This proposal is issued under Marketing Agreement and Order No. 993, both as amended (7 CFR part 993), regulating the handling of dried prunes produced in California, hereinafter referred to as the “order.” The marketing agreement and order are effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

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

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

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with 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.

This proposal invites comments on changes to the undersized regulation in § 993.49(c) of the prune marketing order for the 2004-05 crop year for volume control purposes. The regulation removes prunes passing through specified screen openings. For French prunes, the screen opening would be increased from 23/32 to 24/32 of an inch in diameter; and for non-French prunes, the opening would be increased from 28/32 to 30/32 of an inch in diameter. This rule would remove the smallest, least desirable of the marketable size dried prunes produced in California from human consumption outlets. This rule would be in effect from August 1, 2004, through July 31, 2005, and was unanimously recommended by the Committee at a December 11, 2003, meeting.

Section 993.19b of the prune marketing order defines undersized prunes as prunes, which pass freely through a round opening of a specified diameter.

Section 993.49(c) of the prune marketing order establishes an undersized regulation of 23/32 of an inch for French prunes and 28/32 of an inch for non-French prunes. These diameter openings have been in effect for quality control purposes. Section 993.49(c) also provides that the USDA upon a recommendation of the Committee may establish larger openings for undersized dried prunes whenever it is determined that supply conditions for a crop year warrant such regulation.

Section 993.50(g) states in part: “No handler shall ship or otherwise dispose of, for human consumption, the quantity of prunes determined by the inspection service pursuant to § 993.49(c) to be undersized prunes.” * * * Pursuant to § 993.52 minimum standards, pack specifications, including the openings prescribed in § 993.49(c), may be modified by the USDA on the basis of a recommendation of the Committee or other information.

Pursuant to the authority in § 993.52 of the order, § 993.400 modifies the undersized prune openings prescribed in § 993.49(c) to permit undersized regulations using openings of 23/32 or 24/32 of an inch for French prunes and 28/32 or 30/32 of an inch for non-French prunes.

During the 1974-75 and 1977-78 crop years, the undersized prune regulation was established by USDA at 23/32 of an inch in diameter for French prunes and 28/32 of an inch in diameter for non-French prunes. These diameter openings were established in §§ 993.401 and 993.404, respectively (39 FR 32733, September 11, 1974; and 42 FR 49802, September 28, 1977). In addition, the Committee recommended and USDA established volume regulation percentages during the 1974-75 crop year with an undersized regulation at the aforementioned 23/32 and 28/32 inch diameter screen sizes. During the 1975-76 and 1976-77 crop years, the undersized prune regulation was established at 24/32 of an inch for French prunes and 30/32 of an inch for non-French prunes. These diameter openings were established in §§ 993.402 and 993.403, respectively (40 FR 42530, September 15 1975; and 41 FR 37306, September 3, 1976). The prune industry had an excess supply of prunes—particularly small size prunes. Rather than recommending volume regulation percentages for the 1975-76, 1976-77, and 1977-78 crop years, the Committee recommended the establishment of an undersized prune regulation applicable to all prunes received by handlers from producers and dehydrators during each of those crop years.

The objective of the undersized prune regulations during each of those crop years was to preclude the use of small prunes in manufactured prune products such as juice and concentrate. Handlers could not market undersized prunes for human consumption, but could dispose of them in nonhuman outlets such as livestock feed.

With these experiences as a basis, the marketing order was amended on August 1, 1982, establishing the continuing quality-related regulation for undersized French and non-French prunes under § 993.49(c). That regulation has removed from the marketable supply those prunes which are not desirable for use in prune products.

As in the 1970's, the prune industry is currently experiencing an excess supply of prunes, including the smaller sizes. During the 1998-99 crop year, an undersized prune regulation was established at 24/32 of an inch for French prunes, and 30/32 of an inch for non-French prunes. These diameter openings were established in § 993.405 (63 FR 20058, April 23, 1998).

With larger than desired carryin inventories and a 1999-2000 prune crop of about 172,000 natural condition tons, the Committee unanimously recommended continuing with an undersized prune regulation at 24/32 of an inch in diameter for French prunes and 30/32 of an inch in diameter for non-French prunes. These diameter openings were established in § 993.406 (64 FR 23759, May 4, 1999) and made effective from August 1, 1999, through July 31, 2000, or until the undersized prunes from that crop year were disposed of as required.

Because carryin inventories were larger than desired and the 2000-01 prune crop was expected to be about 203,000 natural condition tons, the Committee unanimously recommended continuing with an undersized prune regulation at 24/32 of an inch in diameter for French prunes and 30/32 of an inch in diameter for non-French prunes. These diameter openings were established in § 993.407 (65 FR 29945, May 10, 2000) and made effective from August 1, 2000, through July 31, 2001, or until the undersized prunes from that crop were disposed of as required.

Because supplies were expected to remain excessive in 2001-02, the Committee again unanimously recommended continuing with an undersized prune regulation at 24/32 of an inch in diameter for French prunes and 30/32 of an inch in diameter for non-French prunes. These diameter openings were established in § 993.408 (66 FR 30642, June 7, 2001) and made effective from August 1, 2001, through July 31, 2002, or until the undersized prunes are disposed of under the marketing order.

With supplies expected to remain excessive in 2002-03, the Committee again unanimously recommended continuing with an undersized prune regulation at 24/32 of an inch in diameter for French prunes and 30/32 of an inch in diameter for non-French prunes. These diameter openings were established in § 993.409 (67 FR 31717, May 10, 2002) and made effective from August 1, 2002, through July 31, 2003, or until the undersized prunes are disposed of under the marketing order.

Because supplies were not expected to remain excessive in 2003-04, the Committee did not recommend continuing with the undersized regulation from August 1, 2003 through July 31, 2004.

For the 1998-99 crop year, the carryin inventory level reached a record high of 126,485 natural conditions tons. Excessive inventories tend to dampen producer returns, and cause weak marketing conditions. The carryin for the 1999-2000 crop year was reduced to 59,944 natural condition tons. This reduction was due to the low level of salable production in 1998-99 (about 102,521 natural condition tons and 50 percent of a normal size crop) and the undersized prune regulation. The carryin for the 2000-01 crop year increased to 65,131 natural condition tons. This increase was due to a larger 1999-2000 crop size of about 171,754 natural condition tons and reduced shipments during the 1999-2000 crop year. The carryin for the 2001-02 crop year increased to 100,829 natural condition tons. This increase was due to a larger 2000-01 crop size of about 214,803 natural condition tons and a modest increase in shipments from a severely reduced shipment base during the 1999-2000 crop year. The carryin for the 2002-03 crop year decreased to 63,536 natural condition tons. This decrease was due to a smaller 2001-02 crop size of about 142,151 natural condition tons and a modest decrease in shipments from the shipment base during the 2000-01 crop year.

According to the Committee, the desired inventory level to keep trade distribution channels full while awaiting the new crop has ranged between 35,353 and 42,071 natural condition tons since the 1996-97 crop year while the actual inventory has ranged between 59,944 and 126,485 natural condition tons since that year. The desired inventory level for early season shipments fluctuates from year-to-year depending on market conditions.

At its meeting on December 11, 2003, the Committee unanimously recommended continuing an undersized prune regulation at 24/32 of an inch in diameter for French prunes and 30/32 of an inch in diameter for non-French prunes during the 2004-05 crop year for supply management purposes. This regulation would be in effect from August 1, 2004, through July 31, 2005, or until the undersized prunes from 2004-05 are properly disposed of as required under the marketing order.

The Committee estimated that there would be an excess of about 25,925 natural condition tons of dried prunes as of July 31, 2004. This proposed rule would remove primarily small-sized prunes from human consumption channels, consistent with the undersized prune regulation that was implemented for the 1998-99, 1999-2000, 2000-01, 2001-02, and 2002-03 crop years. As mentioned earlier, an undersized prune regulation was not implemented last crop year (2003-04). It is estimated that approximately 4,300 natural condition tons of small prunes would be removed from human consumption channels during the 2004-05 crop year as a result of this rule. This would leave sufficient prunes to fill domestic and foreign trade demand during the 2004-05 crop year, and provide an adequate carryout on July 31, 2005, for early season shipments until the new crop is available for shipment. According to the Committee, the desired inventory level to keep trade distribution channels full while awaiting the 2004-05 crop is about 39,000 natural condition tons.

In its deliberations, the Committee reviewed statistics reflecting: (1) A worldwide prune demand which has been relatively stable at about 260,000 tons; (2) a worldwide oversupply that is expected to continue growing this decade (estimated at 305,115 natural condition tons by the year 2007); (3) a continuing oversupply situation in California caused by decreased shipments and continued large production from the plantings during the 1990's with higher yields per acre (between the 1990-91 and 2000-01 crop years, the yields ranged from 1.2 to 2.6 versus a 10-year average of 2.1 tons per acre); (4) California's continued excess inventory situation; and (5) low producer prices.

The production of these small sizes ranged from 1,335 to 8,778 natural condition tons during the 1991-92 through the 2002-03 crop years. The Committee concluded that it has to resume utilizing the undersized prune volume regulation in order to accelerate the return to a more balanced supply/demand situation in the interest of the California dried prune industry. In addition, the Committee supported other efforts to reduce burdensome supplies through an industry-funded tree removal program that was initiated in the fall of 2001. Through this program, over 4,700 bearing acres of prune plum trees were removed. At the request of the Committee, the USDA implemented a USDA funded tree removal program, wherein growers would be encouraged to remove prune plum trees. Through the USDA tree removal program, 13,248 bearing acres of prune plums were removed. While the industry successfully removed over 18,000 bearing acres of prune plum trees through the USDA and industry tree removal programs, prune production still exceeds demand.

Adding to the U.S. oversupply of prunes are imports of prune juice, which increased by 45 percent last year. The proposed change to the undersized regulation for the 2004-05 crop year will help bring supplies more in line with market needs.

Despite these supply management efforts, the industry's oversupply plight may continue over the next few years due to new prune plantings in recent years with higher yields per acre. These plantings have a higher tree density per acre than the older prune plantings. During the 1990-91 crop year, the non-bearing acreage totaled 5,900 acres; but by 1998-99, the non-bearing acreage had quadrupled to more than 26,000 acres. The non-bearing acreage has subsequently been reduced to 9,000 acres during the 2002-03 crop year. The 1996-97 through 2003-04 yields have ranged from 1.3 to 2.6 tons per acre. Over the last 10-years, the average was 2.3 tons per acre.

The 2003-04 dried prune crop is reported at 176,000 natural condition tons by the National Agricultural Statistics Service (NASS). The Committee is expecting another large crop of prunes during the 2004-05 crop year because of new bearing acreage coming into production and higher average yields.

Since the late 1990's, producers have not been able to recover the costs of drying, hauling, and paying the State of California producer promotion expenses on every ton of size 24/32 diameter dried prunes they delivered. The 1997-98 crop year producer prices for 24/32 of an inch in diameter French prunes were about $40-$50 per ton. This is about $260-$270 per ton below the cost of drying a ton of 24/32 diameter French prunes at a 4 to 1 dry-away ratio, the cost of hauling the prune/plums from the orchard to the dehydrator, and the assessments paid by producers under the California marketing order for promotion. During the 2003-04 crop year, producer prices are expected to be about $40 per ton for the 24/32 of an inch diameter French prunes, which is about $249 per ton below the cost of drying, hauling, and State promotion expenses. Low producer prices for all sizes of dried prunes are expected to continue until the prune supply and demand come more closely into alignment.

The intent of this proposal is to eliminate small sizes which have limited economic value, help reduce excess prune inventories, and to improve producer returns. Average producer returns currently are below the cost of production and the proposal would assist in enhancing returns.

The 1998-99, 1999-2000, 2000-01, 2001-02 and 2002-03 undersized prune rules of 24/32 of an inch for French prunes and 30/32 of an inch for non-French prunes have expedited the reduction of small prune inventories, but more needs to be done to bring supplies into balance with market demand. The excess inventory on July 31, 2003, was 32,619 natural condition tons. As noted earlier, during the 2003-04 crop year, the Committee did not implement an undersized prune volume regulation. The Committee believes that the same undersized prune regulation that was implemented for the 1998-99, 1999-2000, 2000-01, 2001-02 and 2002-03 crop years should be implemented during the 2004-05 crop year to continue reducing the inventories of small prunes, to help reduce the expected large 2004-05 prune crop, and more quickly bring supplies in line with demand. Attainment of this goal would benefit all of the producers and handlers of California prunes.

The recommended decision of June 1, 1981 (46 FR 29271) regarding undersized prunes states that the undersized prune regulation at the 23/32 and 28/32 inch diameter size openings would be continuous for the purposes of quality control even in above parity situations. It further states that any change ( i.e. increase) in the size of those openings would not be for the purpose of establishing a new quality-related minimum. Larger openings would only be applicable when supply conditions warranted the regulation of a larger quantity of prunes as undersized prunes. Thus, any regulation prescribing openings larger than those in § 993.49(c) should not be implemented when the grower average price is expected to be above parity. The season average price received by prune growers ranged from 32 percent to 54 percent of parity during the 1995 through 2002 seasons. As discussed later, the average grower price for prunes during the 2004-05 crop year is not expected to be above parity, and implementation of this more restrictive undersized regulation would be appropriate in reference to parity.

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

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

There are approximately 1,100 producers of dried prunes in the production area and approximately 22 handlers subject to regulation under the marketing order. Small agricultural producers are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $750,000, and small agricultural service firms are defined as those whose annual receipts are less than $5,000,000.

An updated industry profile shows that 8 out of 22 handlers (36.4 percent) shipped over $5,000,000 worth of dried prunes and could be considered large handlers by the Small Business Administration. Fourteen of the 22 handlers (63.6 percent) shipped under $5,000,000 worth of prunes and could be considered small handlers. An estimated 32 producers, or less than 3 percent of the 1,100 total producers, would be considered large growers with annual incomes over $750,000. The majority of handlers and producers of California dried prunes may be classified as small entities.

As recommended by the Committee, this proposed rule would establish an undersized prune regulation of 24/32 of an inch in diameter for French prunes and 30/32 of an inch in diameter for non-French prunes for the 2004-05 crop year for volume control purposes. This change in regulation would result in more of the smaller-sized prunes being classified as undersized prunes and is expected to benefit producers, handlers, and consumers. The larger screen openings that were in place for 2002-03 are the same as proposed for 2004-2005 and are expected to remove 4,300 tons of dried prunes from the excess marketable supply.

The Committee estimates carryout inventories on July 31, 2004, to be 64,626 tons. This is 25,925 tons greater than desirable carryout inventories. This amount of inventory reflects a serious supply-demand imbalance in the industry. In addition, average 2003-04 grower prices are reported at $730 per ton by NASS and are lower than for the 2002-03 year, when growers received an average of $810 per ton. The $730 average grower price is substantially below total cost of production of $1,141 per ton and the total variable cost of production of $838 per ton, based on a 2001 study by the University of California Cooperative Extension reflecting a 2.5 ton production per acre in Sacramento County. 1 This means that most producers may not be earning sufficient returns to cover fixed costs. Some producers will continue to operate in the short run as long as prices are above variable costs, but others will begin to cease production in the longer run if prices do not recover to levels above total variable costs.

Tree removal programs (industry and federal) have been implemented by the industry. These programs have been successful in removing over 18,000 bearing acres from production, thus reducing marketable production. Even with these tree removal programs, total available supply is estimated at 224,626 tons for the 2004-05 crop year (marketable production estimated at 160,000 tons and 64,626 tons of carryin inventories). Total demand is estimated to not exceed 167,769 tons, resulting in carryout inventories of 56,857 tons. This remains in excess of desirable inventories of 39,000 tons.

Inventories of this magnitude have a significant depressing impact on grower payments. Growers do not receive payments until inventories are completely sold. The costs of maintaining these inventories are deducted from grower payments.

An undersized prune regulation would remove about 4,300 tons from the total available supply. An econometric model shows that an undersized prune rule resulting in eliminating 4,300 tons from marketable production would strengthen growers' prices modestly by $7.59 per ton. This price is still expected to be less than the cost of production for 2004-2005 estimated at $1,141 per ton.

Because the benefits and costs of the proposed action would be directly proportional to the quantity of 24/32 screen French prunes and 30/32 screen non-French prunes produced or handled, small businesses should not be disproportionately affected by the proposal. While variation in sugar content, prune density, and dry-away ratio vary from county to county, they also vary from orchard to orchard and season to season. In the major producing areas of the Sacramento and San Joaquin Valleys (which account for over 99 percent of the State's production), the prunes produced are homogeneous enough that the proposal should not be viewed as inequitable by large and small producers in any area of the State.

The quantity of small prunes in a lot is not dependent on whether a producer or handler is small or large, but is primarily dependent on cultural practices, soil composition, and water costs. The cost to minimize the quantity of small prunes is similar for small and large entities. The anticipated benefits of this rule are not expected to disproportionately impact small handlers or producers. The only additional costs on producers and handlers expected from the increased openings would be the disposal of additional tonnage (now estimated to be about 4,300 tons) to nonhuman consumption outlets. These costs are expected to be minimal and would be offset by the benefits derived by the elimination of some of the excess supply of small-sized prunes.

At the December 11, 2003, meeting, the Committee discussed the financial impact of this change on handlers and producers. Handlers and producers receive higher returns for the larger size prunes. Prunes eliminated through the implementation of this rule have very little value. As mentioned earlier, the current situation for producers is quite bleak with producers expecting to lose $249 on every ton of small-sized prunes delivered to handlers during the 2004-05 crop year. Producer prices for 24/32 screen French prunes are expected to be $40 per ton for the 2003-04 crop year. The cost of drying a ton of such prunes is $260 per ton with a 4 to 1 dry-away ratio, transportation from the orchard to the dehydrator is at least $20 per ton, and the producer assessment paid to the California Prune Board (a body which administers the State marketing order for promotion) is $9.33 per ton for a total cost of about $289.33 per ton. Thus, a producer could save about $249 per ton by not drying prune plums and not delivering dried prunes 24/32 of an inch in diameter to handlers.

Utilizing data provided by the Committee, USDA has evaluated the impact of the proposed undersized regulation change upon producers and handlers in the industry. The analysis shows that a reduction in the marketable production and handler inventories could result in higher season-average prices, which would benefit all producers. The removal of the smallest, least desirable of the marketable dried prunes produced in California from human consumption outlets would eliminate an estimated 4,300 tons of small-sized dried prunes during the 2004-05 crop year from the marketplace. This would help lessen the negative marketing and pricing effects resulting from the excess inventory situation facing the industry. California prune handlers reported that they held 71,320 tons of natural condition prunes on July 31, 2003, the end of the 2002-03 crop year. The 71,320 ton year-end inventory is larger than what is desired for early season shipments by the prune industry. The desired inventory level is based on an average 12-week supply to keep trade distribution channels full while awaiting new crop dried prunes. Currently, it is about 39,000 natural condition tons. This leaves a 2003-04 inventory surplus of about 32,000 tons. The undersized regulation will help reduce the surplus, but the anticipated large 2004-05 prune crop is expected to continue the supply imbalance.

As the marketable dried prune production and surplus prune inventories are reduced through this proposal, and producers continue to implement improved cultural and thinning practices to produce larger-sized prunes, continued improvement in producer returns is expected.

For the 1994-95 through the 2002-2003 crop years, the season average price received by the producers ranged from a high of $1,040 per ton in the 1995-1996 crop year to a low of $726 per ton during the 2001-02 crop year. The season average price received by producers during that 7-year period ranged from 32 percent to 54 percent of parity. Based on the latest available data, the season average producer price for the 2004-05 season is expected to be near the 2003-04 season's price, which is projected to be $730 per ton.

The Committee discussed alternatives to this change, including making no changes to the undersized prune regulation and allowing market dynamics to foster prune inventory adjustments through lower prices on the smaller prunes. While reduced grower prices for small prunes are expected to contribute toward a slow reduction in dried prune inventories, the Committee believed that the undersized rule change is needed to accelerate that reduction. A second alternative discussed was to advance to a 25/32 screen undersized regulation for French prunes. However, handlers expressed concern that this would reduce the amount of manufacturing prunes (approximately 4,000 tons) available for the manufacture of prune juice and concentrate. This could increase the prices of these products. The first initiative was not supported because it would not specifically eliminate the smallest, least valuable prunes, which are in oversupply.

This action would not impose any additional reporting or recordkeeping requirements on either small or large California dried prune handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

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

In addition, the Committee's meeting was widely publicized throughout the prune industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the December 11, 2003, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. The Committee itself is composed of twenty-two members. Seven are handlers, fourteen are producers, and one is a public member. Moreover, the Committee and its Supply Management Subcommittee are monitoring the supply situation, and this proposed rule reflects their deliberations. 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: 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.

The Committee requested a comment period through April 23, 2004, to allow interested persons to respond to this proposal. This comment period should give the Committee time to observe the bloom period during the spring and industry shipment trends during the year and allow sufficient time to comment to the Department concerning any changes that are deemed appropriate. All written comments timely received will be considered before a final determination is made on this matter.

For the reasons set forth in the preamble, 7 CFR part 993 is proposed to be amended 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 shall 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.

Submit comments using the following format:

• Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues.

• For each issue, state what specific change to the proposed AD is being requested.

• Include justification ( e.g. , reasons or data) for each request.

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 2001-NM-316-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, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2001-NM-316-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056.

On June 28, 2000, the FAA issued AD 2000-13-09, amendment 39-11808 (65 FR 41871, July 7, 2000), applicable to certain Saab Model SAAB 2000 series airplanes, to require repetitive detailed visual and dye penetrant inspections of certain areas of the backup struts in the left and right nacelles to detect discrepancies; and corrective actions, if necessary. That action was prompted by issuance of mandatory continuing airworthiness information by a foreign civil airworthiness authority. The requirements of that AD are intended to prevent failure of the backup struts in the left and right nacelles due to fatigue cracking, which could result in loss of fail-safe redundancy in the design of the nacelle in terms of load capability, and consequent separation of the engine from the airplane and subsequent reduced controllability of the airplane.

The preamble to AD 2000-13-09 explains that we were considering further rulemaking for the requirements, which constituted “interim action.” We now have determined that further rulemaking is indeed necessary; this proposed AD follows from that determination. The manufacturer has improved the design and manufacturing of the backup struts, which will improve their fatigue strength.

Further, although previous investigation indicated the possibility of cracking in the upper area of the backup strut, no cracks were found in that area. The manufacturer consequently determined that inspection of the upper strut area is unnecessary.

The manufacturer has issued Saab Service Bulletins (SBs) 2000-54-024 and 2000-54-025, both dated September 7, 2001. SB 2000-54-025 describes procedures for repetitive fluorescent dye penetrant inspections for cracks of the lower areas of the backup struts of the left and right nacelles around the welding in the pipe and in the attachment fitting. Corrective actions include incorporating SB 2000-54-024, which describes procedures for replacing—with new, improved parts—the backup struts in the electrical and hydraulic bays in the nacelles. SB 2000-54-025 provides operators the option of contacting Saab for repair instructions. Replacement of all four backup struts eliminates the need for the repetitive inspections. The Luftfartsverket (LFV), which is the airworthiness authority for Sweden, classified these SBs as mandatory and issued Swedish airworthiness directive 1-165, dated September 10, 2001, to ensure the continued airworthiness of these airplanes in Sweden.

This airplane model is manufactured in Sweden and is type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, the LFV has kept the FAA informed of the situation described above. We have examined the findings of the LFV, reviewed all available information, and determined that AD action is necessary for products of this type design that are certificated for operation in the United States.

Since an unsafe condition has been identified that is likely to exist or develop on other airplanes of the same type design registered in the United States, the proposed AD would supersede AD 2000-13-09 to require repetitive fluorescent dye penetrant inspections for cracks of the lower ends of the nacelle backup struts. The proposed AD would also require immediate corrective action if necessary and eventual replacement of the backup struts with new, improved struts, which would terminate the repetitive inspections. The actions would be required to be accomplished in accordance with the SBs described previously, except as discussed below.

SB 2000-54-025 and the Swedish airworthiness directive specify a compliance time for the inspection of 1,650 flight hours after the last inspection. We instead provide varying compliance times intended to ensure that all airplanes—regardless of inspection status or number of flight hours since the last inspection—would be inspected in a timely manner.

Although SB 2000-54-025 specifies that operators may contact the manufacturer for disposition of certain repair (cracking) conditions, this proposed AD would not allow this option but would require operators to replace cracked struts in accordance with SB 2000-54-024.

Although SB 2000-54-025 recommends that operators send Saab a report of the inspection results, this proposed AD would not require a report.

We have reviewed the figures we have used over the past several years to calculate AD costs to operators. To account for various inflationary costs in the airline industry, we find it necessary to increase the labor rate used in these calculations from $60 per work hour to $65 per work hour. The cost impact information, below, reflects this increase in the specified hourly labor rate.

This proposed AD would affect about 3 airplanes of U.S. registry.

The proposed inspection of the lower ends of the backup struts would take about 4 work hours per airplane, at an average labor rate of $65 per work hour. Based on these figures, the cost impact of this proposed action on U.S. operators is estimated to be $780, or $260 per airplane, per inspection cycle.

Replacing all four backup struts would take about 80 work hours per airplane, at an average labor rate of $65 per work hour. Required parts would cost about $165,416 per airplane. Based on these figures, the cost impact of this proposed action on U.S. operators is estimated to be $511,848, or $170,616 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

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

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 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 document 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 mailed comments submitted in response to this proposal must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. 95-SW-30-AD.” The postcard will be date stamped and returned to the commenter.

On December 11, 1995, the FAA issued AD 95-26-05, Amendment 39-9463, Docket No. 95-SW-30-AD (60 FR 66488, December 22, 1995), for Robinson Model R44 helicopters. AD 95-26-05 superseded AD 95-04-13, Amendment 39-9165, Docket No. 95-SW-12-AD, issued February 23, 1995 (60 FR 11611, March 2, 1995). AD 95-04-13 superseded Priority Letter AD 95-02-04, Docket No. 95-SW-08-AD, issued January 12, 1995. AD 95-26-05 requires revisions to the Limitations, the Normal Procedures, and the Emergency Procedures sections of the R44 RFM. These revisions limit operations in certain winds and turbulence; provide information about M/R stall and mast bumping; and provide recommendations for avoiding these situations. Additionally, emergency procedures are provided for use should certain conditions be encountered. AD 95-26-05 reduces the limitations required by the superseded ADs for pilots who have the flight experience specified in AD 95-26-05 and who have completed the SFAR No. 73 training.

Since issuing AD 95-26-05, an FAA Technical Panel (TP) met on April 30, 1996, and recommended that AD 95-26-05 be rescinded. Recommendation Number 1 in the TP Executive Summary states: “Rescind AD 95-26-05 (restricting operations of the R44 in high wind and turbulence) based upon the results of the R44 Rotor Decay and Blade Flapping Survey conducted in July and August 1995 and the pilot workload reduction afforded by mandatory in-flight use of the throttle governor in all R44 helicopters.” AD 96-11-09, Amendment 39-9634, Docket No. 95-SW-32-AD issued May 15, 1996 (61 FR 26427, May 28, 1996), prohibits flight with the governor “off” except for in-flight system malfunctions or emergency procedures training. The TP recommended rescission has been pending for over 7 years. No additional incidents or accidents have occurred that are due to M/R stall or mast bumping at abnormally low M/R revolutions-per-minute, flight in high winds, or flight in turbulence that indicate that the limitations imposed by AD 95-26-05 are still needed.

After reviewing the available data, the FAA has determined that it is appropriate to rescind AD 95-26-05 to eliminate unnecessary limitations and procedures. The limitations and procedures imposed by that AD are no longer needed to correct an unsafe condition.

This proposed action would rescind AD 95-26-05. Rescission of AD 95-26-05 would constitute only such action and if followed by a final action would not preclude the agency from issuing another action in the future nor would it commit the agency to any course of action in the future.

The FAA estimates that 515 helicopters of U.S. registry are affected by AD 95-26-05 and that it would take approximately 1/2 work hour per helicopter to accomplish the actions at an average labor rate of $65 per work hour. Based on these figures, the total cost impact of the AD on U.S. operators is estimated to be $16,738. However, adopting this proposed rescission would eliminate those costs.

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

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 economic 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 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 will be considered before taking action on the proposed rule. The proposals contained in this document 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 mailed comments submitted in response to this proposal must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. 2003-SW-40-AD.” The postcard will be date stamped and returned to the commenter.

The Direction Generale De L'Aviation Civile (DGAC), the airworthiness authority for France, notified the FAA that an unsafe condition may exist on Model EC 155B and B1 helicopters equipped with ASU board 10 Alpha 2, part number (P/N) SE07451. The DGAC advises that a landing gear did not extend in “NORMAL” and “EMERGENCY” extension modes due to a short-circuit between two components of the ASU board 10 Alpha 2.

ECF has issued Alert Telex No. 31A005R1, dated September 19, 2002, and Alert Service Bulletin (ASB) Nos. 31A005 and 31A008, both dated August 20, 2003. The Alert Telex and ASB No. 31A005 describe procedures for modifying the electrical circuit to preclude the risk of the landing gear not extending in the normal and emergency extension modes following failure of the ASU board 10 Alpha 2. ASB No. 31A008 describes procedures to enhance the reliability of the normal and emergency landing gear extension functions by separating their power supplies. The DGAC classified these service bulletins as mandatory and issued AD Nos. 2002-515(A) R1 and 2003-323(A), both dated September 3, 2003, to ensure the continued airworthiness of these helicopters in France.

These helicopter models are manufactured in France and are type certificated for operation in the United States under the provisions of 14 CFR 21.29 and the applicable bilateral agreement. Pursuant to the applicable bilateral agreement, the DGAC has kept the FAA informed of the situation described above. The FAA has examined the findings of the DGAC, reviewed all available information, and determined that AD action is necessary for products of these type designs that are certificated for operation in the United States.

This previously described unsafe condition is likely to exist or develop on other helicopters of these same type designs registered in the United States. Therefore, the proposed AD would require the following:

• Within 15 hours time-in-service (TIS), clean the ASU board 10 Alpha 2.

• Within 30 days, either modify the wiring and wiring harness permanently or temporarily. If you elect the temporary modification, install a self-adhesive placard with the following text in white letters on a red background:

“CAUTION: ON GROUND OPERATION OF EMERGENCY LANDING GEAR PUMP IS TIME LIMITED —SEE OPERATING LIMITATIONS.”

Also, insert the following text into the Operating Limitations section of the RFM:

“Limit the emergency landing gear pump (pump) to 10 minutes of continuous operation.

When the pump is continuously operated from 1 to 5 minutes, allow it to cool for 15 minutes before further use.

When the pump is continuously operated from 5 to 10 minutes, allow it to cool for 30 minutes before further use.”

• Within 10 months, modify the wiring and wiring harness.

• Remove the temporary placard, if installed, and the limitations from the RFM.

The actions would be required to be accomplished following the service bulletins described previously. Permanently modifying the wiring and wiring harness and removing the temporary placard and operating limitations would be terminating actions for the requirements of this AD.

The FAA estimates that this proposed AD would affect 5 helicopters of U.S. registry. The modifications of the electrical system would take approximately 11 work hours per helicopter to accomplish at an average labor rate of $65 per work hour. Required parts would cost approximately $400 per helicopter. Based on these figures, the total cost impact of the proposed AD on U.S. operators would be $5,575.

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

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 economic 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 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 both docket numbers (FAA Docket No. FAA-2003-16722, and Airspace Docket no. 03-AWP-19) and be submitted in triplicate to the Docket Management System ( see ADDRESSES section for address and phone number). You may also submit comments through the Internet at http://dms.dot.gov.

Commenters wishing the FAA to acknowledge receipt of their comments on this action must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to FAA Docket No. FAA-2003-16722, and Airspace Docket No. 03-AWP-19.” The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this action may be changed in light of comments received. All comments submitted will be available for examination in the public docket 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.

An electronic copy of this document may be downloaded through the Internet at http://dms.dot.gov. Recently published rulemaking documents can also be accessed through the FAA's Web page at http://www.faa.gov, or the Federal Register 's Web page at http://www.gpoaccess.gov/fr/index.html.

You may review the public docket containing the proposal, any comments received and any final disposition in person in the Dockets Office (see ADDRESSES section for address and phone number) between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. An informal docket may also be examined during normal business hours at the office of the Regional Air Traffic Division, AWP-520, 15000 Aviation Boulevard, Lawndale, CA 90261.

Persons interested in being placed on a mailing list for future NPRM's should contact the FAA's Office of Rulemaking, (202) 267-9677, for a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) part 73 (part 73) to revise and expand the dimensions of the current San Onofre MOAs over the Camp Pendleton, CA, area. The USMC has requested these changes because the existing special use airspace does not permit essential large-scale amphibious assault activities (including artillery live-fire, fixed-wing close air support, and remotely operated aircraft operations).

The existing restricted areas over Camp Pendleton are R-2503A, extending from the surface up to 2000 feet mean sea level (MSL); R-2503B, extending from the surface up to 15,000 feet MSL; and R-2503C, extending from 15,000 feet MSL to FL 270. These areas will not be changed. The San Onofre High and Low MOAs lie adjacent to the restricted areas from 2,000 feet MSL up to, but not including 8,000 feet MSL. This proposed amendment would convert the San Onofre High and Low MOAs, and the associated CFA to R-2503D, which would extend from 2,000 feet MSL up to 11,000 feet MSL. The San Onofre MOA and CFA designations would be revoked.

The time of designation for R-2503D would be intermittent by NOTAM 24 hours in advance, and limited to a maximum use of 20 days per year from 0600 to 2400 hours local time, and no more than 90 days per year between 0001 and 0600 local time. The restricted area would be available for joint-use and scheduled for training operations on an as needed basis subject to the maximum use limits.

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 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.

This proposal will be subject to the appropriate environmental analysis in accordance with FAA Order 1050.1D, Policies and Procedures for Considering Environmental Impacts, prior to any FAA final regulatory action.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 73 as follows:

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP; Washington, DC 20224. Comments on the collection of information should be received by May 25, 2004. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information ( see below);

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in this proposed regulation is in § 1.1397E-1(h). This collection of information is required by the IRS to verify compliance with section 1397E. This information will be used to identify issuers of qualified zone academy bonds that have established a defeasance escrow as a remedial action taken because of failure to satisfy certain requirements of section 1397E. The collection of information is required to obtain or retain a benefit. The likely respondents are states or local governments that issue qualified zone academy bonds.

Estimated total annual reporting burden: 3 hours.

Estimated average annual burden hours per respondent: 30 minutes.

Estimated number of respondents: 6.

Estimated annual frequency of responses: varies.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Section 1397E(a) of the Internal Revenue Code (Code) provides that an eligible taxpayer (within the meaning of section 1397E(d)(6)) that holds a qualified zone academy bond on a credit allowance date is allowed a credit against Federal income tax for the taxable year that includes the credit allowance date. In general, a qualified zone academy bond is a bond issued by a State or local government to finance certain eligible public school purposes under section 1397E(d). Section 1397E(b) provides that the amount of the qualified zone academy bond credit equals the product of the credit rate and the face amount of the bond held by the taxpayer on the credit allowance date. Under section 1397E(b)(2), the credit rate is determined by the Treasury Department and equals the percentage that the Department estimates generally will permit the issuance of qualified zone academy bonds without discount and without interest cost to the issuer. Section 1397E(f)(1) defines credit allowance date as the last day of the one-year period beginning on the date of issuance of the issue and the last day of each successive one-year period thereafter. Under section 1397E(d)(3), the maximum term of a qualified zone academy bond is determined by the Treasury Department and equals the term that the Department estimates will result in the present value of the obligation to repay the principal on the bond being equal to 50 percent of the face amount of the bond.

Section 1397E(g) provides that the amount of the qualified zone academy bond credit allowed to the taxpayer is included in the taxpayer's gross income.

Section 1397E(e) imposes a national limitation on the amount of qualified zone academy bonds that may be issued for each calendar year. The limitation is allocated by the Treasury Department among the States on the basis of their respective populations of individuals below the poverty line.

Temporary regulations (TD 8755) interpreting section 1397E were published on January 7, 1998 (63 FR 671), and amended on July 1, 1999 (TD 8826; 64 FR 35573). Final regulations under section 1397E (TD 8903) (the final regulations) were published on September 26, 2000 (65 FR 57732). This document contains proposed regulations (the proposed regulations) that would amend the final regulations.

Section 1397E(d)(3) provides that the Secretary of the Treasury Department shall determine, during each calendar month, the maximum term for qualified zone academy bonds issued during the following calendar month. Section 1397E(d)(3) states that the maximum term shall be the term that the Secretary estimates will result in the present value of the obligation to repay the principal on the bond being equal to 50 percent of the face amount of the bond. Section 1.1397E-1(d) of the final regulations provides that the maximum term for a qualified zone academy bond is determined under section 1397E(d)(3) by using a discount rate equal to 110 percent of the long-term adjusted applicable Federal rate (AFR), compounded semi-annually, for the month in which the bond is issued. The IRS publishes the long-term adjusted AFR each month in a revenue ruling.

Section 1397E(b)(2) provides that the Secretary shall determine, during each calendar month, a credit rate for qualified zone academy bonds issued during the following calendar month. Section 1.1397E-1(b) provides that the Secretary shall determine monthly (or more often as deemed necessary by the Secretary) the credit rate the Secretary estimates generally will permit the issuance of a qualified zone academy bond without discount and without interest cost to the issuer. Notice 99-35 (1999-2 C.B. 26) indicates that, until further notice, the credit rate for a qualified zone academy bond will be published daily by the Bureau of Public Debt on its Internet site for State and Local Government Series securities ( http://www.publicdebt.treas.gov ). Notice 99-35 also provides that the credit rate shall be applied to a qualified zone academy bond on the first day on which there is a binding contract in writing for the sale or exchange of the bond. Notice 99-35 states that the credit rate will be determined by the Treasury Department based on its estimate of the yield on outstanding AA rated corporate bonds of a similar maturity for the business day immediately prior to the date on which there is a binding contract in writing for the sale or exchange of the bond.

Questions have been raised regarding the maximum term of a qualified zone academy bond that is sold in one month and issued in another month. Section 1.1397E-1(d) provides that the maximum term is determined based on the month in which the bond is issued. However, under Notice 99-35, the credit rate for a qualified zone academy bond is determined based on the first day on which there is a binding contract in writing for the sale or exchange of the bond. The credit rate and maximum term should be determined on the same day because the credit rate for a bond depends on its maximum term. Accordingly, the proposed regulations amend § 1.1397E-1(d) to provide that the maximum term for a qualified zone academy bond is determined based on the first day on which there is a binding contract in writing for the sale or exchange of the bond.

Section 1397E(d)(1)(A) provides that a bond issued as part of an issue is a qualified zone academy bond only if, among other requirements, at least 95 percent of the proceeds of the issue are to be used for a qualified purpose with respect to a qualified zone academy established by an eligible local education agency (as defined in section 1397E(d)(4)(B)). Section 1397E(d)(5) defines qualified purpose, with respect to any qualified zone academy, as (i) rehabilitating or repairing the public school facility in which such academy is established, (ii) providing equipment for use at such academy, (iii) developing course materials for education to be provided at such academy, and (iv) training teachers and other school personnel in such academy. Section 1397E(d)(4)(A) defines qualified zone academy as any public school (or academic program within a public school) that is established by and operated under the supervision of an eligible local education agency to provide education or training below the postsecondary level if: (1) The public school or program is designed in cooperation with business in accordance with section 1397E(d)(4)(A)(i); (2) students in the public school or program will be subject to the same academic standards and assessments as other students educated by the eligible local education agency; (3) the comprehensive education plan of the public school or program is approved by the eligible local education agency; and (4) the public school is located in an empowerment zone or enterprise community (as defined in section 1393), or there is a reasonable expectation (as of the date of issuance of the bonds) that at least 35 percent of the students attending the school or participating in the program will be eligible for free or reduced-cost lunches under the school lunch program established under the Richard B. Russell National School Lunch Act.

Comments have been received requesting guidance on compliance with the 95-percent test in section 1397E(d)(1)(A). The proposed regulations provide that, in general, an issue must satisfy three requirements to comply with section 1397E(d)(1)(A). First, the issuer must reasonably expect, as of the date of issuance of the issue, that at least 95 percent of the proceeds of the issue will be expended with due diligence. Second, the issuer must reasonably expect, as of the date of issuance of the issue, that at least 95 percent of the proceeds of the issue will be used for a qualified purpose with respect to a qualified zone academy for the entire term of the issue (without regard to any redemption provision). Third, except as otherwise provided in the remedial action provisions of the proposed regulations, discussed below, at least 95 percent of the proceeds of the issue must actually be used for a qualified purpose with respect to a qualified zone academy for the entire term of the issue (without regard to any redemption provision). For these purposes, any unspent proceeds are treated as used for a qualified purpose with respect to a qualified zone academy during any period that the issuer reasonably expects that those proceeds will be expended with due diligence for a qualified purpose with respect to a qualified zone academy.

Section 1397E(d)(5)(A) and (B) provides that the term qualified purpose with respect to any qualified zone academy includes rehabilitating or repairing the public school facility in which such academy is established, and providing equipment for use at such academy. The proposed regulations specify that, if proceeds of an issue are expended for a purpose described in section 1397E(d)(5)(A) or (B) with respect to a qualified zone academy, then those proceeds are treated as used for a qualified purpose with respect to the academy during any period after such expenditure that (1) the property financed with those proceeds is used for the purposes of the academy and (2) the academy maintains its status as a qualified zone academy. For this purpose, the retirement from service of financed property due to normal wear or obsolescence does not cause the property not to be used for a qualified purpose with respect to a qualified zone academy.

Section 1397E(d)(5)(C) and (D) provides that the term qualified purpose with respect to any qualified zone academy includes developing course materials for education to be provided at such academy, and training teachers and other school personnel in such academy. The proposed regulations provide that, if proceeds of an issue are expended for a purpose described in section 1397E(d)(5)(C) or (D) with respect to a qualified zone academy, then those proceeds are treated as used for a qualified purpose with respect to the academy during any period after such expenditure.

Section 1397E(d)(4)(A)(iv) provides that a public school (or academic program within a public school) is a qualified zone academy only if, among other requirements, the public school is located in an empowerment zone or enterprise community, or there is a reasonable expectation (as of the date of issuance of the bonds) that at least 35 percent of the students attending the school or participating in the program (as the case may be) will be eligible for free or reduced-cost lunches under the school lunch program established under the Richard B. Russell National School Lunch Act. For purposes of determining whether an issue complies with section 1397E(d)(4)(A)(iv), the proposed regulations provide that a public school is treated as located in an empowerment zone or enterprise community for the entire term of the issue if the public school is located in an empowerment zone or enterprise community on the date of issuance of the issue.

Comments have been received requesting guidance specifying remedial actions that may be taken to cure a violation of the 95-percent test in section 1397E(d)(1)(A).

The proposed regulations specify two remedial actions that may be taken in certain circumstances if less than 95 percent of the proceeds of an issue is actually used for a qualified purpose with respect to a qualified zone academy. These remedial actions are available only if the issuer reasonably expected on the date of issuance of the issue that: (1) at least 95 percent of the proceeds of the issue would be expended with due diligence; and (2) at least 95 percent of the proceeds of the issue would be used for a qualified purpose with respect to a qualified zone academy for the entire term of the issue (without regard to any redemption provision).

As discussed below, the two remedial actions specified in the proposed regulations are (1) redemption or defeasance of the nonqualified bonds and (2) alternative use of the disposition proceeds. If the applicable requirements are met, the redemption or defeasance remedial action is available to cure any failure to satisfy the 95-percent test that was not reasonably expected as of the date of issuance. The alternative use of disposition proceeds remedial action applies only to certain dispositions of financed property for cash.

A redemption or defeasance remedial action is taken if: (1) All of the nonqualified bonds of the issue (determined by applying the principles of § 1.142-2(e)) are redeemed within 90 days after the date on which the failure to properly use proceeds occurs; (2) if any nonqualified bonds of the issue are not redeemed within 90 days after the date on which the failure to properly use proceeds occurs (the unredeemed nonqualified bonds), a defeasance escrow is established for the unredeemed nonqualified bonds within 90 days after the date on which the failure to properly use proceeds occurs; or (3) if the failure to properly use proceeds is a disposition of financed property described in section 1397E(d)(5)(A) or (B) and the consideration for the disposition is exclusively cash, all of the disposition proceeds (as defined in § 1.141-12(c)(1)) are used within 90 days after the date of the disposition to redeem, or establish a defeasance escrow for, a pro rata portion of the nonqualified bonds of the issue.

For proceeds that are not spent, a failure to properly use proceeds occurs on the earlier of: (1) The first date on which the public school (or academic program within the public school) does not constitute a qualified zone academy; and (2) the first date on which the issuer reasonably expects that less than 95 percent of the proceeds of the issue will be expended with due diligence for a qualified purpose with respect to a qualified zone academy. For proceeds that have been spent for rehabilitation, repair or equipment described in section 1397E(d)(5)(A) or (B) with respect to a qualified zone academy, a failure to properly use proceeds occurs on the earlier of: (1) The first date on which the public school (or academic program within the public school) does not constitute a qualified zone academy; and (2) the first date on which an action is taken that causes less than 95 percent of the proceeds of the issue to be used for a qualified purpose with respect to a qualified zone academy. If proceeds have been spent for course materials or training described in section 1397E(d)(5)(C) or (D) with respect to a qualified zone academy, no event subsequent to such expenditure shall constitute a failure to properly use such proceeds.

A defeasance escrow is defined as an irrevocable escrow established to retire bonds on the earliest call date after the date on which the failure to properly use proceeds occurs in an amount that is sufficient to retire the bonds on that call date. At least 90 percent of the weighted average amount in a defeasance escrow must be invested in investments (as defined in § 1.148-1(b)), except that no amount in a defeasance escrow may be invested in any investment the obligor (or any person that is a related party with respect to the obligor within the meaning of § 1.150-1(b)) of which is a user of proceeds of the bonds. All purchases or sales of an investment in a defeasance escrow must be made at the fair market value of the investment within the meaning of § 1.148-5(d)(6).

In addition, the issuer must pay to the United States, at the same time and in the same manner as rebate amounts are required to be paid under § 1.148-3 (or at such other time or in such other manner as the Commissioner may prescribe), 100 percent of the investment earnings on amounts in the defeasance escrow. For this purpose, the first computation period begins on the date on which the failure to properly use proceeds occurs.

Proceeds of qualified zone academy bonds (other than unspent proceeds of the issue for which the failure to properly use proceeds occurs) are not permitted to be used to redeem or defease the nonqualified bonds. The issuer must provide written notice to the Commissioner of the establishment of the defeasance escrow within 90 days of the date the defeasance escrow is established.

The alternative use of disposition proceeds remedial action has four requirements. First, the failure to properly use proceeds must be a disposition of financed property described in section 1397E(d)(5)(A) or (B) and the consideration for the disposition must be exclusively cash. Second, the issuer must reasonably expect as of the date of the disposition that: (1) All of the disposition proceeds, plus any amounts received from investing the disposition proceeds, will be expended within two years after the date of the disposition for a qualified purpose with respect to a qualified zone academy; or (2) to the extent not expected to be so expended, used within 90 days after the date of the disposition to take a redemption or defeasance remedial action. Third, the disposition proceeds, plus any amounts received from investing the disposition proceeds, must be treated as proceeds for purposes of section 1397E. Fourth, if all of the disposition proceeds, plus any amounts received from investing the disposition proceeds, are not actually expended for a qualified purpose within the two-year period beginning on the date of the disposition (or used within 90 days after the date of the disposition to take a redemption or defeasance remedial action), the remainder of such amounts must be used within 90 days after the end of that two-year period for a redemption or defeasance remedial action.

In general, § 1.148-1(b) defines sale proceeds as any amounts actually or constructively received from the sale of an issue, including amounts used to pay underwriters' discount or compensation. The proposed regulations provide that, for purposes of the qualified zone academy bond provisions (other than the private business contribution requirement, discussed below), proceeds means sale proceeds as defined in § 1.148-1(b), plus any amounts received from investing sale proceeds. Thus, under the proposed regulations, the requirement in section 1397E(d)(1)(A) that at least 95 percent of the proceeds of an issue be used for a qualified purpose with respect to a qualified zone academy is applied by taking into account not only the sale proceeds of the issue, but also any amounts received from investing those sale proceeds.

Section 1397E(d)(1)(C)(ii) provides that a bond is a qualified zone academy bond only if, among other requirements, the issuer certifies that it has written assurances that the private business contribution requirement of section 1397E(d)(2) will be met with respect to the qualified zone academy. Section 1397E(d)(2)(A) provides that the private business contribution requirement is met if the eligible local education agency that established the qualified zone academy has written commitments from private entities to make qualified contributions (as defined in section 1397E(d)(2)(B)) having a present value (as of the date of issuance of the issue) of not less than ten percent of the proceeds of the issue. The proposed regulations provide that, for purposes of the private business contribution requirement of section 1397E(d)(2), proceeds means sale proceeds as defined in § 1.148-1(b). Thus, the private business contribution requirement is applied by taking into account only the sale proceeds of the issue without regard to any amounts received or expected to be received from investing those sale proceeds.

The proposed regulations provide that the use of proceeds of a bond to pay principal, interest or redemption price of the bond or another bond is not a qualified purpose within the meaning of section 1397E(d)(5). Thus, the use of proceeds of a bond to refund another bond is not a qualified purpose. In addition, the use of proceeds of a bond to fund a sinking fund to repay the bond is not a qualified purpose.

The proposed regulations are proposed to apply to bonds sold on or after the date that is 60 days after publication of final regulations in the Federal Register (the effective date). Issuers may apply the proposed regulations in whole, but not in part, to bonds sold before the effective date, except that: (1) issuers may apply the proposed regulations without regard to § 1.1397E-1(h)(8) (relating to the definition of proceeds) to bonds sold before the effective date; and (2) § 1.1397E-1(d) (relating to the maximum term of a qualified zone academy bond) and § 1.1397E-1(h)(2) (relating to reimbursement of expenditures with proceeds of a qualified zone academy bond) may not be applied to bonds issued before July 1, 1999.

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 Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. As previously noted, it is estimated that each year only six issuers of qualified zone academy bonds will be required to report the establishment of a defeasance escrow, and the estimated burden of each such reporting is only 30 minutes. In addition, the establishment of a defeasance escrow need only be reported once. Therefore, 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 that are submitted timely (preferably a signed original and eight copies) to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed regulations and how they may be made easier to understand. All comments will be available for public inspection and copying.

A public hearing has been scheduled for July 21, 2004, at 10 a.m. in room 7218, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Because of access restrictions, visitors will not be admitted beyond the lobby 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 the 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 written comments by June 24, 2004, and submit an outline of the topics to be discussed and the amount of time to be devoted to each topic by July 12, 2004.

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.

Comments are requested on all aspects of the proposed regulations.

The principal authors of these regulations are Timothy L. Jones and Zoran Stojanovic, Office of Associate Chief Counsel, IRS (Tax Exempt and Governmental Entities), and Stephen J. Watson, Office of Tax Policy, Treasury Department. However, other personnel from the IRS and the Treasury Department participated in their development.

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

The temporary regulations in the Rules and Regulations section of this issue of the Federal Register amend 26 CFR part 1. The temporary regulations provide an alternative method of valuing assets for purposes of apportioning expenses under the tax book value method of § 1.861-9T. The text of the temporary regulations also serves as the text of these regulations. The preamble of the temporary regulations explains the temporary regulations and these proposed regulations.

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 Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) 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 of Advocacy of the Small Business Administration for comment on its impact on small businesses.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department request comments on the clarity of the proposed rule and how it can be made easier to understand. All comments will be available for public inspection and copying.

A public hearing has been scheduled for July 19, 2004, beginning at 10 a.m. in the IRS Auditorium of the 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 more information about having your name placed on the building access list to attend the hearing, see the 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 electronic or written comments by June 24, 2004, and an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by June 28, 2004. 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 Margaret A. Hogan, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

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

In the final rules section of this Federal Register , EPA is approving LDEQ's request for delegation of authority to implement and enforce certain NESHAPs for all sources (both part 70 and non-part 70 sources). LDEQ has adopted certain NESHAPs by reference into Louisiana's state regulations. In addition, EPA is waiving its notification requirements so sources will only need to send notifications and reports to LDEQ.

The EPA is taking direct final action without prior proposal because EPA views this as a noncontroversial action and anticipates no adverse comments. A detailed rationale for this approval is set forth in the preamble to the direct final rule. If no adverse comments are received in response to this action rule, no further activity is contemplated. If EPA receives adverse comments, the direct final rule will be withdrawn, and all public comments received will be addressed in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period on this action. Any parties interested in commenting must 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 published in the Rules section of this Federal Register.

Submitting Comments: We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1219-P and the specific “issue identifier” that precedes the section on which you choose to comment.

Inspection of Public Comments: Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone (410) 786-7195.

This Federal Register document is available from the Federal Register online database through GPO Access , a service of the U.S. Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html.

Medicare has covered medically necessary items of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) under Part B since the inception of the program in 1966. In the original authorizing legislation for the Medicare program, coverage was provided under sections 1832 and 1861(s) of the Social Security Act (the Act) (Pub. L. 89-97). Since that time, the coverage and payment rules for DMEPOS, which may now be found in sections 1832, 1834, and 1861 of the Act and their implementing regulations have changed significantly.

From 1986 to 1992, the number of complaints about fraud and abuse in the DMEPOS benefit began to increase markedly, and a variety of government investigations identified specific weaknesses in the program. We sought solutions to known claims processing problems, including the increasing level of fraud and abuse in billing. Subsequently, the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987) Pub. L. 100-203, enacted on December 22, 1987, authorized the Secretary to designate, by regulation, regional carriers to process DMEPOS claims. (See sections 1834(a)(12) and 1834(h)(3) of the Act.)

Before 1993, Medicare Part B claims for DMEPOS items and services were assigned to each of the more than 30 local Medicare carriers and represented, on average, only 5 percent of each carrier's overall workload. After much review, we concluded that this structure was not the most effective one for administering DMEPOS claims under Medicare. It was difficult for carriers to devote significant administrative review resources to this small percentage of claims.

In addition, DMEPOS claims were generally complex and time-consuming to process. The protocol for suppliers to obtain a Medicare billing number was ill-defined and required little identifying information or compliance with any particular business or operational standards.

Furthermore, carriers' medical review policies varied significantly and contributed to inconsistent claims processing decisions. Finally, certain DMEPOS suppliers who engaged in unethical practices were able to exploit our local Medicare carriers by electing to submit claims to carriers that provided more generous coverage, paid more than other carriers, or both. As documented in program audits and congressional hearings, fraudulent suppliers could do this easily by manipulating our then existing “point of sale” claims jurisdiction rule; these suppliers could simply locate their business offices where conditions were most favorable. The collective impact of these issues resulted in significant abuse of the Medicare program by a subset of the DMEPOS supplier community, without any measurable improvement in patient care and outcomes.

To address the problem of fraud and abuse in the supplier community, we initiated an effort to reform the administration of the DMEPOS benefit category using several strategies. On November 6, 1991, we published a proposed rule (56 FR 56612) setting forth a new framework for DMEPOS claims processing. In that rule, we proposed to limit the number of carriers handling DMEPOS claims by establishing regional carriers who would be expert processors of DMEPOS claims. The rule also proposed to change the requirement for assigning DMEPOS claims to carriers (that is, the DMEPOS claim jurisdiction rule) from a “point of sale” framework to a framework based on “beneficiary residence.” In addition, the rule proposed to establish supplier business standards and information disclosure requirements. We expected that these changes, taken together, would make Medicare's DMEPOS claim administration apparatus less susceptible to supplier manipulation.

On June 18, 1992, we published a final rule with comment period (57 FR 27307) to implement this revised statutory authority. The rule provided the following:

• Established four regional carriers (known as DME Regional Carriers or DMERCS) to standardize the coverage and payment of DMEPOS.

• Designated the States and territories to be served by each DMERC.

• Consolidated and focused efforts to curb fraud and abuse.

• Controlled the enrollment of all DMEPOS suppliers through a National Supplier Clearinghouse (NSC) (a contractor that reviews and approves supplier applications for Medicare program billing numbers).

• Introduced the concept of a Statistical Analysis DME Regional Carrier (SADMERC) to review supplier billing patterns.

• Established minimum business standards for all suppliers wishing to enroll in the Medicare Program.

• Required that regional carriers administer DMEPOS' claims based on the location (State) of the beneficiary's primary residence. The regulations for DMERC contracts, in accordance with these authorities are set forth at 42 CFR 405.874, 421.210, 421.212, and 424.57.

Finally, on October 31, 1994, the Congress enacted the Social Security Amendments of 1994, Public Law 103-432. Among other matters, this statute established section 1834(j)(1) of the Act, which incorporated and augmented the supplier business and operational standards established in the final rule of June 18, 1992. Paragraph (E) of this provision ratified the concept of using the NSC. However, this provision restricts the type of entity that may perform the NSC function exclusively to Medicare carriers holding contracts under section 1842 of the Act.

As noted above, there are several regulatory provisions pertaining to the operation of the DMERCs and related functions. Section 405.874 establishes a process by which the NSC makes determinations on whether to issue a Medicare billing number to a supplier applicant and specifies an administrative appeals process if we make an adverse determination. Section 421.212 specifies that the Railroad Retirement Board will use the CMS-contracted DMERCs to make DMEPOS claim determinations for Medicare-eligible railroad retirees. Section 424.57 provides special payment rules for DMEPOS suppliers and requirements for the issuance of DMEPOS supplier billing numbers, including a series of business and operational standards that DMEPOS suppliers must meet in order to qualify for Medicare billing privileges.

Section 421.210 could be viewed as the cornerstone regulation for the DMERC carrier structure. As we are proposing to amend this regulation, it is important to discuss its content in some detail.

We published and implemented the current regulations at § 421.210 under the authority of sections 1842, 1834(a), and 1834(h) of the Act. The current regulation, which augments and expands on the underlying statutory provisions, provides for the following:

Paragraph (a) identifies the statutory basis for the rule and indicates that the purpose of the rule is to designate one or more carriers “by specific regions” to process DMEPOS claims.

Paragraph (b) identifies the types of claims for DMEPOS items and services that are processed by the DMEPOS carrier.

Paragraph (c) defines four specific regions for the processing of DMEPOS claims by naming the States and territories to be included in each region. This section also states that the DMERC regions coincide with the “sector” boundaries of our Common Working File System.

Paragraph (d) specifies criteria that we use in designating entities to serve as regional carriers for DMEPOS claims.

Paragraph (e)(1) requires that the DMERCs process DMEPOS claims only for beneficiaries whose permanent residence falls within their designated regional areas (as established by paragraph (c)). Paragraph (e)(1) also specifies that in processing DMEPOS claims, the DMERCs will apply the payment rates applicable to the State of residence of the beneficiary. In addition, the rule makes clear that the “beneficiary residence” jurisdiction rule applies to qualified Railroad Retirement beneficiaries and defines “permanent residence” for the purpose of the rule.

Paragraph (e)(2) identifies by name the initial DMERCs; paragraph (e)(3) identifies by name the initial NSC and SADMERC; paragraph (e)(4) commits us to periodically re-compete the four DME regional carrier contracts.

Paragraph (f) requires the DMERCs to collect ownership and control information, as well as supplier standard certifications, from each DMEPOS supplier that they service.

In section II of the preamble, we will discuss several changes we propose to make to paragraphs (a), (c), (d), and (e) of § 421.210.

We issued a Request for Proposal in May 1992 for the four regional DMERC contracts. We also solicited offers for two DMEPOS-related national contracts, the above-mentioned NSC and the SADMERC. In December 1992, the contracts, designed around Common Working File sectors, were awarded as follows:

Initially, the DMERC and SADMERC contracts were 2-year contracts with two 1-year renewal options. The NSC was given two 1-year contracts and two 1-year renewal options. The contracts were modeled, to a significant extent, after requirements in the Federal Acquisition Regulations (FAR).

One of the biggest challenges and accomplishments of the transition to the DMERC processing arrangement was the consolidation of diverse carrier medical policies for DMEPOS. The agency's initiative to configure geographical regions to process DMEPOS claims by consolidating DME workloads from the 34 carriers to 4 DMERCs greatly improved the rigor and consistency of medical review. Formerly, each carrier developed its own local medical review policies for DMEPOS claims under loose guidelines and oversight from us. During the transition period, our coverage and medical review staff worked closely with the DMERC medical directors to streamline and standardize medical policy within and across the DMERC regions. Regionalization allowed the DMERCs to have a consistent uniform interpretation of coverage policies, local medical review policies, and pricing for similar items and services. Today, the DMERCs share essentially one approach to coverage and medical review for all DMEPOS items.

We are proposing to make a number of changes to § 421.210, which concern the designation of regional carriers to process claims for DMEPOS. Broadly speaking, we are seeking greater future flexibility to revise the number and boundaries of DMERC regional areas. We also desire greater flexibility in contracting for DMERC, NSC, and SADMERC functions. We have examined the statutory framework (section 1834(a)(12) of the Act, as set forth below at paragraph (a), “Basis”) for the current regulation and have concluded that the current regulation is more restrictive on the Secretary's contracting discretion than required either by statute or the program's interest.

Specifically, we are proposing to make the following changes to § 421.210 “Designations of regional carriers to process claims for durable medical equipment, prosthetics, orthotics, and supplies”:

• Paragraph (a), “Basis.”

We are proposing to revise paragraph (a) to more closely follow the actual language of section 1834(a)(12) of the Act that authorizes the Secretary to “designate, by regulation under section 1842 of the Act, one carrier for one or more entire regions to process all claims within the region for covered items under this section.” We are therefore revising paragraph (a) to state that the Secretary is authorized to designate carriers for “one or more entire regions” rather than to designate carriers by “specific” regions.

• Paragraph (c), “Region designation.”

We are proposing to revise the language in paragraph (c), designate the current paragraph (c) as (c)(1), and add a new paragraph (c)(2).

In paragraph (c), we are proposing to clarify the Secretary's authority to revise the number or configuration of DMEPOS regional areas in the future, based on appropriate factors and criteria.

The current regulations in § 421.210(c) specify that there are four regional areas for DMEPOS claims and further specify that these areas be drawn to coincide with the Common Working File sectors. The regulations also specify, by name, which States and territories are assigned to each region for DMEPOS claims. To allow greater flexibility, in paragraph (c)(1), we are proposing to add the word “initial” in front of the listing of the current DMERC service areas, to make clear that this configuration could change in the future.

In addition, we would revise paragraph (c)(1) to remove a specific reference to the Common Working File sector framework as a determinant for the DMERC regions. Advances in technology have greatly diminished the importance of this consideration and, therefore, its inclusion in regulation is unnecessary.

The existing reference to Common Working File sectors in paragraph (c)(1), as a constraint for the DMERC region boundaries, illustrates the approach of the original rule. The June 18, 1992 rule acknowledged a technical Medicare claims processing system constraint that was significant at the time. Since that time, advances in our claims processing system have greatly reduced the impact of “out of the area” processing, and it is no longer necessary to structure the DMERCs around the Common Working File sectors.

New paragraph (c)(2) would allow us to revise the number and boundaries of DMERC regional service areas in the future based on appropriate factors and criteria. Our goal is to constantly strive to improve beneficiary and supplier satisfaction. Therefore, we would consider the effect of any service area changes on beneficiaries and suppliers in our decisions. Examples of factors and criteria include population shifts or natural disasters that require a reallocation of workload, and workforce conditions that may make it difficult for DMERCs in certain areas to recruit and retain qualified employees. We specify in paragraph (c)(2) that this change would allow us future discretion to identify which States and territories are assigned to various DMERC regions by publication of a Federal Register notice. The Federal Register notice would identify the nature of any changes in the DMERC service areas, as well as our rationale for the changes.

Absent the proposed changes to these regulations, we would have to maintain the current DMERC configuration even if our administrative and program needs change. Currently, the only existing mechanism for changing the structure of the DMERC regions is to undertake notice and comment rulemaking for each change. We believe that it is not the intent of the statute to constrain the Secretary's administrative discretion to this extent. Although we are not now proposing to alter the number or configuration of the four areas for DMEPOS claims, we anticipate that new program circumstances may arise that may require alterations in the number or configuration of DMERC service areas. We believe that we have a definite need for the capability to move swiftly and make DMERC service area changes without going through notice and comment rulemaking whenever administrative issues arise. Just as critical, we believe it is important to consider the effects of these kinds of changes on beneficiaries and suppliers and to provide the public with an explanation of changes when they are made.

Under our proposed rules, we would not be required to administer four DMEPOS areas, would not be required to determine these DMEPOS areas based on the sector areas of the Common Working File, and would not be required to go through rulemaking to modify the assignment of the States and territories to revised DMEPOS areas.

We are providing a fictitious (but plausible) example of a situation, which cannot be addressed very well under the current regulation. In this example, DMERC X, which has historically performed well, is having difficulty serving all beneficiaries and suppliers in all of its assigned States, due to difficulties in recruiting a sufficient number of qualified personnel. At present, the regulations would seem to limit our options to—(1) hoping that DMERC X improves its performance; or (2) terminating DMERC X's contract for the entire service area and procuring and installing a replacement. We do not have the third option of removing a limited number of States from DMERC X's contract and attaching these service areas to another DMERC's service area (or setting up a fifth DMERC jurisdiction). However, under the proposed regulation, this kind of contract management action could yield many benefits, in that DMERC X could focus its resources on its remaining workload. Under the current regulation, moving a State to another area, or setting up a fifth jurisdiction, would require an extended rulemaking process unless the rules take a more general approach, as we are proposing.

• Paragraph (d), “Criteria for designating regional carriers.”

Paragraph (d) under this section currently discusses our “designation” of regional carriers in a manner that does not explicitly acknowledge the fact that these designations must be premised on the awarding of Medicare carrier contracts in accordance with applicable law.

We are proposing to revise paragraph (d) under this section to make clear that we will designate regional carriers to process DMEPOS claims by awarding DMERC contracts in accordance with applicable law. We are not proposing any changes to the current criteria under paragraphs (d)(1) through (d)(5) of this section, which we use in our procurement evaluation processes for this particular kind of contract.

• Paragraph (e), “Carrier designation.”

In paragraph (e)(1), we are also proposing to make minor revisions to conform the language to the changes made in § 421.210(c).

We are also proposing to revise paragraph (e) to provide that we have flexibility and discretion with respect to contracting for DMERC and related functions. The current regulations in § 421.210(e) name the initial DMERC-contracting companies and also identify the particular region each company serves. The current regulations could be interpreted as requiring that we constantly update our rules whenever our business partners change.

The proposed regulatory framework will clarify our discretion not to name a contracting company in future regulations if we re-compete a DMERC contract after its conclusion or termination. This proposed change would potentially reduce the agency's administrative burden when a DMERC contract is not renewed. We are proposing, however, to notify affected beneficiaries and suppliers when we change contractors.

Specifically in paragraph (e)(2), we are proposing to remove the names of the initial DMERCs from the regulation. This change would also clarify our future discretion to award a DMERC contract to process DMEPOS claims under the Medicare program (that is, designate a DMERC), without any obligation to name the new DMERC(s) in regulations or by Federal Register notice. We would, however, notify affected beneficiaries and suppliers to the change in contractors. Therefore, we are proposing to revise paragraph (e)(2) to add that we will notify affected Medicare beneficiaries when we designate a regional carrier.

We are proposing to revise paragraphs (e)(3) and (e)(4) to allow us discretion to contract for the performance of NSC functions through either an amendment to a DMERC contract or through a non-DMERC Medicare carrier contract. In paragraph (e)(4), the current regulations for NSC functions limit the agency's selection of NSC contractors to one of the DMERCs. However, section 1834(j)(1)(E) of the Act actually more broadly permits any carrier with a contract under section 1842 of the Act to perform NSC functions. We believe that our rules should reflect this broader discretion under the statute. Therefore, in paragraph (e)(4), we are proposing to remove the limitation that restricts our list of contractors to only four DME regional carriers. This proposed revision gives us greater flexibility when we re-compete a DMERC contract after its conclusion or termination.

In addition, we are proposing to delete the references to the SADMERC function in § 421.210(e)(3) and § 421.210(e)(4). SADMERCS are responsible for storing national DMEPOS claims history data, for distributing to the DMERCS national pricing files, and for conducting data analysis. Although we recognize the importance of the activities that the SADMERC provides to us and the DMERCS, these activities are not identified elsewhere in the regulations, and we believe that little purpose is served by naming an entity without any reference to its functions. Therefore, we do not believe it necessary to reference the SADMERC in our regulations.

By removing the current reference to the SADMERC, including the constraint that this activity be included in a DMERC's contract, we will have the flexibility to include this function in a DMERC contract or to contract for the SADMERC activity through some other vehicle.

In summary, this proposed rule would allow us to change the geographical boundaries served by the regional contractors that process DME claims and to make other minor changes in contract administration of the DMERCS. We would be able to increase or decrease the number of DMERCS or change the boundaries of the DMERCs through a Federal Register notice. Further, we would name new contractors to perform the functions of the DMERC and NSC without going through notice and comment rulemaking. Instead, we would notify affected beneficiaries and suppliers of contractor changes through our outreach and education initiative.

Under the Paperwork Reduction Act of 1995, we are required to provide 60-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

This document does not impose any new information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995.

Because of the large number of items of correspondence we normally receive on Federal Register documents published for comment, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

We have examined the impacts of this rule as required by Executive Order (E.O.) 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), section 1102(b) of the Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and E.O. 13132.

E.O. 12866 (as amended by E.O. 13258, which merely reassigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This rule does not reach the economic threshold and thus is not considered a major rule. This rule only provides the Secretary with greater contracting flexibility consistent with the statute and would not have any direct economic impact. Because this proposed rule would only affect our administrative structures and does not change in any way the Medicare DMEPOS benefit (that is, neither coverage nor payment is changed), this rule would not affect the amount or distribution of the Medicare benefit payment for DMEPOS. Further, any possible restructuring of the DMERC regions in the future would not remotely approach a net economic impact of $100 million on either CMS's administrative costs or the administrative costs of DMEPOS suppliers. Therefore, we do not believe that a regulatory impact analysis is necessary under E.O. 12866.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any 1 year. Individuals and States are not included in the definition of a small entity. This proposed rule, as noted above, would not have any direct economic impact on DMEPOS suppliers, because it would not affect the scope of benefits, coverage, or payment rules for DMEPOS, nor would it affect the billing requirements for these services. This rule would not commit us to any particular reconfiguration of the DMERC areas. However, we agree to consider any effects on DMEPOS suppliers in any future reconfigurations of the DMERC regions. We are not preparing an analysis for the RFA because we have determined that this rule would not have a significant economic impact on a substantial number of small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 100 beds. The changes that this rule proposes pertain to our processes for configuring and designating contractors to process DMEPOS claims and would not have a significant impact on the operations of a substantial number of small rural hospitals. Therefore, we are not preparing an analysis for section 1102(b) of the Act.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in expenditure in any 1 year by State, local, or tribal governments, in the aggregate, or by the private sector, of $110 million. This rule would not have a consequential effect on the governments mentioned or on the private sector.

E.O. 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation would not impose any costs on local governments, the requirements of E.O. 13132 are not applicable.

For these reasons, we are not preparing analyses for either the RFA or section 1102(b) of the Act because we have determined that this rule would not have a significant economic impact on a substantial number of small entities or a significant impact on the operations of a substantial number of small rural hospitals.

We could have chosen to continue to operate under the constraints of our current regulations. This option would require that we periodically undertake notice and comment rulemaking to update the regulations with the names of new contractors. We have provided additional discussion in the preamble describing why we believe this is not the optimal solution. We believe our proposal to make modest changes to our regulations would offer us greater flexibility in contracting with DMERCs and allow us to be more responsive to the needs of all key stakeholders.

In accordance with the provisions of E.O. 12866, the Office of Management and Budget reviewed this regulation.

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services proposes to amend 42 CFR chapter IV, part 421 as set forth below:

This is a summary of the Commission's Notice of Proposed Rule Making , ET Docket No. 04-35, FCC 04-30, adopted February 12, 2004, and released February 23, 2004. The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Center (Room CY-A257), 445 12th Street, SW., Washington, DC 20554. The complete text of this document also may be purchased from the Commission's copy contractor, Qualex International, 445 12th Street, SW., Room, CY-B402, Washington, DC 20554. The full text may also be downloaded at www.fcc.gov. Alternate formats are available to persons with disabilities by contacting Brian Millin at (202) 418-7426 or TTY (202) 418-7365.

Pursuant to §§ 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments on or before May 25, 2004, and reply comments on or before June 24, 2004. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121, May 1, 1998. Comments filed through the ECFS can be sent as an electronic file via the Internet to http://www.fcc.gov/e-file/ecfs.html. Generally, only one copy of an electronic submission must be filed. If multiple docket or rulemaking numbers appear in the caption of this proceeding, however, commenters must transmit one electronic copy of the comments to each docket or rulemaking number referenced in the caption. In completing the transmittal screen, commenters should include their full name, U.S. Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions for e-mail comments, commenters should send an e-mail to ecfs@fcc.gov, and should include the following words in the body of the message, “get form <your e-mail address>.” A sample form and directions will be sent in reply. Parties who choose to file by paper must file an original and four copies of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, commenters must submit two additional copies for each additional docket or rulemaking number.

All paper filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving U.S. Postal Service mail). The Commission's contractor, Natek, Inc., will receive hand-delivered or messenger-delivered paper filings for the Commission's Secretary at 236 Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes must be disposed of before entering the building. Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal Service first-class mail, Express mail, and Priority Mail should be addressed to 445 12th Street, SW., Washington, DC 20554.

This NPRM contains proposed modified information collection(s). The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget (OMB) to comment on the information collection(s) contained in this NPRM, as required by the Paperwork Reduction Act (PRA) of 1995, Public Law 104-13. Public and agency comments are due May 25, 2004. PRA comments should address: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology.

Written comments by the public on the new or modified information collections are due May 25, 2004. In addition to filing comments with the Secretary, a copy of any Paperwork Reduction Act (PRA) comments on the information collection(s) contained herein should be submitted to Les Smith, Federal Communications Commission, Room 1-CA804, 445 12th Street, SW., Washington, DC 20554, or via the Internet to Leslie.Smith@fcc.gov, and to Kristy L. LaLonde, OMB Desk Officer, Room 10234 NEOB, 725 17th Street, NW., Washington, DC 20503 via the Internet to LaLonde@omb.eop.gov or by fax to 202-395-5167.

OMB Control Number: 3060-0484.

Title: Part 4 of the Commission's Rules Concerning Disruptions to Communications.

Form No.: NA.

Type of Review: Revision of a currently approved collection.

Respondents: Business or other for-profit entities; Not-for-profit institutions; and/or State, local or tribal governments.

Number of Respondents: 52.

Estimated Time per Response: 5 hours.

Frequency of Response: On occasion reporting requirements.

Total Annual Burden: 1,040 hours.

Total Annual Costs: $41,600.

Needs and Uses: In recognition of the critical need for rapid, full, and accurate information on service disruptions that could affect homeland security, public health and safety, as well as the economic well-being of our Nation, and in view of the increasing importance of non-wireline communications in the Nation's communications networks and critical infrastructure, we propose to extend our disruption reporting requirements to communications providers who are not wireline carriers. We also propose to move the outage-reporting requirements from part 63 of our rules to part 4.

1. This Notice of Proposed Rulemaking (NPRM) proposes to extend the Commission's disruption reporting requirements to communications providers who are not wireline carriers and to move the outage-reporting requirements from rule part 63 to part 4. In making these proposals, the Commission recognizes that, although these requirements were originally established within the telecommunications common carrier context, it is now appropriate to adapt and apply them more broadly across all communications platforms to the extent discussed in the NPRM. In an effort to promote rapid reporting and minimal administrative burden on covered entities, the Commission also proposes to streamline compliance with the reporting requirements through electronic filing with a “fill in the blank” template and by simplifying the application of the existing rule (47 CFR 63.100). The Commission seeks comment on these proposals and notes, as an initial matter, that the actual text of the final rules and the final reporting template that will be adopted may differ from the text and template that are contained in Appendix A and Appendix B to the Notice of Proposed Rulemaking. Accordingly, the Commission invites interested parties to file comments and reply comments to address the issues that are discussed in this NPRM as well as the specific rules that are proposed in Appendix A and the reporting template that is proposed in Appendix B. The Commission also requests comment on any other changes to its communications outage reporting rules that would eliminate inadequacies in these reporting requirements. Based on the comments that the Commission receives in this proceeding and on its analysis of the information that is before it, the Commission may make such additional modifications to its existing and proposed communications outage-reporting requirements as may be necessary or desirable to fulfill, more fully, the objectives that are set forth in the Communications Act.

2. Communications disruptions can be characterized as consisting of: (i) A lack of “generally-useful availability” of communications, which means an inability to access a network ( e.g. , an inability to acquire dial-tone); or (ii) a lack of “generally-useful connectivity” of communications, which means the inability to complete the communication effectively after a network has been successfully accessed. Section 63.100 applies to both types of communications disruptions which are further classified into, essentially, two types of reporting requirements: (i) The reporting of disruptions that could have a direct effect on the safety of life or property or on the National defense and security; and (ii) the reporting of outages that are otherwise sufficiently significant that they warrant reporting. The Commission proposes to retain this basic type of reporting framework with modifications to improve its usefulness, and seek comment on this proposal.

3. General Outage-Reporting Criteria and Proposed Revisions to Them. Currently, the general reporting criteria requires that an outage be reported whenever its duration is at least 30 minutes and the number of customers potentially affected by the outage is at least 30,000. By the term “customer” the Commission means the individual end user ( i.e. , a person), but some carriers have counted each large corporate or organizational customer as a single “customer.” The latter interpretation leads to underreporting of significant outages. Another anomaly in the current rule is that outages whose duration lasts many hours or days but that affect slightly less than 30,000 customers are not required to be reported.

4. The Commission proposes to correct these anomalies in its general reporting criteria by requiring that an outage report be filed whenever the duration of the outage is at least 30 minutes and the outage potentially affects at least 900,000 user-minutes. A user-minute would be defined as the mathematical product of the number of end users and the outage duration expressed in minutes. For telephony, an “end user” would be defined as an assigned telephone number, and the number of potentially-affected user minutes would be the mathematical result of multiplying the outage's duration (expressed in minutes) by the number of potentially-affected assigned telephone numbers. (“Assigned telephone numbers” would be defined as the sum of “assigned numbers” and “administrative numbers,” where the latter terms are currently defined in 47 CFR 52.15(f)(i) and (iii).) We seek comment on this proposal.

5. Wireline Communications Providers. The outage reporting requirements (subject to the proposed revisions) would continue to apply to “wireline providers,” which are entities that provide terrestrial communications through direct connectivity, predominantly by wire, coaxial cable, or optical fiber, between the serving central office (as defined in the Appendix-Glossary to 47 CFR part 36) and end user location(s). (For outage reporting purposes, wireline communications includes any augmentation through the use of micro-wave links and other links that use other radio frequencies.)

6. LEC and IXC Tandem Outages. For the tandem facilities of interexchange or local exchange carriers, the current rule requires that “carriers must, if technically possible, use real-time to determine whether the criteria for reporting an outage have been reached. Carriers must report IXC and LEC tandem outages * * * where more than 90,000 calls are blocked during a period of 30 or more minutes for purposes of complying with the 30,000 potentially affected customers threshold,” 47 CFR 63.100(g). The NPRM proposes to modify this rule to replace the reference to “customers” with a reference to “user-minutes,” for consistency purposes. We also note that the term “blocked calls” is not clearly defined in § 63.100 and that some companies count only originating calls that are blocked, while other companies count both originating and terminating blocked calls. To eliminate this ambiguity and to gain an understanding of the full impact of each outage, as well as to promote consistent reporting by all carriers, the Commission proposes to require that all blocked calls, regardless of whether they are originating or terminating calls, be counted in determining compliance with the outage reporting threshold criteria. For those outages where the failure prevents the counting of blocked calls in either the originating or terminating direction, or in both directions, historical data may be used. Three times the actual number of carried calls for the same day of the week and the same time of day should be used as a surrogate for the number of blocked calls that could not be measured directly. “Blocked calls” are a “running measurement” made for the total duration of the outage. That is, an outage that blocks only 50,000 calls in the first 30 minutes may nevertheless reach the 90,000 blocked-call threshold criterion if the outage lasts, for example, for one hour. In relatively rare cases, it may be possible to obtain the number of originating blocked calls only, or the number of terminating blocked calls only, but not both. For these cases, the Commission proposes to require that the blocked-call count be doubled to compensate for the missing data, unless the carrier certifies that only one direction of the call set-up was affected by the outage. The Commission seeks comment on these proposals.

7. Cable Communications Providers—Circuit Switched Telephony. Circuit-switched telephony provided by cable operators has always been subject to the communications disruptions reporting requirements set forth in 47 CFR 63.100. The Commission proposes to clarify this point and to modify these requirements in a manner consistent with its proposed changes ( i.e. , 30 minutes duration and 900,000 user-minutes criteria) to the outage-reporting requirements for wireline telephony and seek comment on this proposal.

8. Satellite Communications Providers. Given the increased role played by satellites in our Nation's communications infrastructure, and the likelihood that the importance of satellite communications will grow substantially in the future, the Commission proposes to eliminate the satellite exemption in its outage reporting rules and proposes to require that all major failures be reported by providers of satellite communications to the public. This would apply to satellites or transponders used to provide telephony and/or paging. The proposal does not include satellites or transponders used solely to provide intra-corporate or intra-organizational private telecommunications or solely for the one-way distribution of video or audio programming. The Commission seeks comment on this proposal.

9. Satellite communications have space components and terrestrial components. The proposed reporting requirements cover all satellite communications outages, regardless of whether they result from failures in the space or terrestrial components. The proposal would require the reporting of any loss of complete accessibility to a satellite or any of its transponders for 30 minutes or more. Such outages could result, for example, from an inability to control a satellite, a loss of uplink or downlink communications, Telemetry Tracking and Command failures, or the loss of a satellite telephony terrestrially-based control center, all of which the Commission deems to be major infrastructure failures. Analogous to the cases of wireline, wireless, and cable communications, the proposal would also require the reporting of the loss, for 30 minutes or more, of any satellite link or its associated terrestrial components that are used to provide telephony and/or paging, whenever at least 900,000 user-minutes are potentially affected. The Commission seeks comment on these proposals.

10. Wireless Communications Providers. Similar to the case of satellite communications, the Commission recognizes the increased and critical role of wireless communications in our Nation's communications infrastructure and proposes to eliminate the exemption for wireless communications in its outage reporting rules. The term “wireless service providers,” refers to entities that provide communications by using cellular architecture in the Cellular Radio Telephone Service (“CRTS”) (part 22 of the Commission's Rules); Personal Communications Service (“PCS”) (part 24); and enhanced Special Mobile Radio Service (“SMRS”) (part 90) (such as that provided by NEXTEL). It also includes Short Message Service (“SMS”) communications, which consist of short text messages (typically 20 octets or less), as well as CMRS paging services (see 47 CFR 20.9(a)(1), (6), 22.99, 22.507(c), and 90.7) and narrowband PCS (part 24), as wireless services. Consistent with the 30 minutes/900,000 user-minutes criteria, the Commission proposes to require wireless service providers to report outages of at least 30 minutes duration that potentially affect 900,000 user-minutes. While the Commission believes in the importance of a common metric that is based on the outage impact on people irrespective of the communications system involved, it also seeks comment on possible alternative criteria that would yield outage data that would be useful in developing best practices. Paging remains an important technology for emergency responders and therefore the Commission is proposing to include paging service providers within the scope of the outage reporting requirements for wireless service providers. For those paging systems in which each individual user is assigned a telephone number, the Commission proposes to define an end user as an assigned telephone number, and the number of potentially-affected user minutes would be the mathematical result of multiplying the outage's duration (expressed in minutes) by the number of potentially-affected assigned telephone numbers. It is the Commission's understanding that for other paging systems in which a caller must first dial a central number ( e.g. , an “800 number”) and then dial a unique identifier for the called party, the paging provider maintains a database of identifiers for its end users and would therefore know how many of its end users are potentially affected by any particular outage. The number of potentially-affected end users for those paging systems would simply be the mathematical result of multiplying the outage's duration (expressed in minutes) by the number of end users potentially affected by the outage. The Commission seeks comment on this interpretation and proposed addition to our rules, and on whether there are alternative approaches for measuring the extent of the impact of the outage of CMRS paging systems. For other wireless services, the determination of the number of potentially affected users can be more complex.

11. To measure the extent of wireless services system degradation, the Commission proposes to require the use of blocked calls instead of using assigned telephone numbers as a proxy for the usefulness of the system to users. In the wireless telephony service, a call is deemed “blocked” whenever the Mobile Switching Center (MSC, also referred to as a Mobile Telephone Switching Office, or MTSO) cannot process the call request of an authenticated, registered user. Call blocking can result from a malfunction or from an overloaded condition in the wireless service network. Usually when calls are blocked, users newly attempting to access the system cannot be registered on the system until the underlying problem is corrected. Because wireless service networks typically provide user access through several MSCs, an outage on a single MSC affects only those subscribers served by that MSC. Accordingly, call blocking on a single MSC would be reportable if it were to result in an outage of at least 30 minutes duration that meets or exceeds the proposed 900,000 user-minute criterion. The Commission seeks comment on this proposal.

12. To estimate the number of potential users affected by a significant system degradation of wireless service facilities, we propose to require providers to determine the total call capacity of the affected MSC switch (or, in the case of a MSC that has more than one switch, the total call capacity of all switches in the affected MSC) and multiply the call capacity by the concentration ratio. Although the concentration ratio may vary among MSCs, we believe that, on average, the concentration ratio used for determining the outage reporting threshold should be uniform to facilitate correlative analyses of outage reports from different wireless providers. Based upon discussions with telecommunications engineers and our understanding of typical traffic loading/switch design parameters, we propose that the concentration factor be ten. Thus, a MSC switch that is capable of handling 3,000 simultaneous calls would have 30,000 potentially affected users ( i.e. , (3,000) × (10) = 30,000). The Commission believes that this proposed concentration factor should adequately account for those users that are in the service area of the MSC and are thus eligible for immediate service. This factor would also take into account users that are assigned to the local home location register database for the MSC as well as potential visitors. Thus, under the general outage-reporting criteria that we are proposing, wireless service providers would be required to report MSC outages of at least 30 minutes duration that potentially affect at least 900,000 user-minutes. The Commission seeks comment on this proposed addition to our rules and on whether there are specific types of wireless systems for which a concentration factor of other than ten should be applied. As with its proposals for CMRS paging providers, the Commission also seeks comment on possible alternative criteria for wireless service providers and approaches to measure the extent of the impact of system degradation that would yield useful outage data on which to base the development of best practices.

13. The Commission further proposes to require the filing of an outage report whenever an MSC is incapable of processing communications for at least 30 minutes, without regard to the number of user-minutes potentially affected by the outage. The Commission reason for this specific proposal on MSC-outage reporting is based on its continuing need to be aware of the underlying robustness, as well as the overall reliability, of wireless networks. The MSC, in this regard, is a critical architectural component in wireless systems that is designed to process significant levels of traffic aggregation and call routing that are dependent upon SS7 signaling. The Commission also seeks comment on these additional conclusions and further proposal.

14. Outages That Potentially Affect Special Offices and Facilities, or 911 Services and Facilities. The Commission also proposes to simplify the requirements for reporting communications outages that potentially affect special offices and facilities or potentially affect the ability to complete 911 calls. Section 63.100(e) of our rules presently requires the reporting of outages of at least 30 minutes duration that potentially affect special offices and facilities. The Commission proposes to keep this requirement substantively intact with a minor modification that will make it applicable to all airports, not just major airports. Section 63.100(e), however, only applies to local exchange carriers, interexchange carriers, and competitive access providers. In light of the rapid changes that have occurred since this rule was adopted, we anticipate that special offices and facilities will increasingly take advantage of new communications technologies and services as they become available, with decreasing regard for the particular technological platform over which they are provided. As a consequence, the Commission proposes to extend the requirement to report outages potentially affecting special offices and facilities to include all communications providers for which we are proposing general communications outage-reporting requirements. These include wireline, wireless, cable, and satellite communications providers. The Commission seeks comment on this proposal.

15. In addition, the current requirements for reporting outages that potentially affect 911 services are differentiated by the length of the outage, the number of lines potentially affected, and other factors. The Commission tentatively conclude that these requirements are overly complex. The Commission proposes to revise these rules and simply require the reporting of all communications outages of at least 30 minutes duration that potentially affect the ability to originate, complete, or terminate 911 calls successfully (including the delivery of all associated name, identification, and location data). Because the Commission anticipates that the public safety community and 911-type services will also evolve to utilize new technologies, services, and platforms, it proposes to apply this requirement to all communications providers for which it is proposing general outage-reporting requirements. The Commission has been aware for some time that the use of wireless telephony to place emergency 911 calls has been increasing. Accordingly, we adopted rules requiring wireless providers to facilitate the work of E911 service responders by providing to Public Safety Answering Points (“PSAPs”) both the automatic name information (ANI) and automatic location information (ALI) associated with the handset. The reliability of E911 service continues to be of vital concern to this Commission and is an essential part of our responsibilities. The Commission therefore proposes to require wireless service providers to report any failure of a wireless network element that prevents a MSC from receiving, or responding to, 911 calls (including the delivery of all associated data) for at least 30 minutes. The Commission seeks comment on this proposed rule and whether local network element failures or degradations should also be reported to the affected PSAPs in real time. In addition, the Commission seeks comments as to whether the time metric that is most appropriate for determining that a failure of call completion to a PSAP is significant and should be reported in 30 minutes. Finally, if a commenting party were to conclude that metric of 30 minutes is not the most appropriate one, the Commission then requests such party include in its comments its reasoning for that conclusion and a recommendation for a more appropriate time interval for E911 emergency calls.

16. E911 and the MSS. In the “E911 Scope” proceeding the Commission decided to require Mobile-Satellite Service (“MSS”) providers of voice service that is interconnected with the Public Switched Telephone Network (“PSTN”) to establish E911 call centers. In the Matter of Revision of the Commission's Rules to Ensure Compatibility with Enhanced 911 Emergency Calling Systems and Amendment of parts 2 and 25 to Implement the Global Mobile Personal Communications by Satellite (GMPCS) Memorandum of Understanding and Arrangements et al. , CC Docket No. 94-102 and IB Docket No. 99-67, Report and Order and Second Further Notice of Proposed Rulemaking, FCC 03-290, released December 1, 2003, at ¶¶ 20-48 and 111-112 (adopting 911 service call center requirements and seeking further comment on how to implement E911 requirements for the MSS), 69 FR 6578 (February 11, 2004; final rule) and 69 FR 6595 (February 11, 2004; proposed rules). In that proceeding, the Commission also directed the Network Reliability and Interoperability Council (“NRIC”) to study several E911 implementation technical issues for satellite systems. Finally, the Commission sought comment on whether transition periods are necessary for MSS providers with an ancillary terrestrial component (ATC) to comply with the terrestrial wireless E911 requirements and on proposed reporting and record-keeping requirements in connection with implementation of the emergency call center rule. In the instant proceeding, the Commission now proposes to subject MSS providers of interconnected voice service to E911 outage-reporting requirements but to delay implementation of the proposed requirements for MSS providers until the MSS-implementation issues raised in the Second Further Notice in the E911 Scope proceeding are resolved. The Commission seeks comment on the instant proposal.

17. Elimination of Separate Requirement to Report Outages Caused by Fires. A separate reporting requirement, set forth in § 63.100(d), pertains to the reporting of outages caused by fires. Carriers are required to report fire-related incidents that affect 1,000 or more service lines for a period of 30 minutes or more. Only a few outages have been reported pursuant to this subsection and these have tended to be very minor outages. In general, major fire outages have met the more general reporting criteria because they exceed the current 30-minute, 30,000-customer threshold criteria. Such outages would also exceed the proposed 900,000 user-minute threshold criterion. Thus, retention of separate outage reporting criteria for fire-related incidents appears to be an unnecessary complication for reporting carriers that does not appear to provide any significant benefit to the Commission or to the public. The Commission therefore proposes to eliminate this requirement and seeks comment on its conclusion and its proposed elimination of this rule.

18. Other Simplifications to the Existing Rule. The rule requires the filing of an initial outage report that contains contact information so that additional information can be obtained if necessary. Initial reports are helpful in determining whether an immediate response is required ( e.g. , terrorist attacks or systemic failures) and whether patterns of outages are emerging ( e.g. , phased terrorist attacks) that warrant further coordination or other action. Section 63.100 of the Commission's rules currently distinguishes between how quickly outages, of at least 30 minutes duration, are required to be reported, based on whether the number of customers potentially affected meets or exceeds a threshold criterion of 50,000. If this secondary threshold is exceeded, the carrier's initial report must be made “by facsimile or other record means delivered within 120 minutes of the carrier's first knowledge. * * * ” Otherwise, when such outages potentially affect less than 50,000 customers (but satisfy the primary threshold criterion of 30,000 customers), the initial notification must be delivered within “3 days of the carrier's first knowledge.” The Commission believes that this distinction complicates the outage-reporting requirements without any offsetting benefit and should, therefore, be eliminated. The current rule also requires that the filing be made “by facsimile or other record means.” In the future, the ability to file initial reports electronically ( e.g. , over the Internet), coupled with the “fill in the blank” template that is proposed in this NPRM, should make it possible for communications providers to notify us more promptly, and more easily, when communications disruptions arise. The improvements in filing requirements, as well as the electronic filing process that we are proposing, should make it easy for communications providers to file all initial disruption reports within 120 minutes of discovering a reportable outage. This, in turn, will facilitate more rapid action in the event of a serious crisis, and will also facilitate more rapid, more coherent, and more accurate responses when multiple outages are occurring during simultaneous (or virtually coincident) crises. The Commission therefore proposes to require all initial outage reports to be filed electronically within 120 minutes of becoming reportable. All final outage reports would continue to be required to be filed within 30 days of the filing of the initial report. The Commission seeks comment on these conclusions and proposed requirements. It also seeks comment as to whether, given the rapid response time that the Internet and circuit-switched telephony ( e.g. , dial-up modems) enable, the Commission should require the filing of initial outage reports over the Internet within a shorter period of time than the 120-minute period discussed.

19. The Commission's experience in administering § 63.100 has enabled it to understand more completely other aspects of its reporting requirements that should be revised. As a consequence, the Commission finds that existing requirements for final disruption reports should be modified to require inclusion of the following information:

• A statement as to whether the reported outage was at least partially caused because the network did not follow engineering standards for full diversity (redundancy); and

• A statement of all of the causes of the outage. Outages may result from the occurrence of several events. The current rule requires that the final report identify the root cause. Experience in administering this part of its rules has convinced the Commission that there may be more than one root cause and that, to facilitate analysis, all causes of each outage should be reported.

In addition, as the communications market evolves, the Commission anticipates that communications may increasingly be offered through complex arrangements among communications providers and other entities (which may or may not be affiliated with the provider) that maintain or provide communications systems or services for them. For example, local exchange carriers have long provided Signaling System 7 (“SS7”) communications for their own use as well as for their customers, but some entities have more recently emerged to provide SS7 for such carriers. The Commission proposes to require these entities to comply with any disruption reporting requirements that it may adopt to the same extent as would be required of them if they were communications providers directly providing voice or data communications or maintaining the system. The Commission seeks comment on these proposals.

20. Major Infrastructure Failures. The communications outage reports that the Commission has received over the past ten years have provided significant insight into some of the major problems affecting circuit-switched voice communications. The infrastructure used to provide these services, however, is also used to provide many other services that are essential to Homeland Security and our Nation's economy. A tiny glimpse into the other uses of our Nation's communications infrastructure was provided in Verizon's network outage report covering the World Trade Center disaster on September 11, 2001. That report states that “some 300,000 dial tone lines and some 3.6 million DS0 equivalent data circuits were out of service” as a result of the damage. The ratio of more than ten times as many DS0 equivalent services using the infrastructure as dial tone lines is not unusual in a major metropolitan area. Most of the DS0 equivalent circuits are used to carry what are frequently called “special services.” While the Commission has not previously required the reporting of communications outages that affected large numbers of special services, it needs to recognize in its communications disruption reporting rules the continuously increasing importance of data communications throughout the United States. The Commission believes that its rules should be revised to account for important attributes of special services that have not been fully addressed in the earlier sections of this NPRM that focused on different communications platforms. Rather than collect information that is limited specifically to “special services,” however, the Commission proposes to directly address the underlying issue and collect information on the potential impact on all communications services of major infrastructure failures.

21. DS3 Minutes. As a consequence, the Commission proposes to establish additional outage-reporting criteria that would apply to failures of communications infrastructure components having significant traffic-carrying capacity. This requirement would apply to those communications providers for which the Commission has already proposed outage-reporting requirements and would also apply to those affiliated and non-affiliated entities that maintain or provide communications systems on their behalf. The Commission believes that the threshold reporting criterion for such infrastructure outages should be based on the number of DS3 minutes affected by the outage because DS3s are the common denominator used throughout the communications industry as a measure of capacity. A DS3 can handle 28 DS1s (T1s) or 672 DS0 (64 kbps voice or data circuits). On the higher end of the multiplexing hierarchy, an OC3 includes 3 DS3s, an OC48 includes 48 DS3s, and an OC192 includes 192 DS3s. Specifically, the Commission proposes to require the reporting of all outages of at least 30 minutes duration that potentially affect at least 1,350 DS3 minutes. The Commission proposes to count only working DS3s in this measure, by which it means those actually carrying some traffic of any type at the time of a failure. The Commission requests comment on these conclusions and proposed rules.

22. Signaling System 7 (“SS7”). SS7 systems provide information to process, and terminate, virtually all domestic and international telephone calls irrespective of whether the call is wireless, wireline, local, long distance, or dial-up telephone modem access to ISPs. SS7 is also used in providing SMS text messaging services, 8XX number ( i.e., toll free) services, local number portability, VoIP Signaling Gateway services, 555 type number services, and most paging services. Currently the Commission's rules do not require outage reporting by those companies that do not provide service directly to end users. In addition, even for companies currently subject to outage reporting requirements, no threshold reporting criteria are currently based on blocked or lost SS7 messages.

23. As a consequence of the Commission's recognition of the critical role that SS7 plays in the national communications infrastructure, it proposes the addition of SS7 communications disruption reporting requirements. To be more specific, all providers of Signaling System 7 service (or its equivalent) would be required to report those communications disruptions of at least 30 minutes duration for which the number of blocked or lost ISDN User Part (ISUP) messages (or its equivalent) was at least 90,000. This reporting threshold is similar to the blocked-call criterion that was previously addressed in connection with LEC and IXC Tandem outages. The Commission requests comment on these conclusions and proposed addition to its rules.

24. Electronic Filing and New Reporting Process. Consistent with authority granted by the Communications Act of 1934, as amended, and in furtherance of the objectives of the Government Paperwork Elimination Act, the Commission proposes to require that communications outage reports be filed electronically. Electronic filing would have several major advantages for the Commission, reporting communications providers, and the public. For example:

• Providers would be able to file reports more rapidly and more efficiently.

• Information would be updated immediately. The expenses and efforts that are associated with the outage reporting process should be reduced substantially which, in turn, should result in continuing productivity gains.

• Changes to outage report data should be more easily accessible by communications providers, the public, and the Commission. Thus, reporting entities should be able to file initial and final report information more easily, and interested parties should also be able to access this information more quickly.

• Changes to electronic input form(s) can be implemented more quickly. Two of the purposes of the reliability database are to help identify causes of outages and to refine best practices for averting failures in communications networks. As networks evolve and experience is gained, the data fields can be more easily revised to improve the quality of the information received to reflect changes in communications infrastructures and management procedures.

• In addition, security precautions can be implemented to authenticate access by authorized users.

25. The Commission's current outage reporting rules do not require, or even refer to, electronic filing (other than by facsimile). Although it is understandable, in retrospect, that those rules did not incorporate electronic filing because the Internet was just beginning to expand in 1992, the time has now arrived to implement electronic filing procedures. These procedures should not only facilitate compliance with the objectives that are expressed in the Government Paperwork Elimination Act but also should improve service to the public, enhance the efficiency of our internal operations, and virtually eliminate any burden that would be associated with complying with the proposed reporting requirements. It may, however, be desirable for other reasons to have alternative ways by which outage reports can be filed with this Commission. The Commission requests comment on whether there are any circumstances under which electronic filing would not be appropriate and, if so, on what alternative filing procedures should be used in such circumstances. The Commission recognizes that as experience is gained with the electronic filing of outage reports, modifications to the filing template may be necessary to fully implement an automated outage reporting system that will maximize reporting efficiency and minimize the time for providers to prepare, and for the Commission staff to review, outage reports. The Commission also proposes to delegate authority to the Chief, Office of Engineering and Technology to make the revisions to the filing system and template that may become necessary to achieve these goals. The Commission seeks comment on these proposals.

26. Historically, outage reports from wireline carriers have been available to the public. The Commission seeks comment as to whether this policy should not be applied, in whole or in part, to outage reports that will be filed by wireless, wireline, satellite, or cable providers and, if so, why.

27. As required by the Regulatory Flexibility Act (“RFA”), 1 the Commission has prepared this Initial Regulatory Flexibility Act Analysis (“IRFA”) of the possible significant economic impact on small entities by the policies and rules proposed in this Notice of Proposed Rule Making (“NPRM”). Written public comments are requested on this IRFA and must be filed by May 25, 2004. The Commission will send a copy of the NPRM, including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration. 2 In addition, the NPRM (or summaries thereof), including the IRFA, will be published in the Federal Register . 3

A. Need for and Objectives of the Proposed Rules. We seek comment on whether communications providers, whose customers experience outages on any facilities that the providers own, operate, lease, or otherwise utilize, should be required to report those outages that meet the revised reporting criteria set forth in our proposed amendments to § 63.100 of the Commission's Rules, 47 CFR 63.100. The current rule applies outage-reporting requirements only to wireline common carriers and to circuit-switched telephony service, if any, that is offered by cable television service providers. Our proposal, however, would extend such requirements to those commercial mobile radio service (CMRS) providers that employ cellular architecture (“wireless service providers”), terrestrial or satellite paging providers, satellite communications providers, affiliated or non-affiliated entities that maintain or provide communications systems or services used by the provider in offering such communications, and Signaling System 7 (SS7) providers. We believe that this proposed extension of the outage reporting requirements will provide needed information for fulfilling our statutory responsibilities with respect to the reliability of communications and their underlying infrastructures, given the increasing substitutability of communications through different media and our Nation's increasing reliance on these substitutes for Homeland Defense and National Security. Similarly, the changes that we propose in the threshold reporting criteria are well tailored, we believe, to accomplish this objective. Our proposal to move the outage-reporting requirements out of part 63 and into part 4 of the Commission's rules reflects that the proposed rules would be adapted to and applied broadly across all communications platforms to the extent discussed in the Notice of Proposed Rule Making. Finally, the proposed rules would require electronic filing of outage reports, pursuant to the requirements of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1998, 44 U.S.C. 1704.

B. Legal Basis. The legal basis for the rule changes proposed in this NPRM are contained in sections 1, 4(i), 4(k), 4(o), 218, 219, 230, 256, 301, 302(a), 303(f), 303(g), 303(j), 303(r), 303(v), 403, 621(b)(3), and 621(d) of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(k), 154(o), 218, 219, 230, 256, 301, 302(a), 303(f), 303(g), 303(j), 303(r), 303(v), 403, 621(b)(3), and 621(d), and in section 1704 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1998, 44 U.S.C. 1704.

C. Description and Estimates of the Number of Small Entities to Which the Rules Adopted in This Notice May Apply. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that will be affected by the proposed rules. 4 The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” 5 In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. 6 A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA). 7

We further describe and estimate the number of small entity licensees and regulates that may be affected by rules adopted pursuant to this NPRM. The most reliable source of information regarding the total numbers of certain common carrier and related providers nationwide, as well as the number of commercial wireless entities, appears to be the data that the Commission publishes in its Trends in Telephone Service report. 8 The SBA has developed small business size standards for wireline and wireless small businesses within the three commercial census categories of Wired Telecommunications Carriers, 9 Paging, 10 and Cellular and Other Wireless Telecommunications. 11 Under these categories, a business is small if it has 1,500 or fewer employees. Below, using the above size standards and others, we discuss the total estimated numbers of small businesses that might be affected by our actions.

We have included small incumbent LECs in this present RFA analysis. As noted above, a “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard ( e.g., a wired telecommunications carrier having 1,500 or fewer employees), and “is not dominant in its field of operation.”  12 The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent LECs are not dominant in their field of operation because any such dominance is not “national” in scope. 13 We have therefore included small incumbent LECs in this RFA analysis, although we emphasize that this RFA action has no effect on Commission analyses and determinations in other, non-RFA contexts.

Wired Telecommunications Carriers. The SBA has developed a small business size standard for Wired Telecommunications Carriers, which consists of all such companies having 1,500 or fewer employees. 14 According to Census Bureau data for 1997, there were 2,225 firms in this category, total, that operated for the entire year. 15 Of this total, 2,201 firms had employment of 999 or fewer employees, and an additional 24 firms had employment of 1,000 employees or more. 16 Thus, under this size standard, the great majority of firms can be considered small.

Incumbent Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed a small business size standard specifically for incumbent local exchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. 17 According to Commission data, 18 1,337 carriers have reported that they are engaged in the provision of incumbent local exchange services. Of these 1,337 carriers, an estimated 1,032 have 1,500 or fewer employees and 305 have more than 1,500 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses that may be affected by our action.

Competitive Local Exchange Carriers (CLECs), Competitive Access Providers (CAPs), “Shared-Tenant Service Providers,” and “Other Local Service Providers.” Neither the Commission nor the SBA has developed a small business size standard specifically for these service providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. 19 According to Commission data, 20 609 carriers have reported that they are engaged in the provision of either competitive access provider services or competitive local exchange carrier services. Of these 609 carriers, an estimated 458 have 1,500 or fewer employees and 151 have more than 1,500 employees. In addition, 16 carriers have reported that they are “Shared-Tenant Service Providers,” and all 16 are estimated to have 1,500 or fewer employees. In addition, 35 carriers have reported that they are “Other Local Service Providers.” Of the 35, an estimated 34 have 1,500 or fewer employees and one has more than 1,500 employees. Consequently, the Commission estimates that most providers of competitive local exchange service, competitive access providers, “Shared-Tenant Service Providers,” and “Other Local Service Providers” are small entities that may be affected by our action.

Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a small business size standard specifically for providers of interexchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. 21 According to Commission data, 22 261 carriers have reported that they are engaged in the provision of interexchange service. Of these, an estimated 223 have 1,500 or fewer employees and 38 have more than 1,500 employees. Consequently, the Commission estimates that the majority of IXCs are small entities that may be affected by our action.

Wireless Service Providers. The SBA has developed a small business size standard for wireless small businesses within the two separate categories of Paging  23 and Cellular and Other Wireless Telecommunications. 24 Under both SBA categories, a wireless business is small if it has 1,500 or fewer employees. According to the Commission's most recent data, 25 1,387 companies reported that they were engaged in the provision of wireless service. Of these 1,387 companies, an estimated 945 have 1,500 or fewer employees and 442 have more than 1,500 employees. 26 Consequently, the Commission estimates that most wireless service providers are small entities that may be affected by the rules and policies adopted.

Broadband Personal Communications Service. The broadband Personal Communications Service (PCS) spectrum is divided into six frequency blocks designated A through F, and the Commission has held auctions for each block. The Commission defined “small entity” for Blocks C and F as an entity that has average gross revenues of $40 million or less in the three previous calendar years. 27 For Block F, an additional classification for “very small business” was added and is defined as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years.” 28 These standards defining “small entity” in the context of broadband PCS auctions have been approved by the SBA. 29 No small businesses, within the SBA-approved small business size standards bid successfully for licenses in Blocks A and B. There were 90 winning bidders that qualified as small entities in the Block C auctions. A total of 93 small and very small business bidders won approximately 40 percent of the 1,479 licenses for Blocks D, E, and F. 30 On March 23, 1999, the Commission re- auctioned 347 C, D, E, and F Block licenses. There were 48 small business winning bidders. On January 26, 2001, the Commission completed the auction of 422 C and F Broadband PCS licenses in Auction No. 35. Of the 35 winning bidders in this auction, 29 qualified as “small” or “very small” businesses. Based on this information, the Commission concludes that the number of small broadband PCS licenses would have included the 90 winning C Block bidders, the 93 qualifying bidders in the D, E, and F Block auctions, the 48 winning bidders in the 1999 re-auction, and the 29 winning bidders in the 2001 re-auction, for a total of 260 small entity broadband PCS providers, as defined by the SBA small business size standards and the Commission's auction rules. Consequently, the Commission estimates that 260 broadband PCS providers would have been small entities that could be affected by the rules and policies adopted herein. The results of Auction No. 35, however, were set aside and the licenses previously awarded to NextWave, which had qualified as a small entity, were reinstated. Therefore, the Commission estimates that less than 260 broadband PCS providers will be small entities that may be affected by the rules and policies adopted herein.

Narrowband Personal Communications Services. To date, two auctions of narrowband personal communications services (PCS) licenses have been conducted. For purposes of the two auctions that have already been held, “small businesses” were entities with average gross revenues for the prior three calendar years of $40 million or less. Through these auctions, the Commission has awarded a total of 41 licenses, out of which 11 were obtained by small businesses. To ensure meaningful participation of small business entities in future auctions, the Commission has adopted a two-tiered small business size standard in the Narrowband PCS Second Report and Order. 31 A “small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $40 million. A “very small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $15 million. The SBA has approved these small business size standards. 32 In the future, the Commission will auction 459 licenses to serve Metropolitan Trading Areas (MTAs) and 408 response channel licenses. There is also one megahertz of narrowband PCS spectrum that has been held in reserve and that the Commission has not yet decided to release for licensing. The Commission cannot predict accurately the number of licenses that will be awarded to small entities in future actions. However, four of the 16 winning bidders in the two previous narrowband PCS auctions were small businesses, as that term was defined under the Commission's Rules. The Commission assumes, for purposes of this analysis that a large portion of the remaining narrowband PCS licenses will be awarded to small entities. The Commission also assumes that at least some small businesses will acquire narrowband PCS licenses by means of the Commission's partitioning and disaggregation rules.

800 MHz and 900 MHz Specialized Mobile Radio Licenses. The Commission awards “small entity” and “very small entity” bidding credits in auctions for Specialized Mobile Radio (SMR) geographic area licenses in the 800 MHz and 900 MHz bands to firms that had revenues of no more than $15 million in each of the three previous calendar years, or that had revenues of no more than $3 million in each of the previous calendar years, respectively. 33 These bidding credits apply to SMR providers in the 800 MHz and 900 MHz bands that either hold geographic area licenses or have obtained extended implementation authorizations. The Commission does not know how many firms provide 800 MHz or 900 MHz geographic area SMR service pursuant to extended implementation authorizations, nor how many of these providers have annual revenues of no more than $15 million. One firm has over $15 million in revenues. The Commission assumes, for purposes here, that all of the remaining existing extended implementation authorizations are held by small entities, as that term is defined by the SBA. The Commission has held auctions for geographic area licenses in the 800 MHz and 900 MHz SMR bands. There were 60 winning bidders that qualified as small or very small entities in the 900 MHz SMR auctions. Of the 1,020 licenses won in the 900 MHz auction, bidders qualifying as small or very small entities won 263 licenses. In the 800 MHz auction, 38 of the 524 licenses won were won by small and very small entities. Consequently, the Commission estimates that there are 301 or fewer small entity SMR licensees in the 800 MHz and 900 MHz bands that may be affected by the rules and policies adopted herein.

Paging. The SBA has developed a small business size standard for Paging, which consists of all such firms having 1,500 or fewer employees. 34 According to Census Bureau data for 1997, in this category there was a total of 1,320 firms that operated for the entire year. 35 Of this total, 1,303 firms had employment of 999 or fewer employees, and an additional seventeen firms had employment of 1,000 employees or more. 36 Thus, under this size standard, the majority of firms can be considered small.

Rural Radiotelephone Service. The Commission has not adopted a size standard for small businesses specific to the Rural Radiotelephone Service. 37 A significant subset of the Rural Radiotelephone Service is the Basic Exchange Telephone Radio System (BETRS). 38 The Commission uses the SBA's small business size standard applicable to “Cellular and Other Wireless Telecommunications,” i.e. , an entity employing no more than 1,500 persons. 39 There are approximately 1,000 licensees in the Rural Radiotelephone Service, and the Commission estimates that there are 1,000 or fewer small entity licensees in the Rural Radiotelephone Service that may be affected by the rules and policies adopted.

Cable and Other Program Distribution. 40 This category includes cable systems operators, closed circuit television services, direct broadcast satellite services, multipoint distribution systems, satellite master antenna systems, and subscription television services. According to Census Bureau data for 1997, there were a total of 1,311 firms in this category, total, that had operated for the entire year. 41 Of this total, 1,180 firms had annual receipts of under $10 million and an additional 52 firms had receipts of $10 million or more but less than $25 million. Consequently, the Commission estimates that the majority of providers in this service category are small businesses that may be affected by the rules and policies adopted herein.

Satellite Telecommunications Providers. The appropriate size standards under SBA rules are for the two broad categories of Satellite Telecommunications and Other Telecommunications. Under both categories, such a business is small if it has $12.5 or less in average annual receipts. 42 For the first category of Satellite Telecommunications, Census Bureau data for 1997 show that there were a total of 324 firms that operated for the entire year. 43 Of this total, 273 firms had annual receipts of under $10 million, and an additional twenty-four firms had receipts of $10 million to $24,999,999. Thus, the majority of Satellite Telecommunications firms can be considered small.

Signaling System 7 (SS7) Providers. The Commission has not developed a definition of small entities applicable to Signaling System 7 providers. We shall apply the SBA's small business size standard for Other Telecommunications, which identifies as small all such companies having $12.5 million or less in annual receipts. 44 We believe that there are no more than half-a-dozen SS7 providers and doubt that any of them have annual receipts less then $12.5 million. Nonetheless, we shall assume that there may be several SS7 providers that are small businesses which could be affected by the proposed rules. We request comment on how many SS7 providers exist and on how many of these are small businesses that may be affected by our proposed rules.

D. Description of Projected Reporting, Recordkeeping and Other Compliance Requirements. The rules proposed in this NPRM would require telecommunications providers to report those outages that meet specified threshold criteria. These criteria are largely determined by the number of end users potentially affected by the outage and the duration of the outage, which generally must be at least 30 minutes. Under the current rules, which apply only to wireline carriers and cable television service providers that also provide telecommunications service, only about 200 outage reports per year from all reporting sources combined are filed with the Commission. The proposed revisions to the threshold criteria are not expected to alter the number of outage reports filed annually to a significant degree. Nevertheless, the proposed rules would extend the outage reporting requirements to telecommunications providers that are not currently subject to these rules. Therefore, we anticipate that more than 200 outage reports will be filed annually, but estimate that the total number of reports from all reporting sources combined will be substantially less than 1,000 annually. We note that, occasionally, the proposed outage reporting requirements could require the use of professional skills, including legal and engineering expertise. Without more data, we cannot accurately estimate the cost of compliance by small telecommunications providers. But irrespective of any of the reporting requirements that we are proposing here, we expect that telecommunications providers will track, investigate, and correct all of their service disruptions as an ordinary part of conducting their business operations—and will do so for service disruptions that are considerably smaller than for disruptions that would trigger the reporting criteria that we propose here. As a consequence, we believe that in the usual case, the only burden associated with the reporting requirements contained in this Notice will be the time required to complete the initial and final reports. We anticipate that electronic filing, through the type of template that we have identified in Appendix B of the NPRM, should minimize the amount of time and effort that will be required to comply with the rules that we propose in this proceeding. In this IFRA, we therefore seek comment on the types of burdens telecommunications providers will face in complying with the proposed requirements. Entities, especially small businesses and small entities, more generally, are encouraged to quantify the costs and benefits of the proposed reporting requirements.

E. Steps Taken To Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered. Since the inception of the outage-reporting requirements in 1992, the number of outages reported each year has remained relatively steady at about 200. Since 1992, the substitutability of telecommunications through different media has increased substantially, and our Nation increasingly relies on these substitutes for Homeland Defense and National Security. We believe that the proposed telecommunications outage reporting requirements are minimally necessary to assure that we receive adequate information to perform our statutory responsibilities with respect to the reliability of telecommunications and their infrastructures. Also, we believe that the magnitude of the outages needed to trigger the reporting requirements ( e.g. , outages of at least 30 minutes duration that potentially affect at least 900,000 user minutes) are sufficiently high as to make it unlikely that small businesses would be impacted significantly by the proposed rules. Finally, we believe that the proposed requirement that outage reports be filed electronically would significantly reduce the burdens and costs currently associated with manual filing processes.

F. Federal Rules That Might Duplicate, Overlap, or Conflict With the Proposed Rules. None.

26. Pursuant to the authority contained in sections 1, 4(i)-(j), 4(k), 4(o), 218, 219, 230, 256, 301, 302(a), 303(f), 303(g), 303(j), 303(r), 403, 621(b)(3), and 621(d) of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i)-(j), 154(k), 154(o), 218, 219, 230, 256, 301, 302(a), 303(f), 303(g), 303(j), 303(r), 403, 621(b)(3), and 621(d), and in § 1704 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1998, 44 U.S.C. 3504, this Notice of Proposed Rulemaking IS ADOPTED.

27. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend parts 0 and 63 and add a new part 4 of chapter I of title 47 of the CFR as follows:

We are enhancing our oversight of experience-rated FEHB contracts by requiring carriers to apply additional cost principles and procedures. We currently contract with thirty-two experience-rated fee-for-service carriers and Health Maintenance Organizations (HMOs).

Under the FEHB law, 5 U.S.C. 8902, it is part of OPM's responsibility to ensure that rates charged by health benefits plans reasonably and equitably reflect the cost of the benefits provided. Our interest, from a financial standpoint, is to pay a reasonable price for the health care coverage we purchase from private contractors on behalf of FEHB enrollees.

OPM's independent Inspector General regularly audits experience-rated carriers to determine if they are in compliance with the Cost Principles in part 31 of title 48, Code of Federal Regulations (the Federal Acquisition Regulation (FAR)) and chapter 16 of title 48, Code of Federal Regulations (FEHBAR)). In addition, we have other requirements and practices in place to provide assurance to FEHB Program administrators that carriers' financial reporting and contractual requirements are met. The FEHBAR and part 31 of the FAR are the sole sources of cost accounting principles and practices for FEHB contracts. The basic cost accounting principles in part 31 of the FAR have been in place for over 40 years. During this time period, significant improvements in cost accounting principles and practices have been made. Advances in information technology have enabled FEHB contractors to implement cost accounting practices more complex than those generally used when we adopted the FAR cost principles. Also, we have observed some differences in interpretation regarding the allocation of costs to carriers' contracts. Therefore, we are updating the FEHBAR to allow carriers to use more current contract cost accounting principles and practices and to provide for consistent interpretation of our requirements across the Program. FAR Part 31 provides certain factors that are required to be considered in allocating indirect costs and which must accord with generally accepted accounting principles (GAAP) that are consistently applied. It does not, however, provide specific guidance on the formation of indirect cost groupings and the methods for their allocation. This regulation provides guidance to carriers on allocating certain indirect costs to FEHB experience-rated contracts. For example, we have included a section to supplement FAR 31.203 that describes techniques for accumulating and allocating groupings of indirect costs (FEHBAR 1631.203-70). We have also provided more guidance on the allocation of business unit general and administrative expenses (FEHBAR 1631.203-71) and home office expenses to carriers' business segments (FEHBAR 1631.203-72). These sections also supplement FAR 31.203. Our intent is to supplement, but not to supplant FAR. Therefore, we believe that the provisions of FAR 31.203 dealing with the allocation of indirect costs, including G&A expenses and home office expenses, are rendered more useful for our purposes when supplemented by FEHBAR 1631.203 -70: 71 and 72. We believe that the proposed FEHBAR provisions are compatible with existing FAR provisions dealing with the allocation of indirect costs. However, any comments on this topic would be appreciated. In addition, we have modified the FEHBAR to specifically recognize that monthly indirect cost rates are a practice of the insurance industry and are therefore permitted by FAR 31.203(e)(2).

We have added subrogation settlements, prescription drug rebates, and volume discounts to the list of FEHB credits in FEHBAR 1631.201-70. This guidance specifies that the applicable portion of any credit relating to any allowable cost and received by or accruing to the carrier must be credited to the FEHB Program. We have always expected carriers to ensure that the Program actually receives these credits. Idewntifying them makes it even clearer that they are to be credited to the Program. While the list of credits is not intended to be exhaustive, we have added these examples to demonstrate how all credits should be treated. Other enhancements we have made include modifying FAR 31.205-10 to make facilities cost of money (COM) allowable under certain circumstances, even if it is not specifically identified in a carrier proposal (FEHBAR 1631.205-10). This change is intended to more closely reflect the procedures we follow in our annual negotiation process with carriers.

We have also added a provision to establish that compensated personal absence must be assigned to the cost accounting period in which the entitlement was earned (FEHBAR 1631.205-72). This section is included to ensure all carriers are following GAAP requirements applicable to accrual procedures. We are also providing a transition rule to permit carriers to recover prior years' allocable liability for compensated personal absence not previously charged to FEHB contracts. We believe that the provisions of this section ensure that there is compatibility between the applicable requirements of GAAP, FAR and FEHBAR. It should be also stressed that the transition rule dealing with the recovery of prior years' costs applies only to costs that have not been previously charged to contracts or other final cost objectives. Any relevant comments on these points would be appreciated.

Consistent with OPM's waiver of Cost Accounting Standards (CAS) requirements, a new Subpart 1699.70 is added to clarify they do not apply to experience rated FEHB contracts.

We have worked collaboratively with carriers to develop procedures that are consistent with insurance industry practices and assure an equitable allocation of costs to the FEHB Program. When added to our current financial reporting and disclosure requirements, these new provisions will enhance our oversight of the FEHB Program. Because they have been developed in coordination with the standard practices used by experience-rated carriers, we expect they can be implemented within the FEHB Program promptly and without impediments, following the public comment period.

I certify that this regulation will not have a significant economic impact on a substantial number of small entities because it is based on requirements already in place in the Federal Acquisition Regulation (FAR).

This rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866.

Accordingly, we propose to amend chapter 16 of title 48, Code of Federal Regulations, as follows:

1. The authority citations for 48 CFR part 1631 continues to read as follows:

The Mexican spotted owl (owl) inhabits canyon and montane forest habitats across a range that extends from southern Utah and Colorado, through Arizona, New Mexico, and west Texas, to the mountains of central Mexico. On November 18, 2003 (68 FR 65020), we reopened the public comment period on our July 21, 2000, proposed rule to designate critical habitat for the owl (65 FR 45336). The proposal included approximately 5.5 million hectares (ha) (13.5 million acres (ac)) in Arizona, Colorado, New Mexico, and Utah, mostly on Federal lands. On November 12, 2003, the United States District Court for the District of Arizona, ( Center for Biological Diversity v. Norton, Civ. No. 01-409 TUC DCB), ordered the Service to submit a final rule for designation of critical habitat for the owl to the Federal Register by August 20, 2004. Additional background information is available in the November 18, 2003, notice reopening the public comment period.

Critical habitat identifies specific areas, both occupied and unoccupied, that are essential to the conservation of a listed species and that may require special management considerations or protection. If the proposed rule is made final, section 7 of the Act will prohibit adverse modification of critical habitat by any activity funded, authorized, or carried out by any Federal agency. Federal agencies proposing actions affecting areas designated as critical habitat must consult with us on the effects of their proposed actions, pursuant to section 7(a)(2) of the Act.

Section 4 of the Act requires that we consider economic and other relevant impacts prior to making a final decision on what areas to designate as critical habitat. We have developed a draft economic analysis and draft environmental assessment for the proposal to designate certain areas as critical habitat for the owl. We solicit data and comments from the public on these draft documents, as well as on all aspects of the proposal. We may revise the proposal, or its supporting documents, to incorporate or address new information received during the comment period. In particular, we may exclude an area from critical habitat if we determine that the benefits of excluding the area outweigh the benefits of including the area as critical habitat, provided such exclusion will not result in the extinction of the species.

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

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

(2) Specific information on the amount and distribution of the owl and its habitat, and which habitat is essential to the conservation of the species and why;

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

(4) Whether our approach to critical habitat designation could be improved or modified in any way to provide for greater public participation and understanding, or to assist us in accommodating public concerns and comments;

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

(6) Whether the economic analysis identifies all State and local costs. If not, what other costs are overlooked;

(7) Whether the economic analysis makes appropriate assumptions regarding current practices and likely regulatory changes imposed as a result of the designation of critical habitat;

(8) Whether the economic analysis correctly assesses the effect on regional costs associated with land use controls that derive from the designation;

(9) Whether the designation will result in disproportionate economic impacts to specific areas that should be evaluated for possible exclusion from the final designation; and

(10) Whether the economic analysis appropriately identifies all costs that could result from the designation.

We also are continuing to accept comments on the proposed critical habitat designation. If you wish to comment, you may submit your comments and materials concerning this proposal by any one of several methods ( see ADDRESSES ).

Comments previously submitted on the July 21, 2000, proposed rule (65 FR 45336) or the November 18, 2003, notice (68 FR 65020) need not be resubmitted as they have been incorporated into the public record as part of this reopening of the comment period and will be fully considered in preparation of the final rule. Comments submitted during this comment period also will be incorporated into the public record and will be fully considered in the final rule. We are required by court order to complete the final designation of critical habitat for the owl by August 20, 2004. To meet this date, all comments or proposed revisions to the proposed rule, associated draft economic analysis, and draft environmental assessment need to be submitted to us during the comment period reopened by this document ( see DATES ).

Our practice is to make comments, including names and home addresses of respondents, available for public review during regular business hours. Individual respondents may request that we withhold their home address, which we will honor to the extent allowable by law. If you wish us to withhold your name or address, you must state this request prominently at the beginning of your comments. However, we will not consider anonymous comments. To the extent consistent with applicable law, we will make all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, available for public inspection in their entirety.

Comments and materials received, as well as supporting documentation used in preparation of the proposal to designate critical habitat, will be available for public inspection, by appointment, during normal business hours at the New Mexico Field Office ( see ADDRESSES ).

The authority for this action is the Endangered Species Act of 1973 (16 U.S.C. 1531 et seq. ).

In 1997, Amendment 5 to the FMP established a limited entry program for the Illex squid fishery in response to a concern that fishing capacity could otherwise expand to overexploit the stock. At the time the program was established, there was a concern that the capacity of the limited entry vessels might prove, over time, to be insufficient to fully exploit the annual quota. In response to this concern, a 5-year sunset provision was placed on the Illex squid limited entry program. Frameworks 2 and 3 to the FMP each extended the Illex squid moratorium for 1 year, and it is scheduled to expire on July 1, 2004. Since the implementation of the limited entry program, the Illex squid fishery's performance has demonstrated that the current fleet possesses the capacity to harvest the long-term potential yield from this fishery. The Mid-Atlantic Fishery Management Council (Council) is considering a permanent resolution to the issue of limited entry in an amendment to the FMP (Amendment 9). The Council was planning to present the public hearing document/DEIS for Amendment 9 at its June 2003 meeting, but NMFS review of the draft document indicated that extensive revisions were needed. As a result, the Council developed this action that would extend the moratorium until July 1, 2009, to prevent overcapitalization while Amendment 9 is being revised and considered by the Council. This extension would comply with the criteria in section 303(b)(6) of the Magnuson-Stevens Act. The extension would allow the Council additional time to consider long-term management for the Illex squid fishery, including the limited entry program. Vessels that took small quantities of Illex squid in the past may continue to do so under the incidental catch provision of the FMP.

This proposed rule has been determined to be not significant for purposes of Executive Order 12866.

The Council prepared an FEIS for this action; a notice of availability of the Draft Environmental Impact Statement was published on September 26, 2003 (68 FR 55604). A description of the action, why it is being considered, and the legal basis for this action are contained in the SUPPLEMENTARY INFORMATION section of the preamble of this proposed rule. This proposed rule does not duplicate, overlap, or conflict with other Federal rules. There are no new reporting or recordkeeping requirements contained in any of the alternatives considered for this action.

An IRFA was prepared that describes the impact this proposed rule, if adopted, would have on small entities. There are 72 vessels that have been issued moratorium permits, all of which would be impacted by this action. Since per vessel costs are not available for vessels participating in the Illex moratorium fishery, individual vessel profitability could not be estimated. Therefore, changes in gross revenue of the aggregate fleet is used as a proxy for changes in individual vessel profitability. Furthermore, assumptions are made that revenue losses and gains are shared equally among these vessels. There are no large entities (vessels) participating in this fishery, as defined in section 601 of the Regulatory Flexibility Act. Therefore, there are no disproportionate economic impacts. The preferred alternative is not expected to affect revenues or profits of the vessels that currently participate in the fishery. A copy of the complete analysis can be obtained from the Council (see ADDRESSES ) or via the Internet at http://www.nero.noaa.gov . A summary of the analysis follows.

In addition to the preferred Alternative 1, the Council considered three non-preferred alternatives. Alternative 2 would extend the moratorium on entry to the Illex fishery for an additional 2 years (through July 1, 2005); Alternative 3 would allow the moratorium on entry to the Illex fishery to expire on July 1, 2004 (no action); and Alternative 4 would extend the moratorium on entry to the Illex fishery indefinitely. Alternative 4 was rejected from further consideration and analysis because the Council considered the measure to be beyond the scope of a framework action. The framework adjustment process set forth at 50 CFR 648.24 is a mechanism to add management measures to or adjust management measures in the FMP. As a consequence, the Illex squid moratorium limitation in the FMP is subject to an adjustment through this framework adjustment process. As reflected in the administrative record underlying the adoption and implementation of this process, this process was developed to make revisions to the measures in the FMP that did not represent major changes to the cornerstone provisions of the FMP. One of the cornerstone provisions in the FMP is the moratorium on entry into the Illex squid fishery, which, by virtue of Amendment 5 to the FMP, is of limited duration. Alternative 4 of Framework Action 4 would eliminate the sunset provision of the moratorium and extend the moratorium indefinitely. This would ostensibly close the door on new entry into the fishery. Such a change goes beyond an adjustment to the Illex squid moratorium provision of the FMP that can be effected through the framework adjustment. This is the basis for the conclusion that Alternative 4 should be rejected. The framework process involves a somewhat truncated administrative process that incorporates the opportunity for public participation at two Council meetings, which are currently held some 6 weeks apart. Consideration of extension of the Illex moratorium indefinitely demands a more deliberative and widespread public process. Under the Magnuson-Stevens Act, the process of amending the FMP is the appropriate mechanism to extend the moratorium indefinitely. This alternative is currently being considered in Amendment 9 to the FMP.

The preferred alternative and Alternative 2 would both extend the moratorium on entry of new vessels into the Illex fishery; therefore, no impact is expected on vessels in the fishery through 2009, compared to individual vessel revenues in 2002. The Council assumed that the market and prices would remain stable. Therefore, any changes in individual vessel revenues would be the result of factors outside the scope of the moratorium (e.g., change in fishing practices for individual vessels, or changes in abundance and distribution of Illex squid).

Under Alternative 3, the no-action alternative, the Illex fishery would revert to open access. In 2002, there were 72 vessels permitted to participate in the directed Illex fishery, however, only 50 percent of those vessels (36 vessels) landed any Illex squid in 2002. The Illex squid vessels currently permitted to participate in the fishery have the capability to harvest the total harvest level. In fact, in 1998, permitted vessels were able to land the total harvest level and the fishery was closed early that year. That year, more than 99 percent of the total Illex squid landings were made by 37 vessels or about 50 percent of the vessels holding Illex moratorium permits. The remaining 1 percent of the Illex squid landings were made by 71 vessels holding incidental catch permits. The elimination of the moratorium of entry to the Illex fishery will not affect the manner in which the total harvest level for this species is established. The Illex fishery is managed through annual specifications and management measures, which are designed to assure that the target harvest level is not exceeded. Thus, overall Illex landings will not be affected. However, if a significant number of additional vessels enter the fishery as a consequence of Alternative 3, it is possible that the open access condition may affect the current revenue structures of participants and/or create derby-style fishing practices which could potentially lead to an early closure. This situation may create market gluts and price instability in the fishery.

For the reasons set out in the preamble, 50 CFR part 648 is proposed to be amended as follows:

1. The authority citation for part 648 continues to read as follows:

2. In § 648.4, the heading of paragraph (a)(5)(i) is revised to read as follows: