Executive Order 12866

This rule has been determined to be not significant and was not reviewed by the Office of Management and Budget under Executive Order 12866.

This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). Roberto Salazar, Administrator, Food and Nutrition Service (FNS), has certified that this rule would not have a significant economic impact on a substantial number of small entities. This rule would modify language used in WIC infant formula rebate solicitations and contracts, as well as in vendor agreements. The effect of these changes would fall primarily on State agencies. Vendors authorized by the WIC Program to provide supplemental foods, some of which are small entities, could also be affected. However, the impact on small entities is expected to be minimal.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local and tribal governments and the private sector. Under section 202 of the UMRA, the FNS generally must prepare a written statement, including a cost benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local or tribal governments, in the aggregate, or the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires FNS to identify and consider a reasonable number of regulatory alternatives and adopt the most cost-effective or least burdensome alternative that achieves the objectives of the rule.

This proposed rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local and tribal governments or the private sector of $100 million or more in any one year. Thus, the rule is not subject to the requirements of sections 202 and 205 of the UMRA.

The Special Supplemental Nutrition Program for Women, Infants and Children (WIC) is listed in the Catalog of Federal Domestic Assistance under 10.557. For the reasons set forth in the final rule in 7 CFR 3015, Subpart V and related Notice (48 FR 29115), this program is included in the scope of Executive Order 12372, which requires intergovernmental consultation with State and local officials.

Executive Order 13132 requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement for inclusion in the preamble to the regulations describing the agency's considerations in terms of the following three categories called for under section (6)(b)(2)(B) of Executive Order 13132.

Prior to drafting this rule, we consulted with State agencies at various times. Because the WIC Program is a State-administered, federally funded program, our regional offices have formal and informal discussions with State agencies on an ongoing basis regarding program implementation and policy issues. This arrangement allows State agencies to raise questions and provide comments that form the basis for discretionary decisions in this and other WIC Program rules. We have also received oral and written requests for policy guidance on the implications of the Food Delivery Systems Final Rule from State agencies that deliver WIC services. These questions have helped us make the rule responsive to concerns of State agencies.

The rule addresses the need to assure the soundness of infant formula rebate solicitations and contracts. With limited exceptions, all State agencies must continuously operate a cost containment system for infant formula. Some have also established similar cost containment measures for other supplemental foods, such as infant juice and cereal. As a result of these systems, State agencies receive over $1.5 billion annually in rebates on infant formula and other supplemental foods purchased by WIC participants. The rebates that State agencies receive allow them to maintain, and in some cases expand, program participation.

Infant formula manufacturers have questioned the inclusion of requirements to provide free formula, services, or other items in infant formula bid solicitations. Receipt of free formula reduces the amount of formula that the State agency potentially could purchase under rebate contracts and may lower the level of rebate bids received. A lower rebate could lead to a reduction in the number of eligible persons that the WIC Program is able to serve. This rule would modify the requirements for rebate solicitations and contracts to address this issue and thereby promote the viability of infant formula cost containment systems.

The rule also would address two issues affecting WIC vendors. First, State agencies have questioned the need to offer a full administrative review to vendors who receive a WIC civil money penalty as a result of FSP disqualification. State agencies are required to impose a civil money penalty when they determine that an authorized vendor that has been disqualified from the FSP is needed to ensure participant access to supplemental foods. In responding to this issue, the rule seeks to assure a vendor's right to due process while encouraging the most cost-effective use of State agency resources.

In addition, while implementing the WIC Food Delivery Systems Final Rule, State agencies have sought approval to release basic vendor information that the rule designates as confidential. This proposed rule seeks to accommodate State agency requests to release such information, while preserving the overall confidentiality of vendor information.

The rule would substantially resolve the vendor management problems State agencies have identified. It increases a State agency's flexibility in conducting appeals of a civil money penalty imposed in lieu of reciprocal disqualification from the WIC Program, and in disclosing vendor information as part of sound program management. It also supports the integrity of State agency infant formula rebate systems by eliminating gratis provisions in infant formula cost-containment contracts.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform, and is intended to have preemptive effect with respect to any State or local laws, regulations or policies which conflict with its provisions or which would otherwise impede its full implementation. This rule is not intended to have retroactive effect unless so specified in the EFFECTIVE DATE paragraph of the final rule. Prior to any judicial challenge to the provisions of this rule or the application of its provisions, all applicable administrative procedures must be exhausted.

FNS has reviewed this proposed rule in accordance with Departmental Regulation 4300-4, “Civil Rights Impact Analysis,” to identify and address any major civil rights impacts this rule might have on minorities, women, and persons with disabilities. All data available to FNS indicate that protected individuals have the same opportunity to participate in the WIC Program as non-protected individuals. FNS specifically prohibits State and local government agencies that administer the WIC Program from engaging in actions that discriminate based on race, color, national origin, sex, age or disability. Regulations at 7 CFR 246.8 specifically state that Department of Agriculture regulations on non-discrimination (7 CFR parts 15, 15a and 15b) and FNS instructions ensure that no person shall on the grounds of race, color, national origin, age, sex, or disability be excluded from participation in, be denied benefits of, or be otherwise subjected to discrimination under the Program.

Discrimination in any aspect of program administration is prohibited by these regulations, Department of Agriculture regulations on non-discrimination (7 CFR parts 15, 15a, and 15b), the Age Discrimination Act of 1975 (Pub. L. 94-135), the Rehabilitation Act of 1973 (Pub. L. 93-112, section 504), and title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d). Enforcement action may be brought under any applicable Federal law. Title VI complaints shall be processed in accordance with 7 CFR part 15. Where State agencies have options, and they choose to implement a particular provision, they must implement it in such a way that it complies with the regulations at 7 CFR 246.8.

The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 1320) requires that the Office of Management and Budget (OMB) approve all collections of information by a Federal agency from the public before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a current valid OMB control number. This proposed rule contains no new information collection requirements that are subject to OMB approval. The existing recordkeeping and reporting requirements, which were approved under OMB control number 0584-0043, will not change as a result of this rule.

FNS is committed to compliance with the Government Paperwork Elimination Act (GPEA), which requires Government agencies to provide the public the option of submitting information or transacting business electronically to the maximum extent possible.

On December 29, 2000, the WIC Food Delivery Systems Final Rule as published at 65 FR 83248, made major amendments to the WIC Program regulations in response to an increasing concern on the part of FNS, States, the Office of the Inspector General, and Congressional reviewers that the WIC Program was vulnerable to abuse by vendors and participants. It was also believed that WIC could serve additional participants at no additional cost by eliminating the abuse. The WIC Food Delivery Systems Final Rule responded to this concern by providing detailed standards for effective vendor management systems, including mandatory selection criteria, training requirements, high-risk vendor identification criteria, and vendor monitoring requirements. As WIC State agencies consistently apply these standards, program accountability and efficiency in food delivery should increase.

FNS postponed the implementation date of the rule from February 27, 2002, to October 1, 2002, to give State agencies additional time to modify policies, procedures, and management information systems and to notify vendors and others affected by impending changes. Since that time, FNS has provided technical assistance and clarifications to State agencies regarding the rule's intent and requirements.

This proposed regulation responds to vendor management issues that have arisen subsequent to the publication of the WIC Food Delivery Systems Final Rule. The limited provisions of this proposed rule are consistent with the objectives of the WIC Food Delivery Systems Final Rule. They promote sound vendor management practices and seek to maximize the funds available to State agencies for providing supplemental foods.

In response to rising food costs in the 1980's and the desire to use their food grants more efficiently, several WIC State agencies initiated infant formula rebate systems. At the time, infant formula expenditures represented almost 40 percent of all WIC food costs, making infant formula rebates an important cost-containment strategy. Rebate savings amounted to just over $30 million in fiscal year 1988 and grew to about $1.5 billion in fiscal year 2003. These rebate savings are a critical component of the WIC Program, allowing an additional two million participants (nearly one out of every four participants) to be served. Without these savings, millions of low-income women, infants and children would not have the advantage of nutritious supplemental foods, nutrition education, and health care referrals provided by the WIC Program.

Building on the success of voluntary State infant formula rebate systems, Public Law 100-460, the Department's fiscal year 1989 appropriations act, required all WIC State agencies (except Indian State agencies with participation levels under 1,000) to explore the feasibility of cost-containment measures for infant formula and implement such measures where feasible. As a result of this mandatory legislative requirement, WIC State agencies with participation levels over 1,000 implemented infant formula cost-containment measures, primarily infant formula rebate systems.

The passage of the Child Nutrition and WIC Reauthorization Act of 1989 (section 123(a)(6) of Pub. L. 101-147) made this cost-containment requirement a permanent program feature. As a result, section 17(h)(8)(A) of the Child Nutrition Act of 1966 (CNA), as amended (42 U.S.C. 1786(h)(8)(A)), requires WIC State agencies to implement a competitive bidding system for the procurement of infant formula, or an alternate infant formula cost-containment measure that yields savings equal to or greater than savings generated by a competitive bidding system.

Over time, infant formula cost-containment systems have changed considerably. Current rebate regulations were last updated through an interim rule published on August 23, 2000, at 65 FR 51213, which addressed a number of contracting issues and bid evaluation requirements. This proposed rule further strengthens the bid solicitation and contracting process for infant formula cost-containment systems.

Over the past several years the Department has noticed an increase in the quantity of sample infant formula required in infant formula rebate solicitations and contracts. The Department is concerned not only with the increased quantity of sample infant formula required in rebate contracts, but also with contract requirements for other gratis items, such as educational materials, conference support, and supplies. Gratis provisions could have the effect of reducing rebate savings not only to individual State agencies, but also to the WIC Program nationally.

Historically the Department has discouraged the inclusion of gratis provisions in infant formula rebate contracts, including requirements for free units of infant formula. We believe that such stipulations generate lower rebate bids, primarily because such extras are not “free”. Therefore, the proposed regulations at 7 CFR 246.16a(j)(4) would prohibit State agencies from issuing rebate bid solicitations or entering into rebate contracts that contain provisions requiring bidders to provide gratis products and services, such as sample infant formula.

State agencies that provide sample infant formula to infants in limited situations, such as when trying to determine the specific infant formula to use to address a particular medical condition, may purchase reasonable quantities of sample formula for this purpose with WIC food funds.

The Department proposes to require a State agency to offer an abbreviated administrative review when a vendor appeals a WIC civil money penalty (CMP) imposed in lieu of a disqualification that stems from a FSP disqualification. Section 17(n) of the CNA and regulations at 7 CFR 246.12(l)(1)(vii) require a WIC State agency to disqualify a vendor who has been disqualified from the FSP, unless participant access would be jeopardized. The disqualification is not subject to administrative or judicial review under the WIC Program. If the State agency determines that the vendor is needed to ensure participant access to supplemental foods, the State agency must impose a CMP in lieu of a disqualification as provided in WIC regulations at 7 CFR 246.12(l)(1)(ix). Under regulations at 7 CFR 246.18(a)(1)(i), the imposition of a CMP in lieu of disqualification is subject to a full administrative review.

The Department believes that a CMP imposed in lieu of a reciprocal disqualification does not warrant a full administrative review. Rather, such action should be subject to an abbreviated administrative review because at issue are two factual questions only, namely, whether the vendor has been disqualified from the FSP and whether the State agency correctly calculated the amount of the CMP. Answers to these questions can easily be established within the context of an abbreviated review; thus, the expenditure of time and resources required to conduct a full administrative review is unwarranted. Offering an abbreviated review would be the more cost-effective means of honoring the vendor's due process protections.

In addition to its cost-effectiveness, an abbreviated administrative review for a CMP based on a reciprocal WIC disqualification is consistent with the adverse actions for which WIC regulations currently allow abbreviated reviews. Regulations at 7 CFR 246.18(a)(1)(ii) identify adverse actions that are subject to abbreviated administrative reviews. This section specifies that the State agency must provide abbreviated administrative reviews to vendors who appeal a WIC disqualification that is based on a FSP CMP for hardship, as well as a WIC disqualification or CMP based on a mandatory sanction imposed by another WIC State agency. Imposition of a CMP in lieu of a reciprocal disqualification is similar to these adverse actions for which a State agency must provide an abbreviated review. Under the proposed revision, a State agency would retain the option to provide a full administrative review as stated in regulations at 7 CFR 246.18(a)(1)(ii).

Regulations at 7 CFR 246.26(e) restrict the use or disclosure of information that individually identifies a vendor, except for the vendor's name, address and authorization status, to persons directly connected with the administration or enforcement of WIC or FSP; persons directly connected with the administration or enforcement of any Federal or State law; or vendors who are subject to an adverse action.

This rule proposes to amend the regulations at 7 CFR 246.26(e) to expand the types of vendor information allowed for general release that would not be subject to confidentiality restrictions. This additional information would include a vendor's telephone number, Web site and e-mail address, WIC identification number, and store type ( e.g. , retail, commissary, pharmacy, etc.). Allowing WIC State agencies to provide participants with vendors' telephone numbers and Web site and/or email addresses would assist participants with locating authorized vendors in their neighborhood or local service area. Knowing a vendor's store type also would enable participants to determine where to transact their food instruments.

The proposed rule would also allow WIC State agencies to issue public notices of vendor disqualifications (including the length of disqualification and the reason for the disqualification) and to provide the information to authorized vendors and program participants. The FSP, which has such authority and periodically issues public notices on retailer disqualifications, has found that disclosing this information serves as a strong deterrent to retailer fraud and abuse. The Department believes that issuing public notices of WIC vendor disqualifications would deter vendor fraud and abuse in the WIC Program as well. Publicizing this information also would alert program participants when the WIC Program no longer authorizes a particular vendor.

The Department considers this amendment to regulations at 7 CFR 246.26(e) to be in the best interests of the Program. Notwithstanding this change, the Department continues to believe that limiting the use and disclosure of confidential vendor information encourages vendors to provide the information that State agencies need in order to authorize and monitor vendors and to maintain effective investigative techniques.

Accordingly, 7 CFR part 246 is proposed to be amended as follows:

This tentative partial decision proposes to adopt amendments which would prohibit the ability to simultaneously pool the same milk on the Mideast Federal milk order and on a marketwide pool administered by another government entity. Additionally, this decision proposes to adopt amendments that would increase supply plant shipping standards and lower diversion limits.

This administrative action is governed by the provisions of Sections 556 and 557 of Title 5 of the United States Code and, therefore, is excluded from the requirements of Executive Order 12866.

The amendments to the rules proposed herein have been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have a retroactive effect. If adopted, the proposed rule would not preempt any state or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Agricultural Marketing Agreement Act of 1937 (the Act), as amended (7 U.S.C. 601-674), 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 request modification or exemption from such order by filing with the Department of Agriculture (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 the law. A handler is afforded the opportunity for a hearing on the petition. After a hearing, the USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has its principal place of business, has jurisdiction in equity to review the USDA's ruling on the petition, provided a bill in equity is filed not later than 20 days after the date of the entry of the ruling.

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), the Agricultural Marketing Service has considered the economic impact of this action on small entities and has certified that this proposed rule will not have a significant economic impact on a substantial number of small entities. For the purpose of the Regulatory Flexibility Act, a dairy farm is considered a “small business” if it has an annual gross revenue of less than $750,000, and a dairy products manufacturer is a “small business” if it has fewer than 500 employees.

For the purposes of determining which dairy farms are “small businesses,” the $750,000 per year criterion was used to establish a production guideline of 500,000 pounds per month. Although this guideline does not factor in additional monies that may be received by dairy producers, it should be an inclusive standard for most “small” dairy farmers. For purposes of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the 500-employee limit, the plant will be considered a large business even if the local plant has fewer than 500 employees.

During March 2005, the month during which the hearing occurred, there were 9,767 dairy producers pooled on, and 36 handlers regulated by, the Mideast order. Approximately 9,212 producers, or 94.3 percent, were considered small businesses based on the above criteria. On the processing side, approximately 26 handlers, or 72.2 percent, were considered small businesses.

The adoption of the proposed pooling standards serve to revise established criteria that determine those producers, producer milk and plants that have a reasonable association with and are consistently serving the fluid needs of the Mideast milk marketing area. Criteria for pooling are established on the basis of performance levels that are considered adequate to meet the Class I fluid needs and, by doing so, determine those producers who are eligible to share in the revenue that arises from the classified pricing of milk. Criteria for pooling are established without regard to the size of any dairy industry organization or entity. The criteria established are applied in an identical fashion to both large and small businesses and do not have any different economic impact on small entities as opposed to large entities. Therefore, the proposed amendments will not have a significant economic impact on a substantial number of small entities.

A review of reporting requirements was completed under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was determined that these proposed amendments would have no impact on reporting, record keeping, or other compliance requirements because they would remain identical to the current requirements. No new forms are proposed and no additional reporting requirements would be necessary.

This tentative partial decision does not require additional information collection that requires clearance by the Office of Management and Budget (OMB) beyond currently approved information collection. The primary sources of data used to complete the forms are routinely used in most business transactions. Forms require only a minimal amount of information which can be supplied without data processing equipment or a trained statistical staff. Thus, the information collection and reporting burden is relatively small. Requiring the same reports from all handlers does not significantly disadvantage any handler that is smaller than the industry average.

No other burdens are expected to fall on the dairy industry as a result of overlapping Federal rules. This rulemaking proceeding does not duplicate, overlap or conflict with any existing Federal rules.

Interested parties are invited to submit comments on the probable regulatory and informational impact of this proposed rule on small entities. Also, parties may suggest modifications of this proposal for the purpose of tailoring their applicability to small businesses.

Amendment to Public Hearing on Proposed Rulemaking: Issued March 1, 2005; published March 3, 2005 (70 FR 10337).

Notice of Hearing: Issued February 14, 2005; published February 17, 2005 (70 FR 8043).

Notice is hereby given of the filing with the Hearing Clerk of this tentative partial decision with respect to the proposed amendments to the tentative marketing agreement and the order regulating the handling of milk in the Mideast marketing area. This notice is issued pursuant to the provisions of the Agricultural Marketing Agreement Act and the applicable rules of practice and procedure governing the formulation of marketing agreements and marketing orders (7 CFR part 900).

Interested parties may file written exceptions to this decision with the Hearing Clerk, United States Department of Agriculture, Room 1031-Stop 9200, 1400 Independence Avenue, SW., Washington, DC 20250-9200, by September 26, 2005. Six (6) copies of the exceptions should be filed. All written submissions made pursuant to this notice will be made available for public inspection at the office of the Hearing Clerk during regular business hours (7 CFR 1.27(b)).

The hearing notice specifically invited interested persons to present evidence concerning the probable regulatory and informational impact of the proposals on small businesses. While no evidence was received that specifically addressed these issues, some of the evidence encompassed entities of various sizes.

A public hearing was held upon proposed amendments to the marketing agreement and the order regulating the handling of milk in the Mideast marketing area. The hearing was held, pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice and procedure governing the formulation of marketing agreements and marketing orders (7 CFR part 900).

The proposed amendments set forth below are based on the record of a public hearing held in Wooster, Ohio, on March 7-10, 2005, pursuant to a notice of hearing issued February 14, 2005, published February 17, 2005 (70 FR 8043), and an amendment to the hearing notice issued March 1, 2005, published March 3, 2005 (70 FR 10337).

The material issues on the record of the hearing relate to:

This tentative partial decision specifically addresses proposals, published in the hearing notice as Proposals 1 and 2, along with a portion of Proposal 3, seeking to change the performance standards and producer milk provisions of the order. The portion of Proposal 3, that would provide a definition of “temporary loss of Grade A approval”, Proposals 4-8, that would establish provisions to deter the “de-pooling” of milk, and Proposal 9 that would establish transportation credits will be addressed in a separate decision. The following findings and conclusions on the material issues are based on evidence presented at the hearing and the record thereof:

Three proposals were presented at the hearing that would amend certain features of the Producer milk provision of the Mideast order. A proposal, published in the hearing notice as Proposal 1, seeking to eliminate the ability to simultaneously pool the same milk on the Mideast Federal milk order and on a marketwide equalization pool administered by another government entity, commonly referred to as “double dipping,” should be adopted immediately. Additionally, a portion of a proposal published in the hearing notice as Proposal 2, seeking to seasonally adjust the percentage of total receipts a pool plant could divert to nonpool plants to 50 percent for the months of August through February and to 60 percent for the months of March through July should be adopted immediately. Proposal 3, which sought to adjust the number of days of the milk production of a producer that must be physically received at a Mideast order pool plant before being eligible for diversion to a nonpool plant, commonly referred to as “touching base”, was abandoned at the hearing and will no longer be referenced in this proceeding.

Proponents contend that milk has been simultaneously pooled on the Mideast order and on a marketwide pool administered by another government entity since January of 2000, and although no milk is currently simultaneously pooled on the Mideast order and a marketwide pool administered by another government entity, the possibility exists and provisions should be adopted to eliminate its occurrence. Additionally, proponents contend that inadequate limits on the amount of milk that pool plants can divert to non-pool plants is allowing large volumes of milk to be pooled on the Mideast order that does not demonstrate a reliable and consistent service to the fluid milk needs of the order.

The Mideast order currently does not prohibit the simultaneous pooling of the same milk on the order and on a marketwide equalization pool operated by another government entity. Although no milk is currently simultaneously pooled on the Mideast order and a marketwide equalization pool operated by another government entity, the situation has occurred in the past.

The current Producer milk provision of the Mideast order considers the milk of a dairy farmer to be producer milk when the milk has been delivered to a pool plant of the order. As a condition for pooling the milk of a producer diverted to a nonpool plant on the Mideast order, a dairy farmer must ship two days' milk production to a pool plant during each of the months of December through July. This standard is applicable only if two days' milk production was not shipped to a Mideast pool plant in each of the previous months of August through November. A producer must also deliver two days' milk production to a pool plant during the months of August through November in order for the milk diverted to nonpool plants to be pooled. A pool handler may not divert more than 60 percent of its total receipts to a nonpool plant during the months of August through February and no more than 70 percent of its total receipts during the months of March through July.

Proposals 1 and 2 were submitted by Dairy Farmers of America (DFA), Michigan Milk Producers Association (MMPA), Dairylea Cooperative Inc. (Dairylea) and the National Farmers Organization (NFO). DFA is a member owned Capper-Volstead cooperative of 13,500 farms that produce milk in 49 states. MMPA is a member owned Capper-Volstead cooperative of 1,350 farms producing milk in four states. Dairylea is a member owned Capper-Volstead cooperative of 2,400 farms producing milk in seven states. NFO is a member owned Capper-Volstead cooperative with over 1,500 members in 18 states. Hereinafter, this decision will refer to DFA, MMPA, Dairylea and NFO collectively as the “Cooperatives.”

A witness appearing on behalf of the Cooperatives testified that adoption of Proposal 1 would eliminate the potential for the same milk to be simultaneously pooled on the Mideast Federal milk order and on a marketwide pool administered by another government entity. The witness referred to this practice as “double dipping” and as a practice resulting in disorderly marketing conditions. The witness noted that regulatory action has been taken in the Northeast, Central, Upper Midwest, Pacific Northwest and Arizona-Las Vegas Federal milk marketing orders to prohibit the practice. The witness testified that little milk is currently associated with the Mideast marketing order that is simultaneously pooled by another government entity, but should be prohibited in the same manner as in other Federal milk marketing order areas. The Cooperatives noted in their post-hearing briefs that no opposition to adoption of Proposal 1 was received at the hearing.

A witness appearing on behalf of Dean Foods (Dean) testified in support of Proposal 1. Dean Foods owns and operates several distributing plants regulated by the Mideast order. The witness testified that double dipping should be prohibited in the Mideast order in the same manner as in other Federal orders. In their post-hearing brief, Dean added that if the ability to simultaneously pool milk is eliminated, the wording of the order language should be similar to the order language used to prohibit simultaneous pooling in the Central and Upper Midwest orders.

Continental Dairy Products (Continental) noted support for adoption of Proposal 1 in their post-hearing brief. Continental is a member owned Capper-Volstead cooperative that pools milk on the Mideast order. Continental was of the opinion that double dipping should be prohibited for the Mideast marketing area as it has been in other Federal milk marketing orders.

A witness appeared on behalf of the Cooperatives in support of the portion of Proposal 2 that would lower the diversion limit standards. The witness was of the opinion that current diversion limit standards are inadequate and have resulted in milk pooled on the order which does not demonstrate regular and consistent performance in supplying the Class I needs of the marketing area. The witness cited market administrator data showing that during the months of January through February and August through December of 2004, many pool distributing plants and cooperative handlers diverted more than 50 percent of their total milk receipts to nonpool plants. Adoption of the portion of Proposal 2 to limit diversions to no more than 50 percent of total milk receipts in August through February and 60 percent in March through July for distributing plants and cooperative handlers would increase shipments to distributing plants and raise returns for Mideast producers, the witness noted.

A witness for MMPA appeared on behalf of the Cooperatives in support of the portion of Proposal 2 that would lower diversion limit standards. The witness was of the opinion that an adjustment to the diversion limit standards will serve to decrease market reserves and increase proceeds for producers servicing the needs of the fluid market on a regular and consistent basis.

Several independent and cooperative member dairy farmers whose milk is pooled in the Mideast order also testified in support of the portion of Proposal 2 that would adjust diversion limit standards. Most were of the opinion that adjusting diversion limit standards will serve to more adequately identify the milk that is serving the needs of the Mideast order fluid market.

A witness appearing on behalf of Prairie Farms Dairy (Prairie Farms) testified that they were not in support of, nor in opposition to, adoption of the portion of Proposal 2 that would adjust diversion limits. Prairie Farms is a member owned Capper-Volstead cooperative that pools milk on the Mideast order.

A witness appeared on behalf of White Eagle Cooperative Federation (White Eagle) and “constituent members” in opposition to the portion of Proposal 2 that would lower diversion limit standards. The members of White Eagle Cooperative Federation include White Eagle Cooperative Association, Alto Dairy Cooperative, Scioto Cooperative, and Erie Cooperative Association. White Eagle Cooperative Federation also identified Superior Dairy, United Dairy, Family Dairies USA, Dairy Support Inc., Guggisberg Cheese and Brewster Cheese as constituent members.

The White Eagle witness testified that lowering diversion limit standards will decrease the volume of milk that manufacturing plants can pool, and will remove milk located in Wisconsin, Illinois, Minnesota and Iowa from pooling on the Mideast order. The witness was of the opinion that when the volume of milk pooled in manufacturing uses is decreased, producer milk that supplies manufacturing plants can face decreased returns. In their post-hearing brief White Eagle reiterated that lowering diversion limit standards will decrease returns to producers whose milk is marketed through White Eagle.

A consultant witness provided additional testimony on behalf of White Eagle in opposition to lowering the diversion limit standards of the order. The witness testified that reducing the diversion limit standards would disadvantage small cooperatives that pool milk on the Mideast order. The witness was of the opinion that lowering the diversion limit standards would increase the market power of large cooperatives and milk processors over small cooperatives and milk processors.

The consultant White Eagle witness relied on Market Administrator data to demonstrate the effects of a 10 percent reduction in the diversion limit standards for the period of 2003-2004. The witness stated that if the proposed diversion limit standards had been effective for the month of October 2004, the total volume of milk pooled in the Mideast market would have been reduced by 4.1 percent. The witness hypothesized that the reduction in milk volume pooled would have increased the PPD by about 2 cents per hundredweight (cwt.) for milk remaining pooled, but would have decreased the relative PPD by about $0.73 per cwt. on the milk that was not able to be pooled because of lowered diversion limit standards. The witness noted that the majority of the milk not pooled would have been milk usually pooled by small cooperatives. Accordingly, the witness was of the opinion that lowering the diversion limit standards of the Mideast order should not be adopted until additional analysis is done on the possible negative effects on small cooperatives and processors.

Several proposed changes to the supply plant pooling provisions of the Mideast order, contained in Proposal 2, should also be adopted immediately. The lack of adequate performance standards in the current supply plant pooling provisions allow large volumes of milk to be pooled on the order that do not demonstrate a regular service to the Class I needs of the market causing an unwarranted decrease in the order's blend price.

Specifically, the following amendments should be adopted immediately: (1) Increasing supply plant performance standards for § 1033.7(c) by 10 percentage points, from 30 percent to 40 percent, for all months, (2) increasing performance standards for supply plants operated by a cooperative association under § 1033.7(d) by five percentage points, from 30 percent to 35 percent, for the month of August, and by 10 percentage points, from 30 percent to 40 percent, for the months of September through November, and (3) increasing performance standards for a supply plant with a marketing agreement with a cooperative under § 1033.7(e) by 10 percentage points, from 35 percent to 45 percent, for the months of August through November.

Currently, the Mideast order provides that a supply plant must ship 30 percent of its total monthly receipts to a pool distributing plant in order for the plant and all of the receipts of the plant to be pooled for the month. This same standard applies to supply plants owned and operated by a cooperative association. A supply plant operated under a marketing agreement with a cooperative, however, must ship 35 percent of total receipts to a pool distributing plant in every month of the year in order for the plant and all the receipts of the plant to be pooled.

A witness appeared on behalf of the Cooperatives in support of the portion of Proposal 2 that raises the performance standards for supply plants. The Cooperatives witness was of the opinion that supply plant performance standards are inadequate and in need of review and adjustment. Current supply plant performance standards, the witness testified, allow for more milk to be associated with the Mideast pool than is needed. Relying on market administrator data, the witness noted that the projected Class I utilization of the Mideast order of 58.9 percent, specified during Federal order reform, had only been achieved in one month since January 2000. The witness stressed that the Mideast order has ample reserve milk supplies located within the marketing area, but that milk located outside of the marketing area that is being pooled on the order is lowering the proceeds of producers who are consistently serving the fluid needs of the market.

The Cooperatives witness was of the opinion that increasing supply plant performance standards will provide greater incentive to deliver local milk supplies to the Class I market than the current standards. The witness was of the opinion that returns to producers are increased the shorter the distance milk must travel to distributing plants because transportation costs are lower.

The Cooperatives witness testified that the costs of transporting and procuring milk for Class I use is not being borne equally by all producers whose milk is pooled on the order even though Class I returns are shared by all. The witness added that increasing supply plant performance standards would prevent milk that does not service the fluid needs of the market from sharing in the additional proceeds generated from fluid sales in the marketing area.

The Cooperatives witness relied on market administrator data which showed an increase in the volume of milk pooled on the Mideast order from states outside the marketing area including Illinois, Iowa, Minnesota and Wisconsin. The witness testified that although the volume of milk pooled from states outside of the Mideast marketing area has increased, the volume of milk pooled from states within the marketing area has remained constant. The witness added that the increase in the volume of milk pooled from states outside of the marketing area has not resulted in increased volumes of milk shipped to the order's pool distributing plants. When milk that does not service the needs of the Mideast fluid market is pooled from areas outside the states comprising the Mideast marketing area, the witness stressed, the blend price received by Mideast order producers who regularly demonstrate service to the fluid market is lowered.

The Cooperatives witness relied on market administrator data to illustrate that supply-demand relationships for milk in five different regions of the Mideast marketing area—Northern Ohio, Southern Ohio, Michigan, Indiana and Pennsylvania indicate that there is sufficient locally produced milk to meet the needs of the fluid market. According to the witness, only in the Southern Ohio/Southern Indiana region do total Class I sales exceed the total amount of milk locally supplied. The witness attributed the deficit local milk supply in Southern Ohio/Southern Indiana to local milk being shipped to the Appalachian milk marketing area.

The Cooperatives witness was also of the opinion that a “hard” 40 percent standard on cooperative owned supply plant shipments to distributing plants during the fall months is superior to using the “rolling annual average” method currently provided by the order. The witness added that if a cooperative owned supply plant shipped 40 percent of its total receipts to distributing plants during the fall months, the “rolling annual average” method could be used during the remainder of the year.

The Cooperatives witness testified that the performance standards for supply plants in the Mideast order were increased as a result of a previous Federal order hearing in 2001, but was of the opinion that the market is in need of further refinement. The witness emphasized that while there is a seasonal need for supplemental milk across certain regions of the Mideast market, the current standards allow far more milk to associate with the market than is reasonably warranted. The witness added that increasing supply plant performance standards will increase returns for Mideast dairy farmers who do regularly and consistently service the needs of the fluid market.

A witness appearing on behalf of Dean was also in support of increasing supply plant performance standards. Dean testified at the hearing, and reiterated in their post-hearing brief, that increasing supply plant performance standards will serve to better identify the milk that demonstrates a consistent ability to service the fluid milk needs of the market.

In their post-hearing brief, Dean proposed a modification to Proposal 2 regarding cooperative owned supply plants. Specifically, Dean suggested that a cooperative owned supply plant should be located within the geographic boundaries of the Mideast marketing area and that qualifying shipments to distributing plants or nonpool plants must be classified as Class I.

A witness from MMPA appearing on behalf of the Cooperatives modified a portion of Proposal 2 at the hearing. The witness testified that Proposal 2 should increase the performance standards for a cooperative owned supply plant by 5 percentage points, from 30 to 35 percent of total receipts, for the month of August, and by 10 percentage points, from 30 to 40 percent of total receipts for the months of September through November. The witness was of the opinion that an increase in performance standards are needed in order to ensure that the proceeds generated from Class I sales are shared among those who regularly supply the needs of the fluid market.

The MMPA witness testified that their cooperative exceeded the current 30 percent performance standard (from 35 percent to 41 percent of total receipts) during the preceding months of August through November. The MMPA witness testified that they are in support of a “hard” performance standard during the August through November period, rather than the use of the annual rolling average provision currently provided for in all months by the order for cooperative owned supply plants. The witness also noted that if market conditions warrant a higher degree of performance, the Market Administrator has the authority to increase the performance standard.

Several independent and cooperative member dairy farmers whose milk is pooled in the Mideast order also testified in support of increasing supply plant performance standards. Most were of the opinion that increasing supply plant performance standards will more adequately identify what milk is consistently serving the needs of the Mideast fluid market.

A witness appeared on behalf of Smith Dairy in general support of any proposal that would serve to address the reduction of producer pay prices in the Mideast order and any proposals that will better identify milk that provides service to the Mideast fluid market. Smith Dairy operates two distributing plants regulated by the Mideast order that are primarily supplied by independent dairy farmers.

A witness appearing on behalf of White Eagle testified in opposition to increasing supply plant performance standards at the hearing and reiterated this position in their post-hearing brief. White Eagle is of the opinion that increasing supply plant shipping standards will displace milk from outside of the geographic boundaries of the Mideast marketing area that has historically supplied the milk needs of the Mideast market.

The record of this proceeding finds that several amendments to the pooling standards of the Mideast order should be adopted immediately to better identify the milk of producers that should share in the order's marketwide pool proceeds and to establish more appropriate performance measures for providing regular and consistent service in meeting the market's fluid needs. Currently, milk located outside the Mideast marketing area that does not demonstrate regular and consistent performance in supplying the needs of the Class I market is able to qualify for pooling on the Mideast order and share in the increased revenues arising from Class I sales in the marketing area. The vast majority of this milk is pooled on the order at low classified use-values and in turn lowers the blend price to those producers who regularly and consistently supply the Class I needs of the Mideast market. Such milk is not demonstrating a reasonable level of performance in servicing the Class I market to receive the additional revenue arising from Class I use of the Mideast marketing area and therefore should not be pooled.

The pooling standards of all Federal milk marketing orders, including the Mideast order, are intended to ensure that an adequate supply of milk is available to meet the Class I needs of the market and to provide the criteria for identifying the milk of those producers who are reasonably associated with the market as a condition for receiving the order's blend price. The pooling standards of the Mideast order are represented in the Pool Plant , Producer , and the Producer milk provisions of the order and are performance based. Taken as a whole, these provisions are intended to ensure that an adequate supply of milk is available to meet the Class I needs of the market and provide the criteria for determining the producer milk that has demonstrated reasonable measures of service to the Class I market and thereby should share in the marketwide distribution of pool proceeds.

Pooling standards that are performance based provide the only viable method for determining those eligible to share in the marketwide pool. It is primarily the additional revenue generated from the higher-valued Class I use of milk that adds additional income, and it is reasonable to expect that only those producers who consistently bear the costs of supplying the market's fluid needs should be the ones to share in the returns arising from higher-valued Class I sales.

Pooling standards are needed to identify the milk of those producers who are providing regular and consistent service in meeting the Class I needs of the market. If a pooling provision does not reasonably accomplish this end, the proceeds that accrue to the marketwide pool from fluid milk sales are not properly shared with the appropriate producers. The result is the unwarranted lowering of returns to those producers who actually incur the costs of servicing the fluid needs of the market.

Pool plant standards, specifically standards that provide for the pooling of milk through supply plants, need to reflect the supply and demand conditions of the marketing area. This is important because producers whose milk is pooled, regardless of utilization, receives the order's blend price. When the pooling provisions of the order result in pooling milk that cannot reasonably be considered as regularly and consistently serving the fluid needs of the market, it is appropriate to re-examine those standards.

The geographic boundaries of the Mideast order are not intended to limit or define which producers, which milk of those producers, or which handlers should enjoy the benefits of being pooled on the order. What is important and fundamental to all Federal orders, including the Mideast order, is the proper identification of those producers, the milk of those producers, and handlers that should share in the proceeds arising from Class I sales in the marketing area. The Mideast order's current pooling standards, specifically supply plant performance standards and diversion limit standards for producer milk do not reasonably accomplish this fundamental objective.

Since the 1960's, the Federal milk order program has recognized the harm and disorder that results to both producers and handlers when the same milk of a producer is simultaneously pooled on more than one Federal order, commonly referred to as “double-dipping”. In the past, this situation caused price differences between producers and gave rise to competitive equity issues. The need to prevent “double-dipping” became critically important as distribution areas expanded and orders merged.

When the same milk can be simultaneously pooled on a marketwide equalization pool operated by a government entity and on a Federal milk marketing order, it has the same undesirable outcomes as pooling the same milk on two Federal orders which was corrected many years ago. The Mideast order recently has experienced “double-dipping” and it is clear that the Mideast order should be amended to prevent the ability to pool the same milk on the order and on a marketwide equalization pool operated by another government entity. This action is consistent with other recent Federal order amendatory actions regarding the simultaneous pooling of the same milk on a Federal order and on other government operated programs.

The hearing record clearly indicates that the milk of producers that does not regularly and consistently service the needs of the fluid market is able to pool on and receive the Mideast order's blend price. Inadequate diversion limit standards are allowing large volumes of milk to be diverted to non-pool manufacturing plants located far from the marketing area; and inadequate supply plant performance standards also enable milk which has insufficient physical association with the market and which does not demonstrate regular and consistent service to the Class I needs of the marketing area to be pooled on the Mideast order.

The Federal milk order system has consistently recognized that there is a cost incurred by producers in servicing an order's Class I market, and the order's blend price is the compensation to producers for performing such services. The amended pooling provisions will ensure that milk seeking to be pooled and receive the order's blend price will regularly and consistently service the marketing area's Class I needs. Consequently, the adopted pooling provisions will ensure the more equitable sharing of revenue generated from Class I sales among the appropriate producers.

Accordingly, supply plant performance standards should be increased by 10 percentage points, from 30 percent to 40 percent of total receipts, for all months; cooperative owned supply plant performance standards should be increased by 10 percentage points, from 30 percent to 40 percent of total receipts, for the months of September through November.

Additionally, cooperative owned supply plant performance standards for the month of August should be increased by five percentage points, from 30 percent to 35 percent of total receipts, as proposed in MMPA's modification of Proposal 2. These standards will be met using the “rolling annual average” standard during December through July and the “hard” standard during August through November as proposed in Proposal 2. Also, as suggested by Dean in their post-hearing brief, a cooperative owned supply plant must be located in the marketing area. Limiting a cooperative owned supply plant to only those that are located within the marketing area is consistent with other pooling conveniences afforded to other supply plants. For example, system pooling of supply plants that regularly and consistently perform in supplying the Class I needs of the marketing area are a legitimate reserve supply source of milk and are restricted to supply plants located within the marketing area. Qualifying shipments, as already specified in the order, may only include shipments of Class I milk to distributing plants or non-pool plants.

Performance standards for a supply plant with a marketing agreement with a cooperative should be increased by 10 percentage points, from 35 percent to 45 percent of total receipts, for the months of August through November.

Changes are necessary in the standards of the amount of milk that can be diverted from pool plants to nonpool plants to ensure that milk pooled on the order is part of the legitimate reserve supply of Class I handlers. The hearing record evidence clearly reveals that large volumes of milk that are not part of the legitimate reserve supply of the pooling handler can be reported as diverted milk by the pooling handler and receive the order's blend price.

Providing for the diversion of milk is a desirable and needed feature of an order because it facilitates the orderly and efficient disposition of milk when not needed for fluid use. However, it is necessary to safeguard against excessive milk supplies becoming associated with the market through the diversion process. Associating more milk than is actually part of the legitimate reserve supply of the pooling handler unnecessarily reduces the potential blend price paid to dairy farmers who regularly and consistently service the market's Class I needs. Without reasonable diversion limit provisions, the order's performance standards are weakened and give rise to disorderly marketing conditions. Accordingly, diversion limit standards for pool plants should be lowered by ten percentage points, from 60 percent to 50 percent for the months of August through February, and from 70 percent to 60 percent for the months of March through July.

Evidence presented at the hearing and in post-hearing briefs establishes that current pooling standards of the Mideast order are inadequate and are eroding the blend price received by producers who are regularly and consistently serving the Class I needs of the Mideast marketing area and should be amended on an emergency basis. The unwarranted erosion of the blend price stems from inadequate supply plant standards and the lack of appropriate limits on diversions of milk. Additionally, the ability of a handler to pool the same milk on the Mideast Federal milk order and on a marketwide equalization pool administered by another government entity serves to potentially further erode the order's blend price.

Consequently, it is determined that emergency marketing conditions exist and the issuance of a recommended decision is being omitted. The record clearly establishes a basis as noted above for amending the order on an interim basis and the opportunity to file written exceptions to the proposed amended order remains.

In view of these findings, an interim final rule amending the order will be issued as soon as the procedures are completed to determine the approval of producers.

Briefs, proposed findings and conclusions were filed on behalf of certain interested parties. These briefs, proposed findings and conclusions, and the evidence in the record were considered in making the findings and conclusions set forth above. To the extent that the suggested findings and conclusions filed by interested parties are inconsistent with the findings and conclusions set forth herein, the requests to make such findings or reach such conclusions are denied for the reasons previously stated in this decision.

The findings and determinations hereinafter set forth supplement those that were made when the Mideast order was first issued and when it was amended. The previous findings and determinations are hereby ratified and confirmed, except where they may conflict with those set forth herein.

The following findings are hereby made with respect to the aforesaid marketing agreement and order:

(a) The interim marketing agreement and the order, as hereby proposed to be amended, and all of the terms and conditions thereof, will tend to effectuate the declared policy of the Act;

(b) The parity prices of milk as determined pursuant to section 2 of the Act are not reasonable with respect to the price of feeds, available supplies of feeds, and other economic conditions which affect market supply and demand for milk in the marketing area, and the minimum prices specified in the interim marketing agreement and the order, as hereby proposed to be amended, are such prices as will reflect the aforesaid factors, insure a sufficient quantity of pure and wholesome milk, and be in the public interest; and

(c) The interim marketing agreement and the order, as hereby proposed to be amended, will regulate the handling of milk in the same manner as, and will be applicable only to persons in the respective classes of industrial and commercial activity specified in, the marketing agreement upon which a hearing has been held.

Annexed hereto and made a part hereof are two documents—an Interim Marketing Agreement regulating the handling of milk and an Interim Order amending the order regulating the handling of milk in the Mideast marketing area, which have been decided upon as the detailed and appropriate means of effectuating the foregoing conclusions.

It is hereby ordered, that this entire tentative partial decision and the interim order and the interim marketing agreement annexed hereto be published in the Federal Register .

The month of March, 2005 is hereby determined to be the representative period for the purpose of ascertaining whether the issuance of the order, as amended and as hereby proposed to be amended, regulating the handling of milk in the Mideast marketing area is approved or favored by producers, as defined under the terms of the order as hereby proposed to be amended, who during such representative period were engaged in the production of milk for sale within the aforesaid marketing area.

It is hereby directed that a referendum be conducted and completed on or before the 30th day from the date this decision is issued, in accordance with the procedure for the conduct of referenda (7 CFR 900.300-311), to determine whether the issuance of the order, as amended and as hereby proposed to be amended, regulating the handling of milk in the Mideast marketing area is approved by producers, as defined under the terms of the order (as amended and as hereby proposed to be amended), who during such representative period were engaged in the production of milk for sale within the aforesaid marketing area.

The representative period for the conduct of such referendum is hereby determined to be March, 2005.

The agent of the Department to conduct such referendum is hereby designated to be David Z. Walker, Market Administrator.

This interim order shall not become effective until the requirements of § 900.14 of the rules of practice and procedure governing proceedings to formulate marketing agreements and marketing orders have been met.

The findings and determinations hereinafter set forth supplement those that were made when the order was first issued and when it was amended. The previous findings and determinations are hereby ratified and confirmed, except where they may conflict with those set forth herein.

(a) Findings. A public hearing was held upon certain proposed amendments to the tentative marketing agreement and to the order regulating the handling of milk in the Mideast marketing area. The hearing was held pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice and procedure (7 CFR part 900).

Upon the basis of the evidence introduced at such hearing and the record thereof, it is found that:

(1) The said order as hereby amended, and all of the terms and conditions thereof, will tend to effectuate the declared policy of the Act;

(2) The parity prices of milk, as determined pursuant to section 2 of the Act, are not reasonable in view of the price of feeds, available supplies of feeds, and other economic conditions which affect market supply and demand for milk in the aforesaid marketing area. The minimum prices specified in the order as hereby amended are such prices as will reflect the aforesaid factors, insure a sufficient quantity of pure and wholesome milk, and be in the public interest; and

(3) The said order as hereby amended regulates the handling of milk in the same manner as, and is applicable only to persons in the respective classes of industrial or commercial activity specified in, a marketing agreement upon which a hearing has been held.

It is therefore ordered , that on and after the effective date hereof, the handling of milk in the Mideast marketing area shall be in conformity to and in compliance with the terms and conditions of the order, as amended, and as hereby amended, as follows:

The authority citation for 7 CFR part 1033 continues to read as follows:

We invite you to submit any relevant written data, views, or arguments regarding this proposed AD. Send your comments to an address listed under ADDRESSES . Include “Docket No. FAA-2005-21968; Directorate Identifier 2005-NM-077-AD” in the subject line of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. We will consider all comments submitted by the closing date and may amend the proposed AD in light of those comments.

We will post all comments we receive, without change, to http://dms.dot.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this proposed AD. Using the search function of that Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You can review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78), or you can visit http://dms.dot.gov.

You can examine the AD docket on the Internet at http://dms.dot.gov, or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the Docket Management System (DMS) receives them.

We have received a report indicating that the escape slides failed to deploy correctly during an operator's tests on Boeing Model 757-200, -200CB, and -300 series airplanes. Further examination showed that the girt bar, which attaches the deployed escape slide to the airplane floor, did not stay attached to the floor fitting. When an escape slide is being deployed, sliders on the forward and aft ends of the girt bar engage with the floor fittings and are held in place by leaf springs. The airplane manufacturer and operators have found that it is possible for the leaf springs to be deformed and damaged in service, and that deformed or damaged leaf springs may not keep the girt bar sliders engaged with the floor fittings. This condition, if not corrected, could cause escape slides to disengage from the airplane during deployment or in use, which could result in injuries to passengers or flightcrew.

We have reviewed Boeing Special Attention Service Bulletin 757-52-0085, dated March 24, 2005 (for Boeing Model 757-200 and -200CB series airplanes); and Boeing Special Attention Service Bulletin 757-52-0086, dated March 24, 2005 (for Boeing Model 757-300 series airplanes). The service bulletins describe procedures for doing repetitive detailed inspections for discrepancies of the leaf springs. Discrepancies include inadequate spring retention force and inadequate girt bar slider engagement dimensions. For airplanes on which an inspection shows an engagement dimension of less than 0.37 inch, the service bulletins describe procedures for corrective action. The corrective action is replacing the leaf spring or the girt bar assembly with new parts, and doing girt bar assembly adjustments and testing. Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition.

We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other airplanes of this same type design. Therefore, we are proposing this AD, which would require accomplishing the actions specified in the service information described previously, except as discussed under “Difference Between the Proposed AD and the Service Bulletins.”

The service bulletins specify that operators may accomplish certain actions in accordance with the Boeing 757 Airplane Maintenance Manual (AMM), the Boeing 757 Component Maintenance Manual (CMM), or an “approved equivalent procedure.” However, for actions in Part 1—“Inspection” of the Accomplishment Instructions of the applicable service bulletin, this proposed AD would require operators to accomplish the actions in accordance with the applicable chapter of the AMM or CMM specified in the applicable service bulletin. An “approved equivalent procedure” may be used only if it is approved as an alternative method of compliance in accordance with paragraph (h) of this proposed AD.

There are about 944 airplanes of the affected design in the worldwide fleet. This proposed AD would affect about 632 airplanes of U.S. registry. The proposed inspection would take about 2 work hours per airplane, at an average labor rate of $65 per work hour. Based on these figures, the estimated cost of the proposed AD for U.S. operators is $82,160, or $130 per airplane, per inspection cycle.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD 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.

For the reasons discussed above, I certify that the 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. 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.

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD. See the ADDRESSES section for a location to examine the regulatory evaluation.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking (CGD05-05-076), indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them.

In order to provide notice and an opportunity to comment before issuing an effective rule, we are providing a shorter than normal comment period. A 30-day comment period is sufficient to allow those who might be affected by this rulemaking to submit their comments because the regulations have a narrow, local application, and there will be local notifications in addition to the Federal Register publication such as press releases, marine information broadcasts, and the Local Notice to Mariners.

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

On September 24 and 25, 2005, the Sunset Lake Hydrofest Association will sponsor the “Sunset Lake Hydrofest”, on the waters of Sunset Lake near Wildwood Crest, New Jersey. The event will consist of approximately 100 inboard hydroplanes, Jersey Speed Skiffs and flat-bottom ski boats racing in heats counter-clockwise around an oval racecourse. A fleet of approximately 100 spectator vessels is expected to gather nearby to view the competition. Due to the need for vessel control during the event, vessel traffic will be temporarily restricted to provide for the safety of participants, spectators and transiting vessels.

The Coast Guard proposes to establish temporary special local regulations on specified waters of Sunset Lake. The temporary special local regulations would be enforced from 8:30 a.m. to 5:30 p.m. on September 24 and 25, 2005, and will restrict general navigation in the regulated area during the event. Except for participants and vessels authorized by the Coast Guard Patrol Commander, no person or vessel will be allowed to enter or remain in the regulated area. These regulations are needed to control vessel traffic during the event to enhance the safety of participants, spectators and transiting vessels.

This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS).

We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary.

Although this proposed regulation will prevent traffic from transiting a portion of Sunset Lake during the event, the effect of this regulation would not be significant due to the limited duration that the regulated area will be in effect. Extensive advance notifications will be made to the maritime community via Local Notice to Mariners, marine information broadcasts, and area newspapers, so mariners can adjust their plans accordingly. Additionally, the proposed regulated area has been narrowly tailored to impose the least impact on general navigation yet provide the level of safety deemed necessary. Vessel traffic will be able to transit Sunset Lake by navigating around the regulated area.

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

The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. This proposed rule would affect the following entities, some of which might be small entities: the owners or operators of vessels intending to transit or anchor in a portion of Sunset Lake during the event.

This proposed rule would not have a significant economic impact on a substantial number of small entities for the following reasons. This proposed rule would be in effect for only a limited period. Vessel traffic could pass safely around the proposed regulated area. Before the enforcement period, we will issue maritime advisories so mariners can adjust their plans accordingly.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the address listed under ADDRESSES. The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.

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

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism.

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

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

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

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

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

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

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g. , specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards

We have analyzed this proposed rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(h), of the Instruction, from further environmental documentation. Special local regulations issued in conjunction with a regatta or marine parade permit are specifically excluded from further analysis and documentation under that section.

Under figure 2-1, paragraph (34)(h), of the Instruction, an “Environmental Analysis Check List” and a “Categorical Exclusion Determination” are not required for this rule. Comments on this section will be considered before we make the final decision on whether to categorically exclude this rule from further environmental review.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 100 as follows:

We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking (CGD05-05-075), indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them.

In order to provide notice and an opportunity to comment before issuing an effective rule, we are providing a shorter than normal comment period. A 30-day comment period is sufficient to allow those who might be affected by this rulemaking to submit their comments because the regulations have a narrow, local application, and there will be local notifications in addition to the Federal Register publication such as press releases, marine information broadcasts, and the Local Notice to Mariners.

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

On September 25, 2005, the Chesapeake Bay Powerboat Association will sponsor the “2005 Cambridge Offshore Challenge”, on the waters of the Choptank River at Cambridge, Maryland. The event will consist of approximately 40 offshore powerboats conducting high-speed competitive races between the Route 50 Bridge and Oystershell Point, MD. A fleet of approximately 250 spectator vessels is expected to gather nearby to view the competition. Due to the need for vessel control during the event, vessel traffic will be temporarily restricted to provide for the safety of participants, spectators and transiting vessels.

The Coast Guard proposes to establish temporary special local regulations on specified waters of the Choptank River. The temporary special local regulations will be enforced from 9:30 a.m. to 5:30 p.m. on September 25, 2005, and will restrict general navigation in the regulated area during the event. Except for participants and vessels authorized by the Coast Guard Patrol Commander, no person or vessel will be allowed to enter or remain in the regulated area. These regulations are needed to control vessel traffic during the event to enhance the safety of participants, spectators and transiting vessels.

This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS).

We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary.

Although this proposed regulation will prevent traffic from transiting a portion of the Choptank River during the event, the effect of this regulation will not be significant due to the limited duration that the regulated area will be in effect. Extensive advance notifications will be made to the maritime community via Local Notice to Mariners, marine information broadcasts, and area newspapers, so mariners can adjust their plans accordingly. Additionally, the proposed regulated area has been narrowly tailored to impose the least impact on general navigation yet provide the level of safety deemed necessary. Vessel traffic will be able to transit the regulated area between heats, when the Coast Guard Patrol Commander deems it is safe to do so.

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

The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. This proposed rule would affect the following entities, some of which might be small entities: the owners or operators of vessels intending to transit or anchor in a portion of the Choptank River during the event.

This proposed rule would not have a significant economic impact on a substantial number of small entities for the following reasons. This proposed rule would be in effect for only a limited period. Vessel traffic will be able to transit the regulated area between heats, when the Coast Guard Patrol Commander deems it is safe to do so. Before the enforcement period, we will issue maritime advisories so mariners can adjust their plans accordingly.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the address listed under ADDRESSES . The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

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

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism.

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

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

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

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

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

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

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g. , specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this proposed rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(h), of the Instruction, from further environmental documentation. Special local regulations issued in conjunction with a regatta or marine parade permit are specifically excluded from further analysis and documentation under that section.

Under figure 2-1, paragraph (34)(h), of the Instruction, an “Environmental Analysis Check List” and a “Categorical Exclusion Determination” are not required for this rule. Comments on this section will be considered before we make the final decision on whether to categorically exclude this rule from further environmental review.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 100 as follows:

You may submit your comments by any one of several methods:

• You may mail your comments to: Director (630), Bureau of Land Management, Eastern States Office, 7450 Boston Boulevard, Springfield, Virginia 22153, Attention: RIN 1004-AD59.

• You may deliver comments to 1620 L Street NW., Suite 401, Washington, DC 20036.

• You may e-mail your comment to: comments_washington@blm.gov (Include “Attn: AD59” in the subject line).

Please make your comments on the proposed rule as specific as possible, confine them to issues pertinent to the proposed rule, and explain the reason for any changes you recommend. Where possible, your comments should reference the specific section or paragraph of the proposal that you are addressing.

The Department of the Interior and the FS may not necessarily consider or include in the Administrative Record for the final rule comments that we receive after the close of the comment period (see DATES ) or comments delivered to an address other than those listed above (see ADDRESSES ).

BLM intends to post all comments on the internet. If you are requesting that your comment remain confidential, do not send us your comment at the direct internet address or the e-mail address because we immediately post all comments we receive on the internet. Also, comments, including names and street addresses of respondents, will be available for public review at the address listed under “ ADDRESSES: Personal or messenger delivery” during regular business hours (7:45 a.m. to 4:15 p.m.), Monday through Friday, except holidays.

Individual respondents may request confidentiality, which we will honor to the extent allowable by law. If you wish to withhold your name or address, except for the city or town, you must state this prominently at the beginning of your comment. 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.

The regulations at 43 Code of Federal Regulations (CFR) part 3160, Onshore Oil and Gas Operations, in section 3164.1 provide for the issuance of Onshore Oil and Gas Orders to “implement and supplement” the regulations in part 3160. Also, 36 CFR 228.105 provides for the issuance of FS Onshore Orders or for the co-signing of Orders with BLM. Although they are not codified in the CFR, all onshore orders are issued using notice and comment rulemaking and, when issued in final form, apply nationwide to all Federal and Indian (except the Osage Tribe) onshore oil and gas leases. The table in 43 CFR 3164.1(b) lists existing Orders. This proposed rule would revise existing Onshore Oil and Gas Order Number 1 (the Order) which supplements primarily 43 CFR 3162.3 and 3162.5. 43 CFR 3162.3 covers conduct of operations, applications to drill on a lease, subsequent well operations, other miscellaneous lease operations, and abandonment. Section 3162.5 covers environmental and safety obligations. The FS would adopt the Order which would supplement 36 CFR part 228 subpart E. The existing Order has been in effect since November 21, 1983. For further information, see the October 21, 1983 Federal Register at 48 FR 48916.

There are four primary reasons the Order is being revised:

1. The 1987 Reform Act, which amended the Mineral leasing Act, 30 U.S.C. 181 et seq. , included two significant changes affecting APD processing on Federal leases. The first important change is the addition of a provision for public notification of a proposed action before APD approval or substantial modification of the terms of a Federal lease.

The second important change the Act made is the assignment of authority to the FS to approve and regulate the surface disturbing activity associated with oil and gas wells on National Forest System (NFS) lands. Where NFS lands are involved, a Surface Use Plan of Operations, included in an APD, is now approved by the FS. The FS also approves surface disturbing aspects of related and subsequent operations. The FS has actively participated in this revision, and is a cosigner of this Order. The Order would apply to FS review of oil and gas surface operations.

2. In response to protests to two Resource Management Plans in April 1988, the Office of the Solicitor of the Department of the Interior issued two memorandums related to oil and gas issues. The first and most far-reaching (issued by the Associate Solicitor, Energy and Resources on April 1, 1988, titled “Legal Responsibilities of BLM for Oil and Gas Leasing and Operations on Split Estate Lands”), concerned BLM responsibilities on Federal leases overlain by private surface (split-estate). In this memorandum the Solicitor's Office opined that the National Environmental Policy Act (NEPA), the Endangered Species Act (ESA), and the National Historic Preservation Act (NHPA) require BLM to regulate exploration, development, and abandonment on Federal leases on split-estate lands in essentially the same manner as a lease overlain by Federal surface. The memorandum also stated that while a private owner's wishes should be considered in decisions, they do not overrule requirements of these statutes and their implementing regulations.

The second memorandum (issued by the Assistant Solicitor, Onshore Minerals, Division of Energy and Resources on April 4, 1988, titled “Legal Responsibilities of BLM for Oil and Gas Leasing and Operations under the National Historic Preservation Act”) lays out in more detail BLM's responsibilities under NHPA, elucidating further the discussion on cultural resources in the first opinion.

The pertinent requirements of existing Order Number 1 do not fully conform to the memorandums issued by the Solicitor's Office in 1988.

3. The existing Order does not adequately address BLM Rights-of-Way or FS Special Use Authorizations which are often required for off-lease facilities or those activities outside of lands committed to a unitized area. This has led to confusion and delays on the part of both the agencies and industry. Under the existing Order, APD approval is often delayed pending completion and approval of a Right-of-Way or Special Use Authorization. We intend for the proposal to eliminate or reduce this delay. The proposed rule provides for early identification of any needed Right-of-Way or Special Use Authorization, allows for conducting a single environmental analysis for the APD and Right-of-Way or Special Use Authorization, and permits concurrent approval of the Right-of-Way or Special Use Authorization with the APD. On NFS lands, the FS will approve off-lease activities directly related to the drilling and production of the well as part of the Surface Use Plan of Operations instead of through issuing a separate Special Use Authorization. Please specifically comment on the provisions in the proposal (see proposed Section V. Rights-of-Way (R/W) “ Special Use Authorization (SUA)) that would expedite Right-of-Way or Special Use Authorization approvals. We are interested in suggestions of other methods BLM and the FS could incorporate to expedite approval of energy projects.

4. Existing Order Number 1 is over 20 years old. Conditions, regulations, policies, procedures, and requirements have been altered, added, and eliminated since the Order was issued. BLM is in the process of reviewing field office practices and the preliminary findings from that review were considered in the proposed revisions to the Order. BLM has reorganized the Order to follow the review and approval process and the processing timeframes for each step are now in one section. Also, split estate operations are discussed in more detail.

BLM encourages operators to employ best management practices when they develop their APDs. Best management practices are innovative, dynamic, and economically feasible mitigation measures applied on a site-specific basis to reduce, prevent, or avoid adverse environmental or social impacts. BLM field offices incorporate appropriate best management practices into proposed APDs and associated on and off-lease Rights-of-Way approvals after required NEPA evaluation. They can then be included in approved APDs as Conditions of Approval. Typical best management practices can currently be found on BLM's Web site at http://www.blm.gov/nhp/300/wo310/O&G/Ops/operations.html.

The following chart explains the major changes between the existing Order and the proposed Order.

The most significant change in the proposed rule is that it would eliminate the term “Technically and Administratively Complete” and replace it with a clear definition of “Complete APD.” This new definition is consistent with the common practice in many field offices and would require all field offices to adopt the same convention. The new definition would bring needed consistency to the approval process. BLM previously considered defining Administratively and Technically complete separately, but decided to abandon this distinction because of the difficulty in separating the two concepts and in potential delays that might be caused in processing APDs in certain circumstances.

The Reform Act requires each APD (except on Indian lands) to be posted for public review for 30 days. BLM, and the Surface Managing Entity if appropriate, will post the required parts of the APD immediately after receiving the application, therefore the 30 days will commence immediately after the APD or Notice of Staking is filed. No decision can be made before the end of the 30 day posting period. This is not a change to existing practice. When possible, a copy will be posted electronically on the internet.

Under the proposed process, BLM would review the APD package, consult with FS if appropriate, and within 10 days of the filing determine if the package contains all the documents and information sufficient and necessary for processing. If the APD package did not contain the minimum documentation and information, BLM or the FS would notify the operator about the deficiencies. If an incomplete package were to contain sufficient information to continue processing, BLM or the FS would process the package to the point where continued processing would either be impractical or impossible without additional information. Generally, a “complete” determination would follow after the applicant submits any additional material.

Under the proposal, within 10 days of receiving an APD package or a Notice of Staking, BLM will establish a future date for an onsite inspection. Under the existing Order, the onsite is held within 15 days of filing. Under this proposal, BLM and/or the FS would hold the onsite inspection as soon as practical after filing. Providing more flexibility in scheduling the onsite inspection will allow BLM to take into account weather conditions and the availability of the operator and agency staff, as well as the surface owner if split estate is involved. It is both agencies' intent to hold the onsite as soon as possible and normally within 15 days after filing. The agencies recognize that conducting this event so soon after filing may be difficult, but we consider it, nevertheless, desirable and necessary.

The proposal makes BLM, rather than the operator, responsible for inviting surface owners to participate in onsite inspections.

BLM would initiate the review of the APD package as soon as practical after filing by the operator. Some deficiencies are difficult to detect and may not be evident until the onsite inspection. Therefore, a determination of completeness may be delayed beyond 10 days after filing. Under this proposed Order, BLM may notify the operator of any remaining deficiencies and any other changes necessary within 7 days after the onsite inspection.

The operator is encouraged to respond to BLM requests for additional information or to correct deficiencies within 45 days of the request. Faster response times by the operator will help to expedite the review process. BLM envisions that the operator may be asked for additional information on more than one occasion. The technical review of the APD package is made by many different specialists. In an effort to expedite the approval process, BLM will not wait to compile a complete list of all deficiencies in a particular application. Instead, BLM will provide requests for additional information to the operator as soon as BLM or FS staff identifies a specific deficiency. Waiting to notify the operator of separate issues may unnecessarily slow the approval process.

Under the proposed Order, after the operator provides all requested information, BLM would determine if the package is complete, that is, that the data submitted is accurate, complete, meets BLM standards where applicable, and fully describes the proposed action. A complete package must contain the information listed in 43 CFR 3162.3-1 and 43 CFR 3164.1, as appropriate, and the information this Order would require. A complete application does not include a cultural or wildlife inventory, NEPA documentation, or other materials that are not requirements of the sections cited above or in this Order. It is the policy of BLM and FS to begin the NEPA analysis and other inventories as soon as sufficient information is present to support the work.

It is the intent of BLM and the FS to process APDs within 30 days after the APD package is complete. However, other regulatory requirements, such as those in the NEPA, NHPA, and ESA, may result in further delay. Neither BLM nor the FS can make a final decision on any APD or Surface Use Plan of Operations until these regulatory requirements are completed. Compliance in some cases may depend on actions taken by other agencies over which BLM and the FS have no administrative control. Therefore, neither BLM nor the FS can commit to processing all APDs within a given time, but intend to process all APDs within the minimum time necessary to meet all regulatory requirements. This is consistent with existing policy and practice. The existing Order, effective in 1983, says that “the 30-day time frame for completion of the APD process may sometimes be exceeded where it is necessary to prepare an EA. * * *” BLM did not routinely prepare EAs for each APD in 1983 because they were categorically excluded from NEPA analysis until 1992. We now conduct some form of NEPA analysis for all submitted APD packages. In addition, since the 1983 Order, NHPA and ESA requirements have become more extensive. With these added regulatory requirements, it is not realistic for BLM to commit to processing all APDs in 30 days.

This proposal would make specific changes to the drilling and surface use plans as follows:

The former 8-point Drilling Program (also referred to as the Subsurface Use Plan) would be replaced with a 9-point Drilling Plan. This proposal would expand the required description in the existing Order addressing the anticipated casing program, and add a new requirement to the Drilling Plan to address the type and amount of cement operators propose to use in setting each casing string.

We would replace the former 13-point Surface Use Program (or Plan) with a 12-point Surface Use Plan of Operations. We would remove the former point 13 of the Surface Use Plan of Operations “Operator Certification” and make it a separate component of the APD package. This change makes it clear that the Operator Certification covers the entire APD package and not just the Surface Use Plan of Operations.

The 13-point Surface Use Plan is currently codified in Forest Service Regulations at 36 CFR 228 Subpart E, Appendix A. Under this rule, Appendix A would be deleted. Although it would not be codified in 36 CFR, section III.E. of the proposed Order would apply to surface use operations on NFS lands. That proposed section defines the components of a complete Surface Use Plan of Operations or Master Development Plan. The rule would also revise 36 CFR 228.105(a)(1) to direct operators to submit surface use plans or Master Development Plans in accordance with the proposed Order, or other applicable onshore orders.

This proposal would establish a new approval process for multiple well proposals called a Master Development Plan. This process would be used by an operator to submit plans for field development or a multiple well program in lieu of several individual APDs.

These proposals could be addressed in a single NEPA analysis and approval. This process would facilitate the consideration of cumulative effects early in the process and enable broad application of identified mitigation measures, while minimizing or significantly reducing the cumulative timeframe for approval. We also anticipate that this approval will lead to better planning of field development which will minimize adverse environmental impacts.

The proposed rule envisions the APD as an application for a proposed action that is impacted by other analytical requirements such as the NHPA and the ESA. The documents other statutes require are not part of a complete APD package. This proposal also explains the approval process for certain subsequent well operations. The revised Order would describe the relationship between the APD package and any application for an associated BLM Right-of-Way or FS Special Use Authorization that may be required. This Order would replace the 1983 Order incorporated by the FS into its oil and gas regulations.

This proposal would also clarify that BLM authority to require additional bond in 43 CFR 3104.5 applies to off-lease facilities required to further development of the lease, such as the large impoundments being created in Wyoming for produced water from Federal and nonfederal coalbed natural gas wells. BLM is obligated by the Reform Act to require sufficient bond to insure “the restoration of any lands or surface waters adversely affected by lease operations after the abandonment or cessation of oil and gas operations on the lease” 30 U.S.C. 226(g). An Assistant Solicitor's memorandum of July 19, 2004, concluded that BLM has the authority to require additional bond for such facilities and that the current regulation does not limit BLM to increasing the required amount of an existing bond. Accordingly, the proposal does not represent a change in the regulatory scheme.

Provisions in the final Order will supersede any inconsistent provisions of existing regulations, inasmuch as they will constitute a later exercise of Administrative Procedure Act rulemaking. To the maximum extent practical, we will identify such inconsistencies and include conforming amendments to titles 36 or 43, or both, of the CFR in the final rule.

These proposed regulations are not a significant regulatory action and are not subject to review by Office of Management and Budget (OMB) under Executive Order 12866. OMB makes the final determination under the Executive Order. These proposed regulations will not have an effect of $100 million or more on the economy. They will not adversely affect in a material way the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities. These proposed regulations will not create a serious inconsistency or otherwise interfere with an action taken or planned by another agency. These proposed regulations do not alter the budgetary effects of entitlements, grants, user fees, or loan programs or the right or obligations of their recipients; nor do they raise novel legal or policy issues. The revisions this rule would make to the Order primarily involve changes to BLM and FS administrative processes. For example, changes to the term “Administratively and Technically Complete” only pertain to the process BLM and the FS would use to review APD packages and would not have any significant economic impact. Other changes, such as the proposal to add a provision for the use of a Master Development Plan, may improve processing and predictability of operations due to better advance planning of field development. Clarifying that our authority to require additional bond applies to off-lease facilities would have no economic impact since BLM already has the authority under the existing regulatory scheme to require this bond. Also, as a result of more clear rules, operators will have a better understanding of BLM and FS requirements, processes, and timelines leading to reduction in delays in processing and possible administrative cost savings for BLM, the FS, and operators.

Congress enacted the Regulatory Flexibility Act of 1980 (RFA), as amended, 5 U.S.C. 601-612, to ensure that Government regulations do not unnecessarily or disproportionately burden small entities. The RFA requires a regulatory flexibility analysis if a rule would have a significant economic impact, either detrimental or beneficial, on a substantial number of small entities. For the purposes of this analysis, we will assume that all entities (all lessees and operators) that may be impacted by these regulations are small entities.

The rule principally deals with the requirements necessary for the approval of all proposed oil and gas exploratory, development, or service wells on all Federal and Indian (except Osage tribe) onshore oil and gas leases. These changes are not significantly different from the existing Order and primarily consist of changes to BLM and FS administrative processes that would not significantly impact operators or lessees. As a result of more clear rules, operators will have a better understanding of BLM and FS requirements, processes, and timelines leading to a reduction in delays in processing and some administrative cost savings for BLM, the FS, and operators. Therefore, BLM and the FS have determined that under the RFA this proposed rule would not have a significant economic impact on a substantial number of small entities.

The use of best management practices in conditions of approval for a permit to drill is not new. BLM currently uses them as conditions of approval and therefore this provision will have no economic impact on small entities.

The bonding provision in the rule would not impact small entities since the provisions merely reflect existing authority. As stated earlier, an Assistant Solicitor's opinion of July 19, 2004, concluded that BLM has the authority to require additional bond for such facilities and that the current regulation does not limit BLM to increasing the required amount of an existing bond. Accordingly, the proposal does not represent a change in the regulatory scheme.

These proposed regulations are not a “major rule” as defined at 5 U.S.C. 804(2). For the reasons stated in the RFA discussion, this proposed rule would not have an annual effect on the economy greater than $100 million; it would not result in major cost or price increases for consumers, industries, government agencies, or regions; and it would not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

These proposed regulations do not impose an unfunded mandate on state, local, or tribal governments or the private sector of more than $100 million per year; nor do these proposed regulations have a significant or unique effect on state, local, or tribal governments or the private sector. This proposed rule would primarily involve changes to BLM's and the FS's administrative processes that would not have any significant effect monetarily, or otherwise, on the entities listed. Therefore, BLM and the FS are not required to prepare a statement containing the information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531 et seq. ).

The proposed rule does not represent a government action capable of interfering with constitutionally protected property rights. This proposed rule has no potential to effect property rights as the changes it would make to existing procedures primarily involve changes to BLM's and the FS's administrative processes. Therefore, the Department of the Interior and the Department of Agriculture have determined that the rule would not cause a taking of private property or require further discussion of takings implications under this Executive Order.

The proposed rule will 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. The proposal will not have any effect on any of the items listed. As stated above, the rule principally deals with the requirements necessary for the approval of all proposed oil and gas exploratory, development, or service wells on all Federal and Indian (except Osage tribe) onshore oil and gas leases. In other words, the rule affects the relationship between operators, lessees, and BLM and the FS and would not impact states. Therefore, in accordance with Executive Order 13132, BLM has determined that this proposed rule does not have sufficient Federalism implications to warrant preparation of a Federalism Assessment.

BLM approves proposed operations on all Indian (except Osage) onshore oil and gas leases and agreements. BLM has begun consultation on the proposed revisions to the Order and will continue to consult with Tribes during the formal comment period on the rule.

Under Executive Order 12988, the Office of the Solicitor has determined that this proposed rule would not unduly burden the judicial system and that it meets the requirements of sections 3(a) and 3(b)(2) of the Order. We have reviewed these regulations to eliminate drafting errors and ambiguity. They have been written to minimize litigation, provide clear legal standards for affected conduct rather than general standards, and promote simplification. Drafting the regulations in clear language and working closely with legal counsel assists in all of these areas.

These regulations contain information collection requirements. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ), we submitted a copy of the proposed information collection requirements to the OMB for review. The OMB approved the information collection requirements under Control Number 1004-0137, which expires on March 31, 2007.

BLM and the FS have prepared an environmental assessment (EA) and have found that the proposed rule would not constitute a major Federal action significantly affecting the quality of the human environment under section 102(2)(C) of the NEPA, 42 U.S.C. 4332(2)(C). A detailed statement under NEPA is not required. BLM has placed the EA and the Finding of No Significant Impact on file in the BLM Administrative Record at the address specified in the ADDRESSES section.

The proposed revisions to Order 1 would not impact the environment significantly. For the most part, the revisions would involve changes to BLM's and the FS's administrative processes. For example, replacing the term “Administratively and Technically Complete” with the term “Complete APD” only changes the process BLM would use to review APD packages and would not have any impact on the environment whatsoever. Other changes, such as the proposal to add provisions for the use of a Master Development Plan, may actually provide improved environmental protection due to better advance planning of field development. The use of best management practices can lead to reduced environmental damage. Also, the procedural and clarifying changes would have no meaningful impact of any kind on the physical or economic environment. Any environmental effects of APDs on Federal lands are analyzed on a case-by-case basis.

In accordance with Executive Order 13211, BLM has determined that the proposed rule will not have substantial direct effects on the energy supply, distribution or use, including a shortfall in supply or price increase. This rule would clarify the administrative processes involved in approving an APD and more clearly lay out the timeline for processing applications. It is not clear to what extent clarification of the rules will save BLM, the FS, or operators administrative cost, but we anticipate that the cost savings will be minimal, as will any direct effects on the energy supply, distribution or use.

Executive Order 12866 requires each agency to write regulations that are simple and easy to understand. We invite your comments on how to make these proposed regulations easier to understand, including answers to questions such as the following:

1. Are the requirements in the proposed regulations clearly stated?

2. Do the proposed regulations contain technical language or jargon that interferes with their clarity?

3. Does the format of the proposed regulations (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce their clarity?

4. Would the regulations be easier to understand if they were divided into more (but shorter) sections?

5. Is the description of the proposed regulations in the SUPPLEMENTARY INFORMATION section of this preamble helpful in understanding the proposed regulations? How could this description be more helpful in making the proposed regulations easier to understand?

Please send any comments you have on the clarity of the regulations to the address specified in the ADDRESSES section.

The principal authors of this rule are: James Burd of the BLM Washington Office; Bo Brown of the BLM Alaska State Office; Brian Pruiett of the BLM Buffalo, Wyoming Field Office; Gary Stephens of the BLM New Mexico State Office; Hank Szymanski of the BLM Colorado State Office; Howard Clevinger of the BLM Vernal, Utah Field Office; Roy Swalling of the Montana State Office; and Barry Burkhardt of the FS Intermountain Regional Office, Ogden, Utah, and assisted by the staff of BLM's Regulatory Affairs Group and the Department of the Interior's Office of the Solicitor.

For the reasons set out in the joint preamble, the FS proposes to amend 36 CFR part 228 as follows:

The Copyright Act, as amended by the Digital Millennium Copyright Act (Pub. L. 105-304, 112 Stat. 2860 (1998)), provides a statutory license for digital audio transmissions by certain eligible subscription, nonsubscription, satellite digital audio radio, business establishment and new subscription services (17 U.S.C. 114(f)(4)(A)) and a related “ephemeral” statutory license for the temporary recordings used in those transmissions (17 U.S.C. 112(e)(4)). The statute directs the Librarian of Congress to “establish requirements by which copyright owners may receive reasonable notice of the use of their sound recordings under this section, and under which records of use shall be kept and made available by entities performing sound recordings[]” by digitial audio transmission. 17 U.S.C. 114(f)(4)(A); see, also 17 U.S.C. 112(e)(4). Avoidance of infringement liability is contingent upon “complying with such notice requirements * * *.” 17 U.S.C. 114(f)(4)(B)(i).

Through extensive prior proceedings, the Librarian has partially “establish[ed] requirements by which copyright owners may receive reasonable notice of the use of their sound recordings,” adopting interim regulations on the types of information that must be kept by digital audio services under 17 U.S.C. 114(f)(4)(A) and 112(e)(4). See, 69 FR 11515 (March 11, 2004). A notice of proposed rulemaking on the issues of delivery and formatting was published on April 27, 2005, by the Copyright Office. 70 FR 21704. Responsibility for the notice and recordkeeping regulations was transferred by Congress to the Copyright Royalty Judges (“CRJs”) by amended sections 114(f)(4)(A) and 112(e)(4) in the Copyright Royalty and Distribution Reform Act of 2004, Pub. L. 108-419, 118 Stat. 2341 (November 30, 2004), which became effective on May 31, 2005. As anticipated in the April 27, 2005, notice of proposed rulemaking, the rulemaking record, including the comments received on the proposed delivery and formatting rules, has been transferred to the Copyright Royalty Board (“the Board”), which was created by the Librarian to house the functions of the CRJs.

By this notice, the Copyright Royalty Board is seeking further comments on the rules proposed by the Copyright Office in the April 27, 2005, notice of proposed rulemaking (“NPRM”). These additional comments are sought in an effort to improve the quality of the Board's consideration of these important matters.

This rulemaking task has proved nettlesome and frustrating. The written comments received from copyright owners  1 and licensees,  2 pursuant to the April 27, 2005, notice of proposed rulemaking, underscores the continued sharp divisions among the parties on the highly technical formatting and delivery issues. Resolution of these issues does not draw upon a reservoir of traditional agency expertise. The written comments seem frequently characterized by conclusory assertions and the issuance of a final rule on this record would be extremely difficult.

The Board's goal here is to obtain a fair and practical allocation of the burdens of data delivery for those who are unable to negotiate their own data delivery solutions with SoundExchange. The resulting system should not impose an unnecessary burden on copyright owners; at this time, the system cannot allow copyright owners to throw up burdens that would defeat or unnecessarily discourage use of the statutory licenses. The Board is earnestly asking for more specific, additional information that will reduce the speculative nature of its rulemaking decision to the degree possible. The information should be detailed enough to provide support for, and rebuttal to, assertions regarding the burdens imposed by the proposed rules or by the logical alternatives to those rules. Citations to supporting references should be provided wherever possible. Reports from expert consultants are encouraged.

In issuing this supplemental notice, the Board stresses that it has not made a decision on the merits of any of the formatting and delivery issues presented in this rulemaking proceeding and will consider any further comments on any matter interested persons might wish to offer. The Board is, however, urging commenters to zero in on the following specific technical issues.

SoundExchange has agreed to allow webcasters to use two commercially available spreadsheets in creating and formatting records of use for each sound recording used under sections 112 and 114 of the Copyright Act. SoundExchange has already posted on its Web site a template for Microsoft Excel and asserts that a version for Correl's Quattro Pro will soon be posted. It submits that “due to the significant limitations of spreadsheets, SoundExchange shall not be required to provide technical support for the use of spreadsheets for recordkeeping purposes.” SoundExchange comments at Exhibit B at 3 (May 27, 2005). All spreadsheet data must be converted into an American Standard Code for Information Interchange (“ASCII”) format prior to delivery to SoundExchange.

CBI and WHRB offer the following objections. CBI objects that SoundExchange will not provide technical assistance to services seeking to complete spreadsheets and that such a provision “absolves SoundExchange of any responsibility to provide a template and instructions that are free from errors, no matter how egregious.” CBI comments at 8 (May 27, 2005). CBI and WHRB assert that converting spreadsheet data to ASCII is expensive, impractical, and “eliminates the only reasonable, financially accessible, and widely available tool.” Id.; WHRB comments at 6 (May 27, 2005) (“The process of using a spreadsheet program to export an ASCII file is difficult and will be prone to errors, particularly in the hands of unpaid volunteers with relatively high rates of turnover.”)

Questions:

1. How expensive and time-consuming would it be for a typical noncommercial webcaster on the Internet to compile spreadsheets using Microsoft Excel? Using Corel Quattro Pro?

2. What are the practical difficulties in converting a Microsoft Excel or Corel Quattro Pro spreadsheet into ASCII? How costly is it?

3. What are the kinds of technical support that are typically needed in preparing Microsoft Excel and Corel Quattro Pro spreadsheets and converting them to ASCII? How would that technical support be available to a webcaster and what costs would be involved?

Although the Copyright Office NPRM only addressed commercially available spreadsheets as a means of creating records of use, the Board is interested in knowing what, if any, software is commercially available that could be used to compile records of use.

Questions:

What, if any, commercially available software is available that could be used to compile records of use? Would such software produce records of use that are format compatible with SoundExchange's data processing system? What are the costs associated with such software?

SoundExchange supports four methods of delivery for electronic data files: File Transfer Protocol (“FTP”); electronic mail attachment; CD-ROM delivery and; floppy diskette delivery. Each of these delivery methods has specific requirements (examples: e-mail attachments may not exceed ten megabytes; FTP delivery requires securing username and password; floppy diskettes must measure 3.5 inches in diameter). Webcasters do not object to the proposed delivery methods.

However, WHRB recommends that records of use should be accepted by SoundExchange via its Web site. Once logged in, services would have the ability to upload new reports to the SoundExchange site, “with SoundExchange automatically handling the naming and tagging of the reports.” The Web site could also allow the webcasters to view their history of submitted reports. WHRB comments at 6-7 (May 27, 2005). SoundExchange has opposed allowing delivery of records of use to a Web site, citing unspecified cost and security concerns. See 70 FR 21704, 21707 (April 27, 2005).

Questions:

1. What are the average estimated costs of creating and maintaining a Web site for receipt of records of use? What are the security concerns and how may they be addressed? Is there a commercially available Web site software that could perform this task? Is Web site software available that could be adopted from other SoundExchange uses?

2. To what extent can a SoundExchange-hosted Web site reduce costs associated with records of use? Can it assist in organizing and cataloging delivered data and, if so, in what fashion and to what extent?

3. Could a SoundExchange-hosted Web site be required to provide services with access to prior submitted records of use? For how long?

Every record of use must be named and must contain the dates of the reporting period. SoundExchange insists that the “[s]tart and end dates should be in the format of day, month, and year (DDMMYYYY) where DD is the two-digit day of the log period (beginning or end); MM is the two-digit month of the log period; and YYYY is the four-digit year of the log period (beginning or end).” SoundExchange comments, Exhibit B at 4 (May 27, 2005). NRBMLC/Salem urge that the reporting dates for data files should be in the format of YYYYMMDD, which they state is “the official format adopted by the ASCII standard.” NRBMLC/Salem comments at 1 (May 27, 2005); See, also NRBMLC/Salem comments at 5 (September 30, 2002) and NRBMLC/Salem reply comments at 8 (October 10, 2002).

In addition, NRBMLC/Salem submit that “we are concerned about radio stations that may not have the technological capability of assigning file names the length that SoundExchange's proposal envisions.” Id.

Questions:

1. What is the ASCII standard for reporting days, months and years? Is one way more cumbersome or expensive than the other?

2. What is required to be technologically capable of assigning file names of the length proposed in the NPRM?

SoundExchange requests that the service name, start and end date of the reporting period and the transmission category be followed by the file extension “.txt.”. An example of a file identifier is as follows: ex. AcmeMusicCo15012005-21012005_H.txt. NRBMLC/Salem objects to the sole use of “.txt” as a file extension and asserts that “[t]here is no need for the Office to regulate at this level of detail, and alternate file type extensions should be allowed so long as the data contained in the file is in the appropriate format.” NRBMLC/Salem reply comments at 9 (October 10, 2002).

Questions:

1. What difficulties would it create for SoundExchange if reports without .txt file extensions and/or with different file extensions were submitted?

2. What difficulties would it create for digital audio services if they were required to use .txt file extensions on their reports?

RLI requests that it receive all records of use. RLI comments at 1 (May 27, 2005).

Questions:

1. What standing does RLI have to request copies of the reports of use?

2. How expensive and burdensome would it be, on average, for services to provide RLI with records of use in addition to SoundExchange?

3. Must all the format requirements be the same?

SoundExchange requests that the following header appear, in order, on each data file of a record of use:

NRBMLC/Salem object to SoundExchange's requested format for a file with headers on multiple grounds. First, they assert that the contact information on the first six lines should not be required since preexisting subscription services are not required to report such information in a file with headers. See 37 CFR 270.2. Second they assert that there is no reason to require lines 7 and 8 because the information contained therein already appears in the file name. Third, they assert that line 9 is completely unnecessary because the report generation date has nothing to do with the distribution of royalties. And fourth, NRBMLC/Salem submit that row 10 is unnecessary because the information has nothing to do with a station's music use.

NRBMLC/Salem comments Exhibit 2 at 7-8.

NRBMLC/Salem assert that files with headers should resemble the format followed by the webcasters that generate playlists. They propose the following requirements for files with headers:

i. A file identifying the data fields conforming to the following specifications with accompanying header information:

1. The file may identify the sound recordings performed on a particular day or during a particular multiple-day reporting period.

2. The file must contain at least the fields required to be reported * * * but may contain additional fields. If the file contains data concerning sound recording transmissions spanning more than one day, the date of transmission of each sound recording shall also be specified in each data record.

3. The Service shall provide header information that identifies the required fields of information and the order in which they appear in the file. The header information shall include field identifiers from the following list:

a. DATE, to identify the date on which a sound recording was performed;

b. TITLE, to identify the title of the sound recording;

c. ARTIST, to identify the featured performing artist;

d. ALBUM, to identify the album from which the sound recording was played, if, in fact, the sound recording was played from an album and if that information is in the source file that was used to create the playlist;

e. LABEL, to identify the record label that distributes the sound recording, if that information is in the source file that was used to create the playlist;

f. LISTENER, to identify the estimated number of listeners who heard the particular sound recording performed; and

g. IRREL, to identify irrelevant fields not required to be reported.

4. At the Service's option, header information may be embedded in the file as the first line of data, or it may be provided to the Collective  3 separately. The Service shall notify the Collective of the means of transmitting such header information.

5. At the Service's option, information concerning the estimated number of listeners to particular sound recordings may be submitted in a separate file with accompanying header information including, without limitation, the DATE and LISTENER field identifiers set forth above * * *

6. Notwithstanding the above requirements, output files generated by a Broadcaster's music scheduling or digital automation software shall be deemed to be in an acceptable format provided that they are accompanied by header information described above to identify the data fields contained therein.

Questions:

1. How are files with headers typically organized? Are there any generally recognized standards for music reporting? What are the software requirements and costs associated with creating data files with headers?

2. Given that preexisting subscription services are not required by Copyright Office regulations to report the data contained in the first six lines of SoundExchange's proposal, what are the costs/benefits to requiring this information in each data file?

3. Given that lines 7 and 8 of the header information contained in SoundExchange's proposal are already reported in the file name, what are the costs/benefits of requiring them to be repeated in each data file?

4. To what extent must the header information in SoundExchange's proposal be provided in the requested order? Is any variance possible? What are the costs/benefits associated with variances?

5. What are the problems, if any, associated with the NRBMLC/Salem proposal for files with headers? Do they present compatibility issues with the SoundExchange data processing system and, if so, what are those issues?

6. Can there be flexibility in the regulations for the creation of files with headers or must the regulations be rigid?

SoundExchange proposes the field delimiter for a data string be a pipe (“ | ”) and that the text indicator be a carat (“‸”) and that in no instance may a field delimiter or text indicator appear in a data string. SoundExchange comments Exhibit B at 8 (May 27, 2005). Harvard and NRBMLC/Salem propose the use of commas for field delimiters and quotes as text delimiters, arguing that these are the industry standards. NRBMLC/Salem comments at 1-2 (May 27, 2005).

Questions:

1. What are the industry standards for use of field delimiters and text delimiters? Should particular ones be specified in the regulations? To what extent is flexibility acceptable in their selection?

2. What problems will be created by allowing the use of commas and quotes as field delimiters and text indicators, respectively? How can such problems, if any, be avoided?

SoundExchange requests that all data appearing in data fields be in upper case characters (ex. THE ROLLING STONES). SoundExchange comments Exhibit B at 11 (May 27, 2005). CBI submits that while the:

[U]se [of] all capital letters in the data fields might be convenient for SoundExchange, [it] is a substantial problem for stations in numerous ways. Stations that have existing databases would have to go back and change every record in their database, not an insignificant prospect. This would be a time consuming task that would also likely induce additional errors in the database. Stations that manually enter the data by hand at the time of use will likely encounter many unintentional cases of the data being entered improperly. Further, those that utilize this data for other uses will likely not want the data to be in all capital letters, which would require such stations to maintain two separate databases.

Questions:

1. What are the costs/benefits of requiring all data fields to be in upper case characters? Will the SoundExchange data processing system accept lower case characters in a data field and combinations thereof?

2. What is the industry standard for data fields?

SoundExchange requests that there not be any abbreviations permitted in the data fields. SoundExchange comments Exhibit B at 11 (May 27, 2005). CBI, NRBMLC/Salem and WHRB object. CBI submits that disallowing abbreviations will increase the likelihood of data entry errors due to the voluntary nature of staff and/or the requirement would “cause a major expense and/or disruption” to their existing practices. CBI comments at 11 (May 27, 2005). NRBMLC/Salem states that “[t]he very concept that there is a “standard” manner of inputting title and artist information in light of the many ways in which stations receive music and the varying practices amongst broadcasters defies common sense.” NRBMLC/Salem reply comments at 7 (October 10, 2002). WHRB argues that SoundExchange should be required to “compile and make publicly available a comprehensive, universal database to identify sound recordings.”

Questions:

1. What problems, if any, does allowing abbreviations within data fields present to SoundExchange's data processing system? How can these be addressed?

2. Can a set of rules be developed that permit abbreviations within data fields and, if so, what should these rules be?

3. What are the burdens and costs associated with the creation and maintenance of a data-base of sound recording titles, album titles, artists' names, etc. by SoundExchange? What should be the functionality of such a database? How could such a database be utilized to reduce the overall costs of reporting records of use?

SoundExchange requests the following format requirements for data files without headers:

(1) ASCII delimited format, using pipe ( | ) characters as delimiters, with no headers or footers;

(2) Carets (‸) should be used as the text indicator, surrounding alphanumeric data elements such as name of Service, transmission category, channel name, artist, song title, album;

(3) No carets (‸) should surround dates and numbers;

(4) A carriage return must be at the end of each line; [and]

(5) All data for one record should be on a single line.

NRBMLC/Salem proposes different requirements for files without headers:

A file containing data records only, with no header information, and conforming to the following specifications.

1. The file may identify the sound recordings performed on a particular day or during a particular multiple-day reporting period.

2. The file must contain only the fields required to be reported * * *, in a particular order reasonably agreed upon by the Service and the Collective.

3. At the Service's option, information concerning the estimated number of listeners to particular sound recordings may be submitted in a separate file containing date and listener information in an order reasonably agreed upon by the Service and the Collective.

Questions:

1. Are there industry standards for compiling data files without headers and, if so, what are they? What are the costs/benefits of compiling data files without headers versus those with headers?

2. How flexible can the format requirements be for files without headers? What are the options?

3. Can categories of data be submitted in separate files or must it all be submitted in a single file? What is the capability of SoundExchange's data processing system to handle more than one file of data per Service?

4. To what extent could it be permissible to allow automated services to report playlist data in native form to SoundExchange?

In addition to the specific technical questions presented above, interested persons are also encouraged to supply their views on the following questions of a more general nature.

Questions:

1. Did Congress, in 17 U.S.C. 114(f)(4)(A) and 112(e)(4), require the Copyright Royalty Judges to prescribe particular formatting and delivery requirements at the level of detail described in the April 27, 2005, notice of proposed rulemaking? Is there some relevant set of Internet conventions or practices that could guide the Board in setting data submission standards here?

2. Could a system of webcast sampling, analogous to the sampling performed by performing rights societies in the context of broadcasting, meet the record-of-use requirements of 17 U.S.C. 114(f)(4)(A) and 112(e)(4)?

3. Under the provisions of any final rule adopted to implement the notice and record of use requirements of 17 U.S.C. 114(f)(4)(A) and 112(e)(4), either copyright owners (in the form of their agent, SoundExchange) or licensees will be burdened with having to change their existing data systems. From a legal and a policy perspective, on whom is it most appropriate to place these burdens? Is the court's discussion in Amusement and Music Operators Association v. Copyright Royalty Tribunal , 676 F.2d 1144, 1154-55 (7th Cir. 1982), cert. denied, 459 U.S. 907 (1982) (“depriv[ing] copyright owners of increased remuneration for the exploitation of their works by showing that some * * * operations will become unprofitable is * * * unsound and unjust”) pertinent to this inquiry?

As the Copyright Office has repeatedly stated, it would be far preferable for the parties to reach their own agreement on these formatting and delivery issues. Government regulation, especially at this level of detail, is an undesirable substitute for industry agreement. The parties who will be affected by the format and delivery regulations should confer and advise the Board if some or all of them can jointly propose solutions with respect to any of the issues raised in these proceedings.

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected entities may include, but are not limited to:

• Crop production (NAICS 111)

• Animal production (NAICS 112)

• Food manufacturing (NAICS 311)

• Pesticide manufacturing (NAICS 32532)

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. To determine whether you or your business may be affected by this action, you should carefully examine the applicability provisions in Unit II.A. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT .

In addition to using EDOCKET (http://www.epa.gov/edocket/ ), you may access this Federal Register document electronically through the EPA Internet under the “ Federal Register ” listings at http://www.epa.gov/fedrgstr/ . A frequently updated electronic version of 40 CFR part 180 is available at E-CFR Beta Site Two at http://www.gpoaccess.gov/ecfr/ .

1. Submitting CBI . Do not submit this information to EPA through EDOCKET, regulations.gov, or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

2. Tips for preparing your comments . When submitting comments, remember to:

i. Identify the rulemaking by docket ID number and other identifying information (subject heading, Federal Register date, and page number).

ii. Follow directions. The Agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

iii. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

iv. Describe any assumptions and provide any technical information and/or data that you used.

v. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

vi. Provide specific examples to illustrate your concerns, and suggest alternatives.

vii. Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

viii. Make sure to submit your comments by the comment period deadline identified.

The last U.S. product registration for cyhexatin was canceled in 1989. On January 21, 1998 (63 FR 3057) (FRL-5743-8), EPA published a proposal in the Federal Register to revoke tolerances for canceled active ingredients, including cyhexatin. In a Federal Register final rule of October 26, 1998 (63 FR 57062) (FRL-6035-8), EPA responded to comments received during a 60-day public comment period on proposed tolerance revocations. The California Citrus Quality Council and the U.S. Hop Industry Plant Protection Committee expressed concern about proposed tolerance revocations pertaining to residues of cyhexatin on citrus and hops, respectively. Elf Atochem North America, Inc. (now known as CEREXAGRI, Inc.) and OXON ITALIA expressed an interest in maintaining specific cyhexatin import tolerances. Elf Atochem stated that it had pending applications for registration and was developing certain data. OXON ITALIA stated that it was committed to providing data required to maintain tolerances of cyhexatin on imported citrus crops. Therefore, EPA did not revoke the cyhexatin tolerances at that time.

Recently, EPA completed its Tolerance Reassessment Eligibility Decision (TRED) for cyhexatin. In the Federal Register of July 13, 2005 (70 FR 40341) (FRL-7720-3), EPA published a decision notice for the cyhexatin TRED. The TRED and documents in support of the TRED are available in Edocket ID number OPP-2004-0295 at http://www.epa.gov/edocket , and will also be made available via the reregistration status website at http://www.epa.gov/pesticides/reregistration/status.htm . Because there are no active U.S. registrations, human exposure to this pesticide is strictly through the consumption of treated imported foods. Residential and occupational exposures as well as dietary exposure through drinking water are not expected because there is no domestic use of cyhexatin.

Pursuant to §§ 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using: (1) the Commission's Electronics Comment Filing System (ECFS), (2) the Federal Government's eRulemaking Portal, or (3) by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings , 63 FR 24121 (1998).

• Electronic Filers: Comments may be filed electronically using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ or the Federal eRulemaking Portal: http://www.regulations.gov. Filers should follow the instructions provided on the website for submitting comments.

• For ECFS filers, if multiple docket or rule making numbers appear in the caption of this proceeding, filers must transmit one electronic copy of the comments for each docket or rule making number referenced in the caption. In completing the transmittal screen, filers should include their full name, U.S. Postal Service mailing address, and the applicable docket or rule making number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions, filers should send an e-mail to ecfs@fcc.gov , and include the following words in the body of the message, “get form.” A sample form and directions will be sent in response.

• Paper Filers: Parties who choose to file by paper must file an original and four copies of each filing. If more than one docket or rule making number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rule making number. 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 the Commission continues to experience delays in receiving U.S. Postal Service mail). All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

• The Commission's contractor 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, Express, and Priority mail should be addressed to 445 12th Street, SW., Washington DC 20554.

• People with Disabilities: Contact the FCC to request materials in accessible formats (Braille, large print, electronics files, audio format, etc.) by e-mail at FCC504@fcc.gov or call the Consumer & Governmental Affairs Bureau at 202-418-0531 (voice), 202-418-7365 (TTY).

This document contains proposed new information collection requirements. 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 requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency comments are due 60 days after the date of publication in the Federal Register . 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. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), the Commission seeks specific comment on how it might further reduce the information collection burden for small business concerns with fewer than 25 employees.

OMB Control Number: 3060-XXXX.

Title: Implementation of the Commercial Spectrum Enhancement Act and Modernization of the Commission's Competitive Bidding Rules and Procedures

Form Numbers: N/A.

Type of Review: Supplemental collection for which comment is being sought in a notice of proposed rule making.

Respondents: Business or other for-profit, not-for-profit institutions and State, Local or Tribal Government.

Number of Respondents: 75.

Estimated Time per Response: 10 minutes, entirely by in-house staff.

Frequency of Response: Reporting; on occasion.

Total Annual Burden: 12.5 hours.

Total Annual Costs: none.

Privacy Impact Assessment: No.

Needs and Uses: Respondents would be required to specify on their short-form applications the licenses, if any, for which they intend to seek a tribal land bidding credit, should they win. This information would enable the Commission to determine at the close of bidding in a spectrum auction with a reserve price or prices whether the price or prices had been met, taking into account all possible tribal land bidding credits that might be awarded in the auction.

1. With this Notice of Proposed Rule Making (“ NPRM ”), WT Docket No. 05-211, FCC-123 released on June 14, 2005, the Commission begins a proceeding to implement rules and procedures needed to comply with the recently enacted Commercial Spectrum Enhancement Act (CSEA). The Commission also proposes a number of changes to its competitive bidding rules that are necessary, apart from CSEA, to bring them in line with the current requirements of the Commission's auctions program.

2. CSEA establishes a mechanism to use spectrum auction proceeds to reimburse federal agencies operating on the 216-220 MHz, 1432-1435 MHz, 1710-1755 MHz, and 2385-2390 MHz bands, and certain other frequency bands that may be reallocated from federal to non-federal use, for the cost of relocating operations. In a related Declaratory Ruling , the Commission interpreted the meaning of the term “total cash proceeds” as used in CSEA to be winning bids net of any applicable bidding credit discounts. In the NPRM , the Commission seeks comment on changes to the Commission's competitive bidding rules necessary to implement CSEA. Specifically, the Commission proposes to:

• Change the Commission reserve price rule as mandated by CSEA; and

• Change the Commission tribal land bidding credit rules in auctions subject to CSEA or to a reserve price requirement unrelated to CSEA in order to determine whether auction results satisfy any revenue requirement at or near the completion of bidding.

3. The Commission also considers in the NPRM a number of other measures to update the Commission's competitive bidding rules and procedures, including steps to (a) ensure that the Commission's general auction rules are consistent with the use of combinatorial (or package) bidding methodologies, (b) conform the payment rules and procedures for broadcast construction permits won at auction to the Commission's part 1 general competitive bidding rules and recent procedures, and (c) determine whether certain existing competitive bidding provisions should be modified in order to achieve their intended purposes. Specifically, the Commission proposes to:

• Change the Commission's default payment rule to clarify its application in certain situations;

• Change the Commission's interim withdrawal and additional default payment rules to replace the current interim withdrawal and additional default payments of 3 percent of the relevant bid with an amount up to 20 percent of the relevant bid, with the precise amount for each auction established in advance of the auction;

• Adopt new Commission rules to establish procedures in advance of each auction for apportioning bid amounts in the auction among licenses in a package or among components of a license to determine the amount of an individual bid or a portion of a bid when needed for calculations pursuant to Commission rules or procedures;

• Change Commission payment rules and procedures for broadcast construction permits won at auction to conform to the payment rules and procedures for non-broadcast licenses won at auction; and

• Change Commission rules and procedures for consortia of designated entities and entrepreneurs to improve the licensing process for such entities.

4. The Commission notes that several additional issues involved with implementing reserve prices for auctions subject to CSEA may arise. One such issue is whether the total cash proceeds attributable to eligible frequencies can be assessed on a license-by-license basis, so that the auction might be deemed to meet the CSEA revenue threshold for one license but not another. Another unresolved issue is whether, where an auction involves both CSEA-eligible frequencies and other spectrum, the full amount or only a portion of winning bids should be considered when measuring whether auction results satisfy the CSEA revenue requirement. Whether such issues will actually arise in an auction, and what the best possible resolutions may be, may depend upon the characteristics of the specific spectrum licenses to be auctioned and the circumstances under which the auction is conducted. Accordingly, the Commission will leave consideration of such issues to later actions, including possible auction- or service-specific rule making proceedings, subsequent declaratory rulings regarding questions of statutory interpretation, or adoption of specific auction procedures by the Commission.

5. From the inception of the Commission's auctions program in 1994, Commission rules have allowed for the use of reserve (or “reservation”) prices. The Balanced Budget Act of 1997 added paragraph 309(j)(4)(F) to the Communications Act, requiring the Commission to prescribe methods to require a reasonable reserve price or establish a minimum bid for licenses made available in spectrum auctions. The Commission's current reserve price rule for all auctionable services, § 1.2104(c) of the Commission's rules, states that the Commission may establish a reservation price, disclosed or undisclosed, below which a license subject to auction will not be awarded.

6. CSEA requires the total cash proceeds from any auction of eligible frequencies to equal at least 110 percent of the total estimated relocation costs provided to the Commission by NTIA. To implement this requirement, CSEA directs the Commission to revise its reserve price regulations adopted pursuant to section 309(j)(4)(F) of the Communications Act. Thus, in contrast to the Commission's current reserve price rule, the reserve price rule the Commission must adopt for auctions subject to CSEA cannot be discretionary. The Commission proposes, therefore, to modify § 1.2104(c) of its rules to add a requirement that, for any auction of eligible frequencies under CSEA, the Commission will establish a reserve price (or prices) that ensures that the total cash proceeds (as defined in the related Declaratory Ruling ) attributable to such spectrum will equal at least 110 percent of the total estimated relocation costs provided to the Commission by NTIA. The Commission seeks comment on this proposal.

7. In an effort to encourage carriers to provide telecommunications services to tribal lands with historically low telephone service penetration rates, the Commission makes tribal land bidding credits available to auction winners that serve qualifying tribal lands. The amount of a bidding credit is determined according to a formula set forth in the Commission's rules and is subject to a cap based on a sliding scale according to the amount of the high bid. To apply for a tribal land bidding credit, an auction winner must indicate on its long-form application (FCC Form 601) that it intends to serve a qualifying tribal land within a particular market. The applicant must then amend its long-form application by attaching a certification from the tribal government authorizing the applicant to provide service on its tribal land, certifying that the area to be served by the winning bidder is indeed qualifying tribal land, and assuring that it has not and will not enter into an exclusive contract with the applicant and will not unreasonably discriminate among wireless carriers seeking to provide service on the qualifying tribal land. The applicant must also attach its own certification that it will comply with construction requirements for tribal land and consult with the tribal government regarding the siting of facilities and service deployment.

8. The deadline for submitting these certifications is not until 180 days after the filing deadline for long-form applications. Accordingly, in auctions that include spectrum covering qualifying tribal lands, the Commission may not know for at least 180 days after the long-form deadline how much of a discount on the auction's winning bids it will have to allow for tribal land bidding credits. In auctions subject to CSEA, this situation could lead to a potentially substantial post-auction delay in calculating whether “total cash proceeds” meet the 110 percent revenue requirement. Thus, the Commission's current tribal land bidding credit procedures could prevent the Commission from concluding the auction expeditiously after the cessation of bidding and might even (should award of the credits reduce the auction's net winning bids to below the 110 percent revenue requirement) lead to cancellation of the auction long after the bidding has ended.

9. The Commission, therefore, seeks comment on different possible methods of ensuring that the Commission will be able to promptly calculate “total cash proceeds” while at the same time preserving the availability of tribal land bidding credits in auctions subject to CSEA. One possibility in such auctions is to award tribal land bidding credits on a pro rata basis out of the funds exceeding the reserve price. Under this option, the amounts that could be discounted by tribal land bidding credits in an auction subject to CSEA would be limited to net bids in excess of the reserve price or 110 percent of the total estimated relocation costs. If this amount were insufficient to pay all of the tribal land bidding credits for which auction winners were eligible, then each eligible tribal land bidding credit recipient would receive a pro rata credit in proportion to the amount the applicant would have received had the auction not been subject to a reserve price.

10. A second option on which the Commission seeks comment is to award tribal land bidding credits on a first-come, first-served basis in auctions subject to CSEA. Under this alternative, winning bidders would still have to file the certifications for a tribal land bidding credit no later than 180 days after the filing deadline for long-form applications. However, bidding credits up to the full amount determined by the existing formula would be awarded to eligible applicants in the order in which they had filed the certifications for such credits, but only to the extent that funds were available. As with the first alternative, the money available for tribal land bidding credits would be limited to the net winning bids exceeding 110 percent of the total estimated relocation costs (or another specified reserve price). This alternative offers the appeal of encouraging the early filing of tribal land bidding credit certifications but might exclude applicants that encountered delays through no fault of their own in obtaining the required certifications.

11. The Commission also seeks comment on a third option pursuant to which it would require applicants to specify on their short-form applications the licenses, if any, for which they intend to seek a tribal land bidding credit, should they win. Under this option, the Commission would determine whether the CSEA reserve price had been met, insofar as tribal land bidding credits are concerned, by deducting the maximum amount of tribal land bidding credits for which winning bidders that had indicated on their short-form applications an interest in receiving such credits could be eligible. While this alternative would facilitate prompt determination of whether, taking tribal land bidding credits into account, the CSEA-required reserve price had been met, it could create an additional burden for short-form applicants. It could also overstate the potential impact of tribal land bidding credits on auction revenues in the event that license winners that had indicated an interest in receiving tribal land bidding credits ultimately did not receive such credits for any reason.

12. The Commission also invites commenters to propose other methods to enable the Commission to determine promptly total cash proceeds while preserving the availability of tribal land bidding credits. The Commission encourages those offering proposals or commenting on the proposals presented here to consider the practical implications of each approach, and the Commission requests that commenters discuss, in particular, how a given approach might best promote the dual purposes of facilitating CSEA compliance and encouraging service on tribal lands through the award of tribal land bidding credits. The Commission also seeks comment on whether it should adopt the same or similar approach for any non-CSEA auctions for which the Commission, pursuant to section 309(j)(4)(F) of the Communications Act, establishes a reserve price based on winning bids net of all discounts.

13. Section 1.2104(g) of the Commission's rules provides that a bidder that withdraws a high bid during the course of an auction is subject to a withdrawal payment equal to the difference between the amount of the withdrawn bid and the amount of the winning bid in the same or subsequent auction. In the event that a bidding credit applies to any of the bids, the bid withdrawal payment equals the difference between either the net withdrawn bid and the subsequent net winning bid or the gross withdrawn bid and the subsequent gross winning bid, whichever difference is less. However, no withdrawal payment is assessed for a withdrawn bid if either the subsequent winning bid or any intervening subsequent withdrawn bid equals or exceeds the original withdrawn bid. (Net bids for purposes of this calculation would not include any discounts resulting from tribal land bidding credits.) An intervening subsequent withdrawn bid less than the original withdrawn bid may limit the amount of the withdrawal payment; however, it is only possible to determine the final amount of a withdrawal payment once there is a higher intervening subsequent withdrawn bid or a subsequent winning bid.

14. Under § 1.2104(g) of the Commission's rules, a high bidder that defaults or is disqualified after the close of an auction is subject to the payment just described for withdrawn bids (the “deficiency payment” or “deficiency portion”) plus an additional payment equal to 3 percent (or, in the case of defaults or disqualifications after the close of a package bidding auction, 25 percent) of the defaulting bidder's bid or the subsequent winning bid, whichever is less. (The deficiency payment for a default or disqualification following a package bidding auction is, in most instances, calculated differently from the way in which the deficiency payment is calculated for a default or disqualification following a non-package bidding auction.) The 3 (or 25) percent payment must be calculated using the same bid amounts and basis ( i.e. , net or gross bids) as used in calculating the deficiency payment.

15. The rule does not, however, anticipate the anomaly that might result from calculating the additional 3 or 25 percent payment for a bidder that defaults or is disqualified after the close of an auction, when, in a subsequent auction, there is a higher withdrawn bid, but no winning bid, for a license corresponding to the defaulted license. A literal reading of § 1.2104(g) of the Commission's rules might seem to dictate that, while the defaulter's deficiency obligation would be calculated as the difference between the defaulter's bid and the higher withdrawn bid in the subsequent auction (thus resulting in no deficiency payment), the defaulter's additional 3 or 25 percent payment obligation, which is based upon the lesser of the defaulter's bid or the subsequent winning bid, could not be calculated until the corresponding license had been won in a still later auction. Yet such a reading conflicts with the explicit assumption in the Commission's default payment rule that the deficiency payment and the additional payment are calculated using the same bids. Moreover, reading the rule this way would prolong the period before the final amount of the default payment obligation could be assessed and payment could be collected.

16. To remove any ambiguity associated with this possible occurrence, the Commission believes that a clarification of the rule is needed. Therefore, the Commission proposes that when, in a subsequent auction, there is a higher withdrawn bid but no winning bid for a license that corresponds to a defaulted license, the additional default payment be determined as 3 percent (or 25 percent) of the defaulting bidder's bid. The additional payment would, as always, be calculated using the same basis, i.e. , net or gross bids, as used in the calculation of the deficiency payment. The Commission believes that adopting this proposal would simplify and accelerate the calculation of final default payments in applicable situations by allowing use of the same subsequent bid in calculating both the deficiency payment portion and the additional payment portion of the final default payment and by allowing an earlier determination of the additional payment amount.

17. Further, the Commission believes that clarification of the additional payment portion of the default payment rule is needed for certain situations in which no deficiency payment is owed. As noted, normally the additional payment is a percentage of either the defaulting bidder's bid or the subsequent applicable bid, whichever is less, using the same basis—net or gross bids—as used in calculating the deficiency payment. However, when the defaulted bid was subject to a bidding credit and the subsequent applicable bid equals or exceeds the defaulted bid, regardless of which basis—net or gross bids—is used, it is not clear whether the additional payment should be based on the net defaulted bid or on the gross defaulted bid. The Commission proposes that, in such a situation, the additional payment be 3 (or 25) percent of the net defaulted bid amount, thus basing the default payment on what the defaulter was obligated to pay at the close of bidding. The Commission further proposes to extend this proposed clarification to determinations of the amount of default payments in situations where the initial bid, the subsequent winning bid, or any intervening withdrawn bid is for a license that is part of a package, contingent upon the Commission's prior or concurrent adoption of a rule change that would allow use of the conventional default rule in such situations. The Commission seeks comment on these proposals.

18. Withdrawals. The Commission's rules provide that a bidder that withdraws a high bid during an auction is subject to a withdrawal payment equal to the difference between the amount of the withdrawn bid and the amount of the winning bid in the same or subsequent auction(s). In the event that a license for which there has been a withdrawn high bid is not subject to a subsequent higher bid or won in the same auction, the final withdrawal payment cannot be calculated until a corresponding license is subject to a higher bid or won in a subsequent auction. In such a case, the bidder responsible for the withdrawn high bid is assessed an interim bid withdrawal payment equal to 3 percent of the amount of its withdrawn bid, and this interim payment is applied toward any final bid withdrawal payment that is ultimately assessed.

19. The Commission adopted the withdrawal payment rules in 1994 to discourage insincere bidding, which, whether done for frivolous or strategic purposes, distorts price information generated by the auction process and may reduce the efficiency of the auction. The Commission anticipated that strategic withdrawals—such as when a bidder attempts to deter a rival from acquiring a license by bidding up the price of the license and then withdrawing—would be particularly damaging to competitive bidding. The Commission added the 3 percent interim bid withdrawal payment to the rules to help ensure that the withdrawal payment could be collected if one ultimately were assessed.

20. Defaults and Disqualifications. The Commission's rules also provide that if, after the close of an auction, a high bidder defaults on a down payment or final payment obligation or is disqualified, the bidder is liable for a default payment. This payment consists of a deficiency portion, equal to the difference between the amount of the bidder's bid and the amount of the winning bid the next time a license covering the same spectrum is won in an auction, plus an additional payment equal to 3 percent (or, in the case of defaults or disqualifications after the close of a package bidding auction, 25 percent) of the defaulter's bid or of the subsequent winning bid, whichever is less. The Commission adopted the default payment rule in 1994. In 1997, the Commission extended to all auctionable services a policy, earlier adopted for broadband personal communications services (“PCS”), of assessing initial default deposits. Pursuant to this policy, the Commission, in instances in which the amount of a default payment cannot yet be determined, assesses an initial default deposit of between 3 percent and 20 percent of the defaulted bid amount.

21. Requiring an additional payment in the case of post-auction defaults is intended to provide an incentive to bidders wishing to withdraw their bids to do so prior to the close of an auction, because a default or disqualification after an auction is generally more harmful to the auction process than a withdrawal during the auction. The Commission set the additional payment at 3 percent, estimating that amount as the transaction cost of selling a license in the after-market. The Commission posited that if it were to establish a significantly higher additional default payment, most bidders would, rather than default, sell unwanted licenses individually in the secondary market. The Commission determined that such a result would not only be unfair to entities subject to resale restrictions but also would be a less efficient mechanism for assigning defaulted licenses than would Commission auctions of such licenses.

22. The Commission has observed a disproportionate number of withdrawals late in its auctions, indicating that some bidders have been placing and then withdrawing bids primarily to discourage potential or existing market competitors from seeking to acquire licenses. Moreover, bidders continue to default on their payment obligations. Withdrawals and defaults weaken the integrity of the auctions process and impede the deployment of service to the public and could prove particularly troublesome in auctions with a specific cash proceeds or reserve price requirement, such as auctions subject to CSEA.

23. Based on its experience in administering auctions, the Commission believes that changes to its existing withdrawal and default payment rules may be necessary in order to more effectively minimize the occurrence of withdrawals, defaults, and disqualifications. Accordingly, the Commission proposes to increase the current limits on the interim withdrawal payment and the additional default payment. In the case of defaults on unwanted licenses, the Commission's rationale for limiting the additional payment to 3 percent no longer holds the same validity that it did eleven years ago when the payment was established. Resale restrictions have since been reduced, and secondary market tools for the redistribution of access to spectrum have been rapidly developing, due, in part, to Commission innovation and encouragement. In cases where defaults result from the failure of bidders realistically to assess in advance their ability to pay for their bids, a larger payment requirement may provide added incentive for bidders to conduct the necessary analysis and refrain from placing bids they cannot afford or at least for them to withdraw such bids rather than defaulting on them.

24. Accordingly, the Commission proposes to modify § 1.2104(g) of its rules to raise the current 3 percent limits on the interim withdrawal payment and the additional default payment to 20 percent each. The Commission would, as part of its determination of competitive bidding procedures in advance of each auction, establish the appropriate level, from 3 percent up to a maximum of 20 percent, at which to set each of the two payments. This 3 to 20 percent range mirrors the parameters long used for determining initial default deposit amounts. In light of the potentially greater harm resulting from defaults in combinatorial bidding auctions, the Commission does not propose to change the size of the 25 percent additional payment for defaults or disqualifications following combinatorial bidding auctions. The Commission seeks comment on these proposals.

25. The Commission's competitive bidding rules and procedures assume that the amount of each bid on an individual license is always known. This assumption makes sense only when licenses are won individually. However, in combinatorial (or “package”) bidding, bidders place single all-or-nothing bids on groups (or packages) of licenses. Thus, there may be no identifiable bid amounts on the individual licenses comprising packages of more than one license.

26. The Commission employed package bidding for the first time in Auction No. 51, an auction of regional narrowband PCS licenses that was held on September 24 and 25, 2003. The Commission announced in 2000 that a combinatorial bidding system would be used for Auction No. 31, the planned auction of licenses in the Upper 700 MHz bands. In addition, the Commission recently announced its launch of a new auction bidding software system—the Integrated Spectrum Auction System or “ISAS”—which, among other things, will facilitate package bidding. The Commission believes that the use of combinatorial bidding methodology makes it necessary for it to modify its rules to allow the apportionment of package bids among the individual licenses comprising a package whenever an individual bid amount is needed to administer a Commission rule or procedure. There are several situations in which the need for an individual bid amount could arise.

27. Small Business and New Entrant Bidding Credits. Under the Commission's rules, small business and new entrant bidding credits are awarded as percentage discounts on winning bid amounts for specific licenses. In the event that an entity entitled to such a bidding credit places a bid on a package of licenses in an auction with combinatorial bidding, it may be necessary to apportion the bid among the licenses comprising the package. For example, if the entity bids on a package of licenses not all of which entitle the winner to a bidding credit or to the same percentage bidding credit, it will be necessary to apportion the bid among the individual licenses comprising the package in order to calculate the amount of the bidding credits. Moreover, in the case of small business bidding credits, even if the small business is entitled to a uniform bidding credit on all licenses in a package, it may be necessary to apportion the package bid among individual licenses in order to determine the amount of an unjust enrichment payment obligation.

28. Unjust Enrichment Payment Obligations. Under the Commission's existing rules, an unjust enrichment payment is due when a licensee that received a small business bidding credit for a license transfers control of, or fully or partially assigns, the license within the first five years of the license term to an entity not qualifying for a bidding credit, or for as favorable a bidding credit as the licensee's. The amount of an unjust enrichment payment, determined according to a declining schedule, is a percentage of either the bidding credit or the difference between the bidding credit the licensee received and the bidding credit for which the transferee or assignee would qualify, up to 100 percent, plus interest. Unjust enrichment payment obligations for partitioned license areas are calculated based upon the ratio of the population of the partitioned area to the overall population of the original license area. Correspondingly, unjust enrichment payment obligations for disaggregated spectrum are calculated based upon the ratio of the amount of spectrum disaggregated to the total amount of spectrum of the original license. In the case of combined partitioning and disaggregation, unjust enrichment payment obligations are calculated based upon the ratio of “MHz-pops” in the partial license to the total “MHz-pops” in the original license, where “MHz-pops” is defined as the number of megahertz of spectrum multiplied by the population of the covered area. This MHz-pops ratio is a generalization of the ratios used for simple partitions and disaggregations, taking into account both the license area and the bandwidth being assigned. If a bidder wins a package of licenses in an auction with combinatorial bidding and subsequently seeks to transfer or fully or partially assign an individual license that comprises part of the package, calculating any required unjust enrichment payment will require a determination of the price and applicable bidding credit for the individual license.

29. Tribal Land Bidding Credits. The size of a tribal land bidding credit is subject to a limit which is set using the amount of the high bid on the license in question. Accordingly, in order to calculate a tribal land bidding credit for a license won as part of a package, it will be necessary to determine how much of the winning bid amount for the package to allocate to that license.

30. Default and Withdrawal Payments. Calculating the amount of a default or withdrawal payment involves a comparison between the withdrawing or defaulting bidder's bid and a subsequent bid. The Commission already has in place a rule for calculating default payment obligations in connection with combinatorial bidding auctions. Initially adopted as part of the service-specific part 27 competitive bidding rules in anticipation of package bidding in auctions of the Upper 700 MHz band, the rule later was incorporated into the part 1 rules as § 1.2104(g)(3), applicable to all defaults on licenses won in a combinatorial bidding auction. In addition to specifying the method of calculating the deficiency portion of default payments after package bidding auctions, this rule increases the additional payment required of package bidding defaulters from 3 percent to 25 percent. In raising the amount of the additional default payment, the Commission reasoned that defaults following a combinatorial bidding auction have the potential to cause greater disruption to the auction and licensing process than do defaults following other types of auctions. Section 1.2104(g)(3) of the Commission's rules accommodates situations in which all relevant licenses won in one or more subsequent auctions correspond to licenses originally made available in the same initial auction. However, it does not allow for situations in which the corresponding licenses are made available in one or more subsequent auctions that include licenses that were not won in the same initial auction. Consequently, rather than use § 1.2104(g)(3) of the Commission's rules to calculate a default payment obligation when one or both of the involved licenses is part of a package, the Commission believes that it would be preferable to use a method to apportion the package bid amount among the individual licenses comprising the package.

31. The procedures for the two package bidding auctions announced to date have not permitted withdrawals, and, accordingly, the Commission has never adapted its withdrawal payment rule to package bidding situations. Nevertheless, it may happen that, after a withdrawal in a non-package bidding auction, the license on which the bid was withdrawn is not won in the same auction but, instead, a corresponding license is won in a subsequent auction as part of a package. Moreover, new package bidding designs may at some point make it practicable for the Commission to allow withdrawals in package bidding auctions. For these reasons, the Commission believes it necessary to amend § 1.2104(g) of the Commission's rules to provide for calculating withdrawal payments in all possible situations involving combinatorial bidding.

32. Proposal for Apportioning Package Bids. The Commission proposes to specify in advance of each auction that uses a combinatorial bidding design or includes spectrum previously subject to a combinatorial auction a method for apportioning the bid on a package among the individual licenses comprising the package. The Commission proposes further that the portion of the total bid attributed to an individual license pursuant to the selected method—to be known as the “apportioned package bid” or “APB”—serve as a stand-in for the bid on that license whenever the individual bid amount is needed for one of its regulatory calculations, such as calculating the size of a bidding credit, a small business bidding credit unjust enrichment payment obligation, a tribal land bidding credit limit, or a withdrawal or default payment obligation.

33. There are at least two available methods by which the Commission could apportion package bids to the individual licenses comprising a package. One possible method is to use a MHz-pops ratio, just as is currently done for unjust enrichment calculations involving partitioning or disaggregation. For Auction No. 51, the Commission decided that MHz-pops would be used should it be necessary to calculate the upper limit on a tribal land bidding credit for a license won as part of a package. Another possible method is to use current price estimates (“CPEs”), which are estimates of the prices of individual licenses comprising a package in a combinatorial bidding auction. The Commission developed a methodology for determining CPEs as part of the combinatorial bidding procedures established for Auctions No. 31 and 51. CPEs were calculated after every round of Auction No. 51 as part of the mathematical optimization process used to determine the winning bids and were also used in determining the minimum acceptable bid amounts for each subsequent round. The same use of CPEs was announced for Auction No. 31.

34. CPEs determined for the final round of an auction (“final price estimates” or “FPEs”) can serve as a valid proxies for the market values of individual licenses won as parts of a package, because they take into account the minimum opening bids for the licenses as well as all the bids placed in the auction and, therefore, reflect all available information about the relative demand for the licenses. In addition, because the sum of all of the FPEs for the component licenses of a package is mathematically constrained to equal the winning bid for the package, the ratios of these estimates to the package bid amount have a natural role as indicators of the relative weights of the different licenses in the market value of the package.

35. While the Commission considers the use of either MHz-pops ratios or FPEs to be acceptable for determining APBs, the Commission does not wish now to be limited to any given method, including these two. Instead, the Commission believes that it is in the best interest of the auction program and bidders for the Commission to have the flexibility to select the method best suited to a particular auction, including being able to take advantage of any developments in auction design that might provide other ways to apportion package bids among the individual component licenses of a package.

36. Adoption of the Commission's proposal that APBs be determined for each combinatorial bidding auction would allow calculation of how much of a total bidding credit to attribute to a license won as part of a package and determination, according to the Commission's existing rules, of the amount of an unjust enrichment payment obligation, the upper limit on a tribal land bidding credit for a license won as part of a package, or a withdrawal payment obligation. Further, substituting an APB for the unknown amount of a winning bid on an individual license won as part of a package would allow use of the “conventional” default rule ( i.e. , the default rule used where neither the initial nor the subsequent winning bid is for a license won as part of a package) for combinatorial bidding situations, including situations not covered by the existing part 1 combinatorial bidding default rule. Indeed, using an APB as a substitute for the amount of a bid on a license won as part of a package would allow the Commission to fairly perform any of its calculations requiring the amount of the individual bid. Consequently, the Commission seeks comment on these proposals.

37. Implicit in the Commission's rules for determining the amount of a withdrawal or default payment—determinations that involve a comparison between the withdrawing or defaulting bidder's bid and a subsequent bid—is the assumption that the subsequent bid will be for a license with the same geographic and spectral components as the original license. However, when there have been intervening rule changes involving the relevant spectrum, the second license may not be identical in geography and spectrum to the first. For example, such rule changes occurred last year when, in order to provide greater flexibility and a more functional band plan for licensees, the Commission restructured the rules governing the Multipoint Distribution Service and the Instructional Television Fixed Service in the 2495-2690 MHz band. As radio technology continues to evolve and services become more sophisticated, there likely will be other instances where the Commission's band plans are updated. Therefore, for purposes of calculating a withdrawal or default payment—or for any comparison of a bid for one license with a bid for another license in a subsequent auction when the second license is similar to but not exactly the same as the first in terms of geography or spectrum—the Commission needs a procedure for apportioning the bid placed on the reconfigured license in the second auction.

38. The Commission accordingly proposes that, prior to auctions involving reconfigured licenses, the Commission specify, as necessary, a method for apportioning the bid on a reconfigured license among the license's component parts. Using a MHz-pops ratio would be suitable for such an apportionment, as the Commission has successfully employed the ratio to apportion small business bidding credit amounts in order to calculate unjust enrichment payments. However, the Commission proposes to retain the flexibility to select another method of apportionment should it identify a method that it believes would better suit the particular licenses involved. Further, the Commission proposes to use methods for package bid apportionment and individual license bid apportionment in concert when circumstances warrant. The Commission seeks comment on these proposals.

39. The Commission's part 1 rules currently provide that, unless otherwise specified by public notice, auction winners are required to pay the balance of their winning bids in a lump sum within ten (10) business days following the release of a public notice establishing the payment deadline. In recent wireless spectrum auctions, the Commission has required each winning bidder to submit the balance of the net amount of its winning bid(s) within ten (10) business days after the deadline for submitting down payments. This procedural change was necessary to guard against payment defaults that may then lead to bankruptcy filings and litigation that tie up the availability of the defaulted licenses. Specific part 73 and 74 rules, however, provide that winning bidders in broadcast service auctions must render their final payment for construction permits won through competitive bidding after their long-form applications have been processed, any petitions to deny have been dismissed or denied, and the public notice announcing that broadcast construction permits are ready to be granted has been released. Recognizing the discrepancy between these auction payment procedures, the Commission, in the Auction No. 37 Procedures Public Notice , 69 FR 42729, July 16, 2004, noted that it would consider future changes to the broadcast rules to conform the broadcast final payment procedures to the analogous part 1 rules.

40. One of the primary objectives of the Commission's auction rules is to ensure that only serious, financially qualified applicants receive licenses and construction permits so that the provision of service to the public is expedited. The Commission has determined that the timely payment of auction obligations is one of the means by which it can be assured of the financial qualifications, and thus the seriousness, of a winning bidder. Moreover, the Commission has consistently stated that those entities that plan to participate in an auction must have the appropriate financing in place before the start of the auction. Recent judicial clarifications of the relationship between the Commission's authority under section 309(j) of the Communications Act and creditor protections under the Bankruptcy Code have shifted significant risk to the government in the event an auction payment defaulter attempts to tie up the unpaid licenses won at auction in bankruptcy litigation. Accordingly, when establishing the payment schedule for licenses won at auction, the Commission protects the integrity of the auction program and the availability of licenses by ensuring timely full payment and minimizing the opportunity to “game” the auction and license assignment processes. By harmonizing the broadcast auction payment procedures with the Commission's part 1 rules, the Commission seeks to apply its rules consistently in furtherance of the public interest.

41. While the part 73 and part 74 broadcast auction rules reference the part 1 final payment rule, the more specific payment provisions in the broadcast rules preclude application of the part 1 final payment procedures. To conform the part 73 and part 74 broadcast rules and make them consistent with the existing competitive bidding and payment procedures contained in part 1 of its rules, the Commission proposes to adopt for broadcast auctions the final payment procedures in its part 1 rules. Specifically, the Commission proposes to incorporate into its part 73 and part 74 broadcast auction rules the part 1 rule requiring that, unless otherwise specified by public notice, winning bidders in a broadcast auction are required to pay the balance of their winning bids in a lump sum within ten (10) business days following the release of a public notice establishing the payment deadline. The Commission seeks comment on this proposal. Under its current practice, the Commission informs prospective bidders of final payment procedures in a public notice announcing the procedures for the auction. The Commission believes that amending the final payment deadline for broadcast auctions to conform to the Commission's existing procedures for wireless auctions will provide consistency throughout its competitive bidding rules and help to achieve the Commission's objective that only sincere, financially qualified applicants participate in competitive bidding. The Commission further believes that providing greater certainty to all winning bidders regarding when final payment will be due will also benefit them as they compete with other sincere bidders that have also secured the financing necessary to participate in an auction and pay for their licenses. In wireless spectrum auctions, winning bidders, including small businesses, have been able to comply with the Commission's new final payment procedure without difficulty. The Commission therefore believes that winning bidders in broadcast auctions should be able to comply with this change with similar ease. The Commission seeks comment on this proposal.

42. For purposes of determining whether an applicant or licensee is eligible for small business or broadband PCS entrepreneur status, the Commission attributes to the applicant the gross revenues (and, when determining broadband PCS entrepreneur eligibility, the total assets) of the applicant's affiliates, its controlling interests, and the affiliates of its controlling interests, and aggregates these amounts with the applicant's own gross revenues (and total assets). Calculated in this manner, the applicant's gross revenues (and total assets) must not exceed the caps established by the Commission for particular services. However, under an exception to this aggregation rule, where an applicant or licensee is a consortium comprised exclusively of members eligible for small business bidding credits or broadband PCS entrepreneur status, or both, the gross revenues (and total assets) of the consortium members are not aggregated. In other words, so long as each member of a consortium individually meets the financial caps for small business bidding credits (or broadband PCS entrepreneur status), the consortium will be eligible for such credits (or for entrepreneur-only broadband PCS licenses), regardless of whether the gross revenues (or total assets) of all consortium members would, if aggregated, exceed the caps. The consortium exception, originally adopted on a service-by-service basis where capital costs of auction participation were high, is intended to enable small businesses or entrepreneurs to pool their resources to help them overcome this challenge to capital formation.

43. The Commission has provided some direction as to how the consortium exception should be implemented by parties wishing to establish such consortia, but the Commission is concerned that there remains uncertainty about the operation of the exception in certain situations. For example, the Commission has said that before or during the auction individual members of a bidding consortium may withdraw from the consortium with regard to some licenses selected on the consortium's short-form application, while remaining a part of the consortium for purposes of bidding on all other licenses specified. If consortium members agree that any of their members may withdraw in this fashion, such an agreement must be disclosed on an original or amended short-form application. Should the consortium win licenses, its members must file, in conjunction with their long-form application, requests to transfer or assign licenses as necessary to comply with the consortium arrangement.

44. Apart from this guidance, the Commission has not explained how consortia should proceed once they have won licenses, nor has it considered the problems that allowing consortia to become licensees may cause. The consortium exception has been seldom used, and the Commission suspects that one reason for this infrequent use has been the absence of clear direction from the Commission as to how consortium members should be formally organized or how (and when) members should allocate and own the licenses they win. For example, contractual disputes may arise between members of consortia, with a resulting delay in buildout and the provision of service. Similarly, problems may occur should one or more members of a licensed consortium file for bankruptcy protection. And if consortium members agree after the auction to divide their license holdings among themselves without first applying for Commission approval, they may be held accountable for unauthorized assignments or transfers of control. Not only would such difficulties impede service to the public and consume Commission resources, they would prove expensive and time consuming for the small businesses involved.

45. In order to provide additional guidance to those interested in taking advantage of the consortium exception and to reduce the likelihood of complications resulting from the exception's use, the Commission seeks comment on possible policy options for improving the pre- and post-auction procedures governing the consortium exception to facilitate its use among small businesses facing capital formation constraints. For example, the Commission seeks comment on whether it should adopt a new requirement that each member of the consortium file an individual long-form application for its respective, mutually agreed-upon license(s), following an auction in which a consortium has won one or more licenses. To comply with this requirement, consortium members would, prior to filing their short-form application, have reached an agreement as to how they would allocate among themselves any licenses (or disaggregated or partitioned portions of licenses) they might win, and they would have disclosed this agreement on their short-form application as required by the Commission's disclosure rules. The Commission further seeks comment on whether, in order for two or more consortium members to be licensed together for the same license(s) (or disaggregated or partitioned portions thereof), they should be required to form a legal business entity, such as a corporation, partnership, or limited liability company, after having disclosed this intention on their short-form and long-form applications. In particular, the Commission seeks comment on whether such new entities would have to meet its small business or entrepreneur financial limits and whether allowing these entities to exceed the limits would be consistent with its existing designated entity and broadband PCS entrepreneur rules, as well as its obligations under the Communications Act. As commenters address these issues and any other options proposed by interested parties, the Commission is particularly interested in their views about how these approaches might work in the context of package bidding and to what extent adopting these proposals might encourage wider use of the consortium exception.

46. For the reasons stated, the Commission seeks comment on the foregoing proposed changes in its competitive bidding rules set forth in the Notice of Proposed Rule Making .

47. For purposes of this permit-but-disclose notice and comment proceeding, members of the public are advised that ex parte presentations are permitted, except during the sunshine Agenda period, provided that the presentations are disclosed pursuant to the Commission's rules.

48. As required by the Regulatory Flexibility Act, see 5 U.S.C. 603, the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities of the proposals suggested in the Notice . Written public comments are requested on the IRFA. These comments must be filed in accordance with the same filing deadlines as comments filed in response to the Notice , and must have a separate and distinct heading designating them as responses to the IRFA and must be filed by the deadlines for comments provided in paragraph 55. The Commission will send a copy of this Notice , including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (SBA). In addition, the Notice and the IRFA (or summaries thereof) will be published in the Federal Register .

58. This Notice proposes modifications to existing Commission rules for the purposes of implementing the recently enacted Commercial Spectrum Enhancement Act (CSEA). CSEA establishes a mechanism to use spectrum auction proceeds to reimburse federal agencies operating on certain frequencies that have been reallocated from federal to non-federal use for the cost of relocating their operations. The Notice also proposes a number of changes to the Commission's competitive bidding rules that are necessary, apart from CSEA, to bring the rules in line with the current requirements of the Commission's auctions program.

59. Reserve price rule . CSEA requires the total cash proceeds from any auction of eligible frequencies to equal at least 110 percent of the total estimated relocation costs provided to the Commission by National Telecommunications and Information Administration (NTIA). To implement this requirement, CSEA directs the Commission to revise its reserve price regulations adopted pursuant to section 309(j)(4)(F) of the Communications Act. The Commission proposes, therefore, to modify its existing reserve price rule (§ 1.2104(c)) to add a requirement that, for any auction of eligible frequencies under CSEA, the Commission will establish a reserve price (or prices) that ensures that the “total cash proceeds” attributable to such spectrum will equal at least 110 percent of the total estimated relocation costs provided to the Commission by NTIA.

60. Tribal land bidding credit rule. In an effort to encourage carriers to provide telecommunications services to tribal lands with historically low telephone service penetration rates, the Commission makes tribal land bidding credits available to auction winners that serve qualifying tribal lands. Under the Commission's current rules, in auctions that include spectrum covering qualifying tribal lands, the Commission may not know for at least 180 days after the long-form application deadline how much of a discount on the auction's winning bids it will have to allow for tribal land bidding credits. In auctions subject to CSEA, this timing could lead to substantial post-auction delay in calculating whether total cash proceeds meet the 110 percent revenue requirement. Accordingly the Commission seeks comment on possible methods of ensuring that the Commission will be able to promptly calculate total cash proceeds while at the same time preserving the availability of tribal land bidding credits in auctions subject to CSEA. Specifically, in the Notice , the Commission seeks comment on (a) awarding tribal land bidding credits on a pro rata basis out of the funds exceeding 110 percent of the total estimated relocation costs, (b) awarding tribal land bidding credits on a first-come, first-served basis out of the funds exceeding 110 percent of the total estimated relocation costs, and (c) requiring applicants to specify on their short-form applications any licenses for which they intend to seek a tribal land bidding credit, should they win, so that the Commission can calculate the amount necessary to satisfy CSEA's reserve price requirement if winning bidders receive the maximum tribal land bidding credits for which they indicate an interest on their short-form applications. The Notice also invites commenters to propose other methods and seeks comment on adopting the same method as that used for auctions subject to CSEA, or a similar approach, for other, non-CSEA auctions for which the Commission establishes a reserve price based on winning bids net of all bidding credits.

61. Default payment rule clarification. Under § 1.2104(g) of the Commission's rules, a high bidder that defaults or is disqualified after the close of an auction is subject to a default payment consisting of two parts—a “deficiency payment” and an “additional payment.” The deficiency payment is equal to the payment required for a withdrawn high bid, i.e. , the difference between the amount of the defaulted (or withdrawn) bid and the amount of a lower winning bid in the same or a subsequent auction. In the event that a bidding credit applies to any of the bids, the deficiency payment equals the difference between either the net defaulted bid and the subsequent net winning bid or the gross defaulted bid and the subsequent gross winning bid, whichever difference is less. The additional payment is equal to 3 percent (or, in the case of defaults or disqualifications after the close of a package bidding auction, 25 percent) of the defaulting bidder's bid or the subsequent winning bid, whichever is less.

62. No deficiency payment is assessed when either the subsequent winning bid or any intervening subsequent withdrawn bid equals or exceeds the original defaulted bid. It is unclear from the existing rule whether, in such a situation, the additional payment should be a percentage of the higher intervening subsequent withdrawn bid or of the subsequent winning bid. To clarify the rule, the Commission proposes that when, in a subsequent auction, there is a higher withdrawn bid but no winning bid for a license that corresponds to a defaulted license, the additional default payment will be determined as 3 percent (or 25 percent) of the defaulting bidder's bid. The Commission also proposes a further clarification of the additional payment rule for certain situations in which no deficiency payment is owed, because, under the current rule, it is unclear under the current rule whether the additional payment should be based on the net defaulted bid or on the gross defaulted bid. Pursuant to the Commission's proposal, the additional payment in such a situation would be 3 (or 25) percent of the net defaulted bid amount.

63. Interim withdrawal and additional default payment rules . When a license for which there has been a withdrawn high bid is neither subject to a subsequent higher bid nor won in the same auction, the final withdrawal payment cannot be calculated until a corresponding license is either subject to a higher bid or won in a subsequent auction. In such a case, under the Commission's existing rule, the bidder responsible for the withdrawn high bid is assessed an interim bid withdrawal payment equal to 3 percent of the amount of its withdrawn bid, and this interim payment is applied toward any final bid withdrawal payment that is ultimately assessed. As noted in the previous paragraph, a high bidder that defaults or is disqualified after the close of an auction is subject to a default payment consisting of a deficiency payment and an additional payment. Currently, the additional payment is calculated as 3 percent (or, in the case of defaults or disqualifications after the close of a package bidding auction, 25 percent) of the defaulting bidder's bid or the subsequent winning bid, whichever is less, except that no deficiency payment is assessed when either the subsequent winning bid or any intervening subsequent withdrawn bid equals or exceeds the original defaulted bid. In an effort to discourage withdrawals and defaults, both of which pose an ongoing threat to the integrity of the auctions process, the Commission proposes to increase the current limits on the interim withdrawal payment and the additional default payment from 3 percent to 20 percent each, with the specific percentage to be set by the Commission in advance of each auction.

64. Package bid and license apportionment . In combinatorial (package) bidding, bidders place single all-or-nothing bids on groups (or packages) of licenses. Thus, there are no identifiable bid amounts on the individual licenses composing packages of more than one license. Similarly, when the Commission reconfigures licenses, with respect to either geographic or spectral dimensions, following an initial auction, there may not be identifiable bid amounts on licenses comparable to those offered in the initial auction. However, there are several situations in which an individual bid amount is needed for one of the Commission's regulatory calculations, such as calculating a small business bidding credit, an unjust enrichment payment obligation related to such a credit, a tribal land bidding credit limit, or a withdrawal or default payment obligation. Accordingly, the Commission proposes to specify a method for apportioning bids either among the individual licenses composing a package and/or among a license's component parts in advance of each auction that (a) uses a combinatorial bidding design, (b) includes spectrum previously subject to a combinatorial auction, or (c) includes licenses that have been reconfigured following an initial auction.

65. Broadcast construction permit rules . The Commission's part 1 competitive bidding rules provide that, unless otherwise specified by public notice, auction winners are required to pay the balance of their winning bids in a lump sum within ten business days following the release of a public notice establishing the payment deadline. In recent wireless spectrum auctions, winning bidders have been required to submit the balance of the net amount of their winning bids within ten business days after the deadline for submitting down payments. This procedure is necessary to guard against payment defaults that may then lead to bankruptcy filings and litigation that tie up the availability of the defaulted licenses. Specific part 73 and 74 rules, however, provide that winning bidders in broadcast service auctions must render their final payment for construction permits won through competitive bidding only after their long-form applications have been processed, any petitions to deny have been dismissed or denied, and the public notice announcing that broadcast construction permits are ready to be granted has been released. In order to provide consistency throughout the Commission's competitive bidding rules and help to ensure that only sincere, financially qualified applicants participate in competitive bidding, the Commission proposes to adopt for broadcast auctions the final payment procedures in its part 1 competitive bidding rules.

66. Consortium exception to the designated entity and entrepreneur aggregation rule . For purposes of determining whether an applicant or licensee is eligible for small business or broadband personal communications services (PCS) entrepreneur status, the Commission attributes to the applicant the gross revenues (and, when determining entrepreneur eligibility, the total assets) of the applicant's affiliates, its controlling interests, and the affiliates of its controlling interests, and aggregates these amounts with the applicant's own gross revenues (and total assets). However, under an exception to this aggregation rule, when an applicant or licensee is a consortium comprised exclusively of members eligible for small business bidding credits or broadband PCS entrepreneur status, or both, the gross revenues (and total assets) of the consortium members are not aggregated. The consortium exception has been seldom used, perhaps because of the absence of clear direction from the Commission as to how consortium members should be formally organized and how (and when) members should allocate and own the licenses they win. In order to provide additional guidance to those interested in taking advantage of the consortium exception and to reduce the likelihood of complications resulting from the exception's use, the Commission seeks comment on possible policy options for improving the pre- and post-auction procedures governing the exception. These options include requiring each member of a consortium to file an individual long-form application for its respective, mutually agreed-upon license(s) and requiring two or more consortium members seeking to be licensed together to form a legal business entity, such as a corporation, partnership, or limited liability company.

67. The proposed actions are authorized under sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 309(j).

68. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small organization,” “small business,” and “small governmental jurisdiction.” The term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (a) Is independently owned and operated; (b) is not dominant in its field of operation; and (c) satisfies any additional criteria established by the SBA.

69. A small organization is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 2002, there were approximately 1.6 million small organizations. The term “small governmental jurisdiction” is defined as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” As of 1997, there were approximately 87,453 governmental jurisdictions in the United States. This number includes 39,044 county governments, municipalities, and townships, of which 37,546 (approximately 96.2%) have populations of fewer than 50,000, and of which 1,498 have populations of 50,000 or more. Thus, the Commission estimates the number of small governmental jurisdictions overall to be 84,098 or fewer. Nationwide, there are a total of approximately 22.4 million small businesses, according to SBA data.

70. The changes and additions to the Commission's part 1 rules proposed in this Notice would be of general applicability to all services, applying to all entities of any size that apply to participate in Commission auctions. The changes proposed to parts 73 and 74 of the Commission's rules would apply to all entities of any size that win broadcast construction permits in future competitive bidding. Accordingly, this IRFA provides a general analysis of the impact of the proposals on small businesses rather than a service by service analysis. The number of entities that may apply to participate in future Commission auctions is unknown. The number of small businesses that have participated in prior auctions has varied. In all of our auctions held to date, 1927 out of a total of 2498 qualified bidders either have claimed eligibility for small business bidding credits or have self-reported their status as small businesses as that term has been defined under rules adopted by the Commission for specific services. These figures do not generally include applicants for auctions of broadcast construction permits where sized-based bidding preferences have not been available.

71. Pursuant to one of the options set forth to change the tribal land bidding credit rule, the Commission would award tribal land bidding credits on a first-come, first-served basis in auctions subject to a CSEA or other reserve price. This option, if adopted, would not alter the burdens on auction winners of licenses covering qualifying tribal land with regard to reporting or recordkeeping; however, it might encourage them to submit the required certifications sooner than they otherwise would have. Pursuant to another option to change the tribal land bidding credit rule, auction applicants of all sizes would be required to indicate on their short-forms any intention to seek tribal land bidding credits should they win qualifying licenses. While this requirement would increase the reporting burden on applicants planning to seek such credits, the burden would likely be as minimal as checking off a box.

72. The proposal to increase the current limits on the interim withdrawal payment and the additional default payment from 3 percent to 20 percent each would, to the extent that the respective payment had been set at more than 3 percent, increase the financial burden on entities of any size that withdrew a high bid or defaulted on a payment obligation. However, by refraining from withdrawing high bids and defaulting on payment obligations, entities could avoid any such increased financial burden.

73. Adopting for broadcast auctions the final payment procedures of the Commission's part 1 competitive bidding rules might require future winners of broadcast construction permits, both large and small, to submit their final payments for such permits sooner than would have been required in the absence of the proposed rule changes.

74. Requiring each member of a consortium to file an individual long-form application for its respective, mutually agreed-upon license(s) or requiring two or more consortium members seeking to be licensed together to form a legal business entity might increase the reporting requirements and/or regulatory compliance burdens on auction applicants using the consortium exception, all of which would be small businesses or broadband PCS entrepreneurs. However, adopting these requirements might also increase use of the consortium exception, thus increasing the availability of small business bidding credits and entrepreneur eligibility.

75. None of the other proposals in the Notice would alter reporting, recordkeeping, or other compliance requirements.

76. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (a) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (b) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (c) the use of performance, rather than design, standards; and (d) an exemption from coverage of the rule or any part thereof for small entities. The Commission has considered the economic impact on small entities of the following rule changes and additions proposed in the Notice and has taken steps to minimize the burdens on small entities.

77. The Commission has sought comment on several options for modifying its tribal land bidding credit rule in order to determine which of the options best ensures that the Commission will be able to comply with CSEA's reserve price requirement while at the same time preserving the availability of tribal land bidding credits in auctions subject to CSEA.

78. Adoption of the proposed increases to the current limits on the interim withdrawal payments and additional default payments would benefit small entities more than it would burden them. For example, the proposal to provide the Commission with the option of increasing the size of the interim withdrawal payment is intended to discourage strategic withdrawals. Such bid withdrawals could have a significant adverse effect on the competitiveness of small entities in the auctions process. Moreover, to the extent that the proposed increase in the additional default payment encourages bidders to realistically assess in advance their ability to pay for their bids, a larger payment requirement may prevent bidders from placing bids they cannot afford.

79. With regard to its proposal to modify its payment rules for broadcast construction permits, the Commission believes that amending the final payment deadline for broadcast auctions to conform to its existing procedures for wireless auctions would provide consistency throughout its competitive bidding rules and help to achieve its objective that only sincere, financially qualified applicants participate in competitive bidding. The Commission further believes that providing greater certainty to all winning bidders regarding when final payment will be due will also benefit them as they compete with other sincere bidders that have also secured the financing necessary to participate in an auction and pay for their licenses. The Commission notes that in wireless spectrum auctions, winning bidders, including small businesses, have been able to comply with the Commission's new final payment procedure without difficulty, and it therefore surmises that winning bidders of all sizes in broadcast auctions should be able to comply with this change with similar ease.

80. The Commission's goal in requesting comment on possible modifications to the consortium exception to the small business and entrepreneur aggregation rule is to promote wider use of the exception and thus to increase the competitive bidding opportunities available to small entities facing capital formation constraints. To that end, the Commission has specifically requested that commenters address whether adopting the rule changes discussed might encourage wider use of the consortium exception.

81. None.

84. Accordingly, it is ordered that, pursuant to sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 309(j), this Notice of Proposed Rule Making is hereby adopted.

85. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Notice of Proposed Rule Making, including the Initial Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the Small Business Administration.

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR parts 1, 73, and 74 as follows: