also sometimes known as continuity of life) is not generally construed to mean immortality; rather perpetual succession means that the entity continues to exist independent of its owners. In the case of a corporation, the death or withdrawal of a shareholder does not terminate the existence of the corporation. Perpetual succession is an attribute that distinguishes corporations from partnerships because partnerships are created and exist by agreement of the partners. The death or withdrawal of a partner generally terminates the partnership.

Centralized management generally means that management of the entity is vested in a group of individuals appointed or elected by the owners; each owner, therefore, does not have the authority to directly participate in the management of the entity. In a partnership the general partner(s) manage the affairs of the partnership.

Limited liability means that an owner of the entity is generally not personally liable for the debts of the entity; rather, the maximum potential liability of an owner is generally limited to the owner's investment in the entity. In a corporation the shareholders of a corporation are generally not liable for the corporation's debts. This attribute also distinguishes a corporation from a partnership because in a partnership a general partner is fully liable for the debts of the partnership.

Free transferability of interests generally means that an owner of the entity may transfer an ownership interest in the entity without the consent or approval of the other owners. In a corporation a shareholder can generally transfer all or a part of his/her shares to another person without the consent or approval of the other shareholders. However, in closely-held corporations, it is a common practice for shareholders to enter into agreements requiring a selling shareholder to obtain the prior approval of the remaining shareholders. In partnerships, a partner generally cannot transfer his/her interest without the consent of the other partners. However, even when the other partners consent, the original partnership technically is terminated, and a new partnership is created. 11

In addition to the differences noted above, there are other characteristics that distinguish a corporation from a partnership. A generally accepted definition of a partnership is an association of two or more persons to carry on as co-owners a business for profit. 12 A principal distinction between a corporation and a partnership is that generally a partnership can be created by agreement among the co-owners, whereas a corporation requires a grant of authority from the State. In addition, a partnership, unlike a corporation, is not a legal entity separate from its owners. Because of this fact, for federal income tax purposes, the partnership's income is not taxed at the partnership level, but is attributed to the partners and taxed only at the individual partners' level. This feature of a partnership is sometimes called “pass-through tax treatment,” and is generally considered to be a significant advantage over the tax treatment of a corporation's income. A corporation's income is said to be taxed twice, once at the corporation level, and again at the shareholders' level when the shareholders receive the corporation's income as dividends.

Since the characterization of a business entity as a “corporation” has significant tax implications, the Internal Revenue Service (IRS) established rules to determine whether an entity would be taxed as a corporation or a partnership. Prior to its amendment in 1997, Treas. Reg. § 301.7701-2 classified an association of two or more persons who had the purpose of carrying on a business and dividing the profits as either a partnership or a corporation depending upon whether the association possessed more corporate characteristics than noncorporate characteristics. The four corporate characteristics that the IRS utilized were: continuity of life (perpetual succession), centralized management, limited liability, and free transferability of interests. Under the old IRS regulations, if an association possessed at least three of the four corporate characteristics, then it would be treated as a corporation for federal income tax purposes. As noted above, after 1996 the IRS no longer utilized the corporate characteristics test and now permits business entities that are not specifically classified as corporations in the regulation to elect partnership tax treatment. 13 In that regard, we note that one of the entities specifically classified as a corporation in the regulation is a “[s]tate-chartered business entity conducting banking activities, if any of its deposits are insured under the Federal Deposit Insurance Act.”  14 As a result, an FDIC-insured, State bank that is chartered as an LLC would not qualify for partnership tax treatment for Federal income tax purposes.

In August 1996 Congress amended the Internal Revenue Code to allow eligible financial institutions to elect Subchapter S status for federal income tax purposes. 15 A principal advantage of such status is that a Subchapter S corporation is taxed the same as a partnership, i.e., a Subchapter S corporation is entitled to pass-through tax treatment. There are, however, limits on both the number and type of shareholders permissible for a Subchapter S corporation. The maximum number of shareholders of a Subchapter S corporation is 75, and only individuals, estates, certain trusts, and certain tax-exempt organizations may be shareholders. Also, there can only be one class of stock in a Subchapter S corporation, and no nonresident aliens may be shareholders. 16

Generally, an LLC is a business entity that combines the limited liability of a corporation with the pass-through tax treatment of a partnership. 17 Wyoming was the first State to authorize LLCs in 1977; since that time the remaining forty-nine States and the District of Columbia have all enacted LLC statutes. 18 Generally, LLC statutes were crafted to authorize a business entity that is neither a partnership nor a corporation, but an entity that has some of the more desirable features of each form of business organization. 19 As a result, an LLC has characteristics of both a partnership and a corporation. However, because an LLC is neither a partnership nor a corporation, State partnership laws and State corporation laws generally do not apply. For example, State corporation laws that require a board of directors, that specify how ownership interests (shares) may be issued, and that impose capital requirements generally do not apply to an LLC. LLC statutes generally allow the owners broad discretion in setting up an LLC. According to some legal scholars, “[w]hole bodies of corporate law doctrine * * * are rendered irrelevant” when an LLC is utilized. 20

An LLC is established by filing articles of organization with the State. These articles are roughly equivalent to a corporation's articles of incorporation. Every LLC has an operating agreement which is a contract executed by the members that sets forth the manner in which the business of the LLC will be conducted. The operating agreement establishes the rights and liabilities of the members with respect to each other and with respect to the LLC. It contains provisions detailing such matters as the LLC's management structure, capital contributions, accounting, distributions, transfers of a member's interest, and dissolution. As used in many LLC statutes, a “member” of an LLC is a person who owns an interest in the LLC and is roughly equivalent to a shareholder of a corporation. Furthermore, a “member's interest” in an LLC is generally the member's ownership interest in the LLC, and a member's interest in an LLC is sometimes evidenced by a certificate which is roughly equivalent to a stock certificate of a corporation.

Many LLC statutes authorize entities that do not exhibit all of the four corporate attributes. First, some State LLC statutes require, or permit LLC members to provide in the operating agreement, that the LLC will automatically terminate, or dissolve, or that its operations will be suspended pending the consent of the remaining members, upon the death, disability, bankruptcy, withdrawal, or expulsion of a member, or upon the happening of some other specified event. These automatic termination/dissolution/suspension provisions are inconsistent with the notion of perpetual succession because the continued existence and operation of the entity directly depends upon the existence of its owners. Second, some State LLC statutes require, or permit LLC members to provide in the operating agreement, that the LLC will be managed solely and directly by the members. Such member-management also tends to be inconsistent with the corporate attribute of centralized management (usually a board of directors) because there is no central management group (i) that has full authority to act for the entity, and (ii) that is not so large or so small as to present operational problems for the entity. Third, members of an LLC are generally not liable for the debts of the LLC in excess of the amount of their investment in the LLC and, therefore, generally have limited liability. Finally, some State LLC statutes require, or permit LLC members to provide in the operating agreement, either that LLC members may not transfer their interests in the LLC without the consent of the remaining members, or that a member may not transfer the managerial or voting rights that accompany membership without the consent of the remaining members. Such a provision tends to be inconsistent with the concept of free transferability of interests because the requirement for prior consent restrains or prevents the transfer of an ownership interest.

In resolving any ambiguity in a statute it is always helpful to try to determine what Congress intended by its choice of the particular words of the statute. In this case there is no legislative history that sheds any light on their intent. The phrase “incorporated under the laws of any State” first appeared in the definition of “State bank” with the Banking Act of 1935. 21 As noted above, there is also no judicial guidance on the meaning of “incorporated” as used in the FDI Act. In the absence of such guidance, the FDIC believes that it is reasonable to interpret the term “incorporated” in such a way as to aid the FDIC in carrying out the purposes of the FDI Act. Specifically, the FDIC believes that reviewing the corporate attributes, in light of the purposes of the FDI Act, may indicate a rational basis for applying the “incorporated” requirement and may further indicate which of the corporate attributes are necessary or desirable for purposes of determining which institutions qualify as “State banks.”

Congress created the Federal Deposit Insurance Corporation in 1933 to restore and maintain public confidence in the nation's banking system. One of the principal purposes of the FDI Act is to promote the safety and soundness of the institutions whose deposits the FDIC insures. 22 Consequently, the FDIC is charged with maintaining public confidence in the nation's banking system and promoting the safety and soundness of the institutions that it insures.

As noted above, the attributes that are commonly identified as distinguishing a corporation from other forms of business organizations are: perpetual succession, centralized management, free transferability of interests, and limited liability.

The first attribute, perpetual succession, is very important to the FDIC's efforts to promote public confidence in the nation's banking industry. An institution that automatically terminated, dissolved, or suspended operations upon the happening of some event would most likely have a substantial adverse effect on public confidence. A depositor in such an institution would have no way of knowing from one day to the next whether the institution will continue in existence, and whether he/she will be able to retrieve his/her money when desired. Furthermore, such an automatic termination, dissolution, or suspension feature would have a significantly adverse effect on the FDIC's efforts to resolve failed institutions. The FDIC is not only charged with promoting the safety and soundness of banking institutions, but is also charged with the duty of resolving failed institutions in an orderly, least costly manner. The FDIC would have no practical opportunity to plan and execute an orderly resolution of an institution that, without any warning or advance notice, was terminated or dissolved or whose operations were suspended. Most likely it would not be possible to arrange for a healthy institution to purchase the assets and assume the deposit liabilities of the failed institution in order to continue to serve the affected community with the least disruption. The cost of resolving such an institution would likely be significantly higher than necessary as a result. Depositors of the failed institution would be paid to the extent of their insured deposits, and then would have to open new accounts with another institution. Checks that were in transit at the time of the bank's failure, but that had not yet been paid, would be rejected. The disruption to the community would be substantial. Consequently, the FDIC believes that perpetual succession is an essential prerequisite for an insured depository institution, and that automatic termination/dissolution/suspension features are inconsistent with the FDIC's duties and the purposes of the FDI Act.

Centralized management is also an important attribute. Centralized management in the form of a board of directors provides the FDIC with a discrete group of individuals who are capable of acting for, and representing, the institution in virtually all matters. The typical rights, liabilities, powers, and responsibilities of this group are well established. Management of an institution directly and solely by all of its owners presents a variety of problems both from an operational standpoint and from an enforcement standpoint. If there is a large group of owners, it may be excessively difficult to conduct business in a timely fashion. With a large group, activities such as coordinating meetings, providing every owner with information and notices, determining who represents the institution and the extent of his/her authority become substantial undertakings. If there are too few owners, the group may not provide sufficient management depth and expertise. Ensuring that the institution is run by experienced, competent management may be especially difficult if the owners do not happen to possess adequate banking experience and competence. Finally, removing an individual from a management position may be complicated when the manager is also an owner of the institution. Consequently, centralized management is also an important attribute for purposes of the FDI Act.

Limited liability, of course, encourages investment in the enterprise. Potential owners are more likely to invest in an enterprise when their liability is limited to the amount of their investment. Attracting and maintaining sufficient capital helps to ensure an adequate cushion to protect an institution during periods of economic stress. Since banks and savings associations are subject to periods of economic stress just as other businesses are, the FDIC believes that the owners of banks and savings associations should also have limited liability to encourage the maintenance of adequate capital.

Finally, the free transferability of ownership interests also tends to aid in attracting and maintaining capital. Requiring the prior consent of the remaining owners in order to transfer an ownership interest impairs an institution's ability to attract additional investors. At worst, prior consent to a transfer limits the pool of available investors; at best, it delays the additional investment. While the FDIC currently insures approximately 700 mutual institutions (that issue no stock) and more than 1700 closely-held institutions (some of which may have stock-transfer restrictions in the form of shareholder agreements), the FDIC has substantial experience with their structure, operations, and capital maintenance capabilities. The FDIC has no similar experience with institutions organized as LLCs, and that lack of similar experience argues for facilitating, rather than impairing, the maintenance of a capital cushion.

In summary, the FDIC believes that all of the above four attributes that are peculiar to corporations are attributes that a State bank should have in order to be “incorporated” as used in the definition of “State bank” in the FDI Act. Therefore, a banking institution that is chartered as an LLC under the law of any State and that has all of the above four corporate attributes would be considered to be “incorporated” under the law of the State for purposes of the definition of “State bank.” Furthermore, such a banking institution would be eligible to apply for Federal deposit insurance as a State bank under section 5 of the FDI Act, 12 U.S.C. 1815.

The proposed regulation reflects these conclusions. It provides generally that a banking institution that is chartered by a State as an LLC will be deemed to be “incorporated” if it has each of the four corporate attributes. The proposed regulation also specifies that for purposes of the FDI Act and the FDIC's regulations, an owner of an interest in an LLC is a “shareholder;” a manager of an LLC is a “director;” an officer of an LLC is an “officer;” and a certificate or other evidence of an ownership interest in an LLC is both “voting stock” and a “voting security.” These provisions are intended to remove any ambiguity as to how the rest of the FDI Act and the FDIC's regulations apply to banking institutions chartered as LLCs.

The FDIC's Board of Directors (Board) is seeking comment on whether the agency should permit a State bank that is organized as an LLC to obtain Federal deposit insurance; whether use of some or all of the four corporate attributes is the most appropriate method of determining whether an institution is “incorporated;” and if not, how the term “incorporated” should be interpreted. The Board invites comments on all of the following questions:

1. Should the FDIC permit a State bank that is organized as an LLC to obtain Federal deposit insurance?

2. If so, should the FDIC interpret the term “incorporated” utilizing some, all, or none of the traditional four corporate attributes?

3. If the FDIC should not utilize any of the four corporate attributes, how should it interpret the term “incorporated?”

The proposed rule would not involve any collections of information under the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ). Consequently, no information has been submitted to the Office of Management and Budget for review.

Pursuant to 5 U.S.C. 605(b) the FDIC certifies that the proposed rule would not have a significant economic impact on a substantial number of small businesses within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). The proposed rule describes the circumstances under which a banking institution that is chartered under State law as a limited liability company would be considered to be “incorporated” for purposes of the definition of “State bank” in 12 U.S.C. 1813(a)(2). It does not require any banking institution to organize as a limited liability company, and it imposes no new reporting, recordkeeping or other compliance requirements. Accordingly, the requirements relating to an initial and final regulatory flexibility analysis are not applicable.

The proposed rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, enacted as part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 (Pub. L. 105-277, 112 Stat. 2681).

The Board of Directors of the Federal Deposit Insurance Corporation hereby proposes to amend part 303 of Title 12 of the Code of Federal Regulations as follows:

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

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

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this action must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2000-NE-47-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, New England Region, Office of the Regional Counsel, Attention: Rules Docket No. 2000-NE-47-AD, 12 New England Executive Park, Burlington, MA 01803-5299.

On December 12, 2001, the Federal Aviation Administration (FAA) issued AD 2001-25-11, Amendment 39-12564 (67 FR 1, January 2, 2002) which applies to PW model PW4000 series turbofan engines. That AD was issued as an interim action to address the engine takeoff power loss events while investigation continued. AD 2001-25-11 requires:

• Limiting the number of engines with the HPC cut-back stator (CBS) configuration to one on each airplane before further flight after the effective date of that AD.

• Limiting the number of PW4000 engines with potentially reduced stability margin, to no more than one engine on each airplane.

• Removing engines that exceed HPC cycles-since-overhaul or cycles-since-new (CSN) from service based on the engine's configuration.

• Performing a cool-engine fuel spike test (Testing-21) on engines that experience a certain type of surge.

• Establishing a minimum build standard for engines that are returned to service.

• Performing Testing-21 on engines to be returned to service after having exceeded HPC cyclic limits or after shop maintenance.

• AD 2001-25-11 also establishes reporting requirements for Testing-21 data. That AD was prompted by reports of surges during takeoff on airplanes equipped with PW4000 series turbofan engines.

Based on continued investigation and evaluation of the PW4000 HPC surge data, the field management plan has been refined to better address engine takeoff surges and minimize the risk of dual engine surges. The FAA has also reviewed the comments received in response to AD 2001-25-11. This proposal would require similar requirements as compared to AD 2001-25-11, and would also:

• Use a rules-based criterion to determine the engine category classification for engines installed on Airbus A300 airplanes instead of the list of engine serial numbers used in AD 2001-25-11.

• Add new requirements to manage the engine configurations installed on Boeing 747 airplanes. This engine and airplane combination would allow, for certain engine configurations, one of the four installed engines to remain on-wing until the HPC has accumulated up to 2,600 CSN or CSO before Testing-21 or an HPC overhaul is required.

• Require configuration F engines to repeat Testing-21 every 800 HPC cycles since passing Testing-21 (CST).

• Establish criteria, based on the requirements of AD 2001-01-10, AD 2001-09-05, and AD 2001-09-10, which would require Testing-21 on engines with Phase 0 or Phase 1, FB2T or FB2B fan blade configurations.

• Re-establish the HPC-to-HPT CSO cyclic mismatch criteria and would add new criteria to address engine installation changes, engine transfers, and thrust rating changes.

• Establish criteria to allow an engine to be removed from service and reinstalled on an airplane, without requiring Testing 21, if this engine is the unmanaged engine for that airplane.

The actions specified by the proposed AD are intended to prevent engine takeoff power losses due to HPC surge.

The FAA has reviewed and approved the technical contents of the following Pratt & Whitney service information:

• Service Bulletin PW4ENG72-714, Revision 1, dated November 8, 2001.

• Internal Engineering Notice IEN 96KC973D, dated October 12, 2001.

• Temporary Revision (TR) TR 71-0018, dated November 14, 2001.

• TR 71-0026, dated November 14, 2001.

• TR 71 71-0035, dated November 14, 2001.

• Cleaning, Inspection, and Repair (CIR) procedure CIR 51A357, Section 72-35-68, Inspection/Check-04, Indexes 8-11, dated September 15, 2001.

• CIR 51A357, Section 72-35-68, Repair 16, dated June 15, 1996.

• PW4000 PW engine manual (EM) 50A443, 71-00-00, TESTING-21, dated November 14, 2001.

• PW4000 PW EM 50A822, 71-00-00, TESTING-21, dated November 14, 2001.

• PW 4000 PW EM 50A605, 71-00-00, TESTING-21, dated November 14, 2001.

This service information describes procedures for inspections required by the proposed AD.

Since an unsafe condition has been identified that is likely to exist or develop on other Pratt & Whitney PW4000 series turbofan engines of this same type design, the proposed AD would be issued to prevent engine takeoff power losses due to HPC surges, and would supersede AD 2001-25-11 to require:

• Establishing requirements similar to those in the existing AD, and use of a rules-based criterion to determine the engine category classification for engines installed on Airbus A300 airplanes.

• Adding new requirements to manage the engine configurations installed on Boeing 747 airplanes. This engine and airplane combination would allow, for certain engine configurations, one of the four installed engines to remain on-wing until the HPC has accumulated up to 2,600 CSN or CSO before Testing-21 or until an HPC overhaul is required.

• Configuration F engines to repeat Testing-21 every 800 CST.

• Establishing criteria which would require Testing-21 on engines with Phase 0 or Phase 1, FB2T or FB2B fan blade configurations complying with the requirements of AD 2001-09-05, (66 FR 22908, May 7, 2001); AD 2001-09-10, (66 FR 21853, May 2, 2001), or AD 2001-01-10, (66 FR 6449, January 22, 2001).

• Re-establishing HPC-to-HPT CSO cyclic mismatch criteria.

• Establishing criteria to address engine installation changes, engine transfers, and thrust rating changes.

• Establishing criteria to allow an engine to be removed from service and reinstalled on an airplane, without requiring Testing-21, if this engine is the unmanaged engine for that airplane.

The actions are required to be done in accordance with the service information described previously. This proposal has been coordinated with the Transport Airplane Directorate.

There are approximately 2,100 engines of the affected design in the worldwide fleet. The FAA estimates that 625 engines installed on airplanes of U.S. registry would be affected by this proposed AD. The FAA also estimates that, on average, approximately 100 test cell stability tests and 36 HPC overhauls will be required annually. It is estimated that the cost to industry of a test cell stability test will average $15,000 and an HPC overhaul will cost approximately $400,000. Based on these figures, the total average annual cost of the proposed AD to U.S. operators is estimated to be $15,900,000.

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

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

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

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide that factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify the airspace docket number and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with the comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Airspace Docket No. 02-AWP-4.” The postcard will be date/time stamped and returned to the commenter. All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of comments received. All comments submitted will be available for examination in the Airspace Branch, Air Traffic Division, at 15000 Aviation Boulevard, Lawndale, California 90261, both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

Any person may obtain a copy of this Notice of Proposed Rulemaking (NPRM) by submitting a request to the Federal Aviation Administration, Airspace Branch, 15000 Aviation Boulevard, Lawndale, California 90261. Communications must identify the notice number of this NPRM. Persons interested in being placed on a mailing list for future NPRM's should also request a copy of Advisory Circular No. 11-2A, which describes the application procedures.

The FAA is considering an amendment to 14 CFR part 71 that would establish a Class D surface area at Henderson Airport in Las Vegas, NV. A Federal Contract Tower provides air traffic control services at this location on a part-time basis. The Henderson Airport routinely serves a large volume of air tour operator traffic to and from the Grand Canyon area in addition to considerable general aviation activity. Henderson Tower controllers are certified as weather observers for this airport, and adequate communication facilities have been established to support Class D airspace. A review of current and projected operations and procedures at Henderson Airport indicates the need for Class D airspace to enhance aviation safety, and in the interest of the commerce and welfare of the community. This action would establish Class D airspace extending upward from the surface to, but not including, 4,000 feet MSL within a 4.1-mile radius of Henderson Airport, excluding Las Vegas Class B airspace. Class D airspace areas are published in Paragraph 5000 of FAA Order 7400.9J, Airspace Designations and Reporting Points, dated August 31, 2001, and effective September 16, 2001, which is incorporated by reference in 14 CFR 71.1. The Class D airspace designation listed in the document would be published subsequently in that Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this proposed regulation—(1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this a routine matter that will only affect air traffic procedures and air navigation, it is certified that this proposed rule would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views or arguments as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify the airspace docket number and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Airspace Docket No. 02-ASO-8.” The postcard will be date/time stamped and returned to the commenter. All communications received before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of the comments received. All comments submitted will be available for examination in the Office of the Assistant Chief Counsel for Southern Region, Room 550, 1701 Columbia Avenue, College Park, Georgia 30337, both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with the rulemaking will be filed in the docket.

Any person may obtain a copy of this Notice of Proposed Rulemaking (NPRM) by submitting a request to the Federal Aviation Administration, Manager, Airspace Branch, ASO-520, Air Traffic Division, P.O. Box 20636, Atlanta, Georgia 30320. Communications must identify the notice number of this NPRM. Persons interested in being placed on a mailing list for future NPRMs should also request a copy of Advisory Circular No. 11-2A which describes the application procedure.

The FAA is considering an amendment to part 71 of the Federal Aviation Regulations (14 CFR part 71) to establish Class E airspace at Poplarville, MS. A VOR/DME-A SIAP has been developed for Oreck Airport. As a result, controlled airspace extending upward from 700 feet AGL is needed to accommodate the SIAP and for IFR operations at Oreck Airport. The operating status of the airport will change from VFR to include IFR operations concurrent with the publication of the SIAP. Class E airspace designations for airspace areas extending upward from 700 feet or more above the surface are published in Paragraph 6005 of FAA Order 7400.9J dated August 31, 2001, and effective September 16, 2001, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document would be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

Section 408(d)(4) provides that an IRA contribution will not be included in the IRA owner's gross income when distributed as a returned contribution if: (1) It is received by the IRA owner on or before the day prescribed by law (including extensions) for filing the owner's Federal income tax return for the year of the contribution; (2) no deduction is allowed with respect to the contribution; and (3) the distribution is accompanied by the amount of net income attributable to the contribution.

Section 408A governs Roth IRAs and was added by section 302 of the Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788). Section 408A(d)(6) provides that a contribution made to one type of IRA may be recharacterized as having been made to another type of IRA if: (1) The recharacterization transfer occurs on or before the date prescribed by law (including extensions) for filing the IRA owner's Federal income tax return for the year for which the contribution was made; (2) no deduction is allowed with respect to the contribution to the transferor IRA; and (3) the transfer is accompanied by any net income allocable to the contribution.

Section 1.408-4(c)(2)(ii) of the Income Tax Regulations prescribes the method (the old method) for calculating the amount of net income attributable to a contribution distributed pursuant to section 408(d)(4). The old method bases the calculation of the amount of net income attributable to a contribution on the income earned by the IRA during the period beginning on the first day of the taxable year in which the contribution is made and ending on the date of the distribution from the account. Under the old method, net income cannot be negative.

Section 1.408A-5, A-2(c), provides that if a contribution being recharacterized is in an IRA that at any time contained other contributions, the net income attributable to the contribution being recharacterized is calculated in the manner prescribed by § 1.408-4(c)(2)(ii) (the old method), except that net income can be negative. Section 1.408A-5, A-2(b), provides that if an IRA is established with a contribution and no other contributions or distributions are made, then the subsequent recharacterization transfer of the entire account balance of the IRA will satisfy the requirement that the transfer be accompanied by any net income allocable to the contribution.

In connection with issuing the regulations under section 408A governing Roth IRAs, it became apparent that the old method produced anomalous results for contributions made late in the year. This is because, under the old method, account activity in the part of the year that precedes the date the contribution is made is taken into account in the calculation of the net income attributable to the contribution.

In response to this concern, the IRS issued Notice 2000-39 (2000-30 I.R.B. 132), which provided a new method for calculating net income that generally bases the calculation of the amount of net income attributable to a contribution on the actual earnings and losses of the IRA during the time it held the contribution. Under this new method, net income can be negative. Notice 2000-39 provided that until further guidance is issued, either the old method or the new method may be used to calculate net income. Notice 2000-39 also requested comments regarding the new method.

The Service received comments on the new method which were generally favorable. However, commentators provided a number of suggestions for improving the method, including: (1) Allowing a single computation period to be used in the case of multiple IRA contributions; (2) clarifying how transfers in or out of IRAs are treated under the new method; and (3) allowing net income to be determined on the basis of tracing specific assets, rather than dollar amounts. This last suggestion was focused primarily on the calculation of net income in the case of a recharacterization back to a traditional IRA following a conversion of an amount in a traditional IRA to a Roth IRA.

These proposed regulations would incorporate, with certain modifications, the new method provided in Notice 2000-39. Under the proposed regulations, for purposes of returned contributions under section 408(d)(4), the net income attributable to a contribution is determined by allocating to the contribution a pro-rata portion of the net income on the assets in the IRA (whether positive or negative) during the period the IRA held the contribution. This new method is represented by the following formula:

Under this formula, the opening balance is the fair market value of the IRA immediately before the contribution being returned is made to the account and the closing balance is the fair market value of the account immediately before the contribution is removed. The opening balance then is adjusted to include the amount of any contributions or transfers made to the IRA during the computation period. In addition, the closing balance is adjusted to include the amount of any distributions or transfers made from the IRA during the computation period. In the case of an IRA that has received more than one regular contribution for a particular taxable year, the last regular contribution made to the IRA for the year is deemed to be the contribution that is distributed as a returned contribution under section 408(d)(4), up to the amount of the contribution identified by the IRA owner as the amount distributed as a returned contribution.

In response to comments received, the proposed regulations would clarify that a transfer made in or out of an IRA during the computation period is treated in the same manner as a contribution or distribution made to or from the IRA. The proposed regulations also provide that a single computation period is used if more than one contribution was made to the IRA as a regular contribution.

The proposed regulations would provide rules for calculating net income allocable to a contribution being recharacterized under section 408A(d)(6) that are substantially similar to the rules applicable to contributions being returned under section 408(d)(4). However, if more than one contribution is being recharacterized, different rules apply. In the case of multiple contributions for a particular year that are eligible for recharacterization, the IRA owner chooses (by date and dollar amount, not by specific assets acquired with those dollars) which contribution is to be recharacterized. In addition, if a series of regular contributions was made, and consecutive contributions in that series are being recharacterized, the computation period is determined using a single computation period, based on the first contribution in the series.

The proposed regulations would retain the rule that net income calculations must be based on the overall value of an IRA and the dollar amounts contributed, distributed or recharacterized to or from the IRA. Even in a recharacterization of an amount converted to a Roth IRA, the proposed regulations would not permit net income to be calculated on the basis of the return on specific assets. The dollars contributed to an IRA are invested in assets that generate gains and losses. Once contributions are commingled in an account, those dollars are no longer associated with particular assets. In the absence of maintaining separate accounts, tying particular assets to a particular contribution would create administrative problems for taxpayers, IRA providers and the IRS.

The regulations are proposed to be applicable for calculating income allocable to IRA contributions made on or after January 1, 2004. For purposes of determining net income applicable to IRA contributions made during 2002 and 2003, taxpayers may continue to apply the rules set forth in Notice 2000-39 or may rely on these proposed regulations. If, and to the extent, future guidance is more restrictive than these proposed regulations, the future guidance will be issued without retroactive effect.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Because proposed § 1.408-11 and revised A-2(c) of § 1.408A-5 impose no new collection of information on small entities, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. All comments will be available for public inspection and copying.

A public hearing may be scheduled if requested in writing by a person that timely submits written comments. If a public hearing is scheduled, notice of the date, time and place for the hearing will be published in the Federal Register .

The principal author of these regulations is Cathy A. Vohs of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and Treasury participated in their development.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

In general, if interests in the same property are transferred for both charitable and noncharitable purposes, the charitable interest will qualify for the charitable deduction for federal income, gift, and estate tax purposes only if the interest is in one of certain prescribed forms. If the charitable interest is not a remainder interest, sections 170(f), 2522(c)(2), and 2055(e)(2) of the Internal Revenue Code (Code) require that the charitable interest be in the form of either a guaranteed annuity or a fixed percentage of the annual net fair market value of the property (unitrust interest).

A guaranteed annuity is defined in the regulations under sections 170, 2522, and 2055 as an arrangement pursuant to which a specified sum is paid not less often than annually, for a specified term of years or for the life or lives of certain named individuals. A unitrust interest is defined as a right to receive not less often than annually a fixed percentage of the net fair market value, determined annually, of the property funding the unitrust interest, payable for a specified term of years or for the life of certain named individuals. The income, estate, and gift tax regulations also provide that if guaranteed annuity or unitrust interests are payable for private and charitable purposes from a trust and the private interest is payable before the expiration of the charitable interest, then in order for the charitable guaranteed annuity interest or unitrust interest to be deductible, among other requirements, the charitable interest must begin either before, or at the same time as, the private interest. See, for example, § 20.2055-2(e)(2)(vii)( e ) regarding the estate tax provision applicable to unitrust interests. See also, Rev. Rul. 76-225 (1976-1 C.B. 281).

In Estate of Boeshore v. Commissioner , the decedent devised the residue of her estate to a charitable remainder unitrust described in section 664 of the Code. Under the terms of the trust, a 6 percent unitrust amount was to be paid annually from the trust. During the life of the decedent's surviving spouse, 70 percent of the distribution was to be paid to the surviving spouse and the remaining 30 percent to the decedent's daughter and two grandchildren. Upon the surviving spouse's death, 58 percent of the unitrust amount was to be paid to the decedent's daughter and two grandchildren for their lives, and the remaining 42 percent was to be paid to a qualifying charity. Upon the death of the last to die of the four individual beneficiaries, the remainder interest was to be paid to charity. The decedent's estate claimed an estate tax charitable deduction for the present values of the charitable remainder interest and the charitable unitrust interest that was to begin upon the spouse's death.

Under the authority of § 20.2055-2(e)(2)(vi)( e ) (currently § 20.2055-2(e)(2)(vii)( e )), the IRS disallowed the deduction for the present value of the charitable unitrust interest, because it was preceded by a noncharitable unitrust interest.

The court noted that the rules contained in section 2055(e)(2) ensure that the value of the charitable interest is not subject to manipulation through trustee investment practices and that the actual benefit charity receives bears a reasonable relationship to the deduction allowed for the value of the charitable interest. Since all the nonremainder interests in the Boeshore trust, both charitable and noncharitable, were in the form of unitrust interests, any incentives to manipulate the income interest were removed. Estate of Boeshore v. Commissioner , 78 T.C. at 529. Under these circumstances, the court was unable to find any congressional intent to preclude a charitable deduction for an otherwise qualified charitable unitrust interest. Accordingly, the court held § 20.2055-2(e)(2)(vi)( e ) invalid insofar as the regulation disallowed a deduction for the charitable unitrust interest under the facts presented.

The proposed regulations amend the existing regulations under sections 170, 2055, and 2522 governing charitable guaranteed annuity interests and unitrust interests to eliminate the requirement that the charitable interest can not be preceded in point of time by a noncharitable interest that is in the form of a guaranteed annuity or unitrust interest. The regulations will continue to require that any amounts payable for a private purpose before the expiration of the charitable annuity or unitrust interest either must be in the form of a guaranteed annuity or unitrust interest or must be payable from a separate group of assets devoted exclusively to private purposes.

The regulations are applicable as of the date these regulations are published in the Federal Register as final regulations.

The following publication is revoked as of the date these regulations are published in the Federal Register as final regulations.

Rev. Rul. 76-225 (1976-1 C.B. 281)

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedures Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information requirement on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 5) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies, if written) or electronic comments that are submitted timely (in the manner described in the ADDRESSES portion of this preamble) to the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled for October 16, 2002, at 10 a.m., Room 4718, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit comments and an outline of the topics to be discussed and the time to be devoted to each topic (preferably a signed original and eight (8) copies) by September 25, 2002.

A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

The principal author of these proposed regulations is Susan Hurwitz of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, personnel from other offices of the IRS and the Treasury Department participated in their development.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

We encourage you to participate in this rulemaking. This proposed rule would extend the effective period of the temporary final rule entitled “Temporary Requirements for Notification of Arrival in U.S. Ports” that was published in the Federal Register on October 4, 2001 (66 FR 50565) and amended on November, 19, 2001 (66 FR 57877), on January 18, 2002 (67 FR 2571), and on May 30, 2002 (67 FR 3782). Comments and related materials addressing the extension of the effective period of the temporary rule should include your name and address, identify the docket number for this rulemaking (USCG-2001-10689), 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 by mail, hand delivery, fax, or electronic means to the Docket Management Facility at the address under ADDRESSES ; please submit your comments and material by only one means. If you submit them by mail or hand delivery, submit them in an unbound format, no larger than 81/2 by 11 inches, suitable for copying and electronic filing. If you submit them by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and materials received during the comment period. We may change this proposed rule in view of them.

We do not now plan to hold a public meeting. You may submit a request for one to the Docket Management Facility at the address under ADDRESSES explaining why one would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register .

On October 4, 2001, we published a temporary final rule entitled “Temporary Requirements for Notification of Arrival in U.S. Ports” in the Federal Register (66 FR 50565). Subsequently, we published two corrections in the Federal Register [November 19, 2001 (66 FR 57877)] and [January 18, 2002 (67 FR 2571)]. On May 30, 2002, we extended the effective period of the temporary rule through September 30, 2002 (67 FR 37682).

We published a related notice of proposed rulemaking (NPRM) to make permanent changes to the notice of arrival requirements [”Notification of Arrival in U.S. Ports” June 19, 2002 (67 FR 41659)]. We expected the extension of the temporary rule through September 30, 2002, would have provided us enough time to complete the permanent changes to the notice of arrival requirements. Now, however, we propose to further extend the effective period of the temporary rule until March 31, 2003, to ensure sufficient time to complete the changes. Continuing the temporary rule in effect while the permanent rulemaking is in progress will help to ensure the security of our ports and the uninterrupted flow of maritime commerce during that period.

This proposal 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. It has not been reviewed by the Office of Management and Budget under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT)[February 26, l979 (44 FR 11040)].

As discussed in the preamble, the Coast Guard has temporarily changed the notice of arrival (NOA) regulations and proposes to extend the effective period of those requirements until March 31, 2003. When assessing the impact of the temporary requirements, we estimated that providing the Coast Guard with the additional information about passengers, crew, and cargo will impose minimal burden on vessels already complying with the notification requirements of 33 CFR part 160, subpart C. As explained below, the total cost to extend the effective period of the temporary rule should not exceed $377,324:

Cost and Burden. Coast Guard data on Notification of Arrival information for 1998 and 1999 were used to estimate the maximum populations that would be affected by this proposal. Table 1 categorizes the affected vessel population into four sub-populations. They are:

• “Non-AMVER/Non-Great Lakes Vessels”—vessels already required to comply with NOA regulations;

• “AMVER”—vessels complying with the Automated Mutual Assistance Vessel Rescue system and that were exempt from NOA requirements prior to the temporary rule;

• “Great Lakes Vessels”—vessels greater than 300 gross tons, on Great Lakes routes, that were exempt from NOA requirements prior to the temporary rule; and

• “Vessels on Scheduled Routes”—vessels operating upon a route that is described in a schedule that is submitted to the Captain of the Port for each port or place of destination listed in the schedule. The table also sets out the number of vessels and their total number of U.S. port calls (arrivals) for each vessel sub-population.

Vessels less than 300 gross tons making ports of call in the Seventh Coast Guard District have to file NOA reports with the COTP. This proposal would maintain the requirement, and the estimate of the vessels and port calls presented in Table 1 accounted for this special group.

Before the temporary final rule, vessels had to file multiple NOA reports if they were visiting multiple U.S. ports on the same voyage. Under the temporary rule, vessels making calls to multiple U.S. ports do not have to file multiple NOA reports; rather, the temporary rule allows a single report listing all destinations in the United States along with estimated arrival dates for each port. The Coast Guard did not collect or maintain information on the number of vessels that made multiple U.S. port calls under separate NOA reports to estimate the number of consolidated reports under the temporary rule. The totals above, therefore, represent a conservative estimate, a “worst-case scenario,” of the numbers of vessels and NOA reports that would be affected by this proposal.

Finally, vessels that make scheduled trips outside of their COTP zones would no longer be exempt from reporting requirements. We do not know how many of these vessels and port calls exist, though we know they are included in the population of non-AMVER/non-Great Lakes vessels. For the purposes of analysis, these vessels and port calls are included in the non-AMVER/non-Great Lakes population.

Minimal burden would be imposed on vessels whose applicability to the NOA reporting requirements was upheld by the temporary rule. The cargo, crew, and passenger information these vessels provide to the Coast Guard is already collected on a form submitted to the Immigration and Naturalization Services (INS) (INS form I-418). We assumed 10 minutes (0.167 hours) would be spent retrieving and transmitting the cargo, crew, and passenger information. We assumed that there would be a $2 transmittal fee (fax, email, telephone, etc.) to provide this information to the Coast Guard. We assumed that clerical labor would complete these tasks at a cost of $31.00 per hour (loaded labor rate, 2001). Based on 1998 and 1999 data, we estimated 31,644 port calls would be made over this extension period (6 months-until March 31, 2003). The summary of unit costs and total rulemaking costs for non-AMVER/non-Great Lakes vessels is presented in Table 2.

Vessels that were exempt from NOA requirements before the original effective period of the temporary rule would, as a result of this proposal, continue to provide the Coast Guard with NOA reports in addition to providing the cargo, crew, and passenger information until March 31, 2003. These vessels (AMVER and vessels that transit only the Great Lakes) would incur cost by extending the effective period of the temporary rule that requires them to submit an NOA report. Based on the OMB-approved Collection of Information for NOA (OMB-2115-0557), we estimated that it would take 10 minutes (0.167 hours) to complete the report, plus an additional 5 minutes (0.083 hours) for the general description of the cargo. We assumed that clerical labor would complete the report at a cost of $31.00 per hour. Additionally, these vessels would need to develop and submit the cargo, crew, and passenger information. Based on information from the INS (OMB-1115-0083), it will require 60 minutes (1.000 hour) to complete both lists, for a total of 75 minutes (1.250 hours) for the entire submission (NOA report, cargo description, crew and passenger information). There would be a $2 transmittal fee to provide the information to the Coast Guard. Based on 1998 and 1999 data, we estimated that 2,427 port calls would be made over the time period of this rulemaking. The summary of unit costs and total rulemaking costs for AMVER/Great Lakes vessels is presented in Table 3.

Finally, all vessels affected would continue to communicate with the National Vessel Movement Center (NVMC) upon departure from a U.S. port when their next port of call is also a U.S. port. Vessels are to phone or fax the date of departure to the NVMC along with the name of the port just departed. The NVMC will transmit this information to the COTP in the next port of call. We assumed that reporting this would require 1 minute (0.017 hours) per departure and that clerical labor ($31.00 per hour) would make the call or send the fax. We assumed the transmittal fee would be $1.00 per call/fax. There will be an estimated 34,071 departures over the 6-month extension period of the temporary rule (until March 31, 2003). The cost and burden for notifying NVMC of the date of departure and last port of call is presented in Table 4.

The total cost and burden of the rule is presented in Table 5.

This proposal would ensure the timely receipt of advance information about vessels, cargo, and people entering U.S. ports and would help minimize disruption to commerce. The additional information required by this proposal would increase security and provide protection for the nation's ports and waterways. There would be some savings from the consolidated NOA submission for two or more consecutive arrivals at U.S. ports.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposal 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 proposal would not have a significant economic impact on a substantial number of small entities. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this proposal will have a significant economic impact on it, please submit a comment to the Docket Management Facility at the address under ADDRESSES. In your comment, explain why you think it qualifies and how and to what degree this proposal would economically affect it.

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 proposal would extend the effective period of an existing collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). As defined in 5 CFR 1320.3(c), “collection of information” comprises reporting, recordkeeping, monitoring, posting, labeling, and other, similar actions. The title and description of the information collection, a description of those who would be required to collect the information, and an estimate of the total annual burden follow. The estimate covers the time for reviewing instructions, searching existing sources of data, gathering and maintaining the data needed, and completing and reviewing the collection.

Title: Advance Notice of Vessel Arrival and Departure.

OMB Control Number: 2115-0557.

Summary of the Collection of Information: The Coast Guard requires pre-arrival messages from any vessel entering a port or place in the United States. This proposal would extend the effective period of the temporary notice of arrival requirements to March 31, 2003.

Need for Information: To ensure port safety and security and to ensure the uninterrupted flow of commerce, the Coast Guard proposes to extend the effective period of the temporary notice of arrival requirements.

Proposed Use of Information: Extending the NOA information reported would enable the control of vessel traffic, the development of contingency plans, and the enforcement of regulations.

Description of the Respondents: The respondents are owners, agents, masters, operators, or persons in charge of vessels bound for or departing from U.S. ports.

Number of Respondents: The existing OMB-approved collection number of respondents is 10,367. Extending the temporary rule would not increase the total number of respondents.

Frequency of Response: The existing OMB-approved collection annual number of responses is 136,278. Extending the temporary rule would not increase the total number of responses.

Burden of Response: The existing OMB-approved collection burden of response is 15 minutes (0.250 hours). Extending the temporary rule would not increase the burden.

Estimate of Total Annual Burden: The existing OMB-approved collection total annual burden is 39,037 hours. Extending the temporary rule would not increase the total annual burden.

As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), we submitted a copy of this proposal to the Office of Management and Budget (OMB) for its review of the collection of information. Due to the circumstances surrounding this temporary rule, we asked for “emergency processing” of our request. We received OMB approval for the collection of information on September 26, 2001. It is valid until September 30, 2002, and we are requesting it be extended until March 31, 2003.

We ask for public comment on the collection of information to help us determine how useful the information is; whether it can help us perform our functions better; whether it is readily available elsewhere; how accurate our estimate of the burden of collection is; how valid our methods for determining burden are; how we can improve the quality, usefulness, and clarity of the information; and how we can minimize the burden of collection.

If you submit comments on the collection of information, submit them both to OMB and to the Docket Management Facility where indicated under ADDRESSES, by the date under DATES .

You need not respond to a collection of information unless it displays a currently valid control number from OMB.

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed 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 proposed rule would not result in such an expenditure, the effects of this rule are discussed elsewhere in this preamble.

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

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

This proposed 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.

To help the Coast Guard establish regular and meaningful consultation and collaboration with Indian and Alaskan Native tribes, we published a notice in the Federal Register (66 FR 36361, July 11, 2001) requesting comments on how to best carry out the Order. We invite your comments on how this rule might impact tribal governments, even if that impact may not constitute a “tribal implication” under the Order.

We have analyzed this proposed 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 proposed rule and concluded that under figure 2-1, paragraph (34)(a), of Commandant Instruction M16475.lD, this rule is categorically excluded from further environmental documentation. This proposed rule would extend the effective period of the changes to the requirements established in the notification of arrival regulations. They are procedural in nature and therefore are categorically excluded. A “Categorical Exclusion Determination” is available in the docket where indicated under ADDRESSES .

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 160 as follows:

Pursuant to the mandate of the Veterans' Health Care Eligibility Reform Act of 1996, VA established a national enrollment system to manage the delivery of inpatient hospital care and outpatient medical care (38 CFR 17.36). Starting October 1, 1998, most veterans were required to be enrolled in the VA health care system as a condition for receiving VA hospital and outpatient care, and the Secretary was required to make annual determinations as to which categories of veterans are eligible to enroll in the VA health care system.

Currently, VA's enrollment regulations at 38 CFR 17.36 provide that veterans are eligible to be enrolled based on the following categories of priority:

(1) Veterans with a singular or combined rating of 50 percent or greater based on one or more service-connected disabilities or unemployability.

(2) Veterans with a singular or combined rating of 30 percent or 40 percent based on one or more service-connected disabilities.

(3) Veterans who are former prisoners of war; veterans with a singular or combined rating of 10 percent or 20 percent based on one or more service-connected disabilities; veterans who were discharged or released from active military service for a disability incurred or aggravated in the line of duty; veterans who receive disability compensation under 38 U.S.C. 1151; veterans whose entitlement to disability compensation is suspended pursuant to 38 U.S.C. 1151, but only to the extent that such veterans' continuing eligibility for hospital and outpatient care is provided for in the judgment or settlement described in 38 U.S.C. 1151; veterans whose entitlement to disability compensation is suspended because of the receipt of military retired pay; and veterans receiving compensation at the 10 percent rating level based on multiple noncompensable service-connected disabilities that clearly interfere with normal employability.

(4) Veterans who receive increased pension based on their need for regular aid and attendance or by reason of being permanently housebound and other veterans who are determined to be catastrophically disabled by the Chief of Staff (or equivalent clinical official) at the VA facility where they were examined; except that a veteran who is catastrophically disabled and who must agree under 38 U.S.C. 1710 to pay to the United States a copayment as condition of receiving VA care, must agree to pay to the United States the applicable copayment to be enrolled in priority category 4.

(5) Veterans not covered by paragraphs (1) through (4) of this section who are determined to be unable to defray the expenses of necessary care under 38 U.S.C. 1722(a).

(6) Veterans of the Mexican border period or of World War I; veterans solely seeking care for a disorder associated with exposure to a toxic substance or radiation, for a disorder associated with service in the Southwest Asia theater of operations during the Gulf War, or for any illness associated with service in combat in a war after the Gulf War or during a period of hostility after November 11, 1998, as provided and limited in 38 U.S.C. 1710(e); and veterans with 0 percent service-connected disabilities who are nevertheless compensated, including veterans receiving compensation for inactive tuberculosis.

(7) Veterans who agree to pay to the United States the applicable copayment determined under 38 U.S.C. 1710(f) and 1710(g). This category is further prioritized into the following subcategories:

(i) Noncompensable zero percent service-connected veterans; and

(ii) All other priority category 7 veterans.

The Veteran's Millennium Health Care and Benefits Act amended the priority categories to include veterans awarded the Purple Heart in priority category 3. Accordingly, we will change the regulations to implement this statutory change.

As noted above, the regulations exclude from priority category 4 those catastrophically disabled veterans who were required under 38 U.S.C. 1710 to agree to pay to the United States a copayment as a condition of receiving care and who had not made such an agreement. The statutory provision establishing the enrollment priority (38 U.S.C. 1705) included catastrophically disabled veterans without regard to copayment requirements. Accordingly, we would delete the copayment provisions from priority category 4. However, as a condition of receiving care, the provisions of 38 U.S.C. 1710 require certain catastrophically disabled veterans to agree to make copayments. Accordingly, § 17.36(a)(2) would be clarified to reflect that to be eligible for the medical benefits package a veteran must agree to make copayments if required by law to do so.

This document would replace priority category 7 with two new priority categories (7 and 8) and use the current subpriorities for category 7 for these new categories as follows:

(7) Veterans who agree to pay to the United States the applicable copayment determined under 38 U.S.C. 1710(f) and 1710(g) if their income for the previous calendar year constitutes “low income” under the geographical income limits published by the U.S. Department of Housing and Urban Development for the fiscal year that ended on September 30 of the previous calendar year. For purposes of this paragraph, VA will determine the income of veterans (to include the income of their spouses and dependents) using the rules in §§ 3.271, 3.272, 3.273, and 3.276; and 38 U.S.C. 1521. After determining the veterans' income and the number of persons in the veterans' family (including only the spouse and dependent children), VA will compare their income with the current applicable “low-income” income limit for the public housing and section 8 programs in their area that the U.S. Department of Housing and Urban Development publishes pursuant to 42 U.S.C. 1437a(b)(2). If the veteran's income is below the applicable “low-income” income limit for the area in which the veteran resides, the veteran will be considered to have “low income” for purposes of this paragraph. To avoid a hardship to a veteran, VA may use the projected income for the current year of the veteran, spouse, and dependent children if the projected income is below the “low income” income limit referenced above.

This category is further prioritized into the following subcategories:

(i) Noncompensable zero percent service-connected veterans; and

(ii) All other priority category 7 veterans.

(8) Veterans not included in priority category 4 or 7, who are eligible for care only if they agree to pay to the United States the applicable copayment determined under 38 U.S.C. 1710(f) and 1710(g). This category is further prioritized into the following subcategories:

(i) Noncompensable zero percent service-connected veterans; and

(ii) All other priority category 8 veterans.

The new priority category 7 is required to implement section 202(a) of Public Law 107-135 that establishes a new priority category 7 which reads: “Veterans described in section 1710(a)(3) of this title who are eligible for treatment as a low-income family under section 3(b) of the United States Housing Act of 1937 (42 U.S.C. 1437a(b)) for the area in which such veterans reside, regardless of whether such veterans are treated as single person families under paragraph (3)(A) of such section 3(b) or as families under paragraph (3)(B) of such section 3(b).” We have interpreted this provision to require that VA just use the income limits established by the Department of Housing and Urban Development to determine whether veterans are in priority category 7. To interpret this provision to require VA or HUD to determine veterans' income under the HUD methodology would result in many veterans having two different incomes for purposes of enrollment in the VA healthcare system: One based on the HUD methodology and the other based on VA's methodology. This interpretation is not supported by the legislative history of this provision and would be unreasonable, unsound, and unworkable. Instead, we propose using the same methodology used to determine income as used in determining whether veterans are unable to defray the cost of necessary care under 38 U.S.C. 1722. This requires using prior year income unless VA determines that using projected current year income would avoid a hardship to the veteran.

The description of the new priority category 8 restates a provision in section 202(a) of Public Law 107-135. To be eligible for enrollment in priority category 8, veterans must agree to pay the applicable copayment, but they need not provide VA with income and asset information.

We propose to sub-prioritize new categories 7 and 8 in the same manner as the current category 7, i.e., on the basis of whether the veterans have service-connected (noncompensable) disabilities. We continue to believe that veterans with a service-connected disability should have a higher priority than those without a service-connected disability.

Consistent with this expansion of priority categories, we propose to amend the enrollment application provisions of § 17.36(d)(1). Thus, applicants for placement in new priority category 8 would not be required to complete section II of VA Form 10-10EZ; however, applicants for new priority category 7 would be required to complete the entire form except for section IIE ( i.e. , information concerning a veteran's net worth). In our opinion, this is necessary to be consistent with our methodology for determining income in the same manner as currently used for applicants for placement in priority category 5, except that information concerning a veteran's net worth is not needed for applicants for new priority category 7.

We propose to establish the following principles for placement of veterans in priority categories:

• Veterans will be placed in priority categories whether or not the veterans in that category are eligible to be enrolled.

• A veteran will be placed in the highest priority category or categories for which the veteran qualifies.

• A veteran may be placed in only one priority category, except that a veteran placed in priority category 6 based on a specified disorder or illness will also be placed in priority category 7 or 8 (if the veteran has previously agreed to pay the applicable copayment) for all matters not covered by priority category 6.

• A veteran who had been enrolled based on inclusion in priority category 5 and became no longer eligible for inclusion in that priority category due to failure to submit to VA a current VA Form 10-10EZ will be changed automatically to enrollment based on inclusion in priority category 6 or 8, as applicable, (or more than one of these categories if the previous principle applies), and be considered continuously enrolled. To meet the criteria for priority category 5, a veteran must submit to VA required financial information in a current VA Form 10-10EZ. To be current, after VA has sent a form 10-10EZ to the veteran at the veteran's last known address, the veteran must return the completed form (including signature) to the address on the return envelope within 60 days from the date VA sent the form to the veteran.

• Veterans will be disenrolled, and reenrolled, in the order of the priority categories listed with veterans in priority category 1 being the last to be disenrolled and the first to be reenrolled. Similarly, within priority categories 7 and 8, veterans will be disenrolled, and reenrolled, in the order of the priority subcategories listed with veterans in subcategory (i) being the last to be disenrolled and first to be reenrolled.

The first principle clarifies that VA will place veterans in the priority category in which they belong even if the Secretary has announced that VA will not enroll veterans in that category under § 17.36(c). This will permit veterans to dispute that placement and may facilitate veterans in this category obtaining VA care if the Secretary later decides to enroll veterans in that category. The second and fifth principles are consistent with 38 U.S.C. 1705(a) which requires VA to give priority to the categories in the order listed. The third principle is required by 38 U.S.C. 1710(a)(2)(F) and (e) which limits the eligibility for care given to certain veterans placed in priority category 6. We are proposing the fourth principle to facilitate the transfer of veterans from category 5 to category 6 or 8 without disenrollment. The current regulations state that to remain in priority category 5, veterans are required yearly to submit information to VA establishing financial eligibility for such priority category. The regulations contained provisions for disenrolling veterans who had been in priority category 5 but who had failed to submit information establishing that they should remain in priority category 5. Disenrollment of such veterans could, during periods when VA must limit enrollments and re-enrollments, result in the loss of eligibility for VA care altogether. This was never intended for veterans who had previously signed a form 10-10EZ and thus agreed to pay applicable copayments. Accordingly, this document proposes to change the rule to provide that a veteran no longer eligible for priority category 5 would be automatically changed to enrollment based on inclusion in priority category 6, or 8, and be deemed as continuously enrolled if the enrollment decision allows for such priority categories to remain enrolled.

To reflect a title change, we would change “Chief Network Officer” to “Deputy Under Secretary for Health for Operations and Management.” Further, we would add “Chief, Health Administration Service or equivalent official at a VA medical facility, or Director, Health Eligibility Center” to the list of VA officials who can make decisions regarding the enrollment of individual veterans. In our opinion, this is necessary to give VA greater flexibility in administering the enrollment process. We would not change the regulation that provides that the Secretary will make the determination regarding which priority categories of veterans are eligible to be enrolled.

An address is proposed to be added for veterans to send a request for voluntary disenrollment. Finally, we would remove a nonsubstantive, unnecessary bracketed phrase from paragraph 17.36(f).

The Unfunded Mandates Reform Act requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before developing any rule that may result in an expenditure by State, local, or tribal governments, in the aggregate, or by the private sector of $100 million or more in any given year. This rule would have no consequential effect on State, local, or tribal governments.

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

This document has been reviewed by the Office of Management and Budget under Executive Order 12866. Executive Order 12866 provides that a proposed rule “in most cases should include a comment period of not less than 60 days.” This proposal provides for a 30-day comment period. This is necessary to allow for a final rule to be established in time to allow the VA Secretary to have as many options as possible concerning the provision of health care services to veterans in fiscal year 2003.

The Secretary hereby certifies that this regulatory amendment will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612. This amendment would not directly affect any small entities. Only individuals could be directly affected. Therefore, pursuant to 5 U.S.C. 605(b), this amendment is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

The Catalog of Federal Domestic Assistance numbers for the programs affected by this document are 64.005, 64.007, 64.008, 64.009, 64.010, 64.011, 64.012, 64.013, 64.014, 64.015, 64.016, 64.018, 64.019, 64.022, and 64.025.

For the reasons set out in the preamble, 38 CFR part 17 is proposed to be amended as set forth below:

In the Final Rules Section of this Federal Register , EPA is approving the state's SIP submittal as a direct final rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. A detailed rationale for the approval is set forth in the direct final rule. If EPA receives no relevant adverse comments in response to this rule, we contemplate no further activity. If EPA receives relevant adverse comments, we will withdraw the direct final rule and will address all public comments in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.

For additional information, see the direct final rule which is located in the Rules Section of this Federal Register .

Throughout this document, wherever “we,” “us,” or “our” is used, we mean EPA.

The Baton Rouge area consists of the following parishes: East Baton Rouge, West Baton Rouge, Ascension, Livingston, and Iberville. The Baton Rouge area (40 CFR 81.319) was classified as a serious ozone nonattainment area.

We received the Louisiana rule that we are considering in this proposed action on December 31, 2001, as a component of the Attainment Plan and Transport Demonstration (hereinafter, the Attainment Plan/Transport SIP) for the Baton Rouge area submitted by the LDEQ. This revision to the Attainment Plan/Transport SIP specifies emission reduction strategies designed to bring the Baton Rouge area into compliance with the ozone NAAQS. One component of the Attainment Plan/Transport SIP is the revised emission reduction credit banking regulation that has been enacted at Louisiana Administrative Code (LAC) 33:III Chapter 6. This action is necessary to determine whether that revised rule is an approvable component of the Attainment Plan/Transport SIP.

Yes, we proposed approval (63 FR 44192) on August 18, 1998 of revisions to the Louisiana State Implementation Plan (SIP) for the Baton Rouge ozone nonattainment area for revisions to the 1990 base year emission inventory, the Post-1996 Rate-of-Progress (ROP) Plan, its associated 1999 Motor Vehicle Emissions Budgets (MVEBs) for the area, Attainment Demonstration, the Contingency Measures Plan, and the State's point source emissions banking regulations. We promulgated final approval (64 FR 35930) of the SIP revisions, including the emission reduction credit (ERC) banking regulation on July 2, 1999. The Louisiana Department of Environmental Quality (LDEQ) ERC banking regulation is codified as Louisiana Administrative Code (LAC) 33:III Chapter 6.

EPA's July 2, 1999 approval of the LDEQ Chapter 6 rule is summarized below:

We proposed approval of the LDEQ Chapter 6 emissions banking rule as meeting the requirements for SIP approval under Title I Part D and section 110 of the Act. We did not approve the banking regulations as an economic incentive program (EIP) pursuant to the EPA's Economic Incentives Program Rules (59 FR 16690) and section 182(g) of the Act. 64 FR 35936.

Louisiana identified, in both its 15% and Post-1996 ROP Plans submittals, the State's point source VOC/NO X banking regulations (LAC 33:III sections 601, 603, 605, 607, 613, 615, 617, 619, 621, 623, and 625) 2 as a three percent contingency measure intended to meet the requirements of sections 172(c)(9) and 182(c)(9) of the Act. The banking regulations were initially submitted to the EPA for approval in the December 15, 1995, 15% ROP Plan submittal. The EPA deferred taking action on the regulations in the context of the 15% ROP Plan approval until its rulemaking action on the Post-1996 ROP Plan/Attainment Demonstration SIP. (The rationale for “carving out” the contingency measures was explained in detail in the TSD to the August 18, 1998, proposed rulemaking as well as the TSD to the 15% ROP Plan rulemaking.)

In the December 22, 1995, Post-1996 ROP Plan submittal, the State provided a table of the emissions reductions that had been banked by industry pursuant to the regulations. The State's contingency measure requirement was 5.7 tons/day of VOCs (three percent times the adjusted base year inventory of 191.2 tons/day). The VOC reductions “on deposit,” 13.0 tons/day, were well in excess of the three percent requirement.

We determined in the July 2, 1999 rulemaking that the State met the contingency measures requirements by having adopted and submitted the point source banking regulations, and demonstrated that the bank had sufficient VOC credits “on deposit” and available for confiscation in the event of a missed milestone/failure to attain. Furthermore, we determined that the banking rules provided for expeditious implementation of the contingency measures consistent with the time frames identified in the General Preamble.

Under section 172(c)(9) of the Act, ozone nonattainment areas classified as moderate or above must submit contingency measures to be implemented if RFP is not achieved or if the standard is not attained by the applicable attainment date. The “General Preamble for the Implementation of Title I of the Clean Air Act Amendments of 1990” (57 FR 13498, April 16, 1992) states that the contingency measures should, at a minimum, ensure that an appropriate level of emissions reduction progress continues to be made if attainment or RFP is not achieved in a timely manner and additional planning by the State is needed.

In the General Preamble, the EPA interpreted the Act to require States with moderate and above ozone nonattainment areas to include sufficient contingency measures in their November 1993 submittals so that, upon implementation of such measures, additional emissions reductions of up to three percent of the emissions in the adjusted base year inventory (or a lesser percentage that will cure the identified failure) would be achieved in the year following the year in which the failure has been identified. States must show that their contingency measures can be implemented with minimal further action on their part and with no additional rulemaking actions such as public hearings or legislative review.

Additional contingency provisions are included in section 182(c)(9) for serious ozone nonattainment areas. These latter provisions are similar to the section 172(c)(9) requirements except that the focus in section 182 (Ozone Areas) is on meeting emissions reductions milestones (section 182(g)).

We took final action to approve the already-banked VOC emissions reductions credits (totaling 5.7 tons/day) toward meeting the three percent contingency measure requirement pursuant to sections 172(c)(9) and 182(c)(9) of the Act.

We determined that the point source VOC/NOX banking regulations were generally consistent with the Act, EPA policy/guidance and Federal regulations. Therefore, we took final action to approve the State's banking regulations as meeting the requirements for SIP approval under part D and section 110 of the Act.

An economic incentive program is a regulatory program that achieves an air quality objective by providing market-based incentives or information to emission sources. A uniform emission reduction requirement, based for instance on installation of a required emission control technology, does not take account of variations in processes, operations, and control costs across sources even of the same type, such as electric utilities, or petroleum refiners. By providing flexibility in how sources meet an emission reduction target, an EIP empowers sources to find the means that are most suitable and most cost-effective for their particular circumstances.

EIPs can be either mandatory (required by the CAA) or discretionary (a program chosen by a state or tribe).

Under section 182(g)(3), if a State fails to submit a milestone compliance demonstration for any serious or severe area as required by section 182(g)(2), the State must choose from three options: to bump up to the next higher classification, to implement additional measures (beyond those in the contingency plan which will already be triggered and implemented) to achieve the next milestone, or to adopt an economic incentive program (as described in section 182(g)(4)). Under section 182(g)(5), if a State fails to submit a compliance demonstration for any extreme area as required by section 182(g)(2), or if the area has not met an applicable milestone as required by section 182(g)(1), the State must submit a plan revision to implement an economic incentive program (as described in section 182(g)(4)) within 9 months of such failure.

A mandatory EIP was not, and still is not, required for the Baton Rouge serious ozone nonattainment area. We encourage the adoption of discretionary EIPs by States where appropriate, as allowed for in the Act (section 110(a)(2)(A)), as a means of stimulating the adoption of incentive-based, innovative programs that will assist States in meeting air quality management goals. As explained below (under “What is the purpose of the revised State emissions banking rule?”), the revised LDEQ Chapter 6 emissions banking rule does not establish a discretionary EIP, although it contains some of the features of one.

The regulations, promulgated at 59 FR 16690, appear at 40 CFR part 51, subpart U—Economic Incentive Programs §§ 51.490—51.494). The rules in Subpart U apply to any mandatory economic incentive program submitted to the EPA to comply with sections 182(g)(3), 182(g)(5), 187(d)(3), or 187(g) of the Act. The LDEQ Post-1996 ROP Plan and Attainment Demonstration SIP revision submittal revisions did not include the ERC bank rules for EPA approval as a section 182 mandatory EIP.

Subpart U was also promulgated to serve as our policy guidance on discretionary EIPs submitted as implementation plan revisions. EPA has since developed additional guidance on discretionary EIPs (“Improving Air Quality With Economic Incentive Programs,” EPA/452/R-01-001, January 2001) (the “EIP Guidance”).

As further discussed below, the revised Louisiana ERC banking regulation does not establish either a mandatory or discretionary EIP, and therefore the above guidance does not directly apply.

EPA action is necessary because the banking rule has been revised in several ways, and the State of Louisiana is now requesting that EPA approve the revised rule as a component of the Baton Rouge SIP. A summary of the revisions to the banking rule follows.

First, the LDEQ removed Section 621 of the LDEQ ERC banking regulation that we approved into the SIP for contingency purposes on July 2, 1999. That section of the rule provided a process for the confiscation by the LDEQ of banked ERCs in the case of failure to meet rate of progress/attainment requirements. The submitted regulation has removed this. The State submitted a substitute contingency measures plan that we have proposed to approve, as published on May 20, 2002 at 67 FR 35468.

Second, the revisions to the banking rule contain provisions that require “Surplus When Used” ERCs in accordance with Section 173(c)(2) of the Act and in response to our Administrator's Order of December 22, 2000 (the “Borden Order”). The order was in response to a petition from the Louisiana Environmental Action Network (LEAN) filed on August 24, 1999 requesting the Administrator to object to the issuance of a state operating permit issued to Borden Chemicals, Inc. (Borden) for a new formaldehyde facility in Geismar, Ascension parish, Louisiana.

The order emphasizes the Act's requirements that ERCs used from the emissions bank as offsets must be surplus of State and Federal requirements at the time they are used as well as when they are generated or banked. LDEQ has revised the rule to clarify that ERCs in the emissions bank must be “Surplus When Used” for NNSR offset purposes in accordance with section 173(c)(2) of the Act and as discussed in the Borden Order.

Third, the previous emissions banking rule required that ERCs from the bank be surplus when used for NNSR netting purposes. There is no federal requirement that netting reductions be surplus when used from an emissions bank. The rule was revised to delete this state-only requirement that netting reductions be surplus.

We approved the LDEQ Chapter 6 banking rule on July 2, 1999, as summarized on the table in Part I BACKGROUND INFORMATION. That SIP approval did not include section 611, Mobile Sources Emission Reductions, which the State had promulgated in August 1994, but did include sections 621, 623 and 625. Section 623 covered the withdrawal, use and transfer of emission reduction credits. Section 625 covered the application and processing fees. The revised Chapter 6 banking rule that is the subject of this action removed sections 611, 621, 623 and 625. It is therefore necessary for us to propose approval of the Chapter 6 banking rule as part of the SIP with sections 611, 621, 623 and 625 removed.

Finally, the program established by the revised Chapter 6 Rule may be used in conjunction with the revised Chapter 5 rule, concerning nonattainment new source review (NNSR), to facilitate stationary source communications and offset purchases before certification and use of an ERC in an NNSR permit application.

For these reasons, it is necessary for us to propose an action on the submitted emissions banking regulation at LAC 33:III Chapter 6.

We evaluated the LAC 33:III Chapter 6 Emission Reduction Credit Banking regulation, as published in the Louisiana Register on February 20, 2002 and submitted by the Governor on March 4, 2002. The rule was revised to reflect the rescission of the contingency measures' enforceable process contained in section 621 of the rule, to incorporate the “Surplus When Used” provision in accordance with the Act and Borden Order and to remove the requirement that netting reductions for NNSR purposes meet the surplus requirement of the emissions bank.

The rule was also revised to remove section 611 which covered mobile sources emission reductions, which we had not previously approved as part of the SIP. In addition, the revised rule removed section 623 which covered the withdrawal, use and transfer of emission reduction credits, and section 625, which covered the application and processing fees. Our proposed approval of the revised rule including the removal of these sections, does not constitute a relaxation of the SIP since any and all relevant portions of these sections have been incorporated into the revised rule.

The following sections of Chapter 6 were submitted by the State and are being acted upon by us in this proposed action.

The purpose of the revised rule, as stated in section 601, is to establish the means of enabling stationary sources to identify and preserve or acquire emission reductions for New Source Review offsets. This purpose provides flexibility to stationary sources when they undergo nonattainment new source review, allowing sources in need of emissions offsets to identify another stationary source that may have surplus emission reductions available for purchase as NNSR offsets.

Although section 601 states that the purpose of the rule is to “identify and preserve” emission reductions for NNSR offsets, the revised rule does not itself provide a mechanism for “preserving” emission reductions until the permitting stage. That is, under LAC 33:III.617(C)(2), emission reductions can only be preserved after they are identified in the ERC certificate, and the State determines that they are “Surplus When Used.”

Thus, in spite of the fact that the revised rule is named an Emission Reduction Credit Banking regulation, it does not establish an ERC bank. Rather, the revised rule functions as merely a bulletin board to facilitate stationary source communications and offset purchases before certification and use of the ERC in an NNSR permit application. The program established by the revised Chapter 6 rule is not itself a market-based program for achieving air quality improvements (and is therefore not an EIP as defined by EPA). Instead, the program may be used to reduce the administrative burden experienced by stationary sources obtaining emission reductions as a part of New Source Review permitting.

An emissions banking rule that functions merely to facilitate communication between stationary sources is not required to meet the Economic Incentive Program guidance. The guidance was developed to assist states and tribes in establishing programs to achieve emission reductions as required to meet SIP attainment demonstrations or to be traded for inter-precursor offsets purposes, or to facilitate the compliance requirements for alternative RACT requirements. For these reasons, EPA is not reviewing the revised rule for compliance with EPA's EIP Guidance.

As required by section 173(c)(2) of the Act, the revised rule provides at section 607(B)(1) that emission reductions must be surplus, permanent, quantifiable, and enforceable. “Surplus Emission Reductions” are defined in LAC 33:III.605 as emission reductions voluntarily created for an emissions unit; not required by any local, state or federal law, regulation, order, or requirement, and in excess of reductions used to demonstrate attainment of federal and state ambient air quality standards. LDEQ has revised the rule to clarify that ERCs in the emissions bank must be “Surplus When Used” for NNSR offset purposes in accordance with the Act and as discussed in the Borden Order. Section 617(C)(2) of the revised rule provides for the recalculation of ERCs at the time of permit issuance; therefore, given the surplus requirement of Section 607(b)(1), the revised rule is clear in requiring that ERCs be “Surplus When Used.” In addition to the “surplus” definitions discussed above, e.g., not required by any local law, etc., section 605 limits emission reductions as “surplus” to only emission reductions that have occurred “at the time a permit application that relies upon the reductions as offsets is deemed administratively complete.”

Section 607(C) of the revised rule provides procedures for calculating the surplus emission reductions. To calculate surplus emissions reductions, it is necessary to establish a baseline from which reduced emission levels can be determined. Emissions reductions below these “baseline emissions” are considered surplus, and under the rule are calculated by subtracting future allowable emissions after the reductions from the baseline emissions the voluntary reduction.

The revised Chapter 6 procedure utilizes a “universal growth” concept in determining baseline emissions. This procedure is laid out in section 607(C)(4) of the revised rule. Under this procedure, the State must compare the current total point-source emissions inventory for the modeled parishes to the “base case inventory” (until November 15, 2005. After November 15, 2005, this comparison is to be made to the “base line inventory”). (These inventories refer to the aggregate point-source emissions inventory for NO X and VOC. The State prepares an annual inventory of actual point-source emissions. The base case and base line emission inventories are found in the most recent Attainment Demonstration. In essence the difference is that the base line inventory accounts for new attainment-related emission limitations, and hence will reflect lower emissions due to the RACT limits established to support the attainment demonstration.)

If the current total point source emissions inventory is less than the base case (or, starting in November 15, 2005, the base line) inventory, then the universal growth of emissions in the nonattainment area is below that relied upon in the attainment demonstration modeling. Therefore, it is unnecessary for the determination of the actual emissions modeled in the attainment demonstration to be performed and used in determining baseline emissions, and baseline emissions will simply be the lower of (1) actual emissions or (2) adjusted allowable emissions. If, on the other hand, the current total point source emissions inventory exceeds the base case (or, starting in November 15, 2005, the base line) inventory, baseline emissions will be the lower of (1) actual emissions, (2) adjusted allowable emissions, or (3) the emissions attributed to the source in question in the base case or base line inventory. LAC 33:III.607(C)(4)(a).

No. There is no mention of interpollutant or inter-precursor trading in the revised banking rule. The revised banking rule only serves as a bulletin board for stationary sources to locate other stationary sources that may have offsets for sale. The rule is not an emissions banking or trading rule and is not an Economic Incentive Program. Using the revised rule itself for inter-precursor trading to meet nonattainment new source review offset requirements would be inappropriate. The inclusion of an inter-precursor emissions trading program in the revised bulletin board rule would subject the rule to review as an EIP.

Inter-precursor trading may, however, be conducted under the revised Chapter 5 rule concerning nonattainment New Source Review, using the Chapter 6 bulletin board to identify potentially available offsets. The revisions to Chapter 5 allow what EPA terms “inter-precursor trading” to offset an increase in emissions of VOCs with a decrease in emissions of NO X . That rule states that all emission reductions claimed as offset credit for significant net NO X increases shall be from decreases of NO X . NO X credits will be allowed to offset VOC increases, but not vice versa. All emission reductions claimed as offset credit for significant net VOC increases shall be from decreases of either NO X or VOCs, or any combination. If NO X decreases are used to offset VOC increases, the permit for which the offsets are required must have been issued on or before November 15, 2005.

As stated above, the previous approval of Chapter 6 by us on July 2, 1999 was not as an Economic Incentive Program. The Chapter 6 regulation no longer provides an enforceable mechanism to confiscate the escrowed 5.7 tons/day of VOCs serving as the contingency measures in support of the attainment demonstration; nor does it provide any emission reductions in support of any attainment demonstration.

The revised State emissions banking rule is intended to facilitate communications among stationary sources seeking to identify possible nonattainment new source review emission offsets. Thus, it serves as a bulletin board among the regulated community. The revised State emissions banking rule must only be consistent with the Federal statutes and regulations governing the permitting of stationary sources in ozone nonattainment areas. The statutory requirements, as was the case in the July 2, 1999, EPA approval of the point source banking regulations as an acceptable SIP revision, appear at subchapter I, part A (section 110) and part D (sections 171-185B) of the Act.

Subchapter I, part D of the Act contains SIP requirements for nonattainment areas. Subpart I of part D contains the statutory requirements for nonattainment areas in general. Section 173 covers the permit requirements for the nonattainment areas. The Act allows new and modified stationary sources to be constructed in a nonattainment area if the State's SIP contains approved permitting program requirements by the time the source is to commence operation.

The Act requires that offsetting emissions reductions must be obtained, such that total allowable emissions from existing sources in the region (from new or modified minor sources and from the proposed source) will be sufficiently less than total emissions from existing sources before the permit application so that the reasonable further progress requirements are met.

In order to construct and operate in the nonattainment area, the proposed source is required to comply with the lowest achievable emission rate, and all other major stationary sources of the owner or operator in the State must be in compliance, or on a schedule for compliance, with all applicable emission limitations and standards under the Act.

Section 172 of the Act covers nonattainment SIP provisions in general. Section 172(c)(6) contains SIP measures (including plan items) required to be submitted to comply with the Act. These SIP provisions must include enforceable emission limitations and other control measures as necessary to attain the NAAQS. These measures may include other means or techniques (including economic incentives such as fees, marketable permits, and auctions of emission rights), as well as schedules and timetables for compliance. Given that the Act in section 172 provides that a technique such as a marketable permits program may be appropriate for inclusion in a SIP, a bulletin board such as the revised State rule is consistent with the Act.

Section 173(c)(1) of the Act states that the owner or operator of a new or modified major stationary source may comply with any offset requirement of the Act for increased emissions only by obtaining emission reductions from the same source or other sources in the same nonattainment area. The emission reduction offsets must, by the time a new or modified source commences operation, be in effect and enforceable. The reductions must assure that the total tonnage of increased emissions of the air pollutant from the new or modified source shall be offset by an equal or greater reduction, as applicable, in the actual emissions of such air pollutant from the same or other sources in the area.

Section 173(c)(2) states that emission reductions otherwise required by the Act are not creditable as emissions reductions for any offset requirement. Incidental emission reductions not otherwise required by the Act are creditable as emission reductions for offset purposes if they meet the requirements of section 173(c)(1).

Federal regulations at 40 CFR 51.160 (Subpart I—Review of New Sources and Modifications) state that the SIP must contain the legally enforceable procedures to be followed in air permitting in an nonattainment area. These legally enforceable procedures enable the State to determine whether the construction or modification of a stationary source will result in a violation of applicable portions of the SIP approved control strategy or will interfere with attainment of the NAAQS.

Federal regulations at 40 CFR 51.161 contain the requirements for public availability of the permit information. This section requires that the legally enforceable procedures identified in 40 CFR 51.160 must include an opportunity for the public to comment on the information submitted in the permit application. The information available for public comment must contain the State's analysis of the effect of the permit on ambient air quality including the State's proposed approval or disapproval of the permit application.

Federal regulations at 40 CFR 51.163 require the SIP to contain administrative procedures to be followed in making the determination required in 40 CFR 51.160.

Federal regulations at 40 CFR 51.165 contain the minimum federal permit requirements for nonattainment areas. Each SIP must adopt a preconstruction permit review program to satisfy the requirements of sections 172(b)(6) and 173 of the Act for any area that has been designated nonattainment for any NAAQS. (Nonattainment areas for Louisiana are listed at 40 CFR 81.319.)

The permit program must apply to any new major stationary source or major modification that is major for the pollutant (or pollutant precursor) for which the area is designated nonattainment. For each SIP containing a preconstruction review program, the baseline for determining credit for emissions reductions must be the emissions limit under the applicable SIP in effect at the time the application to construct is filed.

Emissions reductions achieved by shutting down an existing source or curtailing production or operating hours below baseline levels may be generally credited if such reductions are permanent, quantifiable, and federally enforceable, and if the area has an EPA-approved attainment plan. No emissions credit may be allowed for replacing one hydrocarbon compound with another of lesser reactivity, except for those compounds listed in Table 1 of EPA's “Recommended Policy on Control of Volatile Organic Compounds” (42 FR 35314, July 8, 1977).

The purpose of the revised rule as stated in section 601 was to establish the means of enabling stationary sources to identify and preserve or acquire emission reductions for New Source Review (NSR) offsets. The pollutants to which the rule applies are nitrogen oxides (NO X ) and volatile organic compounds (VOC). Since the rule does not by itself directly reduce emissions or improve air quality, and is instead intended solely to enable stationary sources to identify and acquire NO X and VOC offsets for NNSR purposes, the rule was reviewed as a component of the SIP related to the NNSR offsets rule, not as an Economic Incentive Program.

No, the revised rule does not contain any reference to an inter-precursor trading program. The purpose of the rule does not include inter-precursor, or for that matter any, emissions trading.

In keeping with the Act, a determination of whether the ERCs are surplus “at use” must be conducted by the State when they are to be used. The Chapter 6 regulation merely provides for stationary sources to identify and acquire ERCs. The new source permitting regulation in Chapter 5, on the other hand, refers to what EPA considers inter-precursor trading. Under the revised Chapter 5 procedure, the State's verification that the ERCs are surplus must be conducted when they are to be used, not when they are acquired (or submitted for certification or purchased). Accordingly, the State's determination that an inter-precursor trade consists of surplus emission reductions must be made at the time of the State's evaluation of the permit application relying upon a trade. Thus, inter-precursor trades are appropriately reviewed, evaluated and verified as surplus under the NSR program at the time of use, which is at the time of the State's review of the permit application. Appropriately, the inter-precursor trading program is not contained in Chapter 6 and was not reviewed under this action. We are reviewing the inter-precursor trading program separately as a part of our review of Louisiana's revisions to its Chapter 5 nonattainment new source review regulations.

No, the revised rule does not contain any reference to an alternate RACT compliance trading program. The purpose of the rule does not include alternate RACT trading plans, or for that matter, any emissions trading.

SIP emission reduction credits must be surplus at the time of use. A determination of whether the ERCs are surplus must be conducted by the State when they are to be used. The Chapter 6 regulation merely provides for stationary sources to identify and acquire ERCs. The NO X control regulation in Chapter 22, on the other hand, refers to trading associated with RACT compliance. Under the provisions of the revised Chapter 22, the verification that the ERCs are surplus must be conducted when they are to be used, not when they are acquired (or submitted for certification or purchased). The determination that an alternate RACT compliance trade consists of surplus emission reductions must be made at the time of the State and EPA's approval of the alternate RACT trading plan. Thus, through the State and EPA approval of a source-specific alternate RACT trading plan, the trade is appropriately reviewed, evaluated and verified as surplus at the time of use. Appropriately, the alternative RACT trading program is not contained in Chapter 6 and was not reviewed under this action. We are reviewing the alternate RACT trading plan program separately as a part of our review of Louisiana's revisions to its Chapter 22 NO X regulations.

The State has recently revised the NO X control regulation in Chapter 22. This NO X RACT rule requires stationary sources to comply with a more strict emission limitation during the five month ozone season. Typically a stationary source reduces emissions below the baseline to generate surplus emission reduction credits. Due to the revised NO X rule, the allowable emission limitation for a stationary source could potentially have two values, one for the five month ozone season and another for the seven month non-ozone season.

Thus, the baseline emissions for the stationary source, which are used to determine surplus emission reduction credits for offset permitting purposes, could have two different values. In order to accurately determine the surplus ERCs to be used in the NNSR permitting, the baseline emissions and surplus ERCs must be determined for the two time periods. Section 173 of the Act does not address the use of offsets for nonattainment permitting over periods of less than one year. Accordingly, the verification of NO X ERCs to be used in all NNSR permitting under Chapter 5 must be determined by adding the ERCs from the five-month ozone season and the seven-month non-ozone season.

With respect to all offsets under Chapter 5 and all ERCs under Chapter 6, the total NO X emission increases during the ozone season must be offset by NO X ERCs from the ozone season. Non-ozone season NO X increases may be met by either ozone or non-ozone NO X ERCs. The annual NO X increase must be offset by the total combination of ozone and non-ozone season surplus NO X emission reduction credits.

The stated purpose of the revised emissions banking rule in Chapter 6 is to enable stationary sources to identify and acquire emission reductions for NSR purposes. The Chapter 6 rule does not address the requirement to keep separate documentation for the certification, determination, and recordkeeping of NO X ERCs during the ozone and non-ozone seasons. The identification, certification, acquisition, recordkeeping and determination of “Surplus When Used” emission reduction credits must be for both the ozone season and the non-ozone season time periods. The State has indicated by letter from Mr. Dale Givens to EPA dated May 3, 2002, that the State would operate the emissions reduction bank in such a manner. EPA requests that in response to comments on EPA's proposed approval of the Chapter 5 and Chapter 6 rules, the State affirm and detail the procedures for the determination of NO X surplus emission reduction credits resulting from the split emission limitations for the NO X RACT rule in Chapter 22.

The inter-precursor trading provisions contained in the Chapter 5 NNSR rules indicate that offsets of VOC emissions may be met by surplus NO X emission reductions. The VOC emission offsets met by surplus NO X ERCs must be for both the ozone season and non-ozone seasons. In other words, for inter-precursor trading the VOC emission increases during the ozone season must be offset by NO X ERCs from the ozone season. Non-ozone season VOC increases may be offset by either ozone or non-ozone NO X ERCs. The annual VOC increase must be offset by the total combination of ozone and non-ozone season surplus NO X emission reduction credits.

We did not approve the previous LDEQ Chapter 6 emission reduction credit banking regulation as an EIP. The stated purpose of the revised rule in section 601 is to establish the means of enabling stationary sources to identify and preserve or acquire emission reductions for NSR offsets. The potential offsets are required by the revised rule to demonstrate that they are “Surplus When Used” as offsets in the NNSR permit application. In spite of the fact that the revised rule is named an Emission Reduction Credit Banking regulation, the revised rule does not function as an ERC bank. Rather, the revised rule functions as merely a bulletin board to facilitate stationary source communications and offset purchases before certification and use in an NNSR permit application. The “bank” established by the revised rule will not itself provide emission reduction credits that may be used for NNSR inter-precursor trading or alternate RACT compliance trading. Therefore, we are proposing action on the revised Chapter 6 rule after review for compliance with the Act with respect to NNSR purposes only, and not as an EIP.

We have concluded that having a bulletin board such as that established by the revised Chapter 6 rule is consistent with section 172 of the Act, which specifically indicates that economic incentive measures such as fees, marketable permits and auctions of emission rights may be used as SIP provisions. It is also consistent with the 40 CFR part 51 regulations pertaining to NSR permitting.

The operation of the bulletin board as revised in Chapter 6 is also consistent with section 173 of the Act, which provides that the owner or operator of a new or modified major stationary source may comply with any offset requirement of the Act for increased emissions only by obtaining emission reductions from the same source or other sources in the same nonattainment area. By determining the surplus ERCs according to the requirements of section 607 of the revised rule, the requirements of section 173 of the Act—namely, that emission reduction offsets must be, by the time a new or modified source commences operation, in effect and enforceable—will be satisfied.

The determination of surplus ERCs under section 607 is consistent with the Act. It is consistent with 40 CFR part 51 regulations pertaining to NSR requirements. All ERCs sought to be used for inter-precursor trading, including those identified and acquired through the Chapter 6 bank, must be accompanied by a section 607 surplus determination at the time of the permit application submission for the inter-precursor trade. The State will re-evaluate during the NSR process whether these ERCs are surplus at use.

We concluded that the section 607 “universal growth” approach to determining baseline emissions for the purpose of calculating surplus emission reductions is consistent with the Act and 40 CFR part 51 regulations pertaining to NSR requirements. This procedure is discussed above in part II, under the heading “Under the revised State banking regulation, how will “baseline emissions” be calculated?'

In general, baseline emissions are set at the lower of allowable emissions or actual emissions at the source. See EIP Guidance at 39-42. (As noted previously, the EIP Guidance is not directly applicable to the revised Louisiana rule, but it represents EPA's final action on the Open-Market Trading Rule (OMTR) (proposed in August 3, 1995 at 60 FR 39668, and on August 25, 1995 at 60 FR 44290), and therefore its discussion of the baseline for determining surplus emission reductions is relevant here.) Under the revised Chapter 6 rule, “baseline emissions” are defined in section 605, and are calculated as described in section 607(C). As described previously, the revised Louisiana rule requires the comparison of two different inventories—the “base line” and “base case” inventories—in calculating the baseline emissions. The LDEQ has agreed in implementing this rule that it will interpret section 607(C)(1) to require use of the base line inventory beginning November 15, 2005. See letter from Dale Givens, Secretary of LDEQ, to Gregg Cooke, Regional Administrator, EPA Region 6 (May 3, 2002). Using the base case inventory until that date is appropriate as a transition measure during the implementation of the controls necessary for attainment. Accordingly, we have concluded that the use of a universal growth factor to evaluate the actual emissions relied upon in the most recent attainment demonstration is consistent with the Act and 40 CFR part 51 regulations pertaining to NSR permitting.

For the reasons stated herein, we have determined that the SIP submittal for a revision to LAC 33:III Chapter 6 is consistent with Title I of the Act and federal regulations pertaining to NNSR permitting as found at 40 CFR part 51. Sections III and IV of this preamble and the Technical Support Document for this proposed action contain reviews of the State submittal and the basis for our proposal to approve of these Sections.

We are requesting comments on all aspects of the requested SIP revision and our proposed rulemaking action. Comments received by the date indicated above will be considered in the development of the EPA's final rule.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this proposed 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 proposed action merely proposes to approve state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this proposed 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 proposes to approve 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 proposed 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 proposes to approve 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 proposed 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 proposed 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. ).

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This section provides additional information by addressing the following questions:

The EPA is proposing to approve changes to the State of Louisiana's nonattainment NSR procedures for the five-parish Baton Rouge ozone nonattainment area. These revisions to the nonattainment NSR procedures are part of the changes the state is making to the SIP to address the CAA pollution control requirements for ozone nonattainment areas. These changes revise Section 504, previously approved by the EPA on May 31, 2001 (66 FR 29491). NSR is a permitting program that regulates the construction of new major stationary sources of air pollution and major modifications to existing major sources. These sources are required by the CAA to obtain an air pollution permit before beginning construction.

The revisions include increases to the minimum offset ratios for new major stationary sources and major modifications at major stationary sources in nonattainment areas. The minimum offset ratios were increased for classifications of serious and severe ozone nonattainment. The revisions will also allow an increase in VOC emissions to be offset by a decrease in emissions of NO X . The revisions require that if NO X emissions decreases are used for VOC emissions increases, the permit for which the offsets are required must have been issued on or before November 15, 2005.

Major stationary sources that plan to build or modify in a nonattainment area must obtain these emissions offsets as a condition of permit approval. Emissions offsets are reductions in actual emissions from existing sources in the vicinity of the proposed new source.

The Baton Rouge area was classified as a serious ozone nonattainment area (40 CFR 81.319). We received the Louisiana rule that we are considering in this proposed action on December 31, 2001, as a component of the an Attainment Plan and Transport Demonstration (hereinafter, the Attainment Plan/Transport SIP) for the Baton Rouge area submitted by the LDEQ. This revision to the Attainment Plan/Transport SIP specifies emission reduction strategies designed to bring the Baton Rouge area into compliance with the ozone NAAQS. One component of the Attainment Plan/Transport SIP is the revised nonattainment NSR rule that has been enacted at Louisiana Administrative Code (LAC) 33:III.504. This action is necessary to determine whether that revised rule is an approvable component of the Attainment Plan/Transport SIP.

In this action, we are proposing to approve revisions to the Louisiana SIP that have been enacted at Louisiana Administrative Code (LAC) 33:III.504, which contains the rules for nonattainment NSR procedures that will apply to the Baton Rouge area. The LAC revisions include increases to the minimum offset ratios for new major stationary sources and major modifications to major stationary sources in the Baton Rouge area. The revisions also add minimum offset ratios for NO X . For a nonattainment area with a classification of serious for ozone, the new minimum offset ratio for VOCs and for NO X is 1.20 to 1 with Lowest Achievable Emission Rate (LAER) technology or 1.40 to 1 without LAER using internal offsets. For a nonattainment area classified severe for ozone, the new minimum offset ratio for VOCs and for NO X is 1.30 to 1 with LAER technology or 1.50 to 1 without LAER using internal offsets. As defined by section 171 of the CAA, the term LAER refers to either the most stringent emission limit contained in the state plan of any state for the applicable category of sources, or the most stringent emission limitation achieved in practice within an industrial category.

The revisions also allow an increase in VOC emissions to be offset by a decrease in emissions of NO X . The EPA defines this type of “offset,” the trading of emission reductions of one pollutant's precursors for emission reductions of a different precursor for that pollutant, as inter-precursor trading. See “Improving Air Quality with Economic Incentive Programs,” EPA-452/R-01-011(EPA Office of Air and Radiation, January 2001) (hereinafter, the EIP Guidance). Under the revised rule, all emission reductions claimed as offset credit for significant net NO X increases shall be from decreases of NO X . NO X credits will be allowed to offset VOC increases, but not vice versa. All emission reductions claimed as offset credit for significant net VOC increases shall be from decreases of either NO X or VOCs, or any combination of NO X and VOC decreases. If NO X decreases are used for VOC increases, the permit for which the offsets are required shall have been issued on or before November 15, 2005. The LDEQ has identified November 15, 2005, as a “sunset date” after which no permits will be issued or modified allowing NO X credits to offset VOC increases. Revisions to the required offset credit ratio are listed in Table 1.

The Attainment Plan/Transport SIP includes an enforceable commitment to perform and submit a mid-course review by May 1, 2004. This mid-course review would include, among other things, a re-evaluation of the ratio of NO X to VOC emissions reductions needed for attainment.

The Baton Rouge ozone nonattainment area, located in southern Louisiana, consists of East Baton Rouge, West Baton Rouge, Ascension, Iberville, and Livingston Parishes (40 CFR 81.319).

This action applies to the construction of any new major stationary source or to any major modification at a major stationary source within the Baton Rouge area. Section 182 of the CAA defines “major source” with respect to each category of ozone nonattainment classification area, as shown in Table 2. Any source that emits or has the potential to emit 50 tons or more of VOC or NO X and is located in an area classified as serious is considered a major source. Any source that emits or has the potential to emit 25 tons or more of VOC or NO X and is in an area classified as severe is considered a major source.

The requirements of the revised rule do not apply to NO X increases for any applications deemed administratively complete before December 20, 2001. Additionally, under the revised rule the 1.40 to 1 VOC internal offset ratio (without LAER) for serious ozone nonattainment areas shall not apply to such applications. Instead, a 1.30 to 1 internal offset ratio shall apply to VOC if LAER is not utilized. (With LAER, the applicable ratio is 1.20 to 1, regardless of application date.) Further, sources exempt from nonattainment NSR requirements for NO X increases will still be subject to the construction schedule and other provisions of the EPA's Transitional Guidance. See memoranda from John Seitz, dated March 11, 1991, “New Source Review (NSR) Program Transitional Guidance,” and September 3, 1992, “New Source Review (NSR) Program Supplemental Transitional Guidance on Applicability of New Part D NSR Permit Requirements.”

The current provisions for nonattainment NSR for permitting new major stationary sources and major modifications at major stationary sources in the Baton Rouge area are found at LAC 33:III.504. The EPA approved the original regulations on May 31, 1972, (37 FR 10869) with the Louisiana SIP. A number of revisions to the regulations were approved between 1972 and the present. These revisions are outlined in 40 CFR part 52, subpart T, for Louisiana. Under sections 107(d)(1)(C) and 181(a) of the Act, the Baton Rouge area was designated nonattainment for the 1-hour ozone NAAQS and classified as “serious” based on its design value of 0.164 ppm in 1989. These nonattainment designations and classifications were codified in 40 CFR part 81 (see 56 FR 56694, November 6, 1991).

On January 26, 1996 (61 FR 2438), we granted an exemption under section 182(f) of the CAA from the reasonably available control technology (RACT) and nonattainment NSR requirements for major stationary sources of NO X . In granting these exemptions we reserved the right to reverse the approval of the exemptions if subsequent modeling data demonstrated an ozone attainment benefit from NO X emissions controls. We approved the Louisiana nonattainment NSR (LAC 33:III.504) procedures October 10, 1997 (62 FR 52951) and revisions to Section 504 on January 5, 1999 (64 FR 415) and May 31, 2001 (66 FR 29491).

On May 9, 2001, we proposed our finding that the Baton Rouge ozone nonattainment area failed to attain the 1-hour ozone NAAQS by the applicable attainment date (66 FR 23646). The LDEQ requested rescission of the NO X waivers for the Baton Rouge area on September 24, 2001, based on revised modeling that demonstrated that NO X controls will contribute to attaining the ozone NAAQS, and on December 31, 2001, we received from the LDEQ, the Attainment Plan/Transport SIP for the Baton Rouge area which included these revisions to the minimum offset ratios for new major stationary sources and major modifications at major stationary sources in the Baton Rouge area. We proposed approval of the rescission of the NO X exemptions on May 7, 2002 (67 FR 30638).

On December 20, 2001, Louisiana enacted the revisions to its rule for nonattainment NSR, LAC 33:III.504, that are the subject of this proposed rule.

Yes, the nonattainment NSR revisions are approvable. The revisions to the LAC 33:III.504, rules for nonattainment NSR procedures for the Baton Rouge area, fulfill the requirements at Section 172(c)(5) of the CAA and at 40 CFR 51.165. The LAC revisions for changes to the minimum offset ratios fulfill offset requirements for both serious and severe ozone nonattainment areas as described in Sections 182(c)(6), (8), & (10) and 182(d)(2) of the CAA and are, in fact, more stringent than required by the Act.

The Attainment Plan/Transport SIP revisions also allow an increase in VOC emissions to be offset by a decrease in emissions of NO X using the ratios set forth in Table 1. As previously noted, the EPA defines this type of “offset,” the trading of emission reductions of one pollutant's precursors for emission reductions of a different precursor for that pollutant, as inter-precursor trading (IPT). While the EPA does not have specific requirements for IPT that apply to all circumstances, we recognize that IPT can be allowed under limited circumstances. Our position on IPT can be found at Appendix 16.9 in the EIP Guidance. An EIP is a regulatory program that achieves an air quality objective by providing market-based incentives or information to emission sources. For example, a uniform emission reduction requirement, based for instance on installation of a required emission control technology, does not take account of variations in processes, operations, and control costs across sources even of the same type, such as electric utilities, or petroleum refiners. An EIP empowers sources to find the means that are most suitable and most cost-effective for their particular circumstances, by providing flexibility in how sources meet an emission reduction target. Because this revision to the nonattainment NSR rule is not itself a market-based program for achieving air quality improvements (and is therefore not an EIP as defined by the EPA), we did not evaluate LAC 33:III.504 with respect to Appendix 16.9 of the EIP Guidance. However, because the IPT guidance provided in the EIP document applies generally to NSR offsets, the EPA determined that the LDEQ rule is consistent with the IPT provisions in the EIP Guidance.

In the December 2001 SIP submission, the LDEQ conducted attainment demonstration modeling, which indicated that a reduction in NO X emissions and a further reduction in VOC emissions are required in the Baton Rouge area to lower ozone levels. As is recognized in the CAA, VOCs and NO X emissions combine in the atmosphere to create ozone, and accordingly a reduction in the levels of these pollutants can lower ozone levels. Furthermore, Section 182(c)(2)(C) of the CAA provides for states with ozone problems to substitute NO X reductions for VOC reduction in their Attainment and Reasonable Further Progress (RFP) Plans.

In allowing substitution of NO X emission reductions for VOC emission reductions, Section 182(c)(2)(C) of the CAA states that the resulting reductions “in ozone concentrations” must be “at least equivalent” to that which would result from 3% VOC reductions required as a demonstration of RFP under Section 182(c)(2)(B). Our NO X Substitution Guidance (EPA, December 1993) provides that the RFP reductions should be consistent with those needed for attainment and that the Attainment and RFP Plans show that reduction of NO X consistent with those needed for attainment can be accepted as equivalent to what would be required for a VOC-only attainment. The LDEQ's current nonattainment NSR procedures also require that emission reduction claimed as offset credit shall be sufficient to ensure RFP toward attainment.

The pollutants being offset must impact the environment in a similar manner and increases in emission of VOCs cannot be replaced with another VOC of lesser reactivity (40 CFR 51.165(a)(3)(ii)(D)). Additionally, 40 CFR 51.100(s) defines VOCs; this regulation and LAC 33:III.2117 also define “non-VOCs” or carbon-containing compounds which do not participate in atmospheric photochemical reactions which may produce ozone. These “non-VOCs” would not be eligible for the proposed emission offsets.

An increase in VOC emissions offset by a decrease in emissions of NO X should be analyzed for the extent of impact from each pollutant involved. The LDEQ has agreed in implementing this provision to evaluate such trades on a case-by-case basis. See letter from Dale Givens, Secretary of LDEQ, to Gregg Cooke, Regional Administrator, U.S. EPA, Region 6 (May 3, 2002). Additionally, in response to a comment sent by us on the proposed SIP revisions, LDEQ confirmed that further Urban Airshed Modeling would be required on a case-by-case basis if new data or evidence comes to light that indicates a NO X for VOC trade will not be beneficial to the environment.

IPT has received limited proposed approval from the EPA in the State of New Hampshire (66 FR 9278). It has also received limited approval in several air quality districts in California (Bay Area, 65 FR 56284; El Dorado, 65 FR 4887; Sacramento Metropolitan area; San Diego County, 64 FR 42892; San Joaquin Valley, 65 FR 58252), and is being considered for two more (the South Coast area and the Mojave Desert area).

The Attainment Plan/Transport SIP revisions change only specific portions of the LDEQ regulations. The current regulations found at LAC 33:III.504 continue to require that emission offsets provide a net air quality benefit, and are federally enforceable before commencement of construction of the proposed new source or major modification. The emission offsets must meet all applicable state requirements, any applicable new source performance standard in 40 CFR part 60, and any national emission standard for hazardous air pollutants in 40 CFR part 61 or part 63. Also the current state regulations state that issuance of a permit by LDEQ does not relieve any owner or operator of the responsibility to comply with the provisions of local, state, or federal law.

The Technical Support Document for this action provides a more detailed discussion of our proposed approval.

The State has recently revised the NO X control regulation in Chapter 22. This NO X Reasonably Available Control Technology (RACT) rule requires stationary sources to comply with a more strict emission limitation during the State's five month ozone season. Typically a stationary source reduces emissions below the baseline to generate surplus emission reduction credits. Due to the revised NO X rule, the allowable emission limitation for a stationary source could potentially have two values, one for the five month ozone season and another for the seven month non-ozone season. For a fuller explanation of the area's ozone seasons, see LAC III:33 Chapter 22, and the separate EPA rule-making to be issued regarding that chapter.

Thus, the baseline emissions for the stationary source, which are used to determine surplus emission reduction credits for offset permitting purposes, could have two different values. In order to accurately determine the surplus emission reduction credits (ERCs) to be used in the nonattainment NSR permitting, the baseline emissions and surplus ERCs must be determined for the two time periods. The NO X ERCs for any annual time period will consist of the ERCs for the five month ozone season and the ERCs from the seven month non-ozone season. Offset requirements for new sources derive from Section 173(a)(1)(A) of the Act, which concerns “total” emissions and does not address the use of emission offsets for nonattainment permitting over periods of less than one year. Therefore, the NO X ERCs to be used in all nonattainment NSR permitting under Chapter 5 must be determined by adding the ERCs from the ozone season and the non-ozone season.

With respect to all offsets under Chapter 5 and all ERCs under Chapter 6, the total NO X emission increases during the ozone season must be offset by NO X ERCs from the ozone season. Non-ozone season NO X increases may be met by either ozone or non-ozone NO X ERCs. The annual NO X increase must be offset by the total combination of ozone and non-ozone season surplus NO X emission reduction credits.

The stated purpose of the revised emissions banking rule in Chapter 6 is to enable stationary sources to identify and acquire emission reductions for NSR purposes. The Chapter 6 rule does not address the requirement to keep separate certifying, determining and recording procedures for NO X ERCs during the ozone and non-ozone seasons. The identification, certification, acquisition, recordkeeping and determination of “Surplus When Used” emission reduction credits must be for the ozone season and the non-ozone season time periods. The State has indicated by letter from Mr. Dale Givens to EPA dated May 3, 2002 that the State would implement the rule by operating the emissions reduction bank in such a manner. EPA requests that in response to comments on EPA's proposed approval of the Chapter 5 and Chapter 6 rules, the State affirm and detail the procedures for the determination of NO X surplus emission reduction credits resulting from the split emission limitations for the NO X RACT rule in Chapter 22.

The emission offset provisions contained in the Chapter 5 nonattainment NSR rules indicate that offsets of VOC emissions may be met by surplus NO X emission reductions. The VOC emission offsets met by surplus NO X ERCs must be for both the ozone season and non-ozone seasons. In other words, VOC emission increases during the ozone season must be offset by NO X ERCs from the ozone season. Non-ozone season VOC increases may be met by either ozone or non-ozone NO X ERCs. The annual VOC increase must be offset by the total combination of ozone and non-ozone season surplus NO X emission reduction credits.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this proposed 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 proposed action merely proposes to approve state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this proposed 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 proposes to approve 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 proposed 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 proposes to approve 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 proposed 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 proposed 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. ).

On February 27, 2002, the Governor of Louisiana, submitted rule revisions to LAC 33:III, Chapter 22, “Control of Emissions of Nitrogen Oxides,” (AQ215), as a revision to the Louisiana SIP for point sources of NO X in the BR area and its Region of Influence.

The BR area constitutes the 5 ozone nonattainment parishes of Ascension, East Baton Rouge, Iberville, Livingston, and West Baton Rouge. The Region of Influence constitutes the 4 ozone attainment parishes of East Feliciana, Pointe Coupe, St. Helena, and West Feliciana. See section 2201(A)(1) of Louisiana's rule revisions. This SIP revision concerns RACT for point sources of NO X in all these 9 parishes. The State of Louisiana submitted this revision to us as a part of the NO X reductions needed for the BR area to attain the 1-hour ozone standard. These NO X reductions will assist the BR area to attain the 1-hour ozone standard.

We received the Louisiana rule that we are considering in this proposed action on February 27, 2002, as a component of the an Attainment Plan and Transport Demonstration (hereinafter, the Attainment Plan/Transport SIP) for the BR area submitted by the LDEQ. This revision to the Attainment Plan/Transport SIP specifies emission reduction strategies designed to bring the BR area into compliance with the ozone NAAQS. One component of the Attainment Plan/Transport SIP is the revised NO X RACT rule that has been enacted at Louisiana Administrative Code (LAC) 33:III, Chapter 22. This action is necessary to determine whether that revised rule is an approvable component of the Attainment Plan/Transport SIP.

In this document we are proposing to approve the February 27, 2002, rule revision to LAC 33:III, Chapter 22, of the Louisiana SIP. Sections 8 through 11 and section 15 of this document contain more information about LAC 33:III, Chapter 22. By this approval, we are also agreeing that the State of Louisiana will be implementing RACT for point sources of NO X in the BR area and its Region of Influence. See the NO X point source categories listed in Table III, section 10 of this document for more information.

Table I contains a summary list of the sections of LAC 33:III, Chapter 22, as submitted to us on February 27, 2002, for sources of NO X in these 9 parishes.

We are not acting on the BR area attainment plan in this particular action or on any other area attainment plan.

Nitrogen oxides belong to the group of criteria air pollutants. The NO X are produced from burning fuels, including natural gas, gasoline and coal. Nitrogen oxides react with volatile organic compounds (VOC) to form ozone or smog, and are also major components of acid rain.

RACT is defined as the lowest emission limitation that a particular source can meet by applying a control technique that is reasonably available considering technological and economic feasibility. See 44 FR 53761, September 17, 1979. Sections 182(b)(2) and 182(f) of the Act establish this requirement. These sections, taken together, establish the requirements for Louisiana to submit a NO X RACT regulation for all major stationary sources of NO X in ozone nonattainment areas classified as moderate and above. A State may choose to develop its own RACT requirements on a case by case basis, considering the economic and technical circumstances of an individual source.

The BR area was classified as a serious ozone nonattainment area (40 CFR 81.319). You can find the requirements for serious ozone nonattainment areas such as BR in section 182(c) of the Act. Section 182(c)(2)(C) addresses the NO X Control requirements for serious areas. Section 182(b)(2) requires States, with areas classified as moderate and above ozone nonattainment, to implement RACT with respect to all major sources of VOCs. Section 182(f) states that, “The plan provisions required under this subpart for major stationary sources of VOCs shall also apply to major stationary sources (as defined in section 302 and subsections (c), (d), and (e) of the section) of oxides of nitrogen.” This NO X RACT requirement also applies to all major sources in ozone nonattainment areas with higher than moderate nonattainment classifications.

On November 25, 1992 (57 FR 55620), we published a document of proposed rulemaking entitled “State Implementation Plans; Nitrogen Oxides Supplement to the General Preamble; Clean Air Act Amendments of 1990 Implementation of Title I; Proposed Rule,” (the NO X Supplement). The NO X Supplement describes and provides preliminary guidance on the requirements of section 182(f) of the Act. You should refer to the NO X supplement for further information on the NO X requirements. Other EPA guidance memoranda, such as those included in the “NO X Policy Document for the Clean Air Act of 1990,” (EPA-452/R96-005, March 1996), could provide you with more information about NO X requirements. In addition, states can use information in EPA's guidance documents known as the Alternative Control Techniques (ACTs) to develop their RACT regulations. The following table contains list of ACT documents for various source categories of NO X with their corresponding EPA publication numbers.

As stated in section 5 of this document, the BR area is currently a serious ozone nonattainment area. According to section 182(c) of the Act, a major source in a serious nonattainment area is a source that emits, when uncontrolled, 50 tpy or more of NO X . Therefore, the major source size for NO X within these 9 parishes is 50 tpy or more, when uncontrolled.

A nonattainment area is a geographic area in which the level of a criteria air pollutant is higher than the level allowed by Federal standards. A single geographic area may have acceptable levels of one criteria air pollutant but unacceptable levels of one or more other criteria air pollutants; thus, a geographic area can be attainment for one criteria pollutant and nonattainment for another criteria pollutant at the same time.

See section 1 of this document for a listing of the Louisiana parishes that are nonattainment for ozone.

Prior to this proposed rulemaking the Louisiana's approved SIP did not a contain NO X RACT rule for point sources operating in these 9 parishes. On January 26, 1996 (61 FR 2438), we granted an exemption under section 182(f) of the Act from the RACT requirements for major stationary sources of NO X operating in the BR ozone nonattainment area. We based our approval of the exemption on modeling which showed that NO X controls would not contribute to attainment of the NAAQS for ozone. In granting the exemption, EPA reserved the right to reverse the approval of the exemption, if subsequent modeling data demonstrated an ozone attainment benefit from NO X emission controls. Photochemical grid modeling recently conducted for the BR area SIP indicates that control of NO X sources will help the area attain the NAAQS for ozone. The State of Louisiana has requested that EPA rescind the NO X exemption based on this new modeling. Accordingly, on May 7, 2002 (67 FR 30638), we published our proposal to rescind, among other things, the 182(f) NO X exemption. When finalized, the State will need to implement RACT requirements for major stationary sources of NO X operating in these 9 parishes.

We believe that rescission of the 182(f) NO X exemption, and implementation of RACT rules for major stationary sources of NO X operating in these 9 parishes will assist to bring the BR area into attainment with the federal 1-hour ozone standard, and will strengthen the existing Louisiana SIP.

The State's rulemaking will reduce/control NO X emissions from point sources in these 9 parishes. See section 1 of this document for a listing of these 9 parishes. The rulemaking affects point sources that emit, when uncontrolled, 50 tpy or more of NO X . The revised State rule offers facility-wide averaging incentive and operational flexibility to a source to operate at RACT or more stringent levels beyond the designated ozone season (May 1 through September 30). The May 1 through September 30 time frame is consistent with the time frame adopted for the ozone transport assessment group rules. See 62 FR 60344 published on November 7, 1997. The NO X emission control methods may vary from one source to another. Due to the fact that NO X emission control methods differ from one source to another, some sources will need to operate their NO X control device beyond the above-mentioned ozone season. The State provided us with more information about the seasonality of the NO X control in Chapter 22, in a letter dated May 3, 2002. The seasonality of Louisiana's NO X controls will also impact Louisiana's ERC accounting procedures. The ERC generated from implementation of this rule will have to be permanent, actual, surplus, quantifiable, and federally enforceable at the time of use. Section D(3) of the rule contains the equation used for calculating the appropriate NO X cap for a source or multiple sources under common control. See page 4 of our TSD for additional information. Furthermore, the State will need to base and conduct its ERC accounting on a two-balance (during ozone season and outside ozone season) system for NO X ERC. The NO X ERC generated outside the ozone season can only be made available for use outside the ozone season. The NO X ERC generated during the ozone season can be made available for use in both the ozone season and outside the ozone season. We will be proposing action on Louisiana's ERC accounting in a separate Federal Register document. For additional information you can refer to our TSD that contains a copy of the State's May 3, 2002, letter.

We believe that the proposed rulemaking will assist to bring the BR area into attainment with the federal 1-hour ozone standard, and will strengthen the existing Louisiana SIP.

Table III of this document contains a summary of the affected NO X point source categories, maximum rated capacities, and their relevant emission factors based on the February 27, 2002, SIP submittal. See LAC 33:III:2201, section D(1).

We believe that the proposed NO X emission factors for point sources of NO X in the BR area will assist to bring the BR area into attainment with the federal 1-hour ozone standard, and will strengthen the existing Louisiana SIP. By this approval we are agreeing that the State of Louisiana will be implementing RACT for point source categories listed in Table III, section 10 of this document.

Additionally, we will be proposing approval of a revision to Louisiana's lean burn engine requirements for NO X , through our “parallel processing” procedures explained at 40 CFR part 51, appendix V, in a separate Federal Register document.

The proposed compliance date for point sources of NO X in the BR area is as expeditiously as possible, but no later than May 1, 2005. See LAC 33:III:2201, sections J(1) and (2). We believe that the proposed compliance schedule for point sources of NO X in the BR area will assist to bring the BR area into attainment with the federal 1-hour ozone standard, and will strengthen the existing Louisiana SIP.

Section 110 of the Act requires States to develop air pollution regulations and control strategies to ensure that State air quality meets the NAAQS that EPA has established. Under section 109 of the Act, EPA established the NAAQS to protect public health. The NAAQS address six criteria pollutants. These criteria pollutants are: carbon monoxide, nitrogen dioxide, ozone, lead, particulate matter, and sulfur dioxide.

Each State must submit these regulations and control strategies to us for approval and incorporation into the federally enforceable SIP. Each State has a SIP designed to protect air quality. These SIPs can be extensive, containing State regulations or other enforceable documents and supporting information such as emission inventories, monitoring networks, and modeling demonstrations.

When a State wants to incorporate its regulations into the federally enforceable SIP, the State must formally adopt the regulations and control strategies consistent with State and Federal requirements. This process includes a public notice, a public hearing, a public comment period, and a formal adoption by a state-authorized rulemaking body.

Once a State adopts a rule, regulation, or control strategy, the State may submit the adopted provisions to us and request that we include these provisions in the federally enforceable SIP. We must then decide on an appropriate Federal action, provide public notice on this action, and seek additional public comment regarding this action. If we receive adverse comments, we must address them prior to a final action.

Under section 110 of the Act, when we approve all State regulations and supporting information, those State regulations and supporting information become a part of the federally approved SIP. You can find records of these SIP actions in the CFR at Title 40, part 52, entitled “Approval and Promulgation of Implementation Plans.” The actual State regulations that we approved are not reproduced in their entirety in the CFR but are “incorporated by reference,” which means that we have approved a given State regulation with a specific effective date.

A State may enforce State regulations before and after we incorporate those regulations into a federally approved SIP. After we incorporate those regulations into a federally approved SIP, both EPA and the public may also take enforcement action against violators of these regulations.

The following table contains a list of Parishes affected by the proposed SIP revision that we are proposing to approve, today.

If you are in one of these Louisiana parishes, you should refer to the Louisiana NO X rules to determine if and how today's action will affect you.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this proposed 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 proposed 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 proposed 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 proposes to approve pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4). For the same reason, this proposed rule also does not significantly or uniquely affect the communities of tribal governments, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This proposed rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999), because it merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This proposed rule also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. The proposed rule does not involve special consideration of environmental justice related issues as required by Executive Order 12898 (59 FR 7629, February 16, 1994). As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this proposed rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. The 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.” This proposed rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

For additional information see the direct final rule published in the rules section of this Federal Register . Copies of the documents relevant to this action are available for public inspection during normal business hours at the above address. (Please telephone Robert Miller at (312) 353-0396 before visiting the Region 5 Office.)

There are three main components to today's notice: (1) Discussion of potential new regulatory thresholds for chicken operations with dry litter management practices; (2) the potential creation of alternative performance standards to encourage CAFOs to implement new wastewater treatment technologies and/or practices; and (3) discussion of new financial data and changes EPA is considering to refine the economic analysis models used to evaluate economic effects that potential regulatory options may have on CAFOs.

For chicken operations with dry litter management, EPA is considering alternative approaches for determining the number of broilers or laying hens that would be considered equivalent to 1,000 animal units (AU). In the proposed rule, EPA presented a scenario where 100,000 chickens would be considered equivalent to 1,000 AU. In today's notice, EPA presents two possible alternative approaches for setting this metric for chicken operations.

EPA's long-term environmental vision for CAFOs includes continuing research and progress toward environmental improvement. The Agency believes that individual CAFOs can be encouraged to voluntarily develop and install new technologies and management practices equal to or better than those required by baseline best available technology economically achievable (BAT) and new source performance standards (NSPS) effluent guidelines regulations. Further, EPA recognizes that some CAFOs, as well as land grant universities, state agencies, equipment vendors, and agricultural organizations, are working to develop new technologies that achieve reductions in nutrient and pathogen losses to surface water, ammonia and other air emissions, and groundwater contamination. The development of new technologies offers the potential to match or surpass the pollutant reduction that would be achieved by compliance with limits and standards promulgated in the final CAFO rule.

Today's notice includes EPA's preliminary approach for developing a voluntary program intended to facilitate the development of new technologies and management practices that perform as well as or better than BAT (and NSPS) and may also help address the multimedia environmental issues confronting CAFOs. A key tenet of these programs is that CAFOs would voluntarily choose an alternative BAT/NSPS performance standard as the basis for their technology-based NPDES permit limits (e.g., inclusion of effluent limitations in their NPDES permits that are different from those based on the baseline effluent guideline).

Data that EPA is considering to use in the economic analysis models include both farm level and enterprise level financial data, as well as data and information pertaining to various modeling assumptions used by EPA. The financial data include data from the U.S. Department of Agriculture (USDA), the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri, and the National Cattlemen's Beef Association (NCBA). Other enterprise level data for some sectors were collected by EPA from various land grant universities. In today's notice, EPA describes the set of financial data that EPA is considering using to depict baseline financial conditions at regulated CAFOs. This notice also discusses methodological changes EPA is considering, based on comments received on the proposed rule and the previous notice of data availability (the “2001 Notice”), to the analytical framework used to evaluate economic effects that potential regulatory options may have on CAFOs. Among the changes being considered are the inclusion of enterprise level financial data, inclusion of additional measures of profitability to evaluate post-regulatory effects at the enterprise level, and a few ancillary assumptions. These data and analytical changes are in addition to those already presented by EPA in the 2001 Notice.

EPA is seeking further public comment on the specific data and issues identified in this notice. However, EPA is seeking public comment only on these specific data and issues. Nothing in today's notice is intended to reopen any other issues discussed in the CAFO proposal or the 2001 Notice, or to reopen the proposal in general for additional public comments. EPA is continuing to review the comments already submitted on the proposed rule and the 2001 Notice and will address those comments, along with comments submitted on the data and issues identified in today's notice, in the final rulemaking.

On January 12, 2001 (66 FR 2959), EPA published proposed revisions to the existing effluent guidelines for CAFOs (40 CFR Part 412) and to certain provisions of the NPDES regulations applicable to CAFOs. Effluent guidelines and standards for CAFOs establish the technology-based effluent discharge and performance standards for both existing and new sources for each of the beef, dairy, swine and poultry subcategories. The NPDES permit program for CAFOs defines which animal feeding operations (AFOs) are CAFOs and need to obtain a NPDES permit, and establishes the specific requirements that must be complied with under a permit. These two existing interrelated regulations affecting CAFOs were originally promulgated in the 1970s.

Under the current effluent guidelines regulations, CAFOs are prohibited from discharging process wastewater, except when rainfall events cause an overflow from a facility designed, constructed, and operated to contain all process-generated wastewater plus the runoff from a 25-year, 24-hour rainfall event.

EPA proposed requiring all existing and new CAFOs spreading manure on cropland to limit the application rate to the nitrogen needs of the crops and, for those fields where additional constraints are considered necessary, to also ensure that the manure application rate would not exceed the phosphorus needs of the crops.

EPA also proposed to require all existing beef and dairy operations to implement controls ( e.g., retrofitting lagoons and ponds with impervious liners) to minimize leaching to ground water if the ground water beneath the production area has a direct hydrologic connection to surface water. EPA proposed requiring all existing swine, veal, and poultry CAFOs to eliminate all discharges from the animal production area (i.e., for these sectors, eliminating the effluent guidelines provision that allows for certain overflows due to chronic or catastrophic rainfall).

EPA proposed that newly constructed CAFOs should meet the same requirements as were proposed for existing CAFOs, except that new swine, veal and poultry operations also would need to implement ground water controls where there is a direct hydrologic connection to surface water.

For more information on the proposed technology options, see section VIII of the proposed rule (66 FR 3050-3070). Section VIII of the proposed rule also describes certain other technology options that were considered by EPA at proposal, such as prohibiting manure application on frozen, snow-covered, or saturated ground; mandatory use of anaerobic digester systems; composting; and surface water monitoring requirements.

Under the current NPDES regulations for CAFOs, a “three-tier” structure is used to determine which animal feeding operations (AFOs) also meet the criteria under which they are considered concentrated animal feeding operations (CAFOs). Under this current NPDES structure, (1) all AFOs with more than 1,000 AU are automatically defined as CAFOs; (2) AFOs with 301 to 1,000 AU are defined as a CAFO only if they meet certain conditions; and (3) AFOs with 301 to 1,000 AU that do not meet these conditions, and all AFOs with 300 or less AU, become CAFOs only if they are designated as such by the permitting authority. ( See 40 CFR 122.23 and Part 122, Appendix B).

EPA proposed several alternatives for revising the existing CAFO definition. Under one scenario, the current “three-tier” structure would be retained, but there would be certain changes to the conditions that define an operation as a CAFO in the middle tier (i.e., 300-1,000 AU). EPA also proposed an alternative regulatory approach that would replace the existing “three-tier” structure with a “two-tier” scenario for defining operations as CAFOs. Under the “two-tier” scenario, all animal feeding operations with more than a specified number of animals would be defined as a CAFO. EPA considered several potential thresholds that could be set under the two-tier scenario.

EPA also proposed to revise the definition of a CAFO to expressly include chicken operations using dry litter management techniques, swine nurseries, and heifer operations. EPA proposed to explicitly address manure application on land under the control of the CAFO, and considered alternatives for collecting information regarding manure transferred to off-site locations. The proposed rule also considered certain changes that affect which entities would be required to obtain NPDES permits, and proposed to add provisions requiring CAFOs that cease operation to retain their NPDES permits until all wastes that were generated by the operation no longer have the potential to reach waters of the United States.

For more information on the proposed changes to the NPDES regulations, see section VII of the proposed rule (66 FR 2993-3050).

On November 21, 2001 (66 FR 58556), EPA published a notice of data availability presenting a summary of new data and information submitted to EPA during the public comment period on the proposed CAFO regulations, including data received from USDA. The 2001 Notice also discussed new data and changes being considered to refine the cost and economic analysis models, and to improve estimates of pollutant reductions and monetized benefits that would result from changes to the CAFO regulations. EPA presented information on potential changes that would enhance flexibility for using State NPDES and non-NPDES CAFO programs, discussed options intended to encourage broader implementation of environmental management systems, and described certain refinements to the CAFO definition that were under consideration.

EPA's existing effluent guidelines for CAFOs apply to chicken operations with 30,000 laying hens or broilers when the facility has a liquid manure handling system, and to chicken operations with 100,000 laying hens or broilers when the facility has unlimited continuous flow watering systems. ( See 40 CFR Part 412.10). Under the proposed rule, the CAFO regulations would be revised to remove language referring to the type of manure handling or watering system employed at laying hen and broiler operations and would, as a result, expand the scope of the rule to also address chicken operations with “dry” litter management systems. (The term “dry” does not mean that there are no wastewaters associated with these types of operations. For example, poultry waste includes manure, poultry mortalities, litter, spilled water, waste feed, water associated with cleaning houses, runoff from litter stockpiles, and runoff from land where manure has been applied.) As proposed, the revised CAFO regulations would establish 100,000 chickens as equal to 1,000 AU. ( See 66 FR 3010-3012).

At proposal, EPA presented two alternative ways to structure the NPDES regulations and define which animal feeding operations are CAFOs. Under EPA's proposed “two-tier” structure, all AFOs with more than a certain AU threshold level would be defined as CAFOs, and those with fewer than the threshold would become CAFOs only if they were designated as such by the permittting authority. Under this alternative, with a threshold of 500 AU, for example, all chicken operations with more than 50,000 chickens would be defined as a CAFO. Under this two-tier structure with the threshold set at 500 AU, EPA estimates 9,300 broiler operations and 1,000 laying hen operations would be automatically defined as CAFOs.

In the second alternative discussed at proposal, EPA proposed to retain the current “three-tier” structure. Under this three-tier scenario, operations with more than 100,000 chickens would be automatically defined as a CAFO, and operations with 30,000 to 100,000 chickens would be defined as a CAFO only if they met certain conditions. Under the three-tier structure, EPA estimates 2,950 broiler operations and 550 laying hen operations would have more than 1,000 AU and would automatically be defined as CAFOs. EPA also estimates an additional 600 broiler operations and 50 laying hen operations would be defined as middle-tier CAFOs (i.e., those with 301-1,000 AU) using EPA's current middle-tier criteria. See 66 FR 2996-3004 for additional discussion of the two-tier and three-tier regulatory structures.

In developing the proposed rule, EPA evaluated several methods for equating poultry operations with dry litter management to the existing definition of an animal unit ( See 66 FR 3010-3012). One factor considered is that the existing CAFO regulations already apply to chicken operations with 100,000 laying hens or broilers when the facility has unlimited continuous flow watering systems. Another factor considered relates to the manure generated by chickens in comparison to the manure generated by beef cattle. The average daily manure generation from 100,000 broilers and laying hens (EPA's proposed metric for the number of chickens being equal to 1,000 AU) is comparable to the average daily manure generation from 1,000 beef cattle (1,000 AU). Using manure waste characterization data from USDA's Agricultural Waste Management Field Handbook, EPA's analysis indicated a range of 82,000 laying hens to 111,000 broilers—or approximately 100,000 chickens—as being equivalent to 1,000 AU. EPA's methodology for calculating these values is presented in the record. This analysis suggested a similar threshold for chickens whether basing the comparison of manure on the amount of nitrogen, phosphorus, or biochemical oxygen demand (BOD 5 ) in the manure.

EPA is considering other thresholds both higher and lower than the 100,000-chicken threshold presented in the proposed rule.

Several comments were received on EPA's proposed thresholds for chicken operations, asserting EPA should maintain a distinction between laying hens and broilers. Other comments asserted that EPA should determine the value (i.e., number of birds) equating to 1,000 AU by evaluating phosphorus content in the manure on an annual basis as opposed to a daily basis. For example, these comments further assert that estimates of the annual phosphorus production should reflect that five to six flocks of broilers are produced per year, and should not assume phosphorus production continues during the periods of the year (i.e., cleanout time between flocks when no broilers are present) when no manure is generated. Using an approach for setting the threshold that compares the phosphorus produced by chickens annually to the phosphorus produced by beef cattle, based on manure waste characterization data from USDA's Agricultural Waste Management Field Handbook, EPA would estimate the 1,000 AU equivalent as 125,000 broilers (in contrast to the 111,000 value estimated using the daily manure generation rates). EPA's methodology for calculating these values (e.g., average bird live weight; typical number of flocks produced per year; average time between bird placements ) is presented in the record. Using an alternative threshold of 125,000 broilers, EPA estimates 1,800 broiler operations would have greater than 1,000 animal units. Because laying hens typically are kept at CAFOs for approximately 94 weeks of production, they continue to produce manure throughout the year and EPA's previous estimate of 82,000 laying hens as being equivalent to 1,000 AU remains unchanged.

Additional information regarding the nutrient and BOD 5 content of beef and chicken manure can be found in section 17 of the public record for the CAFO rulemaking. The USDA data used by EPA to estimate the number of broiler and laying hen operations that would have more than 1,000 AU under the alternative thresholds discussed in this notice are included in section 19.1 of the record. Detailed information on EPA's analyses and assumptions appears in section 19.5 of the record. Section 21 of the record contains public comments received on the proposed rule and 2001 Notice regarding the threshold for chicken operations. See the ADDRESSES section of this notice for information on how to obtain access to the public record for the CAFO rulemaking.

EPA is considering whether the 1,000 AU equivalent for broilers should remain as proposed at 100,000 broilers, or whether it should be changed to either 125,000 broilers. EPA is also considering whether the 1,000 AU equivalent for laying hens should remain as proposed at 100,000 laying hens, or whether it should be changed to 82,000 laying hens. EPA notes that the thresholds codified in the current regulations for operations with liquid manure handling systems or unlimited continuous flow watering systems may remain unchanged in the final rule. EPA solicits comment on these alternative thresholds for broiler and laying hen operations with dry litter management systems, the assumptions and data used to derive the thresholds (e.g., average bird liveweight; typical number of flocks produced per year; average time between bird placements), and if other alternative thresholds (and their technical basis) exist that may be appropriate for these operations.

EPA's long-term environmental vision for CAFOs includes continuing research and progress toward environmental improvement. The Agency believes that individual CAFOs should be encouraged to voluntarily develop and install technologies and management practices that achieve pollutant reductions equivalent to or better than those required by the baseline effluent guidelines regulations.

Further, EPA recognizes that some CAFOs, as well as USDA, land grant universities, equipment vendors and agricultural organizations, are working to develop new technologies that achieve reductions in nutrient and pathogen losses to surface water, ammonia and other air emissions, and ground water contamination. The development of new technologies offers the potential to match or surpass the pollutant reductions that would be achieved by compliance with limits and standards in the final CAFO rule.

EPA received suggestions from a number of stakeholders on the merits of creating a framework for alternative performance standards. Several stakeholders believe that the current and proposed effluent guidelines discourage the use of innovative treatment and pollution prevention technologies and that EPA should include incentives to encourage CAFOs to use improved technologies that would protect all environmental media (particularly surface water, but also air and ground water). A number of commenters expressed support for the inclusion of voluntary alternative technologies which are equivalent to or better than BAT effluent guidelines (or NSPS requirements for new CAFOs), and specifically requested a provision that would allow CAFOs to discharge treated process wastewater generated from the production area of the CAFO.

A number of stakeholders commented that EPA should include controls for pathogens or antibiotics, as well as atmospheric emissions of ammonia, methane, or hydrogen sulfide. Other commenters suggested that adding flexibility in the rule to allow for the discharge of treated process wastewater could lead to better approaches for addressing environmental concerns in all environmental media, including air, ground water, and surface water.

In view of these suggestions, today's notice presents two approaches, described below, to encourage the development of new technologies and management practices that achieve pollutant reductions equivalent to or better than those that would be achieved by the baseline BAT (and NSPS) that will be promulgated in the final rule, and possibly also help address multimedia issues related to air emissions and ground water. Under a Production Area Approach, alternative performance standards would focus on the manure and wastewater discharges from the CAFO production area and CAFOs would be allowed to discharge process wastes that have been treated by technologies that result in equivalent or better pollutant removals than would be achieved under the baseline BAT standard. Under the Whole Farm Approach, CAFOs would conduct a site-specific “whole farm” multimedia review to target optimal pollutant load reduction and pollution prevention opportunities for the production and land application areas. The Whole Farm Approach could include an allowance for wastewater discharge from the production area as described for the Production Area Approach, but most importantly, would require the CAFO to evaluate and implement whole farm improvements through the use of an audit process as a condition for obtaining alternate effluent limits.

A key tenet of these approaches is that CAFOs would voluntarily choose to comply with an alternative BAT/NSPS performance standard as the basis for their technology-based NPDES permit limits ( e.g., inclusion of effluent limitations in their NPDES permits that are different from those based on the baseline effluent guideline, to be established by the NPDES permitting authority on the basis of best professional judgement). CAFOs would not be required to enter the alternative standards program. A CAFO choosing not to participate in the alternative standards program would instead be subject to the baseline BAT limitations (discussed below in section IV.A). EPA previously used a similar approach in the effluent guidelines for the pulp and paper industry. See 63 FR 18504, 18593-18611 (April 15, 1998).

EPA solicits comment on the concepts presented in this notice for creating alternative performance standards to encourage CAFOs to implement new technologies. In sections IV.B, IV.C, and IV.D below, EPA also solicits comment specifically on certain aspects related to the Production Area and Whole Farm Approaches for creating alternative performance standards, and on the potential incentives that may be made available to CAFOs participating in an alternative performance standards program.

Under the current effluent guidelines regulations, CAFOs are prohibited from discharging process wastewater, except when rainfall events cause an overflow from a facility designed, constructed, and operated to contain all process-generated wastewater plus the runoff from a 25-year, 24-hour rainfall event. The limits included in the effluent guidelines are based on the use of storage ponds and lagoons to contain the process wastes and runoff, but they do not prevent CAFOs from using alternative technologies, as long as those technologies also meet zero discharge or the containment requirement. These limitations were established on the basis of factors specified in Clean Water Act sections 304(b) and 306(b), including the cost of achieving the effluent reductions and any non-water quality environmental impacts. EPA continues to assess the large number of comments and data received on the proposed rule regarding the appropriate technology basis for the BAT/NSPS requirements that will be promulgated in December 2002 (referred to in this notice as the “baseline BAT”).

The Production Area Approach focuses on manure and wastewater discharges from the CAFO production area. Under this approach, CAFOs would be allowed to discharge process wastewater that has been treated by technologies that the CAFO demonstrates will result in equivalent or better pollutant removals than would be achieved by the baseline BAT standard. The requirements applying to wastewater discharges could also be coupled with either a regulatory provision or non-regulatory guidance for participating CAFOs to develop a plan for achieving improvement in multiple environmental media.

As discussed above, the baseline BAT standard, though nominally zero discharge, allows for untreated overflow discharges if the system is designed, constructed and operated to contain process wastewater plus the runoff from a 25-year, 24-hour rainfall. Thus, to demonstrate that the alternative technology would achieve equivalent or better pollutant reductions than baseline BAT requirements, the CAFO would be required to submit a technical analysis, which would include calculating the mass-based pollutant reductions based on the site-specific modeled performance of the baseline BAT system (currently, defined as a 25-year/24-hour storage lagoon). Under this approach, a computer simulation model could be used to evaluate site-specific or region-specific climate data, along with wastewater characterization data, to determine the mass-based pollutant discharge that would be projected for a system designed, constructed and operated to achieve compliance with the baseline BAT standard. The model would evaluate the daily inputs to the storage system, including all process wastes, direct precipitation, and runoff. It would also evaluate the daily outputs from the storage system, including losses due to evaporation, sludge removal, and the removal of wastewater for use on cropland at the CAFO or transport off site. The model would be used to predict the overflow from the BAT system that would occur over a 25-year period, and these overflow predictions would be used to determine the median annual predicted overflow over the 25 years evaluated by the model. Site-specific or other appropriate pollutant characterization data for the wastewater from the waste storage system (i.e., the overflow) would then be coupled with the overflow volume output from the model described above to predict the mass pollutant discharge that would occur from a baseline BAT system. CAFOs would be required to meet NPDES permit conditions that result in equivalent or improved pollutant reductions, as compared to the predicted mass discharge from overflow of the baseline BAT system, for example, on an annual basis or over the lifetime of the permit. If a CAFO elected to use this approach it would be meeting the same limitations as a CAFO under the baseline BAT, but expressed in a different fashion ( e.g., numeric limits on a continuous discharge versus a limit of zero discharge with an allowance for discontinuous overflows). To illustrate this type of analysis, EPA has prepared an example evaluation using model farm characteristics. This example is available in section 19.6.2 of the rulemaking record. Land application activities would be required to correspond to an approved nutrient management plan.

A variation of this approach could be based on a more holistic approach that considers other environmental media besides discharges to surface water. Under this approach, CAFOs would be authorized to comply with alternative BAT/NSPS performance standards if they implement technologies and management practices that result in equivalent or improved pollutant reductions, including all media. CAFOs that achieve significant reductions in air emissions or ground water discharges for a pollutant would qualify for less stringent limits on discharges to surface water to be established on the basis of best professional judgement. In essence, EPA would be using the authority of Clean Water Act section 304(b) to establish alternative BAT requirements that address the non-water quality environmental impacts from controls of discharges to other media, as well as the costs of those controls. One challenge with this approach is how to determine “equivalence” across environmental media.

This approach would essentially divide up CAFOs within a subcategory into different segments. Those CAFOs which have undertaken or will voluntarily undertake actions to control air emissions or ground water discharges can be distinguished from facilities which have not under Clean Water Act sections 304(b) and 306(b), because they face different economic achievability concerns related to the costs of compliance with the effluent guidelines, or because their activities will have fewer non-water quality environmental impacts. EPA adopted a similar set of alternate requirements for the pesticide chemicals formulating, packaging and repackaging industry when EPA found that facilities using an alternative pollution prevention approach would reduce air emissions. See 61 FR 57518, 57525-26 (November 6, 1996).

EPA solicits comment on the following: (1) The criteria and process that would be used under the Production Area Approach to demonstrate performance equivalent to or better than the baseline BAT technology; (2) the appropriate methodology for translating annual mass discharge estimates into an NPDES permit limitation; (3) approaches for comparing the intermittent overflow discharge that would occur under the baseline BAT requirement to the continuous treated discharge that may be allowed under an alternative performance standard; and (4) whether a holistic approach that considers pollutant reductions across all environmental media would be appropriate, how equivalence across media could be determined operationally and embodied in NPDES permit limits, on what statutory basis could EPA distinguish CAFOs that employ the holistic approach, and whether the NPDES permit could and should mandate compliance with the pollutant reductions achieved across media.

The Whole Farm Approach is based on conducting a site-specific multimedia review to target optimal pollutant load reduction and pollution prevention opportunities for both the production and land application areas. This approach could include an allowance for wastewater discharge from the production area as described for the Production Area Approach, but most importantly, would require the CAFO to evaluate and implement whole-farm environmental improvements through the use of a site-specific audit process as a condition for qualifying for alternative BAT limits. At a minimum, as part of the audit, the CAFO would be required to use a mass-balance approach to address site-specific concerns (e.g., karst geology, flood plains) and to quantify their existing releases; identify the potential to reduce losses from the production area, land application area, and transfer of manure off site; and identify specific opportunities to reduce the largest releases (to surface water, ground water, air, or land). In general, EPA would expect the CAFO to evaluate releases that occur at the point of generation first to minimize or eliminate waste production and air emissions, followed by an evaluation of the waste handling and management systems, and ending with an evaluation of land application and off-site transfer operations.

CAFOs would need to develop and implement a plan for the operation that generates improvement across multiple environmental media. The plan would identify the specific technologies or practices that will be installed or implemented to achieve the estimated pollutant reductions, and provide criteria that demonstrate effective performance of these technologies or practices that could be used to determine compliance. The specific approaches used would be expected to vary somewhat among operations and would be selected by the CAFO as being effective for the particular operation. Potential approaches could include:

• Implementation of feeding strategies (to reduce or eliminate nutrients, hormones, and/or antibiotics);

• Installation of new and innovative waste management technologies;

• Changes to animal housing;

• Changes to the type and frequency of cleaning operations;

• Controls for the existing waste management system (e.g., storage liners, covers);

• Energy recovery systems;

• Centralized waste treatment or processing;

• Stabilization and production of value-added products;

• Changes to land application methods (e.g., erosion control measures, incorporation/injection);

• Controls for air emissions (e.g., ammonia, particulate matter, methane, hydrogen sulfide);

• Implementation of methods to ensure off-site land application follows nutrient management plan approach; and

• Implementation of a mortality disposal plan.

The implementation plan would need to present data to demonstrate that the plan results in whole-farm reductions in pollutant releases to surface waters equivalent to or better than would be achieved by the baseline BAT requirements. As discussed under the Production Area Approach, this would result in equivalent BAT effluent limitations, but expressed in a different fashion.

Alternatively, the Whole Farm Approach could also be based on a more holistic measure of pollutant reduction and allow trade-offs among reductions in discharges to different media, as long as the plan resulted in equivalent or improved pollutant reduction overall. As discussed above in section IV.B, such an approach would need to determine how to compare reductions across environmental media. As discussed under the Production Are Approach, EPA would utilize its statutory authority to distinguish between facilities that voluntarily achieve reductions to other media and those that do not, on the basis of cost, non-water quality environmental impacts, or other factors.

To illustrate the Whole Farm Approach, EPA has prepared a hypothetical example process evaluation using model farm characteristics. This example is available in section 19.6.2 of the record.

The whole farm approach offers many benefits to the CAFO and to the environment. By targeting reductions of pollutant releases to all media, the CAFO may find ways tailored to the individual site to more cost-effectively minimize environmental impacts. The approach offers flexibility in choosing an environmental system that is most effective and affordable for the specific site, and encourages CAFOs to go beyond the minimum regulatory requirements. This type of program also offers opportunities for state and local partnerships to evaluate location-specific issues and develop targeted approaches.

A potential obstacle to implementing new technologies is the tension between a requirement that CAFOs comply immediately with BAT at the time of permit issuance, and the time that may be required to develop and implement a new technology. While immediate compliance may promote, in the short term, prompt implementation of BAT technologies, EPA is concerned that such a requirement can also discourage CAFOs from fully investigating and implementing alternative technologies that may be better than the baseline BAT technology. EPA is considering, as part of the Whole Farm Approach only, providing CAFOs who choose to implement whole-farm multimedia approaches under the alternative standards program additional time to implement and meet the alternative performance standards. In this way, EPA hopes to provide an incentive for CAFOs to implement whole-farm reductions in pollutant releases. EPA used a similar approach in the effluent guidelines for the pulp, paper, and paperboard industry. Facilities were required to meet BAT reflecting existing practice in the short-term in order to implement a more aggressive BAT (not economically achievable in the short-term) at a later date.

While EPA public recognition programs already exist, the Agency believes that it may also be appropriate to develop and implement a program unique to this industry as an incentive to invest in new technologies and whole-farm approaches to reducing pollutant releases. As part of a public recognition program, EPA could establish criteria under which CAFOs would qualify to receive public recognition on an annual basis. In addition to commitments leading to and achievement of the limits specified or additional reductions associated with a whole farm approach, such criteria would likely include some form of periodic compliance audit and could be structured to give CAFOs flexibility to implement an environmental management system approach. EPA would then recognize the qualifying CAFOs each year through a public event.

EPA solicits comment on the following: (1) The criteria and process that would be used under the Whole Farm Approach to demonstrate pollutant reductions equivalent to or better than the baseline BAT technology; (2) the appropriate methodology for translating the actions identified in the plan for the Whole Farm Approach into an NPDES permit limitation; (3) approaches for comparing the intermittent overflow discharge that would occur under the baseline BAT requirement to the whole-farm actions CAFOs propose to undertake; (4) the length of time CAFOs should be afforded to implement whole-farm pollutant reduction actions; and (5) the possible incentives described in this section for CAFOs implementing the Whole Farm Approach, the applicable criteria used to qualify for the incentives, the type of public recognition that would be afforded, and the frequency for recurring public recognition.

CAFOs interested in pursuing either alternative standards approach should have a good compliance history. The facility would also be expected to conduct an analysis of their operation (as described above in sections V.B. and V.C.) and prepare a proposed alternative program plan including the results of the analysis, the proposed method for implementing new technologies and practices, and the results demonstrating that these technologies and practices perform equivalent to or better than baseline BAT. This plan would be included with their permit application or renewal, and would be incorporated into the permit. EPA solicits comment on: (1) The process and criteria that should be used by CAFOs to apply and qualify for participation in the alternative performance standards program; (2) whether CAFOs that have a deadline for “future BAT” under an alternative performance standards program should have interim milestones incorporated in their permits towards meeting the ultimate BAT standard; (3) how the program should address CAFOs that volunteer to participate in the alternative standards program, yet later back out of the alternative standards program without implementing the changes outlined in their plan; (4) on the length of time that CAFOs should be afforded for development and implementation of the plan; and (5) what should the BAT basis be for requirements during the period of development of the alternative standards program (e.g., “existing effluent quality,” as EPA used for the pulp and paper effluent guidelines, or some other basis).

CAFOs potentially may derive substantial benefits from participation in the alternative standards approach, through greater flexibility in operation, increased good will of neighbors, reduced odor emissions, and potentially lower costs. EPA is also exploring opportunities for other possible incentives to encourage participation in this program. EPA solicits comment on the possible incentives discussed in this notice, and invites suggestions for other incentives that should be made available.

This section presents changes that EPA is considering to the methodology and underlying financial data that it uses to assess the economic effects of the final regulations to CAFOs. Many of these changes reflect comments and new data that EPA has obtained since proposal, which were broadly described in the 2001 Notice. Today, EPA presents additional information on the approach and data that would be used for an economic analysis of the final rule. Section V.A of this notice describes the modeling framework and changes being considered to assess financial effects to regulated CAFOs. Section V.B of this notice describes the financial data that EPA is considering using to depict baseline conditions at model CAFO facilities. Section V.C discusses preliminary results of analyses using these alternative data and approaches.

EPA expects the economic analysis for the final rule will retain the general modeling framework that the Agency used to assess economic effects for the proposed rule (see 66 FR 3079-3103), with the modifications discussed in the 2001 Notice (see 66 FR 58577-58591). The 2001 Notice describes a range of methodological changes and financial data EPA was considering using to improve its analysis. Today's notice provides further information on the specific changes being considered for the modeling framework and financial data EPA will use to analyze the regulatory options for the final rule.

The farm level analysis that supports the final rulemaking is expected to retain the same general framework used for the proposed rule. Specifically, financial impacts are assessed using a sales test, discounted cash flow analysis, and a debt-asset test. This evaluation is conducted using farm level financial data that are described in Section V.B of this notice and are available in EPA's record. These farm level data reflect income and cost information spanning an operation's primary livestock production, as well as secondary livestock and crop production, government payments, and other farm-related income. As conducted for the proposed rule, EPA would divide the resultant regulatory impacts into defined categories. Operations with estimated financial effects that are “affordable” or “moderate” would not be considered to be vulnerable to closure post-compliance and would, therefore, be considered to indicate economic achievability. Operations with estimated financial “stress” would be considered to be vulnerable to closure and may not be considered to indicate economic achievability, subject to other considerations.

To address public comments submitted to EPA on the overall analysis, EPA is considering making three general changes to its analytical framework at the farm level.

First, for the final analysis, EPA proposes to use a sales test that would use pre-tax incremental cost, as opposed to costs that take into account potential tax savings (post-tax), which was assumed at proposal. These pre-tax costs would be compared to total farm level revenues and that ratio would be used as an initial screener to determine the need for additional analysis using EPA's discounted cash and debt-asset tests.

Second, EPA is considering using alternate baseline debt and asset information for several livestock sectors (beef, heifer, veal, dairy, and hog) that EPA has obtained since proposal and is considering a change to the debt-asset threshold values that would indicate financial stress for these sectors. Consideration of alternative debt and asset data for these sectors is consistent with recommendations by National Cattlemen's Beef Association (NCBA), the National Milk Producers Federation (NMPF), and the National Pork Producers Council (NPPC) and other industry commenters. Data submitted to EPA by NCBA and the Food and Agricultural Policy Research Institute (FAPRI) during the comment period indicate that larger, more intensive, or expanding cattle feeding operations tend to carry more debt than that assumed by EPA for the proposal. (Average USDA-reported data cover a broader range of farm types and sizes, including small farms and non-confinement operations that are not covered by the regulations.) Financial data submitted by NCBA and FAPRI indicate that confinement operations with more than 1,000 AU have baseline debt-asset levels greater than the USDA-recommended 40 percent, ranging from 60 percent to more than 70 percent in the beef, dairy and hog sectors. Since USDA's recommended 40 percent benchmark value may not be suitable for assessing the larger confined cattle, dairy, and hog operations affected by EPA's regulations, EPA is considering using an alternate threshold value for its debt-asset test for these sectors. Based on recommendations by NCBA submitted to EPA since the proposal, EPA is considering an 80 percent threshold value to indicate financial stress (see information submitted by NCBA at DCN 375047 in the record). EPA requests comment on the use of an alternative benchmark, such as 80 percent, for these sectors, if alternative data are used. EPA also requests comment on the use of alternative debt and asset data for the cattle, dairy, and hog sectors. These data are available in the rulemaking record (see: DCN 175044 and DCN 175038). (Due to limited data, EPA will continue to use USDA-reported average debt and asset information for the poultry sectors (broiler, egg, and turkey) and will continue to assess changes in the debt-asset test for these sectors assuming a 40 percent benchmark, as was done in the analysis for the proposed rule.)

A third change being considered for the final analysis involves the use of time series data to project available financial data onto a 10-year time horizon for EPA's discounted cash flow analysis. For the proposed rule, EPA used data projections by USDA. As discussed in the 2001 Notice, many commenters disagree with the use of this data series as the basis for EPA's projections. To address these comments for the final analysis, EPA is considering using alternative timeline data from FAPRI (hog and poultry sectors), USDA (dairy sector), and NCBA (cattle sector) to project future earnings from the 1997 baseline data. A summary of these data and EPA's projected values based on these data is available for review at DCN 375084. The method that EPA uses to project the baseline data follows the approach used for the proposal analysis, as discussed in the Economic Analysis for the proposed rule.

For the final rule, EPA is considering expanding upon the analysis developed for the proposed rule by including an assessment of the financial effects on the enterprise level (e.g., an operation's livestock or poultry enterprise). This modeling change would address comments expressed by many commenters, including FAPRI, other land grant university researchers, and industry, as well as USDA, as discussed in the 2001 Notice (66 FR 58580-58582). These comments are supported by alternate enterprise level data that were submitted to EPA since proposal and presented in the 2001 Notice. An enterprise level analysis would recognize that a farm may be unwilling to cross-subsidize a continually failing livestock operation. Also, this approach would recognize that a failing enterprise with continuous cash flow problems would have limited access to financing for capital replacement and/or expansion, despite the health of the overall business. EPA is considering addressing this concern by including, as part of its final analysis, an assessment of changes in enterprise level profitability, in addition to the results of the farm level analysis. This analysis would be conducted using the enterprise level financial data described in Section V.B of this notice. A summary of these data are available at DCN 375084 in the rulemaking record.

Since the publication of the 2001 Notice, EPA has evaluated ways to incorporate an enterprise level analysis as part of its assessment. To evaluate enterprise level effects, EPA is considering using enterprise level net cash income to develop a discounted cash flow (DCF) estimate for each model enterprise over the 10-year time frame of the analysis. The net present value of cash flow is compared to the net present value of the total cost of the regulatory options. If the farm level analysis shows that the regulations impose “affordable” or “moderate” effects on the operation, the enterprise level analysis would be conducted to determine whether the enterprise's cash flow is able to cover the cost of regulations. Over the analysis period, if an operation's livestock or poultry enterprise maintains a cash flow stream that both exceeds the cash costs of the BAT option (operating and maintenance costs plus interest) and also covers the net present value of the principal payments on the capital, EPA would assume that the enterprise will likely not close due to the CAFO regulations. EPA is also considering whether to add some measure of capital replacement costs to both its farm and enterprise level cash flow analysis. This analysis would be conducted on a pass/fail basis. If the net present value of cash flow minus the net present value of the BAT costs is greater than zero, the enterprise passes the test and the enterprise is assumed to continue to operate. If the net present value of cash flow is not sufficient to cover the net present value of the cost of the regulations, EPA would assume that the CAFO operator would consider shutting down its livestock or poultry enterprise.

The enterprise level analysis would build on the farm level analysis, evaluating effects at a farm's livestock or poultry enterprise. If the operation shows farm level impacts that are “affordable” or “moderate,” then an enterprise level analysis is conducted to determine whether the operation's livestock or poultry enterprise remains viable. If enterprise level profitability remains positive over the period of the analysis, then the requirements would be determined to be economically achievable to the entire operation, as well as the livestock or poultry enterprise at the business. Enterprise level results would be presented in addition to estimated farm level effects (i.e., estimated farm impacts would comprise a subset of reported enterprise impacts) and both the farm and enterprise level results could be considered in determining economic achievability. Results indicating “affordable” or “moderate” farm level effects, but where enterprise level profitability is negative (i.e., the farm remains in business but the livestock or poultry enterprise at that business is discontinued) would be subject to further analysis before a final assessment is made. Operations that are determined to experience financial “stress” at the farm level would not be further evaluated because it is assumed that these facilities would go out of business. Additional information about this analysis is provided in the rulemaking record (DCN 375084).

A summary of other changes being considered for the economic models is as follows. First, EPA is considering expanding the range of cost estimates per representative farm to account for variability across operations based on expected capital and management improvements needed, using data from USDA. These data were discussed in the 2001 Notice (see 66 FR 58572-58573). This change, along with other changes to expand EPA's costing approach, would effectively increase the number of cost models in EPA's analysis from about 200 to approximately 1,600 representative models. Second, for reasons outlined in the 2001 Notice, EPA may not include a debt feasibility test as part of its analysis of the final rule because a down payment assumption is not necessary given EPA's joint analysis of debt-to-asset ratios and cash flow (see 66 FR 58583-58584).

EPA continues to review options to consider additional potential cost offsets as part of its final analysis, including available cost-sharing and technical assistance to farmers under various Federal, State and local conservation programs. In particular, at the Federal level, new farm bill legislation passed this spring by Congress may significantly raise government expenditures for USDA conservation programs. For example, total Environmental Quality Incentives Program (EQIP) authorization for FY 2002-2007 is $5.8 billion, ranging from $400 million to $1.3 billion per year over the period. This compares to current authorized levels of about $200 million per year. The new legislation targets 60 percent of available EQIP funds to livestock and poultry producers, including confinement and grass-based systems (the latter accounting for about 70 percent of total livestock and poultry operations). The new legislation also removed the previous eligibility requirements under EQIP that restricted funding for certain structural practices to operations with fewer than 1,000 animal units (as measured by USDA), replacing this with an overall payment limitation of $450,000 per producer over the authorized life of the 2002 Farm Bill. Under EQIP, cost sharing may cover up to 75 percent of the costs of certain conservation practices. The debate surrounding these increased funding levels included a focus on assisting producers to comply with environmental regulations.

EPA believes that this increased funding in EQIP and other USDA conservation programs may benefit farmers and offset compliance costs incurred by some facilities under the CAFO regulations by increasing farm access to government cost-share dollars and increased technical assistance. EPA is considering two approaches that would incorporate cost share assumptions as part of EPA's CAFO level analysis. One approach would assume that cost sharing would cover up to 75 percent of the estimated capital compliance costs, spread out over the 10 year period of the analysis. A second approach would be similar to that adopted for a previous USDA and EPA impact analysis of confined animal operations and would assume average per-farm cost share information, as reported by USDA, as an offset to estimated capital costs. EPA solicits comment on these possible approaches and requests additional information to incorporate cost share assumptions as part of EPA's CAFO level analysis. Specifically, EPA requests information on how to account for uncertainty about actual program funding levels and uncertainty about which producers would obtain these funds and in what amount.

EPA will also continue to evaluate expected broader market level changes and adjustments. EPA is considering adjustments to the approach used for the proposal analysis by instead utilizing predicted price and quantity changes from EPA's market model analysis. The market model output information would be used to adjust the baseline financial data that are assumed for EPA's CAFO level analysis. Such an approach is more consistent with previous regulatory analyses conducted by EPA's effluent guideline program ( e.g. : 65 FR 49686). EPA solicits comment on this modification to the approach used for proposal.

This section provides information specific to each animal sectors and describes the data that EPA is considering using, given the availability of financial data from a variety of sources. More detailed citations and the actual farm and enterprise level input data that EPA is proposing to use for its analyses are included in the rulemaking record, with a summary of these data available at DCN 375084.

EPA received many comments on the financial data used to estimate CAFO level effects for the proposed rule. For proposal, EPA incorporated only farm level financial data into its analysis. For the final regulations, EPA is considering using these farm level data for some animal sectors, substituting the 1997 USDA with other data received by EPA in conjunction with financial data specified at the enterprise level. This change in the approach and underlying data for the analysis is discussed in the 2001 Notice (see 66 FR 58585-58590). This section discusses the data that EPA is considering using for its final analysis.

For most sectors, EPA will continue to use available 1997 data from USDA reflecting financial conditions at the farm level, which EPA used for proposal. For two sectors—the cattle feeding and hog sectors—EPA is replacing the 1997 USDA data used for proposal with other data presented in the 2001 Notice. For cattle, EPA uses financial data provided by NCBA and FAPRI; for hogs, EPA uses farm level data from USDA. For the dairy and poultry sectors, EPA will continue to employ the 1997 USDA financial data used for proposal.

To address comments that criticize EPA's use of a single year of financial data to reflect baseline conditions, EPA is considering adjusting the financial data for the cattle, hog, and dairy sectors based on other available published data from USDA, FAPRI, and the land grant universities to average out conditions over multiple years. This approach involves incorporating other available data into the analysis to obtain average conditions over a multiple year time frame, as discussed in the 2001 Notice (see 66 FR 58590-58591). Due to lack of multiple years of financial data for the poultry sectors, EPA is not able to use this approach for those types of operations and is instead continuing to use a single year of data.

As discussed in the 2001 Notice, EPA is considering not using the farm level data used for the cattle feeding sector used in the proposed rule analysis because of USDA concerns that these data are reflective of cow-calf operations and are not suitable for evaluating impacts to cattle feeding operations (see 66 FR 58585-58587). Instead, for its final analysis of impacts to the cattle feeding sector, EPA is considering using financial data submitted by NCBA and FAPRI (see: DCN 175044 and DCN 175038).

For operations with more than 1,000 AU, EPA would use data provided by NCBA for operations with an average of 52,000 head. For operations with between 300 and 1,000 AU, EPA would use data submitted by FAPRI for a 500-head feedlot enterprise. For the purposes of EPA's analysis, and because of lack of additional available data, EPA assumes these data reflect baseline financial conditions for operations with fed cattle, veal, and heifers. Both the NCBA and FAPRI data represent enterprise level conditions. Farm level data are not available; therefore, EPA's analysis will assume that farm and enterprise conditions are the same. Information on EPA's rationale for selecting these data for its analysis is provided in the rulemaking record (DCN 375084).

To address recommendations that EPA average out baseline conditions to better account for year-to-year variability and pricing cycles (see 66 FR 58590), EPA uses the three years of survey data (1997-1999) provided by NCBA to calculate an average gross revenue value for its analysis using the sales test. Using the FAPRI data, which provides a 2000 base year along with several years of projected data (2000-2011), EPA uses the first 3-years of reported revenue (2000 to 2002) to obtain an average total revenue value. EPA uses average values to address recommendations expressed during the public comment period that EPA consider ways to depict financial conditions over multiple years, despite the availability of a single year of available data only in some cases (see 66 FR 58590).

Accounting for variability and changing conditions over multiple years is already incorporated into EPA's DCF analysis, which spans a 10-year time frame (1997-2006) and utilizes time series projections. This approach is consistent with that used for the 2001 proposal. For this analysis, EPA obtains net cash income estimates at both the farm and enterprise level for the base year (1997) from the available data. EPA uses NCBA data for 1997 for cattle operations with more than 1,000 AU; EPA derives a base year estimate from available FAPRI data for 2000, back-calculated to 1997 using the NCBA time series data.

EPA projects out the 1997 baseline data using NCBA-reported data on costs and returns to feedlot enterprises, expressed as dollars per marketed head to obtain a cash flow stream over the analysis period (1997 to 2006). NCBA's projection covers the 10-year analysis period, relying on historical data and pricing trends in the cattle cycle that correspond to the three years of data in their survey. EPA uses projected returns made by NCBA that were submitted to EPA, along with comments and alternate financial data on the proposed rule because both FAPRI and USDA baseline projections report net returns to cow-calf operations only, which do not correspond to cattle feeding operations that are affected by the regulations; other cattle sector projections provided by FAPRI do not cover the 1997-2006 time period for EPA's analysis. The method that EPA uses to project the baseline data follows the approach used for the proposal analysis, as discussed in the Economic Analysis supporting the 2001 proposal. From this projected cash stream, EPA estimates the net present value estimates for use in its DCF analysis. Additional information is available in the rulemaking record (DCN 375084).

For the debt-asset test, EPA is considering using FAPRI data on total assets and total liabilities for similar size operations in this sector, replacing USDA asset and liability data (used for proposal) with alternative FAPRI data. Use of these alternative data address concerns expressed during the public comment period about EPA's assumptions of baseline debt and equity conditions at CAFOs and the data on debt and assets assumed for the proposed rulemaking, as discussed in the 2001 Notice (66 FR 58582-58583).

A summary of the baseline financial data that EPA is considering using for its final analysis of this sector is available for review at DCN 375084.

For dairy operations, EPA is continuing to use the 1997 USDA farm level data that were used for the proposal analysis. However, USDA recently submitted alternative farm level data for dairy operations from a 2000 USDA survey of this sector that EPA is considering using. These data include farm and enterprise level data and are available for review at DCN 375085. For the enterprise level analysis, EPA is considering using financial data obtained during the comment period from FAPRI (DCN 175038), as presented in the 2001 Notice (66 FR 58588-58589). Information on EPA's rationale for selecting these data for its analysis is provided in the rulemaking record (DCN 375084).

To address recommendations that EPA average out baseline conditions to better account for year-to-year variability and pricing cycles (see 66 FR 58590), EPA would adjust the available 1997 gross income data prior to evaluating these data as part of EPA's sales test using published USDA cost and returns data for U.S. dairy operations, spanning 1993 to 2000. These national level data are used to create an index of 8 years of farm level financial data from which to project out 1997 gross sales data, producing an average 8-year revenue value.

Accounting for variability and changing conditions over multiple years is already incorporated into EPA's DCF analysis, which spans a 10-year time frame (1997-2006). This approach is consistent with that used for the 2001 proposal. For this analysis, EPA obtains net cash income estimates at both at the farm and enterprise level for the base year (1997) from the available data. At the farm level, EPA projects out the 1997 baseline data using USDA-reported net returns for the dairy sector to obtain a cash flow stream over the analysis period (1997 to 2006). At the enterprise level, EPA is considering using the 2000 net cash income for representative dairy operations submitted by FAPRI. The 2000 data are back calculated to 1997 and projected from 2000 to 2006 using the same USDA-reported net returns for the dairy sector used for farms. EPA continues to use USDA's projections because other available projections do not regularly report net returns per milk cow or cover the 1997-2006 time period for EPA's analysis. The method that EPA uses to project the baseline data follows the approach used for the proposal analysis. From this projected cash stream, EPA estimates the net present value estimates for use in its DCF analysis. Additional information is available in the rulemaking record (DCN 375084).

For the debt-asset test, EPA is considering using FAPRI data on total assets and total liabilities for similar size operations in this sector, replacing USDA asset and liability data (used for proposal) with alternative FAPRI data. Use of these alternative data address concerns expressed during the public comment period about EPA's assumptions of baseline debt and equity conditions at CAFOs and the data on debt and assets assumed for the proposed rulemaking, as discussed in the 2001 Notice (66 FR 58582-58583).

A summary of the baseline financial data that EPA is considering using for its final analysis of this sector is available for review at DCN 375084.

As discussed in the 2001 Notice, EPA is substituting the 1997 USDA data for hog operations used for proposal with other data obtained by EPA since proposal (see 66 FR 58587-58588). For the hog sector, EPA is not using the financial data that it used for the proposal analysis because of concerns expressed by USDA that 1997 data are not representative, because they reflect conditions where hog prices were unusually high. For the final analysis, EPA proposes to use alternate farm level and enterprise level data from USDA. These cover a broader range of hog production types, including both farm and enterprise level conditions across three types of operations: Independent owner-operator farrow-finish and farrowing operations, contract grow-finish operations, and independent grow-finish operations. Information on EPA's rationale for selecting these data for its analysis is provided in the rulemaking record (DCN 375084).

As anticipated by EPA in its 2001 Notice, initial data obtained by EPA from USDA were not readily analyzable by EPA and since the publication of the Notice, EPA has been working with USDA to resolve these issues and obtain additional data. Since the publication of the 2001 Notice, EPA has obtained data from USDA that report farm income excluding non-cash items that were included by USDA in the original submittal of these data. USDA's new submittal also includes corresponding farm level data. These data are available in the rulemaking record (DCN 375064).

To average the available baseline financial data over multiple years, EPA adjusts the 1998 data using published USDA cost and returns data for both farrow-finish and grow-finish operations. These data cover 1995 to 1999. For this analysis, EPA uses national level data to create an index to develop 5-years of farm level financial data from which to extrapolate the 1998 farm data. The 1998 data are extrapolated over the time frame by apportioning costs and revenues on the basis of changes in costs, revenues, and returns reported for 1995 through 1999. This type of adjustment is discussed in the 2001 Notice (66 FR 58590-58591) and addresses comments received on the proposal analysis by averaging out baseline conditions to better account for year-to-year variability and pricing cycles. Using this approach and USDA data, EPA obtains the average farm level revenue values that EPA uses for its sales test.

EPA's DCF analysis already incorporates changes over multiple years, spanning a 10-year time frame (1997-2006). This approach is consistent with that used for the 2001 proposal. However, net cash income reported by USDA for hog enterprises in 1998 continues to be negative in some cases. When these 1998 values were extrapolated to the 1995-1999 time period, as is done for the farm level data, cash flow on average over this 5-year period continues to be negative for some representative facilities. The primary reason for these negative income values is that 1998 was a year where hog prices dropped dramatically. At the farm level, USDA-reported net cash income is positive, although likely low when compared to other years.

Because of persistently negative net cash income due to 1998 market conditions in the hog sector, EPA is unable to readily analyze these data for its analysis and is considering additional modifications to the data obtained by USDA. The principal modification to these data by EPA would be the adjustment of these data to reflect expected price rather than actual price for 1998 and 1999. The approach that EPA proposes to use is based on an approach recommended by USDA Economic Research Service (ERS) personnel. This recommended approach uses price projections from USDA's World Agricultural Supply and Demand Estimates (WASDE) published in 1997 as an indicator of expected 1998 price level in the hog sector. Applying this approach provides an expected price of about $47 per hundredweight (cwt.) across all hog operations for that year, compared to the actual price of under $35 per cwt. reported in 1998. Adjustment of the original USDA data is necessary to avoid the need for EPA to regard these operations as baseline closures and remove them from the analysis.

EPA is considering using the resultant expected price for 1998 to adjust the enterprise level data provided to EPA by USDA. (EPA would not adjust USDA-reported farm level data since these data may be analyzed by EPA without adjustment.) Once the 1998 enterprise level data are adjusted, EPA would derive a base year estimate by back-calculating to 1997 using a 5-year index that EPA created based on the same USDA national level cost and returns data for farrow-finish and grow-finish operations from 1995 to 1999, as is used to extrapolate farm level revenues. EPA is proposing to replace the USDA reported data for 1998 and 1999 with EPA adjusted values based on the expected market prices during this period. EPA solicits comment on this approach. EPA has presented the results of these adjustments of the original data to USDA ERS personnel, who are reviewing the approach and resultant adjustments to these data. EPA would project out the 1997 baseline data using FAPRI timeline data of net returns for the hog sector to obtain a cash flow stream over the analysis period (1997 to 2006). From these data, EPA would estimate the net present value of expected cash flow for use in its DCF analysis. Additional information on EPA's adjustment of these data is available in the rulemaking record (DCN 375083).

For the debt-asset test, EPA is considering using FAPRI data on total assets and total liabilities for similar size operations in this sector, replacing USDA asset and liability data (used for proposal) with alternative FAPRI data. Use of these alternative data address concerns expressed during the public comment period about EPA's assumptions of baseline debt and equity conditions at CAFOs and the data on debt and assets assumed for the proposed rulemaking, as discussed in the 2001 Notice (66 FR 58582-58583).

A summary of the baseline financial data that EPA is considering using for its final analysis of this sector is available for review at DCN 375084.

For EPA's farm level analysis, EPA is continuing to use the 1997 USDA farm level data for broiler, egg layer, and turkey operations used by EPA for its proposal analysis. Since proposal, additional farm level data for these sectors have not been made available. EPA also continues to use USDA data on total assets and total liabilities for the debt-asset test, which EPA used for proposal. Despite concerns expressed during the public comment period about EPA's assumptions of baseline debt and equity conditions at CAFOs, EPA was not able to obtain alternate debt-asset information.

For the enterprise level analysis, EPA is considering using enterprise budget data collected by EPA from Oklahoma State University (contract broiler operations), North Carolina State University (contract turkey hen and turkey tom operation), and Iowa State University (independent-owner egg operation). These data are available in the rulemaking record (see: DCN 175024, DCN 375036, DCN 375048, and DCN 375049). Despite an extensive search of available data, EPA is unable to locate financial data that capture each of the possible types of poultry operations, including whether an operation is independently owned and operated or whether the operation raises animals under contract. Additional information on EPA's rationale for selecting these data for its analysis is provided in the rulemaking record (DCN 375084).

Because limited data are available that characterize conditions at farms that raise chickens and turkeys, EPA is not able to locate multiple years of financial data in order to average available data over a multiple year time frame. Therefore, EPA's analysis of the financial effects on broiler, egg, and turkey operations would be based on a single year of input data. Using available data, EPA obtains net cash income estimates at both the farm and enterprise level. EPA would project out the 1997 baseline data using FAPRI timeline data of net returns for the broiler, egg, and turkey sectors to obtain a cash flow stream over the analysis period (1997 to 2006). From these data, EPA would estimate the net present value of expected cash flow for use in its DCF analysis. Additional information is available in the rulemaking record (DCN 375084).

A summary of the baseline financial data that EPA is considering using for its final analysis of this sector is available for review at DCN 375084.

EPA's rulemaking record presents a summary of estimated total compliance costs by sector and technology option (pre-tax, 2001 dollars), which are relatively consistent compared to EPA's estimates for the proposed rule across the various technology options. EPA's rulemaking record also provides a comparison of the results at proposal with preliminary results using the data and methodological changes presented in today's notice. As anticipated by EPA in its 2001 Notice, the cumulative effect of each of the methodological changes and uses of alternative financial data for some sectors results in changes to EPA's estimate of the number of operations that may be vulnerable to closure post-regulation (66 FR 58580-58583).

EPA's preliminary results show that the inclusion of an enterprise level financial analysis does not significantly alter the results of EPA's overall analysis ( i.e. , the enterprise level results do not always differ substantially from the farm level results across all sectors). The use of alternative financial data in the beef and hog sectors, however, does result in changes in EPA's analysis compared to that conducted for the proposed rule, with more beef operations but fewer hog operations expected to experience financial stress from estimated compliance costs. These preliminary results, however, are not driven solely by changes to EPA's financial models but are also driven by underlying changes to EPA's engineering cost models. As discussed in the 2001 Notice, EPA is considering expanding the range of cost estimates per representative farm to account for variability across operations based on expected capital and management improvements needed (see 66 FR 58572-58573).

Overall, EPA's preliminary analysis results show that combined changes to EPA's cost and financial models and input data to address public comments do not result in significant changes to EPA's regulatory analysis compared to that conducted for proposal. More detailed information on the results of this analysis is provided in the rulemaking record (DCN 375084). These results are preliminary and subject to change, depending on ongoing refinements and corrections made to both EPA's cost and financial models and input data. In addition, these results do not yet consider potential longer-term market adjustment and structural adjustment by regulated facilities. These results also do not take into account potential cost offsets due to available cost share assistance, given increases in government expenditures and changes to program eligibility requirements under the new farm bill legislation.

FEMA proposes to make determinations of BFEs and modified BFEs for each community listed below, in accordance with Section 110 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and 44 CFR 67.4(a).

These proposed BFEs and modified BFEs, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own, or pursuant to policies established by other Federal, State, or regional entities. These proposed elevations are used to meet the floodplain management requirements of the NFIP and are also used to calculate the appropriate flood insurance premium rates for new buildings built after these elevations are made final, and for the contents in these buildings.

National Environmental Policy Act. This proposed rule is categorically excluded from the requirements of 44 CFR Part 10, Environmental Consideration. No environmental impact assessment has been prepared.

Regulatory Flexibility Act. The Acting Administrator for Federal Insurance and Mitigation Administration certifies that this proposed rule is exempt from the requirements of the Regulatory Flexibility Act because proposed or modified BFEs are required by the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and are required to establish and maintain community eligibility in the NFIP. No regulatory flexibility analysis has been prepared.

Regulatory Classification. This proposed rule is not a significant regulatory action under the criteria of Section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 12612, Federalism. This proposed rule involves no policies that have federalism implications under Executive Order 12612, Federalism, dated October 26, 1987.

Executive Order 12778, Civil Justice Reform. This proposed rule meets the applicable standards of Section 2(b)(2) of Executive Order 12778.

Accordingly, 44 CFR Part 67 is proposed to be amended as follows:

FEMA proposes to make determinations of BFEs and modified BFEs for each community listed below, in accordance with section 110 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and 44 CFR 67.4(a).

These proposed BFEs and modified BFEs, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own, or pursuant to policies established by other Federal, State, or regional entities. These proposed elevations are used to meet the floodplain management requirements of the NFIP and are also used to calculate the appropriate flood insurance premium rates for new buildings built after these elevations are made final, and for the contents in these buildings.

This proposed rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. No environmental impact assessment has been prepared.

The Acting Administrator for Federal Insurance and Mitigation Administration certifies that this proposed rule is exempt from the requirements of the Regulatory Flexibility Act because proposed or modified BFEs are required by the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and are required to establish and maintain community eligibility in the NFIP. No regulatory flexibility analysis has been prepared.

This proposed rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

This proposed rule involves no policies that have federalism implications under Executive Order 12612, Federalism, dated October 26, 1987.

This proposed rule meets the applicable standards of section 2(b)(2) of Executive Order 12778.

Accordingly, 44 CFR part 67 is proposed to be amended as follows:

The purpose of Standard No. 124, Accelerator Control Systems, 49 CFR 571.124, is to reduce deaths and injuries resulting from failures of a vehicle's accelerator control system. Since 1972, Standard No. 124 has specified requirements for ensuring the return of a vehicle's throttle to the idle position under each of the following circumstances: (1) When the driver removes the actuating force (usually the driver's foot) from the accelerator control (usually the accelerator pedal), and (2) when there is a severance or disconnection in the accelerator control system (“fail-safe” operation). Standard No. 124 applies to passenger cars, multipurpose passenger vehicles, trucks, and buses.

Standard No. 124 at S5.1 requires that each vehicle have “at least two sources of energy,” each independently capable of returning the throttle to the idle position, within the time specified in paragraph S5.3, from any accelerator position or speed whenever the driver removes the actuating force. The Standard defines the throttle as “the component of the fuel metering device that connects to the driver-operated accelerator control system and that by input from the driver-operated accelerator control system controls engine speed.”

Paragraph S5.2 requires that the throttle return to idle “whenever any one component of the accelerator control system is disconnected or severed at a single point.” This requirement must be met within the time specified in paragraph S5.3.

Paragraph S5.3 requires the throttle to return to idle within one second for vehicles with a gross vehicle weight rating (GVWR) of 10,000 pounds or less and within two seconds for vehicles with GVWRs greater than 10,000 pounds. The return-to-idle time is increased to three seconds for any vehicle that is exposed to ambient air at 0 degrees to −40 degrees Fahrenheit during the test or for any portion of a 12-hour conditioning period.

When originally promulgated, the definitions and requirements of Standard No. 124 were easy to apply because they were based on the then-universal mechanical control systems. The “throttle” of a gasoline engine was the carburetor shaft that opened and closed the air intake passages. The “throttle” of a diesel engine was the control rod or rack that controlled fuel flow to the high pressure injectors. The two energy sources were simply two return springs acting on the linkage between the accelerator pedal and the throttle. If at least one of those springs were connected directly to the carburetor or to the diesel fuel injection rack, it would cause the throttle to return to idle in the event of a disconnection of the pedal linkage. If the disconnection occurred at one of the springs, the other would permit continued driver control.

Since Standard No. 124 was issued, electronic engine controls using computer systems have become commonplace. Electronic accelerator linkages have become so common on large trucks that a mechanical accelerator linkage controlling a fuel injection rack is now rare on those vehicles. Already the norm for large trucks, fully electronic accelerator controls, or “throttle-by-wire” systems, have recently been introduced on light trucks and passenger cars. In these systems, the driver's pressure on the accelerator pedal is sensed electronically and is transmitted to the device on the engine which controls engine power.

The introduction of electronic systems led to questions about whether and how they were regulated by Standard No. 124. Isuzu Motors America, Inc. (Isuzu) wrote first, asking a variety of questions concerning electronic systems. Isuzu suggested that some of the language in the standard seemed more appropriate for mechanical accelerator systems than for electronic ones. Its central question was whether the standard applies to electronic systems. Among other questions, Isuzu asked whether a severance in electric wires in its electronic accelerator control system is a severance within the meaning of S5.2 of the standard. Isuzu expressed its belief that, because the electric wires were not a “moving part,” the answer should be no.

In an August 8, 1988 interpretation letter to Isuzu, NHTSA disagreed with Isuzu's position. NHTSA stated that the standard, which refers generally to accelerator control systems, instead of specifically to “mechanical” systems, applies to electronic accelerator control systems. The agency interpreted Standard No. 124's requirement that the throttle must return to idle “whenever any one component of the accelerator control system is disconnected or severed at a single point,” to include all severances or disconnections of any component of the accelerator control system as it is defined in the standard, not just disconnections of moving parts. NHTSA subsequently reiterated its position that Standard No. 124 applies to electronic accelerator controls in letters of November 9, 1988 to Caterpillar, Inc.; September 23, 1992 to Bendix Heavy Vehicle Systems; and August 7, 1996 to Philips Research Lab Aachen.

Although the agency has applied Standard No. 124 to electronic accelerator control systems on several occasions, manufacturers continue to question whether the Standard applies to these systems. One correspondent assumed, incorrectly, that since electronic accelerator control systems do not include springs and linkages beyond the pedal assembly as described in Standard No. 124, the electronic components of such systems were not regulated. Similarly, other correspondents have believed Standard No. 124 to mean simply that two return springs should be placed on the accelerator pedal assembly.

In response, the agency has recited in its interpretation letters the requirement that the sources of energy must be capable of returning the throttle to idle in the event of any single severance or disconnection. NHTSA noted that although the use of two springs on the pedal assembly may represent good pedal design, it does not intrinsically overcome a disconnection anywhere within an electronic accelerator control system. Good pedal design by itself does not provide an electronic accelerator control system with the same degree of fail-safe operation provided in a mechanical system by having a return spring directly on the throttle or fuel injection rack. The springs on the throttle or fuel injection rack in a traditional mechanical system could overcome an accelerator control disconnection and return the throttle to idle regardless of where in the system the disconnection occurred. In an electronic accelerator control system, disconnection or severance of the wiring between the pedal position sensor and the engine control processor, between the engine control processor and the throttle on the engine, and in the power and ground connections to the engine control processor are failures analogous to the disconnections of mechanical linkages. Those failures cannot be addressed by focusing solely on the pedal.

Some parties have recognized the analogy between wire severance or disconnection and mechanical linkage severance or disconnection but, because of the standard's lack of specificity, still found it necessary to ask whether the standard applies to short circuits of connecting wires as well as open disconnections.

The need for interpretation letters drawing analogies between traditional mechanical components and new electronic systems results from the present regulatory language that reflects the design of mechanical systems. Now that electronic accelerator controls are becoming increasingly commonplace, there is a growing need to revise Standard 124 to address electronic control systems explicitly. As an example, although the term “throttle” is not ambiguous for mechanical systems, it loses its clarity when applied to a diesel engine with electronically controlled fuel injectors because the functional throttle position is the product of the combined duty cycle of the engine's injectors and thus cannot be measured by observing the position of any single component. Regulatory language that specifically addresses “throttle” in the context of electronic controls systems would help make it explicit not only that Standard No. 124 applies to electronic control systems, but also how it applies to them.

We are also concerned that regulating electronic systems by drawing analogies to mechanical systems has the undesirable effect of limiting the permissible responses to failures in electronic systems to only the fail-safe modes that are possible with mechanical systems. The only response that the present standard recognizes for fail-safe performance is the return of the throttle exactly to the idle position. However, the real issue is the return of engine power to a benign idle state as a fail-safe response to a disconnection in the accelerator control system. Electronic engine controls can reduce the engine power through control of fuel pressure, spark timing, and other factors independent of throttle position. It is neither necessary nor desirable to limit the ways in which fail-safe performance can be achieved by electronic accelerator controls systems.

In a Request for Comments published in the Federal Register on December 4, 1995 (60 FR 62061), NHTSA introduced the subject of revising Standard No. 124 to add specific provisions for electronic accelerator controls. The notice asked for explanations of the principles of operation and fail-safe provisions of systems in use. It also presented for discussion the idea of identifying each potential failure mode of an electronic accelerator control system and a corresponding fail-safe requirement practicable for each failure mode, as well as the alternative idea of a redundant engine controller active only at the idle position of the accelerator pedal.

In general, the comments of vehicle and engine manufacturers did not address the specific questions in the notice. Instead, they voiced a preference for rescinding the standard altogether, suggesting that market forces and litigation pressure are sufficient to assure fail-safe performance without a Federal motor vehicle safety standard. However, they also commented that, should the agency disagree about rescission, a standard specifying fail-safe performance in the least design-specific terms would be preferable to the requirements suggested in the Request for Comments.

On May 20, 1997, NHTSA held a public technical workshop on electronic accelerator controls, with the participation of the Truck Manufacturers Association (TMA) and the organization then known as the American Automobile Manufacturers Association (AAMA). Both organizations made brief presentations about the general operating principles of electronic accelerator controls and emphasized that there had been no safety-related developments concerning electronic accelerator controls to justify applying Standard No. 124 to such systems, which they would consider an increase in the scope of the standard.

AAMA identified the following problems in defining the safety performance of electronic accelerator controls: How to define “idle”; how to define “severance” and “disconnection”; how to handle “limp home” strategies; how to specify a test procedure; and how to specify where in the engine management system disconnections and severances should be considered failures of the accelerator control system. TMA stressed that the idle speed is dependent on environmental and operating conditions and is somewhat variable by necessity; therefore, “return to idle” must refer to a range of operation identified by the manufacturer as appropriate for conditions and not simply as a throttle position.

During the meeting, we responded to these comments by stating that we were seeking neither to increase nor decrease the scope of Standard No. 124, but to have a standard that was clear and adequate in its application to electronic accelerator controls and that was as performance-oriented as possible. We agreed that existing electronic accelerator control systems appeared to be safe and that present regulation by analogy was inadequate only in its lack of clarity regarding its applicability and its exclusion of new fail-safe strategies. We invited the attendees, and especially the industry associations, to provide specific recommendations for regulatory text that would address the difficulties in updating Standard No. 124.

TMA and AAMA each submitted suggested regulatory text amending the Standard to accommodate electronic accelerator controls. Their comments, including their suggestions about text, may be viewed in the docket for the present notice. As discussed in the next section, our proposed revision of Standard No. 124 draws on their suggestions, but differs in several important ways.

In response to the industry's concerns, we seek to ensure that the scope of the proposed standard remains the same as that of the present standard. Nothing in this proposed rule intentionally changes the scope of Standard No. 124. For example, where the present standard applies only to single-point severances or disconnections such as the disconnection of one end of a throttle cable, the proposed standard also is limited to single-point severances and disconnections such as unhooking one electrical connector or cutting a conductor at one location. The proposal does not attempt to make the requirements more stringent by requiring fail-safe performance when multiple severances or disconnections occur simultaneously.

Electronic accelerator controls are more complex than mechanical accelerator controls. The revised standard in this proposal appears correspondingly more complex than the present standard, but the added regulatory text is for the purpose of greater specificity. Lack of specificity in the present standard has led some parties to believe that electronic accelerator controls are regulated less comprehensively than mechanical accelerator controls. This amendment also enhances design freedom and avoids greater burden on manufacturers by addressing types of accelerator controls other than mechanical air throttles and by allowing fail-safe strategies other than return of the air throttle to a mechanical stop.

The agency's view of the scope of the Standard differs from the suggestions made in 1997 by TMA and AAMA with regard to whether an electronic accelerator control system is comprised only of the pedal position sensor and its wiring to the input of the engine control module (ECM), or whether it extends beyond the ECM to include connections to the actual throttling device on the engine.

AAMA argued that the ECM itself should be considered the throttle. We do not agree with this position. We believe that the throttle is the air intake valve, or throttle plate (which is housed in the “throttle body”), for a conventional gasoline engine. In versions of this engine with mechanical accelerator controls, a cable or linkage that is clearly part of the accelerator control system operates the air intake valve. If the cable or linkage is disconnected at the air intake valve, the present standard requires the air intake valve to close by means of a spring or other source of energy. Versions of this engine with electronic accelerator controls have a similar throttle to which is added an electric actuator to open and close the air intake valve. If the electrical connection between the ECM and the electric actuator of the air intake valve were disconnected, no corresponding fail-safe action would be required in AAMA's view of the scope of the standard. This view is contrary to the analogies between mechanical and electronic systems that form the basis of the legal interpretations of the present standard.

The present standard refers to the accelerator control system in general terms, defining it in S4.1 as “all vehicle components, except the fuel metering device, that regulate engine speed in direct response to the movement of the driver-operated control and that return the throttle to the idle position upon release of the actuating force.”

In this proposed rule, we treat an accelerator control system (ACS), whether electronic or mechanical, as a series of linked components extending from the driver-operated control to the fuel metering device on the engine or motor. A severance at any one point in the system should not result in losing control of engine power. Electronic systems with wires, relays, control modules, and electric actuators joining the accelerator pedal to the throttle or injectors on the engine are analogous to mechanical systems in which levers, linkages, pivots, cables, and springs serve the same purpose. This definition also applies to an ACS that mixes mechanical and electronic components.

In a mechanical control system, it is reasonably clear which vehicle components comprise the ACS, and it is therefore not difficult to apply the definition used in the present standard. Electronic ACSs are less easily defined than mechanical ones because a variety of components can influence engine speed without being in the direct line of action between the accelerator pedal and the throttling device on the engine.

One possible approach to defining an electronic ACS would be to list in the standard exactly which components, connections, modules, etc., make up an ACS and are subject to the fail-safe requirements. This explicit approach would provide for a high degree of clarity, but would tend to produce a standard lacking flexibility. There is the possibility that any connective component omitted from specific mention in the standard would be excluded from regulation, whether intentionally or not.

The alternative regulatory approach, and the one that we have chosen to employ in the proposed standard, is to specify in general terms the connective components that are regulated. This general approach lends a high degree of flexibility to the standard by leaving open the possibility that the regulatory language can be adapted to new technology.

We agree with TMA and AAMA that there is no evidence of a new safety problem requiring an increase in the scope of Standard No. 124. Since the scope of the fail-safe requirements is still limited to the “connective components” of accelerator control systems, we believe the proposed standard adheres to the scope of the existing standard.

Nevertheless, this notice lists some common components of an ACS to illustrate the intent of the proposed standard and to make it clear that these components are considered part of the ACS. The following paragraphs list some of the connective components of electronic accelerator control systems subject to the fail-safe requirements of Standard No. 124, as well as elements of mechanical accelerator control systems always understood to be covered by Standard No. 124.

1. Connective Components of an Air or Fuel-Throttled Engine's ACS —For an air-or fuel-throttled engine, the critical connective components of the accelerator control system are: (1) The springs or other sources of energy that return the driver-operated control and the throttle to the idle position; (2) the linkages, rods, cables or equivalent components which are actuated by the driver-operated control; (3) the linkages, rods, cables or equivalent components which actuate the throttle; (4) the hoses which connect hydraulic or pneumatic systems within an accelerator control system; (5) the connectors and individual conductors in the electrical wiring which connect the driver-operated control to the engine control processor; (6) the connectors and individual conductors in the electrical wiring which connect the engine control module (ECM) to the throttle or other fuel-metering device; and (7) the connectors and individual conductors in the electrical wiring which connect the ECM to the electrical power source and electrical ground.

With regard to the ECM itself, the agency believes that an electronic accelerator control system necessarily includes the ECM as one component. However, we view the fail-safe requirements of the Standard as pertaining to the connective elements rather than the internal elements of the ECM. We agree with TMA and AAMA that internal elements of the ECM are analogous in function to the internal elements of a carburetor or fuel injection distributor, which have never been included in the fail-safe requirements of the Standard. The wiring and connectors between the pedal position sensor and the ECM, the wiring and connectors between the ECM and the physical fuel-metering device on the engine, and the power and ground connections to the ECM are all connective rather than internal elements.

2. Connective Components of an Electric Propulsion Motor —For an electric motor, the critical connective components of an accelerator control system are: (1) The springs or other sources of energy that return the driver-operated control and the motor speed controller to the idle position; (2) the linkages, rods, cables or equivalent components which are actuated by the driver-operated control; (3) the linkages, rods, cables or equivalent components which actuate the motor speed controller; (4) the hoses which connect hydraulic or pneumatic systems within an accelerator control system; (5) the connectors and individual conductors in the electrical wiring which connect the driver-operated control to the motor speed controller or motor control processor; (6) the connectors and individual conductors in the electrical wiring which connect the motor control processor to the motor speed controller; (7) the connectors and individual conductors in the electrical wiring which connect the motor control processor to the electrical power and electrical ground; and (8) the connectors and individual conductors in the electrical wiring from the motor speed controller to the electric traction motor.

At present, Standard No. 124's performance criteria are based on measuring the position of the “throttle,” which is defined as the component of the fuel metering device that connects to the driver-operated accelerator control to regulate engine power and speed. The advantage of this indicator of accelerator control operation is that it is simple to measure. The lag time of the actual change in engine power and speed, which can be considerable because it depends on engine characteristics such as compression and rotational inertia and test conditions such as load and temperature, does not complicate the determination of whether the throttle returns to idle within the required time. The typical throttle of a gasoline engine is the “butterfly” plate in the air intake.

However, the convenient measurement of throttle plate position, has no literal meaning for many engines other than conventional gasoline engines. For a modern diesel engine, the hydraulically actuated, electrically controlled unit injection (HEUI) fuel injectors function as multiple throttles, and for a vehicle powered by an electric motor, the motor speed controller is considered the throttle. For HEUI fuel injectors and for electric motor speed controllers, there is no observable component equivalent to a throttle that changes position when the accelerator control is operated.

Furthermore, electronic accelerator control systems now being installed on some gasoline engines have a spring-centered throttle plate. In the absence of an electrical signal at the throttle plate actuator, the spring-centered throttle opens much more than the usual idle position. In the event the electronic accelerator control is disconnected from the throttle plate actuator, these engines cannot satisfy the present fail-safe criterion that the “throttle return to the idle position.” On the other hand, engines of this design can accomplish the essential fail-safe performance of returning engine power to a satisfactory idle condition through spark timing control or other means. However, strategies other than throttle plate return would not be recognized as being in compliance under the present Standard. For these reasons, we propose alternative performance criteria to recognize the various ways in which a return to idle state power can be achieved.

Like the present Standard, the proposed Standard has return-to-idle time requirements for two operating conditions: (1) Normal operation of intact accelerator control systems, and (2) fail-safe operation in the event of a severance or disconnection in the accelerator control system. Regarding normal operation, the proposed Standard has retained return of the air throttle to the idle position as the criterion for air-throttled (gasoline) engines. The criterion is still valid for normal operation of engines with mechanical accelerator controls and also for air-throttled engines with electronic accelerator controls.

1. Diesel Engines —For diesels (and other fuel-throttled engines), this proposal accepts TMA's suggestion that the return of the fuel delivery rate (gallons/minute of fuel entering the combustion chambers of the engine) to the idle state be used as the return to idle criterion. For these engines, power is controlled directly by controlling the fuel flow. The result of rapidly returning the accelerator control to idle is a rapid return of the fuel rate to the steady idle rate without the lag required to see the effect on engine speed. In this respect, the fuel rate of fuel-throttled engines is much like the throttle position of air-throttled engines.

2. HEUI Injectors With Multiple “Throttles” —An engine with a HEUI injection system, now commonplace in commercial trucks, is potentially problematic with respect to return to idle criteria because it has multiple “throttles,” its individual HEUI injectors, which can operate independently of each other. This difficulty is overcome by using a measured fuel rate that combines the action of the individual injectors and represents the steady effect of all the injectors' dynamic duty cycles (percent open time or pulse width and frequency). It also solves the problem of the lack of a throttle reference position and thus provides a satisfactory return-to-idle indicant. For many trucks, a fuel rate signal that computes the combined effect of fuel pressure and fuel injector duty cycles is available as a diagnostic signal at the ECM. For engines without a reliable diagnostic signal, direct measurement of fuel flow in the supply and return lines would be necessary.

3. Electric Motors —For vehicles powered by electric motors, the electric power input at the drive motor (computed from voltage and current) can be used as the indicant of return-to-idle. This measurement represents the operation of the motor speed controller that, like an electronic fuel injector, is a throttle without a measurable reference position. Since propulsive power is directly proportional to the drive motor input current and voltage, this indicant is equivalent to throttle position.

4. Response Time Requirements Will Be Retained —AAMA suggested eliminating the response time requirements for return to idle in normal operation, but the agency has chosen to retain these requirements. The elimination of the requirements for normal operation was the subject of a prior NPRM (see 61 FR 19020; April 30, 1996) (No DOT Docket No.) which was withdrawn (see 62 FR 10514; March 7, 1997) (No DOT Docket No.). These requirements continue to protect against accelerator controls with poor operation due to mechanical friction.

In the case of fail-safe operation, electronic accelerator control systems can have a variety of ways of curtailing vehicle power in response to an accelerator control system failure. Our intent in the proposed Standard is to take advantage of those possibilities by establishing fail-safe criteria that are performance-oriented rather than design-oriented.

AAMA suggested a criterion for fail-safe behavior in the event of a disconnection or severance of the accelerator control system that is strictly performance based and applies to all forms of vehicle propulsion. That criterion was that the maximum time to return to the idle state in the presence of a single severance, disconnection, or short circuit not exceed the time to return to the idle state in the absence of any such fault by more than three seconds. AAMA further suggested that the engine RPM would be used as the idle state indicant for this test.

This suggested criterion appears to be simple and easily attainable because of the extra three seconds of reaction time, but it is actually a rigorous requirement and a difficult test to perform. We propose not to restrict the test to operation in neutral, as initially suggested by AAMA, because that restriction would neglect real driving safety. We propose that in order to adequately determine whether propulsive power is returned to the idle state, the appropriate time to be measured is the time for a whole vehicle to slow from any speed and power condition back to the speed at which the engine is at the idle RPM. It could easily take 60 seconds for a vehicle to slow from 70 mph to an idle speed of perhaps 20 mph as a result of simply lifting the driver's foot from the accelerator pedal. Random differences in the effect of wind and road surface alone make it unlikely that successive runs, even with a vehicle free of faults, would be repeatable within 3 seconds unless performed on an indoor dynamometer. Also, much of the deceleration is the result of engine braking (negative driving torque), and it is arguable that the safety purpose of the standard is satisfied by the cessation of driving torque alone as a fail-safe response.

In the proposed rule, we have included AAMA's suggested RPM test as performed on a dynamometer, in S6.4, as a compliance test of fail-safe performance, and have made it valid for any type of engine or motor. With the RPM test, the proposed standard includes a compliance test that is purely performance-based and independent of design. However, the RPM test is not the sole fail-safe test in the proposed standard because of the disadvantages just described. This is because there are several optional tests in addition to the RPM option for demonstrating fail-safe performance that, though their applicability depends on design, will be simpler and less burdensome to perform than the RPM test for most vehicles.

1. Alternative Fail-Safe Performance Tests for Air-Throttled Engines— For air-throttled engines, we propose three alternative tests. The first test is the return of the throttle plate to the idle position. This alternative is identical to the present standard and is the least burdensome test for many vehicles in current production. The second test alternative for air-throttled engines is return of the fuel rate to the idle state. For engines of this type, engine power cannot vary substantially from the idle state if the fuel rate is constrained to the value observed at the idle state. Thus, fuel rate is a reliable indicant that engine power is under control. The third test, the RPM test, can be used if neither of the other two tests is compatible with the vehicle's fail-safe design.

2. Alternative Fail-Safe Performance Tests for Fuel-Throttled Engines— Since fuel-throttled engines such as diesel engines may operate with excess air in the combustion chambers, neither the position of an air throttle, if one is present, nor the air intake rate would be an accurate indicant of engine power. Fuel rate, on the other hand, is an accurate and sufficient indicant of engine power for these engines. Consequently, we have included the same fuel rate criterion specified for normal operation of fuel-throttled engines as an optional test for fail-safe performance of those engines. This test was suggested by TMA for both normal and fail-safe operation. As stated above, the RPM test is the other option for these types of engines.

3. Alternative Fail-Safe Performance Tests for Electric Vehicles— For vehicles driven by electric motors, we are proposing that the normal operation criterion for measuring throttle return time of vehicles driven by electric motors, i.e., return of the drive motor electric power input to the idle state, be used as an optional test of fail-safe performance for these vehicles. Again, as stated above, the RPM test is the other option for these vehicles.

4. Alternative Fail-Safe Performance Tests for Hybrid Vehicles— For a hybrid vehicle with more than one type of propulsion system, the RPM test could be applied to the various propulsion systems working together. Alternatively, the fail-safe performance of the accelerator controls of each separate propulsion system could be demonstrated independently using either optional tests appropriate for each propulsion system or the RPM test.

While we propose alternative compliance options in order to minimize the burden on manufacturers, we are also proposing to require manufacturers to declare the option to which their compliance is certified before the agency performs any compliance test of its own. We have noted previously that when a safety standard provides manufacturers with more than one compliance option, the agency needs to know which option has been selected in order to conduct a compliance test.

We have had previous experience with enforcing standards having compliance options without an irrevocable election provision. A manufacturer may certify a vehicle based on one compliance option but subsequently, when confronted with an apparent noncompliance (based on a compliance test) consistent with that choice, argue that the compliance test is irrelevant because the vehicle complies with a different compliance option. Such a shift in the manufacturer's compliance stance would create obvious difficulties for the agency in managing its available resources for carrying out its enforcement responsibilities. By granting manufacturers the flexibility of compliance alternatives, the agency does not intend to impose upon itself an obligation to test each vehicle with each compliance option to determine whether the vehicle in fact complies with this standard.

To avoid this circumstance, we intend to compel manufacturers to inform the agency, when asked to do so, of the compliance option on which its certification is based. The agency will test the vehicle in accordance with that information and further will consider that choice irrevocable. We will consider that test to be prima facie proof of compliance or noncompliance, without regard to whether the vehicle may comply with another option the manufacturer was not intending to rely on. Further, we believe that a post hoc argument that a different option can apply raises serious questions about the manufacturer's compliance with its obligations under 49 U.S.C. 30115 to ensure, using reasonable care, that its certificate is neither false nor misleading.

TMA and AAMA advised the agency in their comments that the idle state is not fixed but varies according to a number of factors such as engine temperature, accessory load, and emission controls. It may not be possible for a manufacturer to specify absolute values for operating characteristics of the idle state like throttle opening, engine speed, and fuel rate because those characteristics can change according to conditions, e.g., if the engine is warming up or the vehicle's air conditioning is turned on. As a result, the idle state can vary over a limited range without any input from the accelerator pedal. The idle state also can be modified by speed setting devices such as cruise control. Further, some engines may now employ a “limp home” mode which can adjust engine operation to prevent stalling in the event of a malfunction and to provide enough power for a vehicle to be moved from an unsafe location.

For mechanical accelerator control systems, the current standard accommodates the existence of a range of idle states by allowing any idle position “appropriate for existing conditions.” Thus, in a traditional air-throttled engine in which the idle position is determined by a mechanical throttle stop, the throttle stop itself can change position as dictated by operating conditions. For example, it may move to a position of increased throttle opening when the engine is cold. For compliance testing, the throttle stop provides a convenient reference position that makes determination of compliance a simple matter.

In vehicles with electronic engine controls, there may be no reference position like a throttle stop. Therefore, it is necessary to establish a reference or baseline value for the idle state, whether it is measured by throttle position, fuel rate, RPM, or electrical power input. The standard could require that the manufacturer specify a value for the baseline, but it would be burdensome to have to obtain idle state data for each of the numerous possible combinations of operating conditions for each vehicle used in compliance testing.

Instead, it is easier and more practical to establish a baseline simply by measuring the initial value of the applicable idle state indicant (throttle position, fuel rate, RPM, electrical power input, etc.) at the beginning of a compliance test (i.e., immediately before the fault is induced). The initial value is an appropriate baseline because it accounts for whatever operating conditions exist. Further, it is a convenient baseline because it is measured directly at the time of the test, and does not depend on information provided by the vehicle manufacturer.

Once the baseline is established, the value of the idle state indicant at the end of the test should be expected to be the same as the baseline value established at the start of the test. Compliance is indicated by whether or not the idle state returns to the baseline value within the elapsed time specified in S5.3.

However, this approach only works if operating conditions such as engine temperature, ambient temperature, accessory load, etc., are constant during a test because on many vehicles there is no idle reference position that adjusts along with those conditions. On an electronic engine, idle state adjustments due to changes in operating conditions would likely take place in the internal circuitry of the ECM. Consequently, a noncomplying increase in idle state might be indistinguishable from a permissible one.

Because of this, the proposed standard specifies that operating conditions must be held constant during the test procedures. In a compliance test, the engine must be stabilized before the test and all accessory controls held constant so that any conditions that affect idle state do not change during the course of the test. In order to eliminate variations in engine idle that are not controlled by the driver, the engine will be operated long enough to release the cold start mechanism as well as to stabilize the emissions controls. The reference or baseline value is established by observing the value of the idle state indicant for an engine with a normally functioning accelerator control system. For normal operation, the idle state following any input to the accelerator pedal is compared to baseline value, and in fail-safe operation, the idle state following a disconnection in the accelerator control system is compared to the baseline value. Return to the baseline must occur within the specified time span. With the engine operating in a steady state with all accessory controls held constant, any difference in the “before and after” idle states could not be attributed to a change in operating conditions.

Limp home strategies allow for a temporary increase in idle speed to keep an engine from stalling as a result of certain malfunctions, and enhance safety and convenience by preserving limited mobility to get a partially disabled vehicle off the roadway. The test procedures for fail-safe performance identify the baseline idle state as the idle state for a vehicle without a fault in the accelerator control system (although the test could be run with faults in other engine systems). The test requirements do not allow the vehicle to comply if it is in a higher idle state at the end of the test because there would be no real fail-safe requirement. Whatever idle state resulted from a fault in the accelerator control system could be claimed as a limp-home mode induced by the fault. The question of compliance would be essentially rendered moot (although an unsafe idle condition might be considered a vehicle safety defect.)

Neither TMA nor AAMA discussed the possibility of manufacturers creating a limp home strategy specifically for accelerator control system faults such as disconnections and severances. However, the agency considered a hybrid vehicle, the Toyota Prius, which was designed with a “limp-off-the-road” mode for such faults. In this case, a disconnection of the pedal position sensor causes the electric traction motor to receive enough power to move the vehicle off the road. To assure safety, the power is removed upon any activation of the service brake.

We do not view this design as presenting a safety or compliance testing problem. Under the proposed test procedures, fail-safe performance tests would be conducted with the brake pedal (or brake lamp switch) depressed by the minimum amount necessary to cancel the limp-off-the-road idle state during introduction of accelerator control disconnections. We are proposing to include paragraph S5.4 in the Standard to permit limp-off-the-road idle states for accelerator control system faults, but only if they are canceled by any use of the service brake. We have chosen to refer to these as “limp-off-the-road” modes because we believe that term is a more accurate description of what their purpose should be, and also to distinguish them from “limp-home” modes that are designed to function in response to faults not involving the accelerator control system.

Under the proposed revised standard, electrical connections could be tested for disconnection of a whole connector and for the severance of each individual conductor in the wiring at the connector. Each conductor could be either left open or shorted to ground. This treatment is consistent with the prior agency legal interpretations of the standard relating to single point disconnections and severances in electronic accelerator control systems. (See NHTSA interpretation letter of August 8, 1988 to Isuzu Motors America, Inc.)

In the test procedures of the proposed regulatory text, “induce fault” refers to the act of disconnecting one component of the accelerator control system, or severing a single conducting wire to a component, or disconnecting or severing one mechanical linkage or spring within the accelerator control system.

At present, Standard No. 124 at S5.1 states that there shall be at least two sources of energy capable of returning the throttle to the idle position within the specified time limits from any accelerator position or speed, whenever the driver removes the opposing actuating force. S5.1 also specifies that, whenever one source of energy fails, the other shall fulfill the return-to-idle function.

In the past, springs have been the predominant sources of energy for return to idle. That appears to still be the case for accelerator pedal (treadle) assemblies of vehicles with electronic accelerator controls. These assemblies usually incorporate redundant springs. Such springs would be considered part of the accelerator control system under the proposed standard. Fail-safe operation would be tested by disconnecting a spring, just as it is tested in the existing standard. Although having two or more springs on the treadle is an effective countermeasure for instances where a spring disconnection occurs, it is not a sufficient condition to ensure return of the throttle to the idle state. Many vehicles now have electric motors, solenoids, or other devices to control the actual throttle on the engine. Redundant springs on the treadle could be rendered irrelevant if, e.g., the electrical connector to the treadle were disconnected. Under this proposal, fail-safe performance could be tested by disconnecting any single spring in the accelerator pedal or any single spring anywhere else in the ACS.

We believe that all sources of energy connected to the accelerator control system for throttle return, whether springs, solenoids, electric actuators, or other devices, should be treated uniformly as single components whose disconnection must not result in losing control of engine power.

Because the standard requires return to idle regardless of whether there are two sources of energy present, the current requirement may be considered somewhat redundant. Also, it is evident that many manufacturers will provide two or more springs on treadle assemblies whether there is an explicit requirement for it. Nevertheless, since we tentatively conclude that this requirement would continue to ensure that disconnection of one spring would not cause a runaway engine, we propose to retain it in Standard No. 124.

A significant concern in the regulation of ACS failures is that after a fault occurs, the engine should return to a benign power state very quickly, and should also stabilize at a benign condition. It would be unsafe for engine power to return only temporarily to a safe idle state and subsequently jump to a relatively high idle, even after a significant delay.

It is evident from agency tests that an engine with a fault in the ACS may return to or below the baseline idle state initially and within the specified time, but may not stabilize at or below the baseline. Rather, engine power can increase after the initial return to idle. Also, it is reasonable to expect that the idle level attained after fault introduction might be subject to fluctuation because current engines or motors operating in a fault condition might not always be able to achieve a smooth, uniform idle state. Engine operation might be rough, with speed oscillations and/or an elevated idle speed. These are not unexpected side effects when severances or disconnections occur, particularly in modern engines with electronic controls that might be capable of evoking a variety of control strategies to avoid stalling. Such variations in idle conditions may occur independently of any limp-off-the-road provisions built into the engine control system.

The current standard is silent regarding the need to remain at idle after returning to the idle state when a fault occurs. With traditional mechanical linkages, there was little or no reason to believe that an engine's fail-safe response would change after the first few seconds. The throttle's initial return to or below the idle position after fault introduction was thought to be a sufficient measure of performance, and there was no need to consider engine power behavior at any later instant.

The current standard does not allow for return to any condition that is above the idle state, even by a small amount. Further, it does not give any consideration to whether an elevated idle condition is benign or not. In the past, the prevalence of mechanical throttle systems made such considerations unnecessary because a broken accelerator control system generally was not capable of making adjustments in order to compensate for disconnections or severances.

With electronic engine controls, the situation has changed. Engine computers continuously monitor engine operation. When the computer recognizes a problem, it can adjust engine operation. Such adjustments may occur on a delayed basis. Thus, power output behavior of electronic engines can change over a period of seconds after a fault occurs. Even if an engine returns to a safe power level initially, there might be fluctuations in engine idle parameters. These fluctuations could periodically exceed the baseline idle state by a significant amount.

For example, in one agency test of a fuel-throttled diesel engine in a school bus (GTL Test No. 3473), in which a fault was introduced in the ACS by severing one of the wires between the accelerator pedal position sensor and the engine control module, the fuel rate signal returned very quickly (within 0.2 seconds) to an indicated rate approximately the same as the fuel rate at idle before the wire was severed. By itself, this result appeared to indicate that the vehicle's ACS met a safe level of performance. However, within one second after fault introduction, the fuel rate increased momentarily to a level (approximately 1.2 gallons/hour) that was 2.4 times the baseline value (approximately 0.5 gallons/hour). The indicated fuel rate stabilized at exactly the baseline rate or less only after about 3.4 seconds had elapsed after fault introduction.

In this example, the initial return of indicated fuel rate to zero was evidence that engine power had dropped to a safe level in response to the ACS fault. Since the fuel rate subsequently increased before two seconds had elapsed to a level greater than the baseline, it was necessary to look at the fuel rate behavior for a greater time interval after the fault was introduced to determine if the engine continued to operate at a safe power level. In this case, it did so after a few seconds.

We believe there is no safety reason why the engine power should not be allowed to vary as long as a relatively benign idle condition is achieved within the time specified in S5.3 of the existing standard and maintained. In this example, the engine did return to a benign power level, approximately equal to the baseline power level at idle, within the prescribed time and it also did stabilize, after several seconds, at exactly the baseline level.

In order to address issues relating to stabilization of the idle state, we believe it is appropriate to require return to an idle state that is reasonably close to the baseline idle state, even if not identical to it, by specifying a tolerance which, when applied to the baseline, defines a maximum safe idle condition while also providing for some reasonable amount of variation.

We are proposing to permit a 50 percent increase from the idle state in fail-safe operation. That is, the idle state achieved after fault introduction must not be any more than 50 percent greater than the baseline idle state as determined prior to fault introduction. This level of tolerance would accommodate the kind of engine behavior such as speed fluctuations that the agency observed in tests that were conducted for the purpose of updating Standard No. 124. It would also eliminate the need to either lengthen the allowable time to return to idle in S5.3 or to specify an allowable delay before a complete return to the baseline idle state is achieved in a compliance test.

We are also proposing to require that an engine must remain at the idle state, within the 50 percent tolerance, after initially returning to or below that level following a disconnection or severance. That is, an engine or motor cannot be considered to comply if it returns to an acceptable idle state only temporarily and then increases to a relatively high power level. Under this proposal, the engine would be required to remain at the idle state indefinitely. This requirement would also prevent random or periodic fluctuations in idle state that are large enough to significantly exceed the baseline idle state, even though the idle state might be within compliance during portions of the oscillations. We do not believe this requirement expands Standard No. 124's scope because we believe that a requirement to remain at idle fulfills exactly the same safety need as the requirement to initially return to idle, and it is, in fact, implied in the existing standard.

To measure fuel rate, engine RPM, or electric power, the 50 percent tolerance would be calculated by multiplying the baseline value of the measured quantity by 1.5. To measure the air throttle position, the percent opening is the ratio of throttle plate angular displacement to its full travel. It is calculated by dividing the angular displacement to its full travel. The percent opening would be calculated by dividing the angular displacement of the throttle plate relative to its fully closed position by the angular displacement of the wide open throttle relative to fully closed.

The above described definition of “percent throttle opening” is included in the “Definitions” section of the proposed Standard. As an example, a throttle plate that is designed to rotate 80 degrees from its fully closed position to its fully open position would be considered 20 percent open when rotated 16 degrees from its fully closed position. If a baseline idle position for this throttle at given idle state conditions were measured to be 8 degrees from the fully closed position, then the 50 percent tolerance would be 4 degrees. Thus, the maximum opening following fault inducement in S6.3.4 and the release of the throttle in S6.3.5 would be 12 degrees from the fully closed position.

We propose that the new standard apply to passenger cars, multipurpose passenger vehicles, trucks and buses manufactured on or after the first September 1st that occurs two or more years after the publication of the final rule. Public comment is sought on this proposed lead time. We believe that two years is sufficient lead time for industry since we do not believe that compliance with this proposed rule would involve any new technology, or performance specifications that manufacturers cannot meet with existing design, tooling, or manufacturing capabilities. We further believe that conducting the proposed test procedures would not involve any new technologies or procedures that manufacturers would find difficult to conduct. Since this rulemaking would not make any substantive changes in the scope of Standard No. 124, manufacturers or passenger cars, multipurpose passenger vehicles, trucks or buses would not need to make any changes in vehicle manufacturing processes or procedures to ensure that their vehicles meet Standard No. 124.

Executive Order 12866, “Regulatory Planning and Review” (58 FR 51735, October 4, 1993), provides for making determinations whether a regulatory action is “significant” and therefore subject to Office of Management and Budget (OMB) review and to the requirements of the Executive Order. The Order defines a “significant regulatory action” as one that is likely to result in a rule that may:

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

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

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

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

We have considered the impact of this rulemaking action under Executive Order 12866 and the Department of Transportation's regulatory policies and procedures. This rulemaking document was not reviewed by the Office of Management and Budget under E.O. 12866, “Regulatory Planning and Review.” The rulemaking action is also not considered to be significant under the Department's Regulatory Policies and Procedures (44 FR 11034; February 26, 1979).

The purpose of the proposed revision of Standard No. 124, Accelerator control systems , is to specifically clarify the requirements as they apply to “non-mechanical” accelerator control systems, and not an expansion of the present requirements. These proposed requirements were developed with the agency working in concert with the motor vehicle industry, to prevent interpretation problems that have been associated with the present standard. Therefore, there are no new costs involved with the proposed revisions, and a regulatory evaluation has not been prepared.

Executive Order 13132 requires us to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, we may not issue a regulation with Federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or unless we consult with State and local governments, or unless we consult with State and local officials early in the process of developing the proposed regulation. We also may not issue a regulation with Federalism implications and that preempts State law unless we consult with State and local officials early in the process of developing the proposed regulation.

This proposed rule would not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. The reason is that this proposed rule, if made final, would apply to motor vehicle manufacturers, and not to the States or local governments. Thus, the requirements of Section 6 of the Executive Order do not apply to this proposed rule.

Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any rule that: (1) Is determined to be “economically significant” as defined under E.O. 12866, and (2) concerns an environmental, health or safety risk that NHTSA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, we must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by us.

This proposed rule is not subject to the Executive Order because it is not economically significant as defined in E.O. 12866 and does not involve decisions based on environmental, health or safety risks that disproportionately affect children.

Pursuant to Executive Order 12778, “Civil Justice Reform,” we have considered whether this proposed rule would have any retroactive effect. We conclude that it would not have such an effect. Under 49 U.S.C. 30103, whenever a Federal motor vehicle safety standard is in effect, a State may not adopt or maintain a safety standard applicable to the same aspect of performance which is not identical to the Federal standard, except to the extent that the state requirement imposes a higher level of performance and applies only to vehicles procured for the State's use. 49 U.S.C. 30161 sets forth a procedure for judicial review of final rules establishing, amending or revoking Federal motor vehicle safety standards. That section does not require submission of a petition for reconsideration or other administrative proceedings before parties may file suit in court.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq. , as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996) whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effect of the rule on small entities (i.e., small businesses, small organizations, and small governmental jurisdictions). However, no regulatory flexibility analysis is required if the head of an agency certifies the rule would not have a significant economic impact on a substantial number of small entities. SBREFA amended the Regulatory Flexibility Act to require Federal agencies to provide a statement of the factual basis for certifying that a rule would not have a significant economic impact on a substantial number of small entities.

The Head of the Agency has considered the effects of this rulemaking action under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) and certifies that this proposal would not have a significant economic impact on a substantial number of small entities. The statement of the factual basis for the certification is that since this rulemaking would not make any substantive changes in the scope of Standard No. 124, small manufacturers of passenger cars, multipurpose passenger vehicles, trucks or buses would not need to make any changes in vehicle manufacturing processes or procedures to ensure that their vehicles meet Standard No. 124. Accordingly, the agency believes that this proposal would not affect the costs of motor vehicle manufacturers considered to be small business entities.

We have analyzed this proposal for the purposes of the National Environmental Policy Act and determined that it would not have any significant impact on the quality of the human environment.

NHTSA has determined that, if made final, this proposed rule would not impose any “collection of information” burdens on the public, within the meaning of the Paperwork Reduction Act of 1995 (PRA). This rulemaking action would not impose any filing or recordkeeping requirements on any manufacturer or any other party. For this reason, we discuss neither electronic filing and recordkeeping nor do we discuss a fully electronic reporting option by October 2003.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272) directs us to use voluntary consensus standards in our regulatory activities unless doing so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies, such as the Society of Automotive Engineers (SAE). The NTTAA directs us to provide Congress, through OMB, explanations when we decide not to use available and applicable voluntary consensus standards.

After conducting a search of available sources (including data from International Organization of Standards or other standards bodies), we have determined that there are not any available and applicable voluntary consensus standards that we can use in this notice of proposed rulemaking. We have searched the SAE's Recommended Practices applicable to accelerator control systems. We found SAE J1843 Accelerator Pedal Position Sensor for Use with Electronic Controls in Medium and Heavy-Duty Vehicle Applications APR93, the purpose of which is to “provide a common electrical and mechanical interface specification that can be used to design electronic accelerator pedal position sensors and electronic control systems for use in medium and heavy-duty vehicle applications.” However, the specifications in this SAE Standard are limited to the pedal position sensor and a connector-pin diagnostic. It does not provide guidance on the entire accelerator control system. Since the SAE Standard does not provide guidance on an issue material to this rulemaking, we have developed our own proposal.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires Federal agencies to prepare a written assessment of the costs, benefits and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local or tribal governments, in the aggregate, or by the private sector, of more than $100 million in any one year (adjusted for inflation with base year of 1995). Before promulgating a NHTSA rule for which a written statement is needed, section 205 of the UMRA generally requires us to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows us to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if we publish with the final rule an explanation why that alternative was not adopted.

This proposal would not result in costs of $100 million or more to either State, local, or tribal governments, in the aggregate, or to the private sector. Thus, this proposal is not subject to the requirements of sections 202 and 205 of the UMRA.

After reviewing the provisions of this NPRM pursuant to OMB's Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility, and Integrity of Information Disseminated by Federal Agencies (“Guidelines”) issued by the Office of Management and Budget (OMB) (67 FR 8452, Feb. 22, 2002) and prepared, in draft form, by the Department of Transportation (DOT) (67 FR 21319, Apr. 30, 2002), NHTSA has determined that if made final, nothing in this rule would result in “information dissemination” to the public, as that term is defined in the Guidelines.

If a determination were made that public distribution of data resulting from this rule, constituted information dissemination and was, therefore, subject to the OMB/DOT Guidelines, then the agency would review the information prior to dissemination to ascertain its utility, objectivity, and integrity (collectively, “quality”). Under the Guidelines, any “affected person” who believed that the information ultimately disseminated by NHTSA was of insufficient quality could file a complaint with the agency. The agency would review the disputed information, make an initial determination of whether it agreed with the complainant, and notify the complainant of its initial determination. Once notified of the initial determination, the affected person could file an appeal with the agency.

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

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

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

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

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

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

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

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

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

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

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

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

1. Go to the Docket Management System (DMS) Web page of the Department of Transportation ( http://dms.dot.gov/ ).

2. On that page, click on “search.”

3. On the next page ( http://dms.dot.gov/search/ ), type in the four-digit docket number shown at the beginning of this document. Example: If the docket number were “NHTSA-1998-1234,” you would type “1234.” After typing the docket number, click on “search.”

4. On the next page, which contains docket summary information for the docket you selected, click on the desired comments. You may download the comments. Although the comments are imaged documents, instead of word processing documents, the “pdf” versions of the documents are word searchable.

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

In consideration of the foregoing, it is proposed that the Federal Motor Vehicle Safety Standards (49 CFR Part 571), be amended as set forth below.