The regulations in 9 CFR part 93 (referred to below as the regulations) prohibit or restrict the importation of certain animals into the United States to prevent the introduction of communicable diseases of livestock and poultry. Subpart C—Horses, §§ 93.300 through 92.326 of the regulations, pertains to the importation of horses into the United States.

Section 93.301 of the regulations contains specific provisions for the quarantine and testing of horses from regions affected with contagious equine metritis (CEM), a highly contagious bacterial venereal disease that affects breeding and fertility. This section also identifies regions where CEM exists and regions that trade horses freely with those where CEM exists without testing for CEM.

To prevent the introduction of CEM into the United States, § 93.301(c)(1) prohibits the importation of horses into the United States from listed regions unless the horses are imported in accordance with certain requirements. To be eligible for importation, the horses must fall into one of the following categories:

• Wild (non-domesticated) species of equidae if captured in the wild or imported from a zoo or other facility where it would be unlikely that the animal would come in contact with domesticated horses used for breeding;

• Geldings;

• Weanlings or yearlings whose age is certified on the import health certificate required under § 93.314(a);

• Horses imported in accordance with conditions prescribed by the Administrator as provided in § 93.301(a);

• Spanish Pure Breed horses imported for permanent entry from Spain or thoroughbred horses imported for permanent entry from France, Germany, Ireland, or the United Kingdom as provided in § 93.301(d);

• Stallions or mares over 731 days of age imported for permanent entry as provided in § 93.301(e);

• Horses over 731 days of age imported into the United States for no more than 90 days to compete in specified events as provided in § 93.301(f); and

• U.S. horses returning to the United States as provided in § 93.301(g).

The Animal and Plant Health Inspection Service (APHIS) has used the provisions in § 93.301(f), relating to the temporary importation of horses for competition, to allow the temporary importation of noncompetitive entertainment horses into the United States. Several performance horse groups have asked APHIS to extend the 90-day limit provided for in § 93.301(f) so that they may exhibit and show their horses in the United States for longer periods of time. In addition, the United States Animal Health Association has recommended that APHIS amend the regulations to establish a category for noncompetitive entertainment horses.

APHIS has conducted a risk assessment to evaluate the risk of allowing the extended importation of noncompetitive entertainment horses from countries affected by CEM without requiring CEM testing, and the risk of the U.S. Department of Agriculture (USDA) losing track of these horses during extended importation. The risk assessment, titled “Assessment of the Risk of Introduction of Contagious Equine Metritis (CEM) through the Extended Importation of Noncompetitive Entertainment Horses from CEM-affected countries,” may be viewed on the Regulations.gov Web site (see ADDRESSES at the beginning of this document for instructions for accessing Regulations.gov). Copies of the risk assessment may be obtained by calling or writing to the person listed under FOR FURTHER INFORMATION CONTACT .

The risk assessment concluded that the risk posed by allowing the extended importation of noncompetitive entertainment horses from CEM-affected countries would be extremely low, with the application of the restrictions described in this proposed rule. In addition, the risk assessment concluded that the risk of USDA losing track of the animals was extremely low due to the extensive supervision and involvement of APHIS personnel and the accredited veterinarian.

Accordingly, we are proposing to amend the regulations in § 93.301 to establish conditions under which noncompetitive entertainment horses from CEM-affected regions may be imported into the United States for longer than 90 days solely for public exhibition and entertainment purposes. Because the conditions would be very similar to the conditions in § 93.301(f), which provides for the temporary importation of horses to compete in specified events, we would amend § 93.301(f) to apply to both types of imported horses. We would also amend the regulations pertaining to import permits in § 93.304 to require the submission of additional information with the application for an import permit.

As with horses imported for competition, we are proposing to provide two primary safeguards against the horses transmitting CEM while in the United States. First, a representative of APHIS would monitor the horses whenever they are not in transit in the United States. Second, we would require stringent measures to ensure that the horses are kept apart from other horses, except when performing or being exhibited or exercised. Because CEM is a venereal disease transmitted by sexual contact, there is virtually no risk that a horse will transmit the disease through casual contact with other horses during a performance, exhibition, or exercise.

In addition to the current requirements in § 93.304(a) for an import permit, we are proposing that the owner or importer would have to supply the following information to APHIS with the application for the permit:

• The individual identifying information for all horses to be imported;

• The permanent electronic identification of each horse to be imported, if applicable;

• Photographs (head and lateral views) of each horse that are sufficient to identify the horse on an electronic medium approved by APHIS;

• The proposed total length of stay in the United States;

• A description of the shows or events in which the horse would perform while in the United States;

• The names and locations of the venues in which the horse would perform while in the United States, and the dates the horse would perform at each venue;

• The names and locations of the premises on which the horse would be kept while in the United States, and the dates the horse would be kept on each premises;

• The methods and routes by which the horse would be transported while in the United States;

• A written plan for handling sick or injured horses that includes the name, address, and phone number of each accredited veterinarian who would provide veterinary services in the United States; the name, address, and phone number of medical facilities to be used to diagnose or treat sick or injured horses while in the United States; and a plan to return sick or injured horses to performance condition; and

• An application for a trust fund or escrow account agreement with APHIS.

This information would allow APHIS to monitor the location of the horse while it is in the United States and to confirm compliance with the required isolation and handling procedures to ensure that the horse does not transmit CEM to any other horse while in this country.

Given the potential for long stays in the United States for noncompetitive entertainment horses, APHIS must have current information about the horses and their itinerary in order to effectively monitor the horses for compliance with the regulations. Therefore, we would require that while in the United States, the owner or importer apply for and obtain from APHIS an import permit each year prior to the anniversary date of the horse's arrival in the United States. This would ensure that APHIS has current information about the horses and their itinerary for monitoring purposes.

As with horses imported for competition, we would require that, at the time of importation, each horse be accompanied by an import permit in accordance with § 93.304 and a health certificate in accordance with § 93.314. However, we would also require the health certificates for noncompetitive entertainment horses to certify that cultures negative for CEM have been collected from each horse on three separate occasions within a 7-day period, with the last set of specimens collected within 30 days of exportation. This would help to ensure that horses infected with CEM do not enter this country and jeopardize the health of the U.S. horse population.

We are proposing to allow horses over 731 days of age to be imported into the United States solely for noncompetitive public exhibition and entertainment purposes. Such horses would be allowed to remain in the United States indefinitely as long as the conditions in the regulations are met. While in the United States, the horse would be prohibited from entering competitions and would have to be regularly used in performances or exhibitions, unless sick or injured. A horse that is no longer performing or being exhibited would be required to be exported or made eligible for permanent entry. In addition, a noncompetitive entertainment horse would have to be kept with the other horses listed on the import permit, unless otherwise approved by an APHIS representative. We expect that such approvals would be granted for diagnosis or treatment of a medical condition, pre-export isolation, or quarantine for permanent entry.

As with horses imported for competition, we would require a noncompetitive entertainment horse to be moved according to the itinerary and methods of transport specified in the import permit. However, we are proposing to allow horses imported for competition and noncompetitive entertainment horses to be moved for diagnosis or treatment of a medical condition with the prior approval of an APHIS representative. APHIS has always allowed such movements; however, we are proposing to add that provision to the regulations to make it clear to the public.

We are proposing that, while in the United States, the horse would be monitored by an accredited veterinarian or APHIS representative to ensure that the horse is moved according to the itinerary and methods specified in the import permit, kept separated from other horses not listed on the import permit, and not used for breeding purposes (including artificial insemination or semen collection) or has any other sexual contact with other horses. The horse could not be kept on a breeding premises.

We would require that the horse be kept in a pasture or stall separate from other horses not listed on the import permit, except when actually performing or being exhibited or exercised. The stall in which the horse is kept would have to be separated from other stalls containing horses that are not listed on the import permit, either by an empty stall, by an open area across which horses cannot touch each other, or by a solid wall that is at least 8 feet (2.4 meters) high. The premises on which the horse is kept would have to be approved in writing by an APHIS representative.

As noted above, we would require that the horse not be used for breeding purposes or have any other sexual contact with other horses. However, in contrast to horses imported for competition, we would allow a noncompetitive entertainment horse to undergo genital examinations necessary for diagnosis or treatment of a medical condition with the prior approval of an APHIS representative. This provision would allow the horse to receive appropriate medical care during its extended stay in the country.

We are also proposing to apply the transportation and cleaning and disinfection requirements for horses imported for competition that are contained in the current regulations to noncompetitive entertainment horses. Thus, we would require that, while the horse is in transit, it would have to be moved either in an aircraft or a sealed van or trailer and, except in situations where the horse's life is in danger, only an APHIS representative would be permitted to break the seal on a van or trailer used to move the horse. Additionally, we would require that after the horse is transported anywhere in the United States, any vehicle in which the horse was transported would have to be cleaned and disinfected in the presence of an APHIS representative, according to the procedures for cleaning and disinfection specified in 9 CFR 71.7 through 71.12 of the regulations. We would also require that, in most instances, the cleaning and disinfection would have to be done before the vehicle is moved from the place where the horse is unloaded. However, in cases where there are inadequate facilities or equipment for cleaning and disinfection at the place where the horse is unloaded, the Administrator would have the discretion to allow the vehicle to be moved to another location for cleaning and disinfection, when the move would not pose a disease risk to other horses in the United States.

We are proposing that if the owner or importer wishes to change the horse's itinerary or the methods by which the horse is transported from those specified in the import permit, the owner or importer would have to make the request for change in writing to the Administrator. Such requests would have to be submitted at least 15 days before the proposed date of any change. We propose that this provision would also apply to horses imported for competition. This would ensure that APHIS has enough time to process the request, including inspecting any new premises, and to arrange for the required monitoring before the date of the proposed change. The change in itinerary or means of transport would not be permitted without the written approval of the Administrator, who would have the discretion to grant the request for change when he or she determines that granting the request would not endanger other horses in the United States, and that sufficient APHIS personnel would be available to provide the services requested by the owner or importer.

We are proposing that noncompetitive entertainment stallions or mares over 731 days of age would be eligible to remain in the United States if the horse meets the provisions for permanent entry in the current regulations. Specifically, the horse's owner or importer would have to: (1) Apply for and receive a new import permit from APHIS that specifies that the stallion or mare would be moved to an approved State; and (2) transport the stallion or mare in a sealed vehicle that has been cleaned and disinfected to an approved facility in an approved State where it is quarantined under State or Federal supervision until the stallion or mare has met the testing and treatment requirements of § 93.301(e)(3) or (e)(5).

We are proposing to apply to noncompetitive entertainment horses the provisions relating to the cancellation of an import permit and the appeals process that currently appear in the regulations pertaining to horses imported for competition. Specifically, we are proposing that if the provisions described in this proposed rule are not met, the Administrator would cancel the import permit that allows the importation of the horse into the United States and that allows the horse to stay in this country. If the cancellation is oral, the decision and the reason for cancellation of the permit would be confirmed in writing as promptly as circumstances allow. The owner or importer would be able to appeal the cancellation of the permit in writing to the Administrator within 10 days after receiving either oral or written notification of the cancellation, whichever is earlier. If the appeal is sent by mail, it would have to be postmarked within 10 days after the owner or importer receives the notification of cancellation. The appeal would have to include all of the facts and reasons upon which the person relies to show that the import permit was wrongfully canceled. If there is a conflict as to any material fact, a hearing would be held to resolve the conflict. These provisions would satisfy due process requirements pertaining to the cancellation of an import permit.

We are also proposing that, except in those cases where an appeal is in process, any person whose import permit is canceled would have to move his or her horse out of the United States within 10 days after receiving an oral or written notice of cancellation, whichever is earlier. The horse would not be permitted to perform or be exhibited from the date the owner or importer receives the notice of cancellation until the horse is moved out of the United States or until resolution of an appeal in favor of the owner or importer. Except when being exercised, the horse would have to be kept in a stall that is separated from other stalls containing horses that are not listed on the import permit, either by an empty stall, an open area across which horses cannot touch each other, or a solid wall that is at least 8 feet (2.4 meters) high.

Until the horse is removed from the United States or an appeal is resolved in favor of the owner or importer, the horse would have to be kept, at the expense of the owner or importer, either on the premises at which the horse is located when the notice of cancellation is received or, if the horse is in transit when the notice of cancellation is received, on the premises at which it is next scheduled to perform or be exhibited. However, in cases where the owners of the premises do not permit the horse to stay on those premises, or when the Administrator determines that keeping the horse at the premises would pose a disease risk to other horses in the United States, the horse would have to be kept, at the expense of the owner or importer, on an alternative premises approved by the Administrator.

We are proposing to require that noncompetitive entertainment horses be imported and maintained in the United States in accordance with a trust fund agreement executed by the horse's owner or importer. The current regulations already require that a trust fund agreement be executed for horses imported into the United States to compete in specified events. We would extend these provisions to noncompetitive entertainment horses to ensure that the government is reimbursed for the services it provides.

Under the trust fund agreement, the owner or importer would have to deposit with APHIS an amount equal to the estimated cost, including travel, subsistence, administrative expenses, and incidental expenses, as determined by APHIS, for an APHIS representative to: (1) Inspect the premises at which the horse would perform or be exhibited; (2) conduct the required monitoring of the horse at the premises at which it competes; and (3) supervise cleaning and disinfecting the means of conveyance in which the horses travels while in the United States. The estimated costs would be based on the following factors:

• Number of hours needed for an APHIS representative to conduct the required inspection and monitoring;

• For services provided during regular business hours (8 a.m. to 4:30 p.m., Monday through Saturday, except holidays), the average salary, per hour, for an APHIS representative;

• For services provided outside regular business hours, the applicable rate for overtime, night differential, or Sunday or holiday pay, based on the average salary, per hour, for an APHIS representative;

• Number of miles from the premises at which the horse competes, performs, or is exhibited to the APHIS office or facility that is monitoring the activities;

• Government rate per mile for automobile travel or, if appropriate, cost of other means of transportation between the premises at which the horse competes, performs, or is exhibited and the APHIS office or facility;

• Number of trips between the premises at which the horse competes, performs, or is exhibited and the APHIS office or facility that APHIS representatives are required to make in order to conduct the required inspection and monitoring;

• Number of days the APHIS representative conducting the inspection and monitoring must be in “travel status;”

• Applicable government per diem rate; and

• Cost of related administrative support services.

During the horse's stay in the United States, if we determine that the amount deposited would not fully cover the services we are scheduled to provide during the remainder of the horse's stay, we would issue a bill for the difference to the horse's owner or importer. The horse's owner or importer would have to pay amounts billed within 14 days after receiving the bill. If the bill is not paid within that time, we would cease to perform the services provided for in this proposed rule until the bill is paid. The Administrator would inform the owner or importer of the cessation of services orally or in writing. If the notice is oral, it would be confirmed in writing as soon as circumstances permit, along with the reasons for it.

In such a case, the horse would have to be kept, at the expense of the owner or importer and until the bill is paid, either on the premises at which the horse is located when the notice of cessation of services is received or, if the horse is in transit when the notice of cessation is received, on the premises at which it is next scheduled to perform or be exhibited according to the import permit. The horse would have to be kept in a stall that is separated from other stalls containing horses that are not listed on the import permit either by an empty stall, an open area across which horses cannot touch each other, or a solid wall that is at least 8 feet (2.4 meters) high. In cases where the owners of the premises where the horse would be expected to stay do not permit the horse to be kept on those premises, or when the Administrator determines that keeping the horse on the premises would pose a disease risk to other horses in the United States, the horse would have to be kept, at the expense of the owner or importer, on an alternative premises approved by the Administrator. Until the bill is paid, the horse would not be permitted to perform or be exhibited. Any amount deposited in excess of the cost to APHIS of providing the services required would be refunded to the owner or importer.

In this document, we are also updating the name of the breed association in Spain that is specifically approved by the U.S. Department of Agriculture to provide factual, current information regarding the activities of Spanish Pure Breed horses for the purposes of § 93.301(d). The current regulations identify the breed association in Spain as “Jefatura de Cria Caballar Registro Matricula.” The Spanish Government has notified APHIS that the name of the breed association has been changed to “Asociacion Nacional de Criadores de Caballos de Pura Raza Espanola.”

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

Currently, § 93.301(f) provides that mares and stallions over 731 days old from CEM-affected countries may be temporarily imported into the United States to compete in specified events for no longer than 90 days without meeting CEM quarantine and testing requirements that would otherwise apply to such horses. These same provisions have been used to authorize the temporary importation of noncompetitive entertainment horses. Several performance horse groups have requested that APHIS extend the 90-day limit so that they may exhibit and show their horses in the United States for longer periods.

We are proposing to amend the regulations to establish conditions under which noncompetitive entertainment horses (stallions and mares) over 731 days of age from CEM-affected countries could remain in the United States for longer than 90 days for public exhibition and entertainment purposes without undergoing the CEM quarantine and testing prescribed in the regulations.

The horse industry plays an important role in the U.S. economy. There were 542,223 farms with 3.644 million horses valued at $9.9 billion in the U.S. in 2002. 1 According to a recent study done for the American Horse Council, the number and value of horses are much larger than those reported in the 2002 Census of Agriculture: 2 million people owning 9.2 million horses with direct value of about $39 billion. 2 Both sets of data underscore the importance of the equine industry. In addition, other agricultural and non-agricultural sectors are dependent on the horse industry for their economic activity. Horses are a highly valued asset, especially those with a specific pedigree.

Horses also play an important role in U.S. international trade. The value of U.S. horse exports ($449 million) was more than the combined export value of cattle, hogs and sheep and goats ($65 million) between 2003 and 2005. 3

The United States imported a total of 31,198 horses in 2005. Nearly 67 percent of horses imported were from Canada and 7.6 percent were from Mexico. Of the total imports, 25,564 were from non-CEM countries and the remaining 5,634 were from CEM countries. The proportion of horse imports that are pure breeding horses is small. Of the above total, 2,341 were purebred breeding horses. Only 340 purebred breeding horses were imported from CEM countries. 4 However, horses supplied by CEM-affected countries are generally highly valued. In 2005, for example, the average value of purebred breeding horses imported from CEM-affected regions was $41,220, whereas the average value of purebred breeding horses imported from countries not affected by CEM was $17,180.

Although the disease does not result in death, CEM can be economically costly. The direct consequence may include the closing of breeding operations, production losses as a result of abortion, and costs of disease control. A CEM outbreak would result in the quarantine of affected horse farms, temporary cessation of breeding operations, and restriction of both intrastate and interstate movement. For some breeders, this could mean the loss of thousands or even millions of dollars in stud fees and breeding losses. Other consequences include trade restrictions that may be imposed by international trading partners.

The noncompetitive entertainment horses that would be affected by this rule would not be allowed to have direct contact with horses outside those listed on their permit and could not be used for breeding purposes at any time while in the United States, including breeding with horses in the same show. Additionally, these horses may not undergo any genital examinations (unless required for diagnosis and treatment of a medical condition with prior approval of an APHIS representative), semen collection, or artificial insemination. Furthermore, since these are very specialized performance animals, domestic breeders would not be affected if this rule were to increase the amount of time the imported horses are in the United States.

Horses arriving in the United States from abroad are quarantined at a USDA Animal Import Center, generally for 3 days. Horses temporarily imported are required to exit the United States and be readmitted, following quarantine and testing, every 90 days. Each entry after 90 days is considered a new entry into the United States. The USDA charges a minimum of $810 for the 3-day quarantine. In addition to this facility charge, user fees of $80 are paid for blood testing, resulting in a total quarantine and testing cost per horse of $890. The proposed rule would allow imported performance horses to stay in the U.S. longer than 90 days without their owners having again to pay USDA import quarantine and testing costs. This is a saving that accrues to the importing entities and is likely to counterbalance their costs associated with supervisory activities of APHIS and/or an accredited veterinarian.

The number of entities and horses expected to be directly affected by this rule is not large. We anticipate that between 1 and 10 performing groups varying in size from 5 to 40 horses (or a total of between 5 and 400 horses) would utilize the proposed exception each year. Given that there are over a million domestic show horses, even the upper quantity represents a very small fraction of the total supply (0.04 percent).

The Small Business Administration (SBA) has established guidelines for determining which types of firms are to be considered small under the Regulatory Flexibility Act. This rule may affect operations such as zoological parks (North American Industry Classification System [NAICS] code 712130), and animal performances including circuses, carnivals, and amusement parks (NAICS code 711190). SBA classifies these operations as small entities if their annual receipts are not more than $6.5 million. Of the approximately 850 such establishments, about 12.5 percent are considered to be large. The subset of these entities that temporarily import noncompetitive entertainment horses from CEM countries would benefit from the forgone costs of having the horses exit and reenter the United States every 90 days. On the other hand, they would bear the cost of supervisory activities by APHIS and/or an accredited veterinarian. The overall impact is expected to be insignificant, given the relatively small number of noncompetitive entertainment horses imported from CEM countries. Other operations that may remotely be affected are domestic suppliers of similar horses (NAICS code 112920). According to the 2002 Census of Agriculture, that year there were 542,223 horse farms with 3,644,278 horses in the United States, of which 124,596 farms sold 470,423 horses that had a total value of over $1.13 billion. 5 An unknown share of these farms supply show horses that could be comparable to the noncompetitive entertainment horses imported temporarily from CEM affected countries. SBA classifies horse farms as small entities if their annual receipts are not more than $750,000;  6 over 99 percent are considered to be small.

Entities that may be affected by the rule are principally small businesses, but the impact of the rule is not expected to be significant. Because the pool of noncompetitive entertainment horses that are temporarily imported is a small fraction of the total number of show horses in the United States, any effects of the proposed rule for U.S. entities would be very small.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action would not have a significant economic impact on a substantial number of small entities.

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. If this proposed rule is adopted: (1) All State and local laws and regulations that are inconsistent with this rule will be preempted; (2) no retroactive effect will be given to this rule; and (3) administrative proceedings will not be required before parties may file suit in court challenging this rule.

In accordance with section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ), the information collection or recordkeeping requirements included in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB). Please send written comments to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for APHIS, Washington, DC 20503. Please state that your comments refer to Docket No. APHIS-2006-0164. Please send a copy of your comments to: (1) Docket No. APHIS-2006-0164, Regulatory Analysis and Development, PPD, APHIS, Station 3A-03.8, 4700 River Road Unit 118, Riverdale, MD 20737-1238, and (2) Clearance Officer, OCIO, USDA, room 404-W, 14th Street and Independence Avenue, SW., Washington, DC 20250. A comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication of this proposed rule.

We are proposing to amend the regulations to allow noncompetitive entertainment horses from countries affected with CEM to be temporarily imported into the United States under conditions very similar to the conditions in § 93.301(f), which provides for the temporary importation of horses to compete in specified events. In addition, we are proposing to require the submission of additional information with the application for an import permit.

We are soliciting comments from the public (as well as affected agencies) concerning our proposed information collection and recordkeeping requirements. These comments will help us:

(1) Evaluate whether the proposed information collection is necessary for the proper performance of our agency's functions, including whether the information will have practical utility;

(2) Evaluate the accuracy of our estimate of the burden of the proposed information collection, including the validity of the methodology and assumptions used;

(3) Enhance the quality, utility, and clarity of the information to be collected; and

(4) Minimize the burden of the information collection on those who are to respond (such as through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology; e.g., permitting electronic submission of responses).

Estimate of burden: Public reporting burden for this collection of information is estimated to average 1.4 hours per response.

Respondents: Importers of noncompetitive entertainment horses.

Estimated annual number of respondents: 15.

Estimated annual number of responses per respondent: 1.333333333.

Estimated annual number of responses: 20.

Estimated total annual burden on respondents: 28 hours. (Due to averaging, the total annual burden hours may not equal the product of the annual number of responses multiplied by the reporting burden per response.)

Copies of this information collection can be obtained from Mrs. Celeste Sickles, APHIS' Information Collection Coordinator, at (301) 734-7477.

The Animal and Plant Health Inspection Service is committed to compliance with the E-Government Act to promote the use of the Internet and other information technologies, to provide increased opportunities for citizen access to Government information and services, and for other purposes. For information pertinent to E-Government Act compliance related to this proposed rule, please contact Mrs. Celeste Sickles, APHIS' Information Collection Coordinator, at (301) 734-7477.

Accordingly, we propose to amend 9 CFR part 93 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 in the ADDRESSES section. Include the docket number “FAA-2007-28854; Directorate Identifier 2007-NM-109-AD” at the beginning 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 received 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 may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78), or you may visit http://dms.dot.gov.

You may examine the AD docket on the Internet at http://dms.dot.gov , or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Operations office (telephone (800) 647-5527) is located on the ground floor of the West 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 receives them.

We have received a report indicating that a cracked left elevator actuator fitting was found on a Model 777 airplane with 17,346 total flight hours and 14,043 total flight cycles. The crack extended through the lower inboard flange of the fitting and into the vertical flange. Analysis by Boeing indicates that this crack resulted from fatigue due to higher than anticipated stress levels in the fitting flanges. Cracked elevator actuator fittings could lack adequate residual strength to react to design flight loads and become detached from the elevator. This condition, if not corrected, could allow a cracked actuator fitting to detach from the elevator and lead to an unrestrained elevator and an unacceptable flutter condition, which could result in loss of airplane control.

We have reviewed Boeing Alert Service Bulletin 777-55A0015, dated April 19, 2007. The service bulletin describes procedures for doing an initial dye penetrant or high-frequency eddy current (HFEC) inspection to detect cracking of the elevator actuator fittings; repetitive dye penetrant, HFEC, or detailed inspections of the fittings thereafter; and replacing any cracked fitting with a new fitting having the same part number or an approved optional part number. Compliance times for the initial inspections, depending upon airplane condition, are:

• For airplanes having 14,000 total flight-cycles or more as of the date on the service bulletin, within 90 days after the date on the service bulletin;

• For airplanes having 10,000 total flight-cycles or more, but less than 14,000 total flight-cycles, as of the date on the service bulletin, within 12 months after the date on the service bulletin or within 90 days after the airplane reaches 14,000 total flight-cycles, whichever occurs first; or

• For airplanes having less than 10,000 total flight-cycles as of the date on the service bulletin, before the accumulation of 10,000 total flight cycles or within 12 months after the date on the service bulletin, whichever occurs first.

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. For this reason, we are proposing this AD, which would require accomplishing the actions specified in the service information described previously.

We consider this proposed AD interim action. The manufacturer is currently developing a modification that will address the unsafe condition identified in this AD. Once this modification is developed, approved, and available, we might consider additional rulemaking.

There are about 619 airplanes of the affected design in the worldwide fleet. This proposed AD would affect about 138 airplanes of U.S. registry. The proposed inspections would take about 4 work hours per airplane, per inspection cycle, at an average labor rate of $80 per work hour. Based on these figures, the estimated cost of the proposed AD for U.S. operators is $44,160, or $320 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 and placed it in the AD docket. 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:

The FAA is implementing a new process for streamlining the issuance of ADs related to MCAI. This streamlined process will allow us to adopt MCAI safety requirements in a more efficient manner and will reduce safety risks to the public. This process continues to follow all FAA AD issuance processes to meet legal, economic, Administrative Procedure Act, and Federal Register requirements. We also continue to meet our technical decision-making responsibilities to identify and correct unsafe conditions on U.S.-certificated products.

This proposed AD references the MCAI and related service information that we considered in forming the engineering basis to correct the unsafe condition. The proposed AD contains text copied from the MCAI and for this reason might not follow our plain language principles.

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2007-28855; Directorate Identifier 2007-NM-098-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on 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 we receive about this proposed AD.

The Agência Nacional de Aviaçãao Civil (ANAC), which is the airworthiness authority for Brazil, has issued Brazilian Airworthiness Directive 2007-03-03, effective April 10, 2007 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

EMBRAER has issued Service Bulletins 120-27-0091, Change 02, dated September 29, 2003; and 120-27-0092, Revision 01, dated December 29, 2006. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have proposed different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a NOTE within the proposed AD.

Based on the service information, we estimate that this proposed AD would affect about 107 products of U.S. registry. We also estimate that it would take about 58 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $80 per work-hour. Required parts would cost up to $2,000 per product, depending on airplane configuration. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these costs. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be up to $710,480, or $6,640 per product.

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 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 this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. 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 and placed it in the AD docket.

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

1. On September 21, 2000, the Commission issued Order No. 619, which implemented the use of the Internet for submission of documents to the Commission for filing. 1 Such submissions were limited to categories of documents specified by the Secretary of the Commission, with the intention of gradually expanding the range of eligible documents. 2 The eFiling system plays an important role in the Commission's efforts to comply with the Government Paperwork Elimination Act, which requires that agencies provide the option to submit information electronically, when practicable, as a substitute for paper. 3 The Commission also has established a system of electronic registration, or eRegistration, which is required for users of its eFiling system and other specified activities. 4 Filing via the Internet is optional for eligible documents. 5 The eFiling system now is receiving approximately one third of all documents filed at the Commission. The system is accessible through the Commission's Web site at http://www.ferc.gov/docs-filing/efiling.asp .

2. The Commission is proposing to implement, in late 2007, eFiling 7.0, which will significantly expand the capabilities of the system. As part of this implementation, the Commission proposes to expand the range of documents that may be filed via the Internet to include all filings, with specified exceptions. Most notably, it will be possible for regulated entities to make complex filings in their entireties in electronic format. 6 The Commission also proposes to implement other changes and technical enhancements, and is seeking comments on the advisability of these changes and the best methods of implementing them.

3. Under the Commission's regulations, only “qualified documents” may be filed via the Internet, and the Secretary is authorized to specify which documents are qualified. 7 A list of qualified documents is published on the Commission's web site. Currently, there are over forty categories of qualified documents. 8 The Secretary also is authorized to issue filing instructions. 9

4. To implement eFiling 7.0, the Commission proposes to revise its regulations to permit users to submit via the Internet all documents filed in Commission proceedings pursuant to Chapter I of Title 18 of the Code of Federal Regulations, with specified exceptions. As before, the Secretary will specify the documents that may be submitted to the eFiling system, but now the Secretary would list exceptions rather than eligible documents. The Secretary would continue to issue filing instructions for allowable file formats, electronic document formats and electronic filings having multiple components. However, where specific regulations require that a filing include particular content, those regulations will continue to apply. Similarly, where specific regulations or other instructions contain requirements applicable to electronic documents, such as allowable file formats, 10 those instructions also will continue to apply. The Commission invites comment on the proposals described below and generally on which documents should be accepted through the eFiling system.

5. The Commission proposes to revise Rule 2003(c) of the its Rules of Practice and Procedure  11 to provide specifically that all documents may be filed via the Internet unless excluded by the Secretary. It is not necessary, however, to revise the regulations to allow the Secretary to issue instructions regarding allowable file formats and other aspects of eFiling, as that authority is already included in Rule 2003(c)(2). Although they will not be the subject of revisions to the regulations, this notice of proposed rulemaking seeks comment on issues such as appropriate file formats and the filing of paper copies of oversized documents. Matters such as file formats and filing instructions would be contained in the instructions to be issued by the Secretary rather than being covered by regulations.

6. There are several types of filings that the Commission anticipates will not be made initially through eFiling 7.0. Electronic filing of tariffs, tariff revisions and rate change applications is the subject of a separate rulemaking. 12 Certain forms will not be accepted through eFiling. For example, the following forms are currently, and would continue to be, submitted through eForms: FERC Form No.1, FERC Form No. 2, FERC Form No. 2-A, FERC Form No. 3-Q, FERC Form No. 6, FERC Form No. 6-Q, Form 60, Form 714, and Electric Quarterly Reports. 13 Requests for extensions of time to file these forms, however, would be submitted through eFiling.

7. Finally, the Commission proposes to begin accepting, through eFiling, documents for which participants request confidential treatment pursuant to the Commission's regulations, 14 including critical energy infrastructure information (CEII). 15 Although the Commission proposes to begin accepting confidential documents with the eFiling 7.0 release, it does not propose to accept documents that are subject to protective order. There likely will be separate file uploads for Public, Confidential, and CEII files. Filers also will be able to revise security designations—for example, move a file from Confidential to Public. Filers will be able to load multiple files under each security class or they may upload .zip files containing numerous files if the files all have the same security class. The Commission will create separate accession numbers for the files uploaded under each security class and pass the files under each accession number to eLibrary with the appropriate security designation. This mirrors the current process for paper filings containing non-public material.

8. In some cases, the Commission will require paper copies of filings although it will also be possible to submit the documents through eFiling 7.0. This paper back-up will apply most notably to oversized documents such as maps, diagrams and drawings. Due to the size of standard monitors and other hardware and software limitations, it is impractical at this time for Commission staff to review such documents in electronic form. The Commission therefore anticipates that it will continue to need paper copies of most documents that are larger than 8.5 x 11 inches. As the Commission upgrades its resources, it expects to be able to reduce or eliminate the requirement for paper copies. The Commission also is considering whether to require paper copies of long documents, such as those exceeding 500 pages. The instructions posted by the Secretary will include directions specifying whether, and how many, paper copies of electronically filed documents are required. Appendix A contains examples of some documents that participants will be able to file via the Internet, but for which the Commission will also require paper copies.

9. The acceptance through eFiling 7.0 of documents that are not in standard word processing formats will present some issues involving file formats. As noted above, the Commission has issued instructions regarding file formats for specific documents in some regulations. In addition, staff has provided instructions in specific instances. Those requirements will continue to apply. The Secretary will specify formats in filing instructions that will apply in all other cases. The need for specific formatting may arise in connection with oversized documents, spreadsheets and other documents that contain data, to ensure that the documents will be in formats that users can reasonably be expected to find accessible.

10. The Secretary has already issued instructions specifying acceptable file formats for filings submitted on CD-ROM, DVD and other electronic media. These can be found at http://www.ferc.gov/help/submission-guide/electronic-media/acceptable.asp . The Commission anticipates that these instructions will be updated concurrent with eFiling 7.0 and will apply to documents submitted through the eFiling system via the Internet. The Commission is required to establish standards for the creation, use, preservation, and disposition of electronic records to retain them in a usable format until their authorized disposition dates. The Commission therefore invites comment on the current instructions, particularly on the question whether they provide adequate accessibility and accuracy. Based on guidance from the National Archives and Records Administration (NARA), the Commission is considering accepting exclusively waveform audio (.wav) format files for audio content and either audio-video interleave (.avi) or quicktime (.mov) format files for video content except where specific regulations contain requirements for other file formats. Also, the Commission intends to enforce, to the extent it is technically able to do so, the instructions issued with the eFiling 7.0 system rather than rely on voluntary compliance. We also plan to continue to improve our technical ability to enforce the instructions. For example, when the Commission has a technical solution for reliably and rapidly detecting a password-protected document, it will prevent the uploading of that document through eFiling.

11. In some instances, the Commission may issue more detailed instructions requiring particular document formats in connection with specific types of filings. For example, the Commission's regulations set out required exhibits for applications under section 7 of the Natural Gas Act, 16 such as articles of incorporation and a statement showing state authorization to do business, 17 as well as various types of data. 18 The Commission anticipates that the Secretary will issue instructions specifying required formats for many exhibits that must be included in section 7 applications. For documents such as Articles of Incorporation, it is likely that PDF versions would be required. For documents containing data, the Secretary likely will specify that they shall be filed in native spreadsheet application. 19

12. Another formatting issue concerns the presentation of filed documents in eLibrary. In the original conception of e-Library, the Commission would convert filings in native application to PDF and to Text. 20 This is intended to make filings accessible to the public in an open format without the need for purchasing proprietary software. As eFiling has increased and more complex documents have been filed, the conversion tools used by the Commission have not always been able to produce accurate renditions of filed documents. The degree of reliability decreases as the complexity of the electronic files increases and the costs of staff intervention to ensure reliability are prohibitive. For example, electronic spread sheets commonly contain multiple worksheets, with each worksheet containing many potential paper pages of data in many different formats. The conversion tools however frequently convert only the first worksheet.

13. The Commission therefore is considering whether to discontinue creating PDF and Text versions of submitted documents and post only the electronic files as filed with the Commission, although it intends to continue providing PDF versions of its own issuances. We are requesting comments on the effect this would have on public accessibility to the files. Discontinuing the conversion to open formats could require users to purchase proprietary software. There would also be some inconvenience to participants in Commission proceedings when they are citing to page numbers, as the vast majority of filers do not use paragraph numbers. The Commission requests comments on this proposal.

14. Should the Commission discontinue the practice of creating PDF versions of submissions, it could implement several measures. It could require that all word processing filings be made in open file formats, such as text, html, rtf, or possibly PDF. Open source file types would be the most easily accessible to all users. Alternatively, the Commission could permit filings in open file formats as well as in certain Microsoft Office formats. The Commission notes that Microsoft provides a free viewer that can be downloaded and used to view these files. Alternatively, the Commission could require that documents created with proprietary software be filed in the proprietary software along with an open source format to ensure that all viewers are able to download and read that document. Such filings would duplicate the current Commission practice of scanning all filings to create PDF formats.

15. Spreadsheets may be even more complicated because spreadsheet conversions do not retain formulas and may be difficult for the public to use. Thus, while spreadsheets need to be filed in native application, the Commission could require the filer to provide a PDF or open source file that could be used, at least, to obtain the numbers presented in the spreadsheet. The Commission invites comment on these alternatives, as well as on the possibility of discontinuing the Commission's practice of creating PDF and Text versions.

16. As a related issue, the Commission seeks input on whether the Secretary should require that documents created electronically by the filer using word processing software be filed in native applications or print-to-PDF format and not in a scanned format. The Commission has found that many ordinary text documents are being scanned and then converted to PDF formats. This removes the advantages of the native application, most notably the ability to search the text of the document and to copy and paste. It is unclear what advantage is derived from the submission of scanned PDF versions in such instances. 21 The Commission's regulations regarding signatures are intended to allow participants to submit pleadings, sworn statements and the like without the need for physical signatures or notarization, 22 which in turn should eliminate the need for scanned versions to ensure authenticity. The Commission understands that, in some situations, a scanned, non-searchable document is the only reasonable alternative. For instance, a filer may possess an exhibit only in hard copy and therefore cannot submit it in text-searchable form. The Commission would allow for such situations.

17. As part of eFiling 7.0, the Commission is proposing to permit documentless intervention. This proposal will permit users to intervene in Commission proceedings via the Internet through an online form or web interface, without actually uploading a document to serve as the motion or notice. 23 This change would not, however, affect in any way the issue of whether a participant is entitled to intervene. The Commission does not propose revising any regulation in connection with this proposed change. Instructions relating to this proposal would be issued by the Secretary. 24 The Commission invites comment on the proposal as described below.

18. The current online system allows the entry of only the docket number, the party or parties, and at least one registered contact for each party. If a person who has not eRegistered attempts to file a motion/notice to intervene with the Commission online, the system will prompt the user first to eRegister. 25 Under the current system the user must then attach a document that contains the basis for intervention. The proposed change to online filing of interventions will add a section for the user to enter the basis for intervention directly into the system without attaching a separate document. 26 The system would allow users to submit online only motions/notices of intervention and would require that users file protests, substantive comments and other matters besides the intervention as separate documents using the existing eFiling process.

19. As a part of the proposed change regarding interventions, the Commission will issue a confirmation via electronic mail for receipt of each motion/notice of intervention that it receives online. This confirmation will identify the information submitted by the filer, including the filing date and time. The Commission will also create a placeholder document in eLibrary that will specify the date and time the filing was submitted, the docket number, the name of the applicant in the docket, the name of the intervening party(ies), contact information for the intervening party, and the basis for intervening. Anyone eSubscribed to the docket will receive an eSubscription e-mail with a link to the “document” that the Commission created and added to eLibrary on behalf of the submitter. This placeholder document will also be stamped with the Commission's standard watermark. The intervening party(ies), as identified, will be added to the service list for the specified docket. Where intervention is late or is opposed on other grounds, the party(ies) attempting to intervene would be removed from the service list if and when intervention was denied.

20. As part of eFiling 7.0, the Commission is proposing to create a “quick comment” feature that will operate in a manner similar to documentless intervention by allowing users to submit comments without uploading documents. The Commission believes that this feature will be particularly helpful to individuals who do not participate routinely in Commission proceedings and wish to make brief comments in certain proceedings, such as users impacted by a single project. To submit a documentless, or quick, comment the user will first fill out a form with name and e-mail address, and send this information to FERC. If the e-mail address provided is valid, an e-mail will be sent to the user, which will include a link to the quick comment form. The form will be pre-filled with the contact information captured during the prior step. The user will be required to input a docket number for the proceeding to which the comment will apply. At this time, the Commission anticipates that the quick comment feature will be available only for P (Hydropower Project), PF (Pre-Filing NEPA activities for proposed gas pipelines), and CP (Certificates for Interstate Natural Gas Pipelines) proceedings. After the user has identified the docket(s), he or she would enter a comment in the text box by typing or copying and pasting. Once the information is submitted to the Commission, a PDF document will be created and added to eLibrary, where it will be searchable in the same manner as all other documents in the system. As with documentless intervention, the Commission does not propose to revise any regulation in connection with this proposed change. Instructions relating to quick comment would be issued by the Secretary. 27 The Commission invites comments on this proposal.

21. In connection with the conversion to eFiling 7.0, the Commission seeks comment on the advisability of extending hours for filing online to allow Internet filers to make submissions until midnight Eastern Standard or Daylight Savings Time. For example, a document filed via the Internet would be considered received by the Commission on the date of filing as long as the last byte of information is received by midnight Eastern Standard or Daylight Savings Time on that date. 28 Currently, both Internet and paper filings must be received by the close of business, i.e. , 5 p.m., to be considered to have been filed on that date. Otherwise, the document is considered to have been filed on the next business day. 29

22. Paper filings must be received by close of business because there must be staff available to stamp the date and time of receipt. However, internet submissions have no such limitation because the eFiling system records the date and time of the submission separately from the actual file date. The Commission is interested in receiving public comments on the effect of bifurcated filing deadlines.

23. Commission staff may conduct one or more technical conferences to discuss issues relating to electronic file format and electronic document standards. Any conference will be held prior to the deadline for filing comments on this proposal and will be separately noticed.

24. Office of Management and Budget (OMB) regulations require OMB to approve certain information collection requirements imposed by agency rule. 30 This Final Rule does not contain any information collection requirements and compliance with the OMB regulations is thus not required.

25. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. 31 Issuance of this Final Rule does not represent a major federal action having a significant adverse effect on the quality of the human environment under the Commission's regulations implementing the National Environmental Policy Act. Part 380 of the Commission's regulations lists exemptions to the requirement to draft an Environmental Analysis or Environmental Impact Statement. Included is an exemption for procedural, ministerial or internal administrative actions. 32 This rulemaking is exempt under that provision.

26. The Regulatory Flexibility Act of 1980 (RFA)  33 generally requires a description and analysis of final rules that will have significant economic impact on a substantial number of small entities. This Final Rule concerns procedural matters and is expected to increase the ease and convenience of filing. The Commission certifies that it will not have a significant economic impact upon participants in Commission proceedings. An analysis under the RFA is not required.

27. The Commission invites interested persons to submit comments on the matters and issues proposed in this notice to be adopted, including any related matters or alternative proposals that commenters may wish to discuss. Comments are due October 1, 2007. Comments must refer to Docket No. RM07-16-000, and must include the commenter's name, the organization he/she represents, if applicable, and his/her address in the comments.

28. The Commission encourages comments to be filed electronically via the eFiling link on the Commission's Web site at http://ferc.gov/docs-filing/efiling.asp. The Commission accepts most standard word processing formats. Documents created electronically using word processing software should be filed in native applications or print-to-PDF format and not in a scanned format. Commenters filing electronically do not need to make paper filings. It is not necessary to serve copies of rulemaking comments on other commenters.

29. Commenters that are not able to file comments electronically must send an original and 14 copies of their comments to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street, NE., Washington, DC 20426.

30. All comments will be placed in the Commission's public files and may be viewed, printed, or downloaded remotely as described in the Document Availability section below.

31. In addition to publishing the full text of this document in the Federal Register , the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through FERC's Home Page ( http://www.ferc.gov ) and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.

32. From FERC's Home Page on the Internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.

33. User assistance is available for eLibrary and the FERC's website during normal business hours from our Help line at (202) 502-8222 or the Public Reference Room at (202) 502-8371 Press 0, TTY (202) 502-8659. E-mail the Public Reference Room at public.referenceroom@ferc.gov.

In consideration of the foregoing, the Commission proposes to amend part 385, Chapter I, Title 18, Code of Federal Regulations, as follows.

The Pension Protection Act of 2006, Public Law 109-280, 120 Stat. 780 (2006) (PPA), amended the requirements that an organization exempt from tax under section 501(c)(3) of the Code must meet to qualify as a Type III supporting organization under section 509(a)(3) of the Code. This advanced notice of proposed rulemaking describes the rules that the Treasury Department and the IRS expect to propose to implement the new qualification requirements for Type III supporting organizations enacted by Congress and solicits comments from the public.

Under section 509(a), an organization described in section 501(c)(3) is a private foundation unless it meets the requirements of section 509(a)(1), (2), (3), or (4). Organizations described in section 501(c)(3) that meet the requirements of section 509(a)(1), (2), (3), or (4) are referred to as public charities.

Private foundations, which are generally divided into two categories, operating and non-operating, depending on the type of activity in which the foundation engages, are subject to a different set of requirements than those applicable to public charities. Sections 4940 through 4948 impose various restrictions and excise taxes on private foundations along with their disqualified persons and foundation managers, that are generally not applicable to public charities. Furthermore, more stringent deduction limitations apply to contributions made to private non-operating foundations than apply to contributions to public charities. For example, under section 170(b)(1)(A), an individual who makes a cash contribution to a public charity may deduct up to fifty percent of his or her contribution base (a modified adjusted gross income amount) in the year of his or her contribution, while the same contribution to a private non-operating foundation would be limited to thirty percent of the individual's contribution base under section 170(b)(1)(B). In addition, deductions for contributions of certain appreciated property to a private non-operating foundation are limited to the contributor's basis in the property under section 170(e)(1)(A), while the same contribution to a public charity could result in a deduction based on the property's fair market value under section 170(e)(1)(B)(ii).

Public charities that meet the requirements of section 509(a)(3) are known as supporting organizations. To be classified as a supporting organization, an organization must satisfy an organizational test, an operational test, a relationship test, and a disqualified person control test. The organizational and operational tests require that the organization be organized and at all times thereafter operated exclusively for the benefit of, to perform the functions of, or to conduct the purposes of one or more publicly supported organizations described in section 509(a)(1) or (2). The relationship test requires that the organization be operated, supervised, or controlled by or in connection with one or more publicly supported organizations. Finally, the disqualified person control test requires that the organization not be controlled directly or indirectly by certain disqualified persons.

Treasury Regulation (Treas. Reg.) § 1.509(a)-4(f)(2) sets forth three structural or operational relationships a supporting organization is permitted to have with its supported organization(s). Each supporting organization must have one of the three types of relationships with the organization(s) it supports to be a supporting organization described in section 509(a)(3) of the Code. The purpose of the relationship requirement is to ensure that a supporting organization has a sufficiently close tie to one or more publicly supported organizations such that the supporting organization will be accountable to a broader public constituency.

A supporting organization that is operated, supervised or controlled by one or more publicly supported organizations is commonly known as a Type I supporting organization. The relationship a Type I supporting organization has with its supported organization(s) is comparable to that of a parent-subsidiary relationship. A supporting organization supervised or controlled in connection with one or more publicly supported organizations is commonly known as a Type II supporting organization. The relationship a Type II supporting organization has with its supported organization(s) is comparable to a brother-sister corporate relationship. A supporting organization that is operated in connection with one or more publicly supported organizations is commonly known as a Type III supporting organization.

In general, Treas. Reg. § 1.509(a)-4(i)(1) requires an organization to meet a “responsiveness test” and an “integral part test” to satisfy the relationship requirement for a Type III supporting organization.

Responsiveness Test: General Rule. Treas. Reg. § 1.509(a)-4(i)(2)(i) provides that an organization is “considered to meet the ‘responsiveness test’ if the organization is responsive to the needs or demands of” its publicly supported organizations. Treas. Reg. § 1.509(a)-4(i)(2)(ii) provides that a supporting organization may demonstrate responsiveness to its publicly supported organization(s) if: (1)(a) One or more of its officers, directors, or trustees are elected or appointed by the officers, directors, trustees, or membership of its publicly supported organization(s), (b) one or more members of the governing bodies of its publicly supported organization(s) are also officers, directors, or trustees of, or hold other important offices in, the supporting organization, or (c) the officers, directors, or trustees of the supporting organization maintain a close, continuous working relationship with the officers, directors, or trustees of its publicly supported organization(s); and (2) by reason of such arrangement, the officers, directors, or trustees of its publicly supported organization(s) have a significant voice in the investment policies of the supporting organization, the timing and the manner of making grants, the selection of the grant recipients by the supporting organization, and otherwise directing the use of the income or assets of the supporting organization.

In addition, with respect to an organization that was supporting a publicly supported organization before November 20, 1970, Treas. Reg. § 1.509(a)-4(i)(1)(ii) provides that additional facts and circumstances, such as a historic and continuing relationship between the supporting organization and its supported organization(s), may be taken into account, in addition to the factors described in the general responsiveness test above, to establish compliance with the responsiveness test.

Responsiveness Test: Charitable Trusts. Before enactment of the PPA, one way of satisfying the responsiveness test, under Treas. Reg. § 1.509(a)-4(i)(2)(iii), required that (1) the supporting organization be a charitable trust under state law, (2) each publicly supported organization that the trust supports be named as a beneficiary under the charitable trust's governing instrument, and (3) each beneficiary organization have the power to enforce the trust and compel an accounting under State law. As described below, this method of satisfying the responsiveness test was effectively removed by the PPA.

Integral Part Test. Treas. Reg. § 1.509(a)-4(i)(3)(i) provides that a supporting organization is required to establish that “it maintains a significant involvement in the operations of one or more publicly supported organizations and such publicly supported organizations are in turn dependent upon the supporting organization for the type of support which it provides.” Treas. Reg. § 1.509(a)-4(i)(3)(ii) and (iii) sets forth two alternative ways to meet the integral part test. The first method is typically referred to as the “but for” test. In this advance notice of proposed rulemaking, the second method of meeting the integral part test will be referred to as the “attentiveness” test.

Integral Part Test, Alternative I: the “but for” test. Under Treas. Reg. § 1.509(a)-4(i)(3)(ii) the “but for” test is satisfied if “the activities engaged in [by the supporting organization] for or on behalf of the publicly supported organizations are activities to perform the functions of, or to carry out the purposes of, such organizations, and, but for the involvement of the supporting organization, would normally be engaged in by the publicly supported organizations themselves.”

Integral Part Test, Alternative II: the “attentiveness” test. The “attentiveness” test, under Treas. Reg. § 1.509(a)-4(i)(3)(iii), requires a supporting organization to (1) make payments of substantially all of its income to or for the use of one or more publicly supported organizations, (2) provide enough support to one or more publicly supported organizations to insure the attentiveness of such organizations to the operations of the supporting organization, and (3) pay a substantial amount of the total support of the supporting organization to those publicly supported organizations that meet the attentiveness requirement. Rev. Rul. 76-208, 1976-1 CB 161, (see § 601.601(d)(2) of this chapter), provides that the phrase “substantially all of its income” in Treas. Reg. § 1.509(a)-4(i)(3)(iii) means at least 85 percent of its adjusted net income.

The PPA amended the qualification requirements for Type III supporting organizations, modifying both the integral part test and the responsiveness test.

Sections 1241 and 1243 of the PPA enacted Code sections 509(d) and 4943(f)(5). These provisions define the term Type III supporting organization and distinguish between functionally integrated and non-functionally integrated Type III supporting organizations. These two new categories appear to reflect the distinction drawn in the Treasury Regulations between those organizations that meet the integral part test by meeting the “but for” test and those that meet the integral part test by meeting the “attentiveness” test.

In conformity with existing Treasury Regulations, new section 4943(f)(5)(A) defines a Type III supporting organization as a supporting organization that is operated in connection with one or more section 509(a)(1) or (2) organizations. New section 4943(f)(5)(B) defines a functionally integrated Type III supporting organization as a Type III supporting organization that is not required under regulations established by the Secretary to make payments to supported organizations due to the activities of the organization related to performing the functions of, or carrying out the purposes of, such supported organizations. Although this language appears similar to the “but for” prong of the integral part test, the Staff of the Joint Committee on Taxation in its technical explanation of the provision notes that there is “concern that the current regulatory standards for satisfying the integral part test not by reason of a payout [i.e., the existing “but for” test] are not sufficiently stringent to ensure that there is a sufficient nexus between the supporting and supported organizations.” See Staff of the Joint Committee on Taxation, Technical Explanation of H.R. 4, the “Pension Protection of 2006,” as Passed by the House on July 28, 2006, and as Considered by the Senate on August 3, 2006 (JCX-38-06) at 360 n. 571, August 3, 2006 (Technical Explanation). In particular, the Technical Explanation states that in revising the Type III supporting organization regulations the Secretary “shall strengthen the standard for qualification as [a Type III supporting] organization that is not required to pay out.” Id.

Section 1241(d)(1) of the PPA directed the Secretary to promulgate new regulations on the payments required by Type III supporting organizations that are not functionally integrated. Section 1241(d)(1) of the PPA provides that such regulations shall require non-functionally integrated Type III supporting organizations to make distributions of a “percentage of either income or assets to supported organizations (defined in new section 509(f)(3) of [the] Code) in order to ensure that a significant amount is paid” to their supported organizations. The Technical Explanation notes that there is concern that merely requiring a Type III supporting organization to pay out substantially all of its net income (as under the “attentiveness” prong of the integral part test) does not necessarily result in significant distributions to publicly supported organizations relative to the value of the assets held by the Type III supporting organization and “as compared to amounts paid out by nonoperating private foundations.” See Technical Explanation at 360 n. 571.

Section 1241(c) of the PPA modified the responsiveness test as it applies to charitable trusts. Effectively, section 1241(c) provides that having each organization that the trust supports be a publicly supported organization named as a beneficiary under the trust's governing instrument and establishing that each beneficiary organization has the power to enforce the trust and compel an accounting is no longer sufficient to satisfy the responsiveness test as provided in Treas. Reg. § 1.509(a)-4(i)(2)(iii). The Technical Explanation states that a Type III supporting organization organized as a trust must now “establish to the satisfaction of the Secretary, that it has a close and continuous relationship with the supported organization such that the trust is responsive to the needs or demands of the supported organization.” Technical Explanation at 362. Under section 1241(e)(2)(A) of the PPA, trusts that operated in connection with a publicly supported organization on August 17, 2006, have until August 17, 2007 to satisfy the modified responsiveness test under Treas. Reg. 1.509(a)-4(i)(2)(ii). For other trusts, the provision was effective on August 17, 2006.

Finally, section 1241(b) added section 509(f)(1)(A), which contains another requirement for Type III supporting organizations. The provision requires a Type III supporting organization to provide each of its supported organizations with “such information as the Secretary may require to ensure that such organization is responsive to the needs or demands of the supported organization.”

As described in this advanced notice of proposed rulemaking, the Treasury Department and the IRS intend to propose regulations that provide (1) the payout requirements for Type III supporting organizations that are not functionally integrated, (2) the criteria for determining whether a Type III supporting organization is functionally integrated, (3) the modified responsiveness test for Type III supporting organizations that are organized as charitable trusts, and (4) the type of information a Type III supporting organization will be required to provide to its supported organization(s) to demonstrate that it is responsive.

The Treasury Department and the IRS expect that all Type III supporting organizations will be required to meet the responsiveness test under Treas. Reg. § 1.509(a)-4(i)(2)(ii). In addition, it is expected that Type III supporting organizations that are functionally integrated will be required to meet: (A) The “but for” test in existing Treas. Reg. § 1.509(a)-4(i)(3)(ii); (B) an expenditure test that will resemble the qualifying distributions test for private operating foundations; and (C) an assets test that will resemble the alternative assets test for private operating foundations. Finally, it is expected that a Type III supporting organization that is not functionally integrated will be required to meet a payout requirement equal to the qualified distribution requirement of a private non-operating foundation. In addition, there will be a limit on the number of publicly supported organizations a non-functionally integrated Type III supporting organization may support. These proposed criteria for qualifying as a Type III supporting organization will replace the integral part test in the existing regulations. These provisions are explained in more detail below.

Private operating foundations under section 4942(j)(3) share strong similarities with Type III functionally integrated supporting organizations under section 4943(f)(5)(B) in that both are expected to be directly engaged in the active conduct of charitable activities rather than only making grants to, or for the use of, charitable organizations. The Code and Treasury Regulations provide extensive rules used to determine whether a private foundation is a private operating foundation. See section 4942(j)(3) and Treas. Reg. § 53.4942(b). The Treasury Department and the IRS believe that these rules provide a useful model for developing standards to determine whether a Type III supporting organization is functionally integrated, and that adoption of similar rules under section 4943(f)(5)(B) will further the Congressional purpose articulated in the Technical Explanation of strengthening the nexus between a functionally integrated Type III supporting organization and the publicly supported organization(s) it supports.

To qualify as a private operating foundation under section 4942(j)(3), an organization must satisfy a qualifying distributions test and one of three alternative tests described below. Under the qualifying distributions test, a private operating foundation must make qualifying distributions “directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated,” equal to substantially all (at least 85 percent) of the lesser of its adjusted net income or its minimum investment return. Under section 4942(e)(1), the minimum investment return is equal to 5 percent of the excess of (A) the aggregate fair market value of all the foundation's assets other than those used (or held for use) directly in carrying out the organization's exempt purpose over (B) the acquisition indebtedness with respect to such assets. Under Treas. Reg. § 53.4942(b)-1(b)(1), a qualifying distribution directly for the active conduct of activities constituting the foundation's exempt purpose is a distribution that is used by the foundation itself to carry out its exempt activities rather than paid to other organizations to help them carry out their exempt activities.

In addition, a private operating foundation must meet one of three alternative tests: An assets test, an endowment test or a support test. The assets test, under section 4942(j)(3)(B)(i) and Treas. Reg. § 53.4942(b)-2(a), requires that substantially more than half (at least 65 percent) of the assets of an operating foundation must be devoted directly to the private operating foundation's exempt purpose activities, or to functionally related businesses (see section 4942(j)(4)), or both, or are stock of a corporation controlled by, and substantially all (at least 85 percent) of the assets of which are devoted to, the foundation. The endowment test, under Treas. Reg. § 53.4942(b)-2(b), requires a foundation to make qualifying distributions directly for the active conduct of its exempt activities in an amount not less than two thirds of its minimum investment return. The support test, under Treas. Reg. § 53.4942(b)-2(c), is satisfied if substantially all (85 percent) of a foundation's support (other than gross investment income) is normally received from the general public and from five or more exempt organizations that are not related to each other or the recipient foundation, if the foundation does not normally receive more than 25 percent of its support from any one such exempt organization; and if the foundation does not normally receive more than 50 percent of its support from gross investment income.

The Treasury Department and the IRS anticipate that the proposed regulations will define the term functionally integrated Type III supporting organization as a Type III supporting organization that meets: (A) The “but for” test in existing Treas. Reg. § 1.509(a)-4(i)(3)(ii); (B) an expenditure test consistent with section 4942(j)(3)(A); and (C) an assets test consistent with section 4942(j)(3)(B)(i). It is expected that the expenditure test will require a functionally integrated Type III supporting organization to use substantially all of the lesser of (a) its adjusted net income or (b) five percent of the aggregate fair market value of all its assets (other than assets that are used, or held for use, directly in supporting the charitable programs of the supported organizations) directly for the active conduct of activities that directly further the exempt purposes of the organizations it supports. The assets test will require the organization to devote at least 65 percent of the aggregate fair market value of all its assets directly for the active conduct of activities that directly further the exempt purposes of the organizations it supports. The Treasury Department and the IRS believe that requiring functionally integrated Type III supporting organizations to satisfy the expenditure and assets tests, in addition to the “but for” test, will be stronger than the existing integral part test and ensure a sufficient nexus between a supporting organization and the organization(s) it supports. These tests also will ensure that a sufficient amount is being dedicated directly to the active conduct of activities that further the exempt purposes of publicly supported organizations.

The term “adjusted net income” is expected to have substantially the same meaning as that term has in section 4942(f) and Treas. Reg. § 53.4942(a)-2(d). The valuation of assets is expected to be determined in a manner similar to the rules under section 4942(e)(2) and Treas. Reg. § 53.4942(a)-2(c)(4).

The Treasury Department and the IRS also intend that certain Type III supporting organizations that oversee or facilitate the operation of an integrated system that includes one or more charities and that may be unable to satisfy the “direct active conduct” and “directly further” requirements of the expenditure and assets tests, such as certain hospital systems, will be classified as functionally integrated in the proposed regulations if they satisfy the existing “but for” test.

The proposed regulations will not permit a functionally integrated Type III supporting organization to qualify as functionally integrated by using the endowment or support tests that are available to private operating foundations as alternatives to the proposed assets test. Because the endowment test is similar to the expenditure test, the Treasury Department and the IRS believe that the endowment test would not provide sufficient additional assurances of a tight nexus between a functionally integrated supporting organization and its supported organizations. Furthermore the support test, which focuses on sources of support received by a private foundation rather than on its activities, appears to be inapplicable to the functionally integrated concept. By requiring at least 65 percent of the value of all assets of each functionally integrated supporting organization to be devoted directly for the active conduct of the activities of its supported organizations, the proposed assets test is intended to ensure that the connection between the supporting and supported organizations is significant.

In establishing a payout requirement for non-functionally integrated Type III supporting organizations, the Treasury Department and the IRS expect to follow the framework of the existing section 4942 qualifying distribution regulations applicable to private non-operating foundations. Private non-operating foundations have operated under these qualifying distribution regulations for many years. The Treasury Department and the IRS believe these rules are appropriate for Type III grant-making organizations, and would further the Congressional purpose articulated in the Technical Explanation of ensuring that, as compared to amounts paid out by private non-operating foundations, significant amounts are being paid to supported organizations even if the supporting organization's assets produce little or no income.

A private non-operating foundation is required under section 4942 to make certain qualifying distributions or pay an excise tax. A private non-operating foundation is generally liable for this excise tax under section 4942(a) and (b) if it does not make qualifying distributions each year equal to its minimum investment return. The minimum investment return is five percent of the aggregate fair market value of all the foundation's assets other than those used (or held for use) directly in carrying out the organization's exempt purpose over the acquisition indebtedness with respect to such assets. Qualifying distributions under section 4942(g) are generally those distributions (including reasonable and necessary administrative expenses) paid to accomplish charitable purposes.

The Treasury Department and the IRS anticipate that the proposed regulations will (A) require a non-functionally integrated Type III supporting organization to meet a payout requirement and (B) limit the number of publicly supported organizations a non-functionally integrated Type III supporting organization may support.

The payout requirement will call for a Type III supporting organization that is not functionally integrated to distribute annually to or for the use of its supported organizations an amount equal to at least five percent of the aggregate fair market value of all its assets (other than assets that are used, or held for use, directly in supporting the charitable programs of its supported organizations). Additionally, the Treasury Department and the IRS are concerned that a supporting organization's relationship with and accountability to its supported organizations is diminished as the number of its supported organizations increases. Accordingly, except for organizations in existence on or before the date the regulations are proposed, it is expected that the proposed regulations will also provide that non-functionally integrated Type III supporting organizations will be limited to supporting no more than five publicly supported organizations. An organization in existence on or prior to the date regulations are proposed may support more than five supported organizations only if the organization distributes at least 85 percent of its total required payout amount to, or for the use of, publicly supported organizations to which the supporting organization is responsive pursuant to Treas. Reg. § 1.509(a)-4(i)(2)(ii). The anticipated proposed payout rules are intended to ensure that a non-functionally integrated Type III supporting organization has a tight nexus with its supported organization(s).

The Treasury Department and the IRS recognize that requiring an existing Type III supporting organization that supports more than five supported organizations to provide 85 percent of its total required payout to those supported organizations to which it is responsive may affect existing donee relationships. The Treasury Department and the IRS solicit comments on whether transitional rules are needed with respect to this proposed limitation regarding distributions to supported organizations.

The valuation of assets for purposes of the payout requirement is expected to be determined in a manner similar to that under section 4942(e)(2) and Treas. Reg. § 53.4942(a)-2(c)(4). The proposed distribution rules will be similar to the distribution rules under section 4942. It is expected that amounts paid by an organization to accomplish the exempt purposes of its supported organizations will be considered as distributed to or for the use of its supported organization(s).

Except as explained below with respect to charitable trusts, the Treasury Department and the IRS do not expect to modify the responsiveness test. Thus, all Type III supporting organizations will be expected to meet the responsiveness test under Treas. Reg. § 1.509(a)-4(i)(2)(ii). Accordingly, a Type III supporting organization will be expected to demonstrate the necessary relationship between its officers, directors or trustees and those of its supported organization(s), and further show that this relationship results in the officers, directors or trustees of its supported organization(s) having a significant voice in the operations of the supporting organization.

Consistent with section 1241(c) of the PPA, discussed in the Background section above, the proposed regulations will provide that charitable trusts must satisfy the responsiveness test under Treas. Reg. § 1.509(a)-4(i)(2)(ii). Thus, for instance, a trust would be expected to show that its trustees have a close, continuous working relationship with the officers, directors, or trustees of the publicly supported organization(s) it supports and that through such relationship the officers, directors or trustees of its publicly supported organization(s) have a significant voice in the operations of the supporting organization. Comments are requested with respect to potential transition relief given that the statute directs that this modified test apply as of August 17, 2007 to trusts already in existence on the date of enactment of the PPA.

The proposed regulations will provide rules for the form, content and timing of the information Type III supporting organizations are required to provide their supported organization(s) under section 509(f)(1)(A). The Treasury Department and the IRS solicit comments as to what information the Secretary should require a Type III supporting organization to provide to each of its supported organizations to ensure that such supporting organization is responsive to the needs or demands of its supported organization(s).

The proposed regulations will clarify that an organization that would otherwise be classified as a Type III supporting organization, but either does not establish that it is functionally integrated or does not satisfy the payout requirement for non-functionally integrated organizations in a taxable year, will be classified as a private foundation for such taxable year and all subsequent taxable years until it terminates its private foundation status under section 507. The Treasury Department and the IRS solicit comments on how the requirements for a private foundation termination under section 507 should apply in these circumstances.

Implementation of the new qualification requirements for Type III supporting organizations enacted in the PPA will raise transitional issues for certain organizations. For instance, an organization that currently qualifies as a Type III supporting organization by meeting the attentiveness prong of the integral part test might be prohibited by its current governing instrument from distributing capital or corpus, thus preventing it from being able to satisfy the new payout requirement for non-functionally integrated Type III supporting organizations without a change to such instrument. The Treasury Department and the IRS invite comments regarding potential transition rules for supporting organizations in existence as of the date of enactment of the PPA that will provide such organizations a reasonable opportunity to amend their governing instruments or make other changes to comply with the law as amended by the PPA.

Except as otherwise noted, the Treasury Department and the IRS anticipate that these new proposed rules for Type III supporting organizations would apply to taxable years with respect to each organization beginning after the date these rules are published in the Federal Register as final or temporary regulations.

Before the notice of proposed rulemaking is issued, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. All comments will be available for public inspection and copying.

The principal authors of this advance notice of proposed rulemaking are Philip T. Hackney and Michael B. Blumenfeld, Office of the Chief Counsel (Tax-exempt and Government Entities), however, other personnel from the IRS and the Treasury Department participated in its development.

On August 24, 2004, proposed regulations under section 2642(a)(3) regarding qualified severances were published in the Federal Register (REG-145987-03, 2004-39 IRB 519, 69 FR 51967). Final regulations were published on August 2, 2007. The Treasury Department and the IRS determined that certain comments received in response to the proposed regulations under section 2642(a)(3) should be addressed in a separate notice of proposed rulemaking, instead of in the final regulations published on August 2, 2007. Accordingly, this notice of proposed rulemaking proposes additional changes to the regulations in response to those comments.

Section 2642(a)(3) was added to the Internal Revenue Code (Code) by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Public Law 107-16 (115 Stat. 38 (2001)). Under section 2642(a)(3), if a trust is divided into two or more trusts in a “qualified severance,” the trusts resulting from the severance (resulting trusts), which may have different inclusion ratios, will be recognized as separate trusts for GST tax purposes. Once the resulting trusts are recognized as separate trusts, the transferor's lifetime GST tax exemption may be allocated separately to either trust. In addition, whether or not a GST taxable event occurs is determined separately for each resulting trust.

One commentator with respect to the notice of proposed rulemaking under section 2642(a)(3) suggested that those regulations should expressly address the GST tax consequences of dividing a trust in a manner that does not satisfy the regulatory requirements of a qualified severance, but nonetheless is effective to create separate trusts under applicable state law. Specifically, the commentator requested that the regulations be amended to provide that the separate trusts created as the result of a trust's division that is effective under state law, but that does not qualify as a qualified severance, will be respected prospectively as separate trusts for GST tax purposes, but that the inclusion ratio of each of the resulting trusts will be the same as the inclusion ratio of the original trust immediately before its severance.

As noted by a commentator, however, such a result would require an amendment to the existing regulations under section 2654. Generally, section 2654(b)(2) provides that “substantially separate and independent shares” of different beneficiaries in a trust will be treated as separate trusts for GST tax purposes. Section 26.2654-1(a)(1)(i) provides that, for purposes of section 2654(b)(2), the term “substantially separate and independent shares” generally has the same meaning as provided in § 1.663(c)(3). However, these regulations further provide that a portion of a trust is not a separate share “unless such share exists from and at all times after creation of the trust.”

Section 26.2654-1(a)(5), Example 8, illustrates this rule. In Example 8, T creates a discretionary trust with discretionary power in the trustee to distribute income and principal among T's children and grandchildren. The trust agreement directs that, when T's youngest child reaches age 21, the trust be divided into separate shares, with one such share for each child of T; the income from a particular share is to be paid to T's child (for whom that share was created) for life, with the remainder from that share to be distributed to that child's own children. The example concludes that the separate shares that come into existence when the youngest child reaches age 21 are not recognized as separate trusts for GST tax purposes because the separate shares did not constitute separate and independent shares of a single trust at all times from the date of creation of the original trust, as required by § 26.2654-1(a)(1). Thus, any allocation of GST tax exemption to the original trust, or to any of the separate shares after the division, will apply with respect to the entire trust. The example provides that the result would be the same if the original trust was divided into separate trusts rather than separate shares.

Another commentator with respect to the notice of proposed rulemaking under section 2642(a)(3) requested that the regulations provide additional flexibility in severing a trust that has an inclusion ratio between zero and one. Generally, the final regulations apply section 2642(a)(3)(B)(ii) by requiring that the trust first be severed into two identical trusts, one of which would then have an inclusion ratio of zero and the other an inclusion ratio of one. The final regulations confirm that either or both of these trusts may then be further severed into a trust for the benefit of the skip person(s) and a trust for the benefit of the non-skip person(s). However, under this two-step procedure, one of the resulting trusts for the benefit of skip persons would have an inclusion ratio of one, and one of the trusts for the benefit of the non-skip persons would have an inclusion ratio of zero. The commentator requested that the regulations allow severances in a manner that would permit a more effective utilization of the exemption.

The Treasury Department and the IRS believe that each of these suggestions merits further consideration in a new notice of proposed rulemaking. In addition, the new proposed regulations clarify the rules in the final regulations regarding the funding of resulting trusts.

The proposed regulations amend the regulations under § 26.2642-6 to provide that trusts resulting from a severance that does not meet the requirements of a qualified severance nevertheless will be treated, after the severance, as separate trusts for GST tax purposes, provided that the resulting trusts are recognized as separate trusts under applicable state law. Because the severance is not a qualified severance, each such resulting trust will have the same inclusion ratio immediately after the severance as the original trust immediately before the severance. Nevertheless, GST tax exemption allocated after the severance may be separately allocated to one or more of the resulting trusts and the trusts will otherwise be treated as separate trusts for GST tax purposes. An example of a nonqualified severance is added to the regulations.

The proposed regulations also revise § 26.2654-1(a)(1)(i) and (a)(5), Example 8 .

In addition, pursuant to the authority granted in section 2642(a)(3)(B)(iii), these proposed regulations provide for an additional type of qualified severance. Specifically, the proposed regulations provide that a trust with an inclusion ratio between zero and one may be severed in a qualified severance into more than two resulting trusts. One or more of the resulting trusts in the aggregate must receive that fractional share of the total value of the original trust as of the date of severance that is equal to the applicable fraction used to determine the inclusion ratio of the original trust immediately before the severance. The trust or trusts receiving such fractional share shall have an inclusion ratio of zero, and each of the other resulting trust or trusts shall have an inclusion ratio of one. Further, the trustee may designate the beneficiary of each separate resulting trust, provided that the designation results in each beneficiary having the same beneficial interest (within the meaning of § 26.2642-6(d)(5)) after the severance as that beneficiary had in the original trust corpus. Guidance illustrating the application of this rule is included in § 26.2642-6(d)(7)(ii) and Example 9 of § 26.2642-6(j) of these proposed regulations.

Finally, these proposed regulations clarify a provision of the final regulations issued contemporaneously with these proposed regulations. Specifically, § 26.2642-6(d)(4) requires that each resulting trust be funded with a fraction or percentage of the entire trust and that, although particular assets may be divided among the resulting trusts on a non pro rata basis based on the fair market value of the assets on the date of severance, the sum of those fractions or percentages must be one or one hundred percent, respectively. Thus, if the resulting trusts are funded on a non pro rata basis, the sum of the values distributed to the resulting trusts must equal the fair market value of the trust being severed. These proposed regulations clarify that no discounts or other reductions from the value of an asset owned by the original trust, arising by reason of the division of the original trust's interest in the asset between or among the resulting trusts, are permitted in funding the resulting trusts. Instead, solely for funding purposes, each resulting trust's interest in the stock of a closely held corporation, partnership interest, or other single asset must be valued by multiplying the fair market value of the asset held in the original trust as of the date of severance by the fractional or percentage interest in that asset being distributed to that resulting trust. This clarification is proposed to be effective with respect to severances occurring on or after the date these proposed regulations are published in the Federal Register .

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) applies only to § 26.2642-6(d)(7)(ii) of these regulations. It is hereby certified that this provision will not have a significant economic impact on a substantial number of small entities. Accordingly, a Regulatory Flexibility Analysis is not required. This provision directly affects individuals, not entities. Because the remaining sections of these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the substance of the proposed regulations, as well as on the clarity of the proposed rules and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register .

The principal author of these proposed regulations is Mayer R. Samuels, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. Other personnel from the IRS and the Treasury Department participated in their development.

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

EPA is proposing to approve a revision to Florida's SIP, submitted on March 16, 2007. In its SIP revision, Florida would meet CAIR requirements by requiring certain electric generating units (EGUs) to participate in the EPA-administered State CAIR cap-and-trade programs addressing SO 2 , NO X annual, and NO X ozone season emissions. EPA is proposing to determine that the SIP, as revised, will meet the applicable requirements of CAIR. Any final action approving the SIP will be taken by the Regional Administrator for Region 4. As a consequence of the SIP approval, the Administrator of EPA will also issue a final rule to withdraw the FIPs concerning SO 2 , NO X annual, and NO X ozone season emissions for Florida. This action will delete and reserve 40 CFR 52.540 and 40 CFR 52.541. The withdrawal of the CAIR FIPs for Florida is a conforming amendment that must be made once the SIP is approved because EPA's authority to issue the FIPs was premised on a deficiency in the SIP for Florida. Once the SIP is fully approved, EPA no longer has authority for the FIPs. Thus, EPA will not have the option of maintaining the FIPs following the full SIP approval. Accordingly, EPA does not intend to offer an opportunity for a public hearing or an additional opportunity for written public comment on the withdrawal of the FIPs.

The CAIR was published by EPA on May 12, 2005 (70 FR 25162). In this rule, EPA determined that 28 States and the District of Columbia contribute significantly to nonattainment and interfere with maintenance of the NAAQS for fine particles (PM 2.5 ) and/or 8-hour ozone in downwind States in the eastern part of the country. As a result, EPA required those upwind States to revise their SIPs to include control measures that reduce emissions of SO 2 , which is a precursor to PM 2.5 formation, and/or NO X , which is a precursor to both ozone and PM 2.5 formation. For jurisdictions that contribute significantly to downwind PM 2.5 nonattainment, CAIR sets annual State-wide emission reduction requirements (i.e., budgets) for SO 2 and annual State-wide emission reduction requirements for NO X . Similarly, for jurisdictions that contribute significantly to 8-hour ozone nonattainment, CAIR sets State-wide emission reduction requirements for NO X for the ozone season (May 1st to September 30th). Under CAIR, States may implement these reduction requirements by participating in the EPA-administered cap-and-trade programs or by adopting any other control measures.

CAIR explains to subject States what must be included in SIPs to address the requirements of section 110(a)(2)(D) of the Clean Air Act (CAA) with regard to interstate transport with respect to the 8-hour ozone and PM 2.5 NAAQS. EPA made national findings, effective on May 25, 2005, that the States had failed to submit SIPs meeting the requirements of section 110(a)(2)(D). The SIPs were due in July 2000, three years after the promulgation of the 8-hour ozone and PM 2.5 NAAQS. These findings started a two-year clock for EPA to promulgate a FIP to address the requirements of section 110(a)(2)(D). Under CAA section 110(c)(1), EPA may issue a FIP anytime after such findings are made and must do so within two years, unless a SIP revision correcting the deficiency is approved by EPA before the FIP is promulgated.

On April 28, 2006, EPA promulgated FIPs for all States covered by CAIR in order to ensure the emissions reductions required by CAIR are achieved on schedule. Each CAIR State is subject to the FIPs until the State fully adopts, and EPA approves, a SIP revision meeting the requirements of CAIR. The CAIR FIPs require EGUs to participate in the EPA-administered CAIR SO 2 , NO X annual, and NO X ozone season trading programs, as appropriate. The CAIR FIP SO 2 , NO X annual, and NO X ozone season trading programs impose essentially the same requirements as, and are integrated with, the respective CAIR SIP trading programs. The integration of the FIP and SIP trading programs means that these trading programs will work together to create effectively a single trading program for each regulated pollutant (SO 2 , NO X annual, and NO X ozone season) in all States covered by the CAIR FIP or SIP trading program for that pollutant. The CAIR FIPs also allow States to submit abbreviated SIP revisions that, if approved by EPA, will automatically replace or supplement certain CAIR FIP provisions (e.g., the methodology for allocating NO X allowances to sources in the State), while the CAIR FIP remains in place for all other provisions.

On April 28, 2006, EPA published two additional CAIR-related final rules that added the States of Delaware and New Jersey to the list of States subject to CAIR for PM 2.5 and announced EPA's final decisions on reconsideration of five issues, without making any substantive changes to the CAIR requirements.

CAIR establishes State-wide emission budgets for SO 2 and NO X and is to be implemented in two phases. The first phase of NO X reductions starts in 2009 and continues through 2014, while the first phase of SO 2 reductions starts in 2010 and continues through 2014. The second phase of reductions for both NO X and SO 2 starts in 2015 and continues thereafter. CAIR requires States to implement the budgets by either: (1) Requiring EGUs to participate in the EPA-administered cap-and-trade programs; or (2) adopting other control measures of the State's choosing and demonstrating that such control measures will result in compliance with the applicable State SO 2 and NO X budgets.

The May 12, 2005, and April 28, 2006, CAIR rules provide model rules that States must adopt (with certain limited changes, if desired) if they want to participate in the EPA-administered trading programs.

With two exceptions, only States that choose to meet the requirements of CAIR through methods that exclusively regulate EGUs are allowed to participate in the EPA-administered trading programs. One exception is for States that adopt the opt-in provisions of the model rules to allow non-EGUs individually to opt into the EPA-administered trading programs. The other exception is for States that include all non-EGUs from their NO X SIP Call trading programs in their CAIR NO X ozone season trading programs.

States have the flexibility to choose the type of control measures they will use to meet the requirements of CAIR. EPA anticipates that most States will choose to meet the CAIR requirements by selecting an option that requires EGUs to participate in the EPA-administered CAIR cap-and-trade programs. For such States, EPA has provided two approaches for submitting and obtaining approval for CAIR SIP revisions. States may submit full SIP revisions that adopt the model CAIR cap-and-trade rules. If approved, these SIP revisions will fully replace the CAIR FIPs. Alternatively, States may submit abbreviated SIP revisions. These SIP revisions will not replace the CAIR FIPs; however, the CAIR FIPs provide that, when approved, the provisions in these abbreviated SIP revisions will be used instead of or in conjunction with, as appropriate, the corresponding provisions of the CAIR FIPs (e.g., the NO X allowance allocation methodology).

A State submitting a full SIP revision may either adopt regulations that are substantively identical to the model rules or incorporate by reference the model rules. CAIR provides that States may only make limited changes to the model rules if the States want to participate in the EPA-administered trading programs. A full SIP revision may change the model rules, only by altering their applicability and allowance allocation provisions to:

1. Include NO X SIP Call trading sources that are not EGUs under CAIR in the CAIR NO X ozone season trading program;

2. Provide for State allocation of NO X annual or ozone season allowances using a methodology chosen by the State;

3. Provide for State allocation of NO X annual allowances from the compliance supplement pool (CSP) using the State's choice of allowed, alternative methodologies; or

4. Allow units that are not otherwise CAIR units to opt individually into the CAIR SO 2 , NO X annual, or NO X ozone season trading programs under the opt-in provisions in the model rules.

An approved CAIR full SIP revision addressing EGUs' SO 2 , NO X annual, or NO X ozone season emissions will replace the CAIR FIP for that State for the respective EGU emissions.

The CAIR NO X annual and ozone season budgets were developed from historical heat input data for EGUs. Using these data, EPA calculated annual and ozone season regional heat input values, which were multiplied by 0.15 pounds per million British thermal units (lb/mmBtu), for phase 1, and 0.125 lb/mmBtu, for phase 2, to obtain regional NO X budgets for 2009-2014 and for 2015 and thereafter, respectively. EPA derived the State NO X annual and ozone season budgets from the regional budgets using State heat input data adjusted by fuel factors.

The CAIR State SO 2 budgets were derived by discounting the tonnage of emissions authorized by annual allowance allocations under the Acid Rain Program under title IV of the CAA. Under CAIR, each allowance allocated in the Acid Rain Program for the years in phase 1 of CAIR (2010 through 2014) authorizes 0.5 ton of SO 2 emissions in the CAIR trading program, and each Acid Rain Program allowance allocated for the years in phase 2 of CAIR (2015 and thereafter) authorizes 0.35 ton of SO 2 emissions in the CAIR trading program.

In this action, EPA is proposing approval of Florida's SIP revision that adopts the budgets established for the State in CAIR, i.e., 99,445 (2009-2014) and 82,871 (2015-thereafter) tons for NO X annual emissions, 47,912 (2009-2014) and 39,926 (2015-thereafter) tons for NO X ozone season emissions, and 253,450 (2010-2014) and 177,415 (2015-thereafter) tons for SO 2 emissions. Florida's SIP revision sets these budgets as the total amounts of allowances available for allocation for each year under the EPA-administered cap-and-trade programs.

Florida has committed to revising the definitions of “permitting authority” and “State” in its CAIR rules in order to ensure that allowances issued by all States with approved rules providing for participation in the respective EPA-administered cap-and-trade programs are fungible and can be traded and used by all sources in all these States, as intended. EPA discovered after review of other States' rules, but after Florida had adopted its CAIR rules, that there was an issue related to these definitions when they are revised to refer only to a specific State.

In Florida's rules for CAIR, the EPA model trading rules were revised to limit all references to “permitting authority” to refer to the Florida Department of Environmental Protection. Similarly, references to “State” were limited to refer to Florida. These changes are acceptable in most, but not all, instances under the current model rules. In certain definitions in the model rules incorporated by Florida (i.e., “allocate” or “allocation,” “CAIR NO X allowance,” “CAIR SO 2 allowance,” and “CAIR NO X Ozone Season allowance”), it is important that the term “permitting authority” cover permitting authorities in all States that choose to participate in the respective EPA-administered trading programs and that the term “State” cover all such States. This is necessary to ensure that all allowances issued in each EPA-administered trading program are fungible and can be traded and used for compliance with the allowance-holding requirement in any State in the program.

On May 24, 2007, EPA participated in a teleconference with Florida and outlined necessary definition revisions. EPA received a letter from Florida dated June 22, 2007, and a supplemental electronic mail submission on July 11, 2007, that provide a commitment to make these rule revisions in its CAIR rules in early 2008. Specifically, in the June 22, 2007, letter and supplemental submission on July 11, 2007, Florida commits to revising section 62-296.470(1) of Florida's rule to state that: the limitation of the “permitting authority” definition only to Florida does not apply when this term is used in the definitions of “‘allocate’ or ‘allocation’,” “CAIR NO X allowance,” “CAIR SO 2 allowance,” and “CAIR NO X Ozone Season allowance;” and the limitation of the “State” definition only to Florida does not apply when the term is used in the definitions of “CAIR NO X allowance,” “CAIR SO 2 allowance,” and “CAIR NO X Ozone Season allowance.”

The CAIR NO X annual and ozone-season model trading rules both largely mirror the structure of the NO X SIP Call model trading rule in 40 CFR part 96, subparts A through I. While the provisions of the NO X annual and ozone-season model rules are similar, there are some differences. For example, the NO X annual model rule (but not the NO X ozone season model rule) provides for a CSP, which is discussed below and under which allowances may be awarded for early reductions of NO X annual emissions. As a further example, the NO X ozone season model rule reflects the fact that the CAIR NO X ozone season trading program replaces the NO X SIP Call trading program after the 2008 ozone season and is coordinated with the NO X SIP Call program. The NO X ozone season model rule provides incentives for early emissions reductions by allowing banked, pre-2009 NO X SIP Call allowances to be used for compliance in the CAIR NO X ozone-season trading program. In addition, States have the option of continuing to meet their NO X SIP Call requirement by participating in the CAIR NO X ozone season trading program and including all their NO X SIP Call trading sources in that program.

The provisions of the CAIR SO 2 model rule are also similar to the provisions of the NO X annual and ozone season model rules. However, the SO 2 model rule is coordinated with the ongoing Acid Rain SO 2 cap-and-trade program under CAA title IV. The SO 2 model rule uses the title IV allowances for compliance, with each allowance allocated for 2010-2014 authorizing only 0.5 ton of emissions and each allowance allocated for 2015 and thereafter authorizing only 0.35 ton of emissions. Banked title IV allowances allocated for years before 2010 can be used at any time in the CAIR SO 2 cap-and-trade program, with each such allowance authorizing 1 ton of emissions. Title IV allowances are to be freely transferable among sources covered by the Acid Rain Program and sources covered by the CAIR SO 2 cap-and-trade program.

EPA also used the CAIR model trading rules as the basis for the trading programs in the CAIR FIPs. The CAIR FIP trading rules are virtually identical to the CAIR model trading rules, with changes made to account for federal rather than state implementation. The CAIR model SO 2 , NO X annual, and NO X ozone season trading rules and the respective CAIR FIP trading rules are designed to work together as integrated SO 2 , NO X annual, and NO X ozone season trading programs.

In the SIP revision, Florida chooses to implement its CAIR budgets by requiring EGUs to participate in EPA-administered cap-and-trade programs for SO 2 , NO X annual, and NO X ozone season emissions. Florida has adopted a full SIP revision that adopts, with certain allowed changes discussed below, the CAIR model cap-and-trade rules for SO 2 , NO X annual, and NO X ozone season emissions.

In general, the CAIR model trading rules apply to any stationary, fossil-fuel-fired boiler or stationary, fossil-fuel-fired combustion turbine serving at any time, since the later of November 15, 1990, or the start-up of the unit's combustion chamber, a generator with nameplate capacity of more than 25 MWe producing electricity for sale.

States have the option of bringing in, for the CAIR NO X ozone season program only, those units in the State's NO X SIP Call trading program that are not EGUs as defined under CAIR. EPA advises States exercising this option to add the applicability provisions in the State's NO X SIP Call trading rule for non-EGUs to the applicability provisions in 40 CFR 96.304 in order to include in the CAIR NO X ozone season trading program all units required to be in the State's NO X SIP Call trading program that are not already included under 40 CFR 96.304. Under this option, the CAIR NO X ozone season program must cover all large industrial boilers and combustion turbines, as well as any small EGUs (i.e. units serving a generator with a nameplate capacity of 25 MWe or less) that the State currently requires to be in the NO X SIP Call trading program.

Because Florida was not included in the NO X SIP Call trading program, Florida did not have an option of expanding the applicability provisions of the CAIR NO X ozone season trading program.

Under the NO X allowance allocation methodology in the CAIR model trading rules and in the CAIR FIP, NO X annual and ozone season allowances are allocated to units that have operated for five years, based on heat input data from a three-year period that are adjusted for fuel type by using fuel factors of 1.0 for coal, 0.6 for oil, and 0.4 for other fuels. The CAIR model trading rules and the CAIR FIP also provide a new unit set-aside from which units without five years of operation are allocated allowances based on the units' prior year emissions.

States may establish in their SIP submissions a different NO X allowance allocation methodology that will be used to allocate allowances to sources in the States, if certain requirements are met concerning the timing of submission of units' allocations to the Administrator for recordation and the total amount of allowances allocated for each control period. In adopting alternative NO X allowance allocation methodologies, States have flexibility with regard to:

1. The cost to recipients of the allowances, which may be distributed for free or auctioned;

2. The frequency of allocations;

3. The basis for allocating allowances, which may be distributed, for example, based on historical heat input or electric and thermal output; and

4. The use of allowance set-asides and, if used, their size.

Florida has chosen to replace the provisions of the CAIR NO X annual model trading rule concerning the allocation of NO X annual allowances with its own methodology. Florida has chosen to distribute NO X annual allowances based upon a methodology that is similar, but not identical, to that in the CAIR model trading rule for existing and new units. Under Florida's rule and the CAIR model rule, existing units are allocated NO X allowances in proportion to their “fuel-adjusted control period heat input” during the baseline period. However, in addition to the fuel adjustment factors used to calculate adjusted heat input in the CAIR model rule, Florida has also developed a separate 150% fuel factor for existing biomass-fired units that use best available control technology (BACT). Further, in Florida's rule, as in the CAIR model rule, new units are allocated NO X allowances in proportion to their “converted control period heat input.” However, unlike the CAIR model rule, Florida's rule categorizes new units as those commencing operation on or after January 1, 2007, (rather than January 1, 2001), and establishes a new unit set set-aside of five percent for all control years (rather than five percent through 2014 and three percent thereafter). Moreover, under Florida's rule, allocations are scheduled to be made in 2006, 2009, and every three years thereafter, with three-year blocks of allocations being made generally four years in advance. Florida's rule also limits the number of years for which permanently retired units are allocated allowances after retirement.

Florida has chosen to replace the provisions of the CAIR NO X ozone season model trading rule concerning allowance allocations with its own methodology. Florida has chosen to distribute NO X ozone season allowances based upon the same allowance allocation methodology described above for NO X annual allowances.

The CAIR rule establishes a CSP to provide an incentive for early reductions in NO X annual emissions. The CSP consists of 200,000 CAIR NO X annual allowances of vintage 2009 for the entire CAIR region, and a State's share of the CSP is based upon the projected magnitude of the emission reductions required by CAIR in that State. States may distribute CSP allowances, one allowance for each ton of early reduction, to sources that make NO X reductions during 2007 or 2008 beyond what is required by any applicable State or Federal emission limitation. States also may distribute CSP allowances based upon a demonstration of need for an extension of the 2009 deadline for implementing emission controls.

The CAIR annual NO X model trading rule establishes specific methodologies for allocations of CSP allowances. States may choose an allowed, alternative CSP allocation methodology to be used to allocate CSP allowances to sources in the States.

Florida has not chosen to modify the provisions of the CAIR NO X annual model trading rule concerning the allocation of allowances from the CSP. Florida has chosen to distribute CSP allowances using an allocation methodology that is the same as EPA's model rule. The CSP is an additional 8,335 annual NO X allowances given to the State for 2009, and there is no CSP for ozone-season allowances.

The opt-in provisions of the CAIR SIP model trading rules allow certain non-EGUs (i.e., boilers, combustion turbines, and other stationary fossil-fuel-fired devices) that do not meet the applicability criteria for a CAIR trading program to participate voluntarily in (i.e., opt into) the CAIR trading program. A non-EGU may opt into one or more of the CAIR trading programs. In order to qualify to opt into a CAIR trading program, a unit must vent all emissions through a stack and be able to meet monitoring, recordkeeping, and recording requirements of 40 CFR part 75. The owners and operators seeking to opt a unit into a CAIR trading program must apply for a CAIR opt-in permit. If the unit is issued a CAIR opt-in permit, the unit becomes a CAIR unit, is allocated allowances, and must meet the same allowance-holding and emissions monitoring and reporting requirements as other units subject to the CAIR trading program. The opt-in provisions provide for two methodologies for allocating allowances for opt-in units, one methodology that applies to opt-in units in general and a second methodology that allocates allowances only to opt-in units that the owners and operators intend to repower before January 1, 2015.

States have several options concerning the opt-in provisions. States may adopt the CAIR opt-in provisions entirely or may adopt them but exclude one of the methodologies for allocating allowances. States may also decline to adopt the opt-in provisions at all.

Florida has chosen not to allow non-EGUs meeting certain requirements to opt into the CAIR NO X annual trading program.

Florida has chosen not to allow non-EGUs meeting certain requirements to opt into the CAIR NO X ozone season trading program.

Florida has chosen not to allow certain non-EGUs to opt into the CAIR SO 2 trading program.

EPA is proposing to approve Florida's full CAIR SIP revision submitted on March 16, 2007. Under this SIP revision, Florida is choosing to participate in the EPA-administered cap-and-trade programs for SO 2 , NO X annual, and NO X ozone season emissions. The SIP revision (revised as discussed above) meets the applicable requirements in 40 CFR 51.123(o) and (aa), with regard to NO X annual and NO X ozone season emissions, and 40 CFR 51.124(o), with regard to SO 2 emissions. Further, Florida has agreed to make the technical corrections to certain definitions as discussed above. Therefore, EPA is proposing to determine that the SIP, as revised, will meet the requirements of CAIR. As a consequence of the SIP approval, the Administrator of EPA will also issue, without providing an opportunity for a public hearing or an additional opportunity for written public comment, a final rule to withdraw the CAIR FIPs concerning SO 2 , NO X annual, NO X ozone season emissions for Florida. This action will delete and reserve 40 CFR 52.540 and 40 CFR 52.541.

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

This proposal also does not have tribal implications 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, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This proposed action also does not have Federalism implications because it would not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely proposes to approve a State rule implementing a Federal standard and will result, as a consequence of that approval, in the Administrator's withdrawal of the CAIR FIP. It does not alter the relationship or the distribution of power and responsibilities established in the CAA. This proposed rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it would approve a State rule implementing a Federal Standard.

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

EPA is proposing to approve a revision to Georgia's SIP, submitted on March 28, 2007. In its SIP revision, Georgia would meet CAIR requirements by requiring certain electric generating units (EGUs) to participate in the EPA-administered State CAIR cap-and-trade programs addressing SO 2 and NO X annual emissions. EPA is proposing to determine that the SIP, as revised, will meet the applicable requirements of CAIR. Any final action approving the SIP will be taken by the Regional Administrator for Region 4. As a consequence of the SIP approval, the Administrator of EPA will also issue a final rule to withdraw the FIPs concerning SO 2 and NO X annual emissions for Georgia. This action will delete and reserve 40 CFR 52.584 and 40 CFR 52.585. The withdrawal of the CAIR FIPs for Georgia is a conforming amendment that must be made once the SIP is approved because EPA's authority to issue the FIPs was premised on a deficiency in the SIP for Georgia. Once the SIP is fully approved, EPA no longer has authority for the FIPs. Thus, EPA will not have the option of maintaining the FIPs following the full SIP approval. Accordingly, EPA does not intend to offer an opportunity for a public hearing or an additional opportunity for written public comment on the withdrawal of the FIPs.

CAIR was published by EPA on May 12, 2005 (70 FR 25162). In this rule, EPA determined that 28 States and the District of Columbia contribute significantly to nonattainment and interfere with maintenance of the NAAQS for fine particles (PM 2.5 ) and/or 8-hour ozone in downwind States in the eastern part of the country. As a result, EPA required those upwind States to revise their SIPs to include control measures that reduce emissions of SO 2 , which is a precursor to PM 2.5 formation, and/or NO X , which is a precursor to both ozone and PM 2.5 formation. For jurisdictions that contribute significantly to downwind PM 2.5 nonattainment, CAIR sets annual State-wide emission reduction requirements (i.e., budgets) for SO 2 and annual State-wide emission reduction requirements for NO X . Similarly, for jurisdictions that contribute significantly to 8-hour ozone nonattainment, CAIR sets State-wide emission reduction requirements for NO X for the ozone season (May 1st to September 30th). Under CAIR, States may implement these reduction requirements by participating in the EPA-administered cap-and-trade programs or by adopting any other control measures.

CAIR explains to subject States what must be included in SIPs to address the requirements of section 110(a)(2)(D) of the Clean Air Act (CAA) with regard to interstate transport with respect to the 8-hour ozone and PM 2.5 NAAQS. EPA made national findings, effective on May 25, 2005, that the States had failed to submit SIPs meeting the requirements of section 110(a)(2)(D). The SIPs were due in July 2000, three years after the promulgation of the 8-hour ozone and PM 2.5 NAAQS. These findings started a two-year clock for EPA to promulgate a FIP to address the requirements of section 110(a)(2)(D). Under CAA section 110(c)(1), EPA may issue a FIP anytime after such findings are made and must do so within two years, unless a SIP revision correcting the deficiency is approved by EPA before the FIP is promulgated.

On April 28, 2006, EPA promulgated FIPs for all States covered by CAIR in order to ensure the emissions reductions required by CAIR are achieved on schedule. Each CAIR State is subject to the FIPs until the State fully adopts, and EPA approves, a SIP revision meeting the requirements of CAIR. The CAIR FIPs require EGUs to participate in the EPA-administered CAIR SO 2 , NO X annual, and NO X ozone season trading programs, as appropriate. The CAIR FIP SO 2 , NO X annual, and NO X ozone season trading programs impose essentially the same requirements as, and are integrated with, the respective CAIR SIP trading programs. The integration of the FIP and SIP trading programs means that these trading programs will work together to create effectively a single trading program for each regulated pollutant (SO 2 , NO X annual, and NO X ozone season) in all States covered by the CAIR FIP or SIP trading program for that pollutant. The CAIR FIPs also allow States to submit abbreviated SIP revisions that, if approved by EPA, will automatically replace or supplement certain CAIR FIP provisions (e.g., the methodology for allocating NO X allowances to sources in the State), while the CAIR FIP remains in place for all other provisions.

On April 28, 2006, EPA published two additional CAIR-related final rules that added the States of Delaware and New Jersey to the list of States subject to CAIR for PM 2.5 and announced EPA's final decisions on reconsideration of five issues, without making any substantive changes to the CAIR requirements.

CAIR establishes State-wide emission budgets for SO 2 and NO X and is to be implemented in two phases. The first phase of NO X reductions starts in 2009 and continues through 2014, while the first phase of SO 2 reductions starts in 2010 and continues through 2014. The second phase of reductions for both NO X and SO 2 starts in 2015 and continues thereafter. CAIR requires States to implement the budgets by either: (1) Requiring EGUs to participate in the EPA-administered cap-and-trade programs; or (2) adopting other control measures of the State's choosing and demonstrating that such control measures will result in compliance with the applicable State SO 2 and NO X budgets.

The May 12, 2005, and April 28, 2006, CAIR rules provide model rules that States must adopt (with certain limited changes, if desired) if they want to participate in the EPA-administered trading programs.

With two exceptions, only States that choose to meet the requirements of CAIR through methods that exclusively regulate EGUs are allowed to participate in the EPA-administered trading programs. One exception is for States that adopt the opt-in provisions of the model rules to allow non-EGUs individually to opt into the EPA-administered trading programs. The other exception is for States that include all non-EGUs from their NO X SIP Call trading programs in their CAIR NO X ozone season trading programs.

States have the flexibility to choose the type of control measures they will use to meet the requirements of CAIR. EPA anticipates that most States will choose to meet the CAIR requirements by selecting an option that requires EGUs to participate in the EPA-administered CAIR cap-and-trade programs. For such States, EPA has provided two approaches for submitting and obtaining approval for CAIR SIP revisions. States may submit full SIP revisions that adopt the model CAIR cap-and-trade rules. If approved, these SIP revisions will fully replace the CAIR FIPs. Alternatively, States may submit abbreviated SIP revisions. These SIP revisions will not replace the CAIR FIPs; however, the CAIR FIPs provide that, when approved, the provisions in these abbreviated SIP revisions will be used instead of or in conjunction with, as appropriate, the corresponding provisions of the CAIR FIPs (e.g., the NO X allowance allocation methodology).

A State submitting a full SIP revision may either adopt regulations that are substantively identical to the model rules or incorporate by reference the model rules. CAIR provides that States may only make limited changes to the model rules, if the States want to participate in the EPA-administered trading programs. A full SIP revision may change the model rules only by altering their applicability and allowance allocation provisions to:

1. Include NO X SIP Call trading sources that are not EGUs under CAIR in the CAIR NO X ozone season trading program;

2. Provide for State allocation of NO X annual or ozone season allowances using a methodology chosen by the State;

3. Provide for State allocation of NO X annual allowances from the compliance supplement pool (CSP) using the State's choice of allowed, alternative methodologies; or

4. Allow units that are not otherwise CAIR units to opt individually into the CAIR SO 2 , NO X annual, or NO X ozone season trading programs under the opt-in provisions in the model rules.

The CAIR NO X annual and ozone season budgets were developed from historical heat input data for EGUs. Using these data, EPA calculated annual and ozone season regional heat input values, which were multiplied by 0.15 pounds per million British thermal units (0.15lb/mmBtu), for phase 1, and 0.125 lb/mmBtu, for phase 2, to obtain regional NO X budgets for 2009-2014 and for 2015 and thereafter, respectively. EPA derived the State NO X annual and ozone season budgets from the regional budgets using State heat input data adjusted by fuel factors.

The CAIR State SO 2 budgets were derived by discounting the tonnage of emissions authorized by annual allowance allocations under the Acid Rain Program under title IV of the CAA. Under CAIR, each allowance allocated in the Acid Rain Program for the years in phase 1 of CAIR (2010 through 2014) authorizes 0.5 ton of SO 2 emissions in the CAIR trading program, and each Acid Rain Program allowance allocated for the years in phase 2 of CAIR (2015 and thereafter) authorizes 0.35 ton of SO 2 emissions in the CAIR trading program.

In this action, EPA is proposing approval of Georgia's SIP revision that adopts the budgets established for the State in CAIR, i.e., 66,321 (2009-2014) and 55,268 (2015-thereafter) tons for NO X annual emissions, and 213,057 (2010-2014) and 149,140 (2015-thereafter) tons for SO 2 emissions. Georgia's SIP revision sets these budgets as the total amounts of allowances available for allocation for each year under the EPA-administered cap-and-trade programs.

The CAIR NO X annual and ozone-season model trading rules both largely mirror the structure of the NO X SIP Call model trading rule in 40 CFR part 96, subparts A through I. While the provisions of the NO X annual and ozone-season model rules are similar, there are some differences. For example, the NO X annual model rule (but not the NO X ozone season model rule) provides for a CSP, which is discussed below and under which allowances may be awarded for early reductions of NO X annual emissions. As a further example, the NO X ozone season model rule reflects the fact that the CAIR NO X ozone season trading program replaces the NO X SIP Call trading program after the 2008 ozone season and is coordinated with the NO X SIP Call program. The NO X ozone season model rule provides incentives for early emissions reductions by allowing banked, pre-2009 NO X SIP Call allowances to be used for compliance in the CAIR NO X ozone-season trading program. In addition, States have the option of continuing to meet their NO X SIP Call requirement by participating in the CAIR NO X ozone season trading program and including all their NO X SIP Call trading sources in that program.

The provisions of the CAIR SO 2 model rule are also similar to the provisions of the NO X annual and ozone season model rules. However, the SO 2 model rule is coordinated with the ongoing Acid Rain SO 2 cap-and-trade program under CAA title IV. The SO 2 model rule uses the title IV allowances for compliance, with each allowance allocated for 2010-2014 authorizing only 0.50 ton of emissions and each allowance allocated for 2015 and thereafter authorizing only 0.35 ton of emissions. Banked title IV allowances allocated for years before 2010 can be used at any time in the CAIR SO 2 cap-and-trade program, with each such allowance authorizing one ton of emissions. Title IV allowances are to be freely transferable among sources covered by the Acid Rain Program and sources covered by the CAIR SO 2 cap-and-trade program.

EPA also used the CAIR model trading rules as the basis for the trading programs in the CAIR FIPs. The CAIR FIP trading rules are virtually identical to the CAIR model trading rules, with changes made to account for federal rather than state implementation. The CAIR model SO 2 , NO X annual, and NO X ozone season trading rules and the respective CAIR FIP trading rules are designed to work together as integrated SO 2 , NO X annual, and NO X ozone season trading programs.

In the SIP revision, Georgia chooses to implement its CAIR budgets by requiring EGUs to participate in EPA-administered cap-and-trade programs for SO 2 and NO X annual emissions. Georgia has adopted a full SIP revision that adopts, with certain allowed changes discussed below, the CAIR model cap-and-trade rules for SO 2 , and NO X annual emissions.

In general, the CAIR model trading rules apply to any stationary, fossil-fuel-fired boiler or stationary, fossil-fuel-fired combustion turbine serving at any time, since the later of November 15, 1990, or the start-up of the unit's combustion chamber, a generator with nameplate capacity of more than 25 MWe producing electricity for sale.

States have the option of bringing in, for the CAIR NO X ozone season program only, those units in the State's NO X SIP Call trading program that are not EGUs as defined under CAIR. EPA advises States exercising this option to add the applicability provisions in the State's NO X SIP Call trading rule for non-EGUs to the applicability provisions in 40 CFR 96.304 in order to include in the CAIR NO X ozone season trading program all units required to be in the State's NO X SIP Call trading program that are not already included under 40 CFR 96.304. Under this option, the CAIR NO X ozone season program must cover all large industrial boilers and combustion turbines, as well as any small EGUs (i.e. units serving a generator with a nameplate capacity of 25 MWe or less) that the State currently requires to be in the NO X SIP Call trading program.

Because Georgia is not subject to the CAIR NO X ozone season requirements, Georgia will not participate in the CAIR NO X ozone season trading program and therefore did not have an option of expanding the applicability provisions of the CAIR NO X ozone season trading program to include all non-EGUs in the State's NO X SIP Call trading program.

Under the NO X allowance allocation methodology in the CAIR model trading rules and in the CAIR FIP, NO X annual and ozone season allowances are allocated to units that have operated for five years, based on heat input data from a three-year period that are adjusted for fuel type by using fuel factors of 1.0 for coal, 0.6 for oil, and 0.4 for other fuels. The CAIR model trading rules and the CAIR FIP also provide a new unit set-aside from which units without five years of operation are allocated allowances based on the units' prior year emissions.

States may establish in their SIP submissions a different NO X allowance allocation methodology that will be used to allocate allowances to sources in the States, if certain requirements are met concerning the timing of submission of units' allocations to the Administrator for recordation and the total amount of allowances allocated for each control period. In adopting alternative NO X allowance allocation methodologies, States have flexibility with regard to:

1. The cost to recipients of the allowances, which may be distributed for free or auctioned;

2. The frequency of allocations;

3. The basis for allocating allowances, which may be distributed, for example, based on historical heat input or electric and thermal output; and

4. The use of allowance set-asides and, if used, their size.

Georgia has chosen to replace the provisions of the CAIR NO X annual model trading rule concerning the allocation of NO X annual allowances with its own methodology. Georgia has chosen to distribute NO X annual allowances based upon allocation methods for both existing and new units. Georgia defines an existing unit as one that commences operation prior to January 1, 2006, rather than 2001 as in EPA's model rule. Georgia defines new sources as those that have commenced operation on or after January 1, 2006, and do not yet have a baseline heat input. Under Georgia's cap and trade program, allowances will be allocated to EGUs in an amount no greater than the NO X budget established in EPA's model rule. Allocations are based on the highest annual amount of heat input during a baseline period, using heat input figures that are fuel-adjusted as set forth in EPA's model rule. Allowances are initially allocated for 2010 through 2011 and are allocated on a year-by-year basis, about three years in advance, for 2012 and each subsequent year. The baseline period for initial allocations is 2001-2005, and will be updated annually for subsequent allocations. For years 2010 and thereafter, 97 percent of the budget will be allocated to existing sources, with the remaining three percent allocated to new sources. A new-unit set aside will be established for each control period, and will be allocated CAIR NO X allowances equal to 1,990 and 1,658 for control periods 2009-2014, and 2015 and thereafter, respectively.

However, the new-unit set aside provisions in Georgia's rule contain certain cross-citation errors and, for example (in Rule 391-3-1.02(12)(f)(3)(iii)), inadvertently fail to reference the provisions establishing the size of the new-unit set aside. Further, the allowance recordation provisions in Georgia's rule contain certain citation errors and establish deadlines for the EPA Administrator's recordation of the allowance allocations in the allowance tracking system that are inconsistent with the allocation schedule established in Georgia's rule. While the allocation schedule requires allocations to be made about three years in advance, the recordation schedule (in Rule 391-3-1-.02(g)(1)(i) and (ii)) does not require allocations to be recorded in advance at all. Georgia indicated in its response to comments in its CAIR SIP rulemaking that the State will revise the rule to correct all of these errors. See Responses to Comments Received During the Public Comment Period Regarding Proposed Revisions to Air Quality Rules, Chapter 391-3-1 at C.-10 through C-11 (February 12, 2007). Moreover, EPA interprets Georgia's existing rule to limit total annual allocations to new units to the amount of the allowances in the applicable new-unit set aside and intends to record allowances in a manner consistent with the allocation schedule.

The CAIR rule establishes a CSP to provide an incentive for early reductions in NO X annual emissions. The CSP consists of 200,000 CAIR NO X annual allowances of vintage 2009 for the entire CAIR region, and a State's share of the CSP is based upon the projected magnitude of the emission reductions required by CAIR in that State. States may distribute CSP allowances, one allowance for each ton of early reduction, to sources that make NO X reductions during 2007 or 2008 beyond what is required by any applicable State or Federal emission limitation. States also may distribute CSP allowances based upon a demonstration of need for an extension of the 2009 deadline for implementing emission controls.

The CAIR annual NO X model trading rule establishes specific methodologies for allocations of CSP allowances. States may choose an allowed, alternative CSP allocation methodology to be used to allocate CSP allowances to sources in the States.

Georgia has not chosen to modify the provisions of the CAIR NO X annual model trading rule concerning the allocation of allowances from the CSP. Georgia has chosen to distribute CSP allowances using an allocation methodology that is the same as EPA's model rule. The CSP provides up to 12,397 CAIR NO X annual allowances to be allocated by the State for 2009.

The opt-in provisions of the CAIR SIP model trading rules allow certain non-EGUs (i.e., boilers, combustion turbines, and other stationary fossil-fuel-fired devices) that do not meet the applicability criteria for a CAIR trading program to participate voluntarily in (i.e., opt into) the CAIR trading program. A non-EGU may opt into one or more of the CAIR trading programs. In order to qualify to opt into a CAIR trading program, a unit must vent all emissions through a stack and be able to meet monitoring, recordkeeping, and recording requirements of 40 CFR part 75. The owners and operators seeking to opt a unit into a CAIR trading program must apply for a CAIR opt-in permit. If the unit is issued a CAIR opt-in permit, the unit becomes a CAIR unit, is allocated allowances, and must meet the same allowance-holding and emissions monitoring and reporting requirements as other units subject to the CAIR trading program. The opt-in provisions provide for two methodologies for allocating allowances for opt-in units, one methodology that applies to opt-in units in general and a second methodology that allocates allowances only to opt-in units that the owners and operators intend to repower before January 1, 2015.

States have several options concerning the opt-in provisions. States may adopt the CAIR opt-in provisions entirely or may adopt them but exclude one of the methodologies for allocating allowances. States may also decline to adopt the opt-in provisions at all.

Georgia has chosen not to allow non-EGUs meeting certain requirements to opt into the CAIR NO X annual trading program.

Georgia has chosen not to allow certain non-EGUs to opt into the CAIR SO 2 trading program.

EPA is proposing to approve Georgia's full CAIR SIP revision submitted on March 28, 2007. Under this SIP revision, Georgia is choosing to participate in the EPA-administered cap-and-trade programs for SO 2 and NO X annual emissions. The SIP revision (interpreted by EPA as discussed above) meets the applicable requirements in 40 CFR 51.123(o) and (aa), with regard to NO X annual emissions, and 40 CFR 51.124(o), with regard to SO 2 emissions. Further, Georgia has agreed to make the technical corrections discussed above to clarify the allowance allocation procedures and make the allowance recordation procedures consistent with the allocation procedures. Therefore, EPA is proposing to determine that the SIP, as revised, will meet the requirements of CAIR. As a consequence of the SIP approval, the Administrator of EPA will also issue, without providing an opportunity for a public hearing or an additional opportunity for written public comment, a final rule to withdraw the CAIR FIPs concerning SO 2 and NO X annual emissions for Georgia. This action will delete and reserve 40 CFR 52.584 and 40 CFR 52.585.

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

This proposal also does not have tribal implications 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, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This proposed action also does not have Federalism implications because it would not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely proposes to approve a State rule implementing a Federal standard and will result, as a consequence of that approval, in the Administrator's withdrawal of the CAIR FIP. It does not alter the relationship or the distribution of power and responsibilities established in the CAA. This proposed rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it would approve a State rule implementing a Federal Standard.

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

EPA is proposing to take three related actions which are summarized below and described in greater detail throughout this notice of proposed rulemaking: (1) To redesignate the Macon Area to attainment for the 8-hour ozone NAAQS; (2) to approve Georgia's 8-hour ozone maintenance plan into the Georgia SIP, including the associated MVEBs; and (3) to notify the public of the status of EPA's adequacy determination for the Macon Area MVEBs.

First, EPA is proposing to determine that the Macon Area has attained the 8-hour ozone standard, and that the Macon Area has met the requirements for redesignation under section 107(d)(3)(E) of the CAA. EPA is now proposing to approve a request to change the legal designation of the Macon Area from nonattainment to attainment for the 8-hour ozone NAAQS.

Second, EPA is proposing to approve Georgia's 8-hour ozone maintenance plan for the Macon Area (such approval being one of the CAA criteria for redesignation to attainment status). The maintenance plan is designed to help keep the Macon Area in attainment for the 8-hour ozone NAAQS through 2020. Consistent with the CAA, the maintenance plan that EPA is proposing to approve today also includes 2020 regional MVEBs for NO X and VOCs. Therefore, EPA is proposing to approve into the Georgia SIP the 2020 regional MVEBs that are included as part of Georgia's maintenance plan. These regional MVEBs apply to the entire Macon Area.

Third, EPA is notifying the public of the status of EPA's adequacy process for the newly-established 2020 MVEBs for the Macon Area. The adequacy comment period for the Macon Area's 2020 MVEBs began on June 21, 2007, with EPA's posting of the availability of this submittal on EPA's Adequacy Web site ( http://www.epa.gov/otaq/stateresources/transconf/currsips.htm ). The adequacy comment period for these MVEBs closed on July 23, 2007. No adverse comments were received on this submittal during the adequacy public comment period. Please see section VIII of this rulemaking for further explanation of this process, and for more details on the MVEBs.

Today's notice of proposed rulemaking is in response to Georgia's June 15, 2007, SIP submittal. The June 15, 2007, submittal requested redesignation of the Macon Area, and included a SIP revision addressing the specific issues summarized above, and the necessary elements for redesignation described in section 107(d)(3)(E) of the CAA.

Ground-level ozone is not emitted directly by sources. Rather, emissions of NO X and VOCs react in the presence of sunlight to form ground-level ozone. NO X and VOCs are referred to as precursors of ozone. The CAA establishes a process for air quality management through the NAAQS.

On July 18, 1997, EPA promulgated a revised 8-hour ozone standard of 0.08 parts per million (ppm). This new standard is more stringent than the previous 1-hour ozone standard. Under EPA regulations at 40 CFR part 50, the 8-hour ozone standard is attained when the 3-year average of the annual fourth highest daily maximum 8-hour average ambient air quality ozone concentration is less than or equal to 0.08 ppm (i.e., 0.084 ppm when rounding is considered). (See, 69 FR 23857 (April 30, 2004) for further information.) Ambient air quality monitoring data for the 3-year period must meet a data completeness requirement. The ambient air quality monitoring data completeness requirement is met when the average percent of days with valid ambient monitoring data is greater than 90 percent, and no single year has less than 75 percent data completeness as determined in Appendix I of part 50. Specifically, section 2.3 of 40 CFR part 50, Appendix I, “Comparisons with the Primary and Secondary Ozone Standards” states:

The CAA required EPA to designate as nonattainment any area that was violating the 8-hour ozone NAAQS based on the three most recent years of ambient air quality data. The Macon 8-hour ozone nonattainment area was designated using 2001-2003 ambient air quality data. The Federal Register document making these designations was signed on April 15, 2004, and published on April 30, 2004 (69 FR 23857). The CAA contains two sets of provisions—subpart 1 and subpart 2—that address planning and control requirements for ozone nonattainment areas. (Both are found in title I, part D.) Subpart 1 (which EPA refers to as “basic” nonattainment) contains general, less prescriptive, requirements for nonattainment areas for any pollutant—including ozone—governed by a NAAQS. Subpart 2 (which EPA refers to as “classified” nonattainment) provides more specific requirements for certain ozone nonattainment areas. Some 8-hour ozone nonattainment areas are subject only to the provisions of subpart 1. Other 8-hour ozone nonattainment areas are also subject to the provisions of subpart 2. Under EPA's Phase 1 8-hour ozone implementation rule (69 FR 23857) (Phase 1 Rule), signed on April 15, 2004, and published April 30, 2004, an area was classified under subpart 2 based on its 8-hour ozone design value (i.e., the 3-year average of the annual fourth-highest daily maximum 8-hour average ozone concentrations), if it had a 1-hour design value at or above 0.121 ppm (the lowest 1-hour design value in Table 1 of subpart 2). All other areas are covered under subpart 1, based upon their 8-hour ambient air quality design values.

On April 30, 2004, EPA designated the Macon Area as a “basic” 8-hour ozone nonattainment area (see, 69 FR 23857, April 30, 2004). On June 15, 2007, when Georgia submitted its final redesignation request, the Macon Area was classified under subpart 1 of the CAA, and was obligated to meet only the subpart 1 requirements.

Various aspects of EPA's Phase 1 8-hour ozone implementation rule were challenged in court. On December 22, 2006, the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit Court) vacated EPA's Phase 1 Implementation Rule for the 8-hour Ozone Standard (69 FR 23951, April 30, 2004). South Coast Air Quality Management Dist. (SCAQMD) v. EPA, 472 F.3d 882 (DC Cir. 2006). On June 8, 2007, in response to several petitions for rehearing, the DC Circuit Court clarified that the Phase 1 Rule was vacated only with regard to those parts of the Rule that had been successfully challenged. Therefore, the Phase 1 Rule provisions related to classifications for areas currently classified under subpart 2 of title I, part D of the CAA as 8-hour nonattainment areas, the 8-hour attainment dates and the timing for emissions reductions needed for attainment of the 8-hour ozone NAAQS remain effective. The June 8th decision left intact the Court's rejection of EPA's reasons for implementing the 8-hour standard in certain nonattainment areas under subpart 1 in lieu of subpart 2. By limiting the vacatur, the Court let stand EPA's revocation of the 1-hour standard and those anti-backsliding provisions of the Phase 1 Rule that had not been successfully challenged. The June 8th decision reaffirmed the December 22, 2006, decision that EPA had improperly failed to retain measures required for 1-hour nonattainment areas under the anti-backsliding provisions of the regulations: (1) Nonattainment area New Source Review (NSR) requirements based on an area's 1-hour nonattainment classification; (2) Section 185 penalty fees for 1-hour severe or extreme nonattainment areas; and (3) measures to be implemented pursuant to section 172(c)(9) or 182(c)(9) of the CAA, on the contingency of an area not making reasonable further progress toward attainment of the 1-hour NAAQS, or for failure to attain that NAAQS. The June 8th decision clarified that the Court's reference to conformity requirements for anti-backsliding purposes was limited to requiring the continued use of 1-hour motor vehicle emissions budgets until 8-hour budgets were available for 8-hour conformity determinations, which is already required under EPA's conformity regulations. The Court thus clarified that 1-hour conformity determinations are not required for anti-backsliding purposes.

This section sets forth EPA's views on the potential effect of the Court's rulings on this proposed redesignation action. For the reasons set forth below, EPA does not believe that the Court's rulings alter any requirements relevant to this redesignation action so as to preclude redesignation, and do not prevent EPA from proposing or ultimately finalizing this redesignation. EPA believes that the Court's December 22, 2006, and June 8, 2007, decisions impose no impediment to moving forward with redesignation of the Macon Area to attainment. Even in light of the Court's decisions, redesignation is appropriate under the relevant redesignation provisions of the CAA and long-standing policies regarding redesignation requests.

With respect to the 8-hour standard, the Court's ruling rejected EPA's reasons for classifying areas under subpart 1 for the 8-hour standard, and remanded that matter to the Agency. Consequently, it is possible that this Area could, during a remand to EPA, be reclassified under subpart 2. Although any future decision by EPA to classify this area under subpart 2 might trigger additional future requirements for the area, EPA believes that this does not mean that redesignation of the area cannot now go forward. This belief is based upon (1) EPA's long-standing policy of evaluating redesignation requests in accordance with the requirements due at the time the request is submitted; and (2) consideration of the inequity of applying retroactively any requirements that might in the future be applied.

First, at the time the redesignation request was submitted, the Macon Area was classified under subpart 1 and was obligated to meet only subpart 1 requirements. Under EPA's long-standing interpretation of section 107(d)(3)(E) of the CAA to qualify for redesignation, states requesting redesignation to attainment must meet only the relevant SIP requirements that came due prior to the submittal of a complete redesignation request. September 4, 1992, Calcagni Memorandum (“Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division). See also, Michael Shapiro Memorandum, September 17, 1993, and 60 FR 12459, 12465-66 (March 7, 1995) (Redesignation of Detroit-Ann Arbor, Michigan). See, Sierra Club v. EPA, 375 F.3d 537 (7th Cir. 2004), which upheld this interpretation. See, e.g. also, 68 FR 25418, 25424, 25427 (May 12, 2003) (redesignation of St. Louis, Missouri).

Moreover, it would be inequitable to retroactively apply any new SIP requirements that were not applicable at the time the request was submitted. The DC Circuit Court has recognized the inequity in such retroactive rulemaking, (See, Sierra Club v. Whitman, 285 F.3d 63 (DC Cir. 2002)), in which the Court upheld a district court's ruling refusing to make retroactive an EPA determination of nonattainment that was past the statutory due date. Such a determination would have resulted in the imposition of additional requirements on the area. The Court stated, “Although EPA failed to make the nonattainment determination within the statutory time frame, Sierra Club's proposed solution only makes the situation worse. Retroactive relief would likely impose large costs on the States, which would face fines and suits for not implementing air pollution prevention plans in 1997, even though they were not on notice at the time.” Id. at 68. Similarly, with regard to Georgia's redesignation request, it would be unfair to penalize the Macon Area by applying to it for purposes of redesignation, additional SIP requirements under subpart 2 that were not in effect at the time it submitted its redesignation request.

As noted earlier, in 2005, the ambient ozone data for the Macon Area indicated no further violations of the 8-hour ozone NAAQS, using data from the 3-year period of 2003-2005 to demonstrate attainment. As a result, on June 15, 2007, Georgia requested redesignation of the Macon Area to attainment for the 8-hour ozone NAAQS. The redesignation request included three years of complete, quality-assured ambient air quality data for the ozone seasons (March 1st until October 31st) of 2003-2005, indicating that the 8-hour ozone NAAQS has been achieved for the entire Macon Area. Under the CAA, nonattainment areas may be redesignated to attainment if sufficient, complete, quality-assured data is available for the Administrator to determine that the area has attained the standard and the area meets the other CAA redesignation requirements in section 107(d)(3)(E).

The CAA provides the requirements for redesignating a nonattainment area to attainment. Specifically, section 107(d)(3)(E) of the CAA allows for redesignation providing that: (1) The Administrator determines that the area has attained the applicable NAAQS; (2) the Administrator has fully approved the applicable implementation plan for the area under section 110(k); (3) the Administrator determines that the improvement in air quality is due to permanent and enforceable reductions in emissions resulting from implementation of the applicable SIP and applicable Federal air pollutant control regulations and other permanent and enforceable reductions; (4) the Administrator has fully approved a maintenance plan for the area as meeting the requirements of section 175A; and, (5) the state containing such area has met all requirements applicable to the area under section 110 and part D of the CAA.

EPA provided guidance on redesignation in the General Preamble for the Implementation of Title I of the CAA Amendments of 1990, on April 16, 1992 (57 FR 13498), and supplemented this guidance on April 28, 1992 (57 FR 18070). EPA has provided further guidance on processing redesignation requests in the following documents:

1. “Ozone and Carbon Monoxide Design Value Calculations,” Memorandum from Bill Laxton, Director, Technical Support Division, June 18, 1990;

2. “Maintenance Plans for Redesignation of Ozone and Carbon Monoxide Nonattainment Areas,” Memorandum from G. T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, April 30, 1992;

3. “Contingency Measures for Ozone and Carbon Monoxide (CO) Redesignations,” Memorandum from G. T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, June 1, 1992;

4. “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992 (hereafter referred to as the “Calcagni Memorandum”);

5. “State Implementation Plan (SIP) Actions Submitted in Response to Clean Air Act (ACT) Deadlines,” Memorandum from John Calcagni, Director, Air Quality Management Division, October 28, 1992;

6. “Technical Support Documents (TSD's) for Redesignation of Ozone and Carbon Monoxide (CO) Nonattainment Areas,” Memorandum from G. T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, August 17, 1993;

7. “State Implementation Plan (SIP) Requirements for Areas Submitting Requests for Redesignation to Attainment of the Ozone and Carbon Monoxide (CO) National Ambient Air Quality Standards (NAAQS) On or After November 15, 1992,” Memorandum from Michael H. Shapiro, Acting Assistant Administrator for Air and Radiation, September 17, 1993;

8. “Use of Actual Emissions in Maintenance Demonstrations for Ozone and CO Nonattainment Areas,” Memorandum from D. Kent Berry, Acting Director, Air Quality Management Division, November 30, 1993;

9. “Part D New Source Review (Part D NSR) Requirements for Areas Requesting Redesignation to Attainment,” Memorandum from Mary D. Nichols, Assistant Administrator for Air and Radiation, October 14, 1994; and

10. “Reasonable Further Progress, Attainment Demonstration, and Related Requirements for Ozone Nonattainment Areas Meeting the Ozone National Ambient Air Quality Standard,” Memorandum from John S. Seitz, Director, Office of Air Quality Planning and Standards, May 10, 1995.

On June 15, 2007, Georgia requested redesignation of the Macon 8-hour ozone nonattainment area to attainment for the 8-hour ozone standard. EPA's evaluation indicates that Georgia has demonstrated that the Macon Area has attained the standard and has met the requirements for redesignation set forth in section 107(d)(3)(E) of the CAA. EPA is also announcing the status of its adequacy determination for the 2020 regional MVEBs, which is relevant to the requested redesignation.

EPA's proposed actions establish the basis upon which EPA may take final action on the issues being proposed for approval today. Approval of Georgia's redesignation request would change the official designation of the Macon Area for the 8-hour ozone NAAQS found at 40 CFR part 81. Approval of Georgia's request would also incorporate into the Georgia SIP, a plan for the Macon Area for maintaining the 8-hour ozone NAAQS in the area through 2020. This maintenance plan includes contingency measures to remedy future violations of the 8-hour ozone NAAQS. The maintenance plan also establishes regional MVEBs for the year 2020 of 7.8744 tpd for VOCs and 14.7712 tpd for NO X , for the Macon Area. Approval of Georgia's maintenance plan would also result in approval of the regional MVEBs. Additionally, EPA is notifying the public of the status of its adequacy determination for the 2020 regional MVEBs, pursuant to 40 CFR 93.118(f)(1).

EPA is proposing to make the determination that the Macon Area has attained the 8-hour ozone standard, and that all other redesignation criteria have been met for the Macon Area. The basis for EPA's determination for the area is discussed in greater detail below.

EPA is proposing to determine that the Macon Area has attained the 8-hour ozone NAAQS. For ozone, an area may be considered to be attaining the 8-hour ozone NAAQS if there are no violations, as determined in accordance with 40 CFR 50.10 and Appendix I of part 50, based on three complete, consecutive calendar years of quality-assured air quality monitoring data. To attain this standard, the 3-year average of the fourth-highest daily maximum 8-hour average ozone concentrations measured at each monitor within an area over each year must not exceed 0.08 ppm. Based on the rounding convention described in 40 CFR part 50, Appendix I, the standard is attained if the design value is 0.084 ppm or below. The data must be collected and quality-assured in accordance with 40 CFR part 58, and recorded in the EPA Air Quality System (AQS). The monitors generally should have remained at the same location for the duration of the monitoring period required for demonstrating attainment.

EPA reviewed ozone monitoring data from the ambient ozone monitoring station in the Macon Area for the ozone season from 2003-2005. This data has been quality assured and is recorded in AQS. The fourth high average for 2003, 2004, and 2005, and the 3-year average of these values (i.e., design values), are summarized in Table 1 below. The 2006 data continues to demonstrate attainment.

As discussed above, the design value for an area is the highest design value recorded at any monitor in the area. Therefore, the design value for the Macon Area is (0.083) ppm, which meets the standard as described above. As discussed in more detail below, Georgia has committed to continue monitoring in this area in accordance with 40 CFR part 58. The data submitted by Georgia provides an adequate demonstration that the Macon Area has attained the 8-hour ozone NAAQS.

Below is a summary of how these two criteria were met.

EPA has determined that Georgia has met all applicable SIP requirements for the Macon Area under section 110 of the CAA (general SIP requirements). EPA has also determined that the Georgia SIP satisfies the criterion that it meet applicable SIP requirements under part D of title I of the CAA (requirements specific to subpart 1 basic 8-hour ozone nonattainment areas) in accordance with section 107(d)(3)(E)(v). In addition, EPA has determined that the SIP is fully approved with respect to all applicable requirements in accordance with section 107(d)(3)(E)(ii). In making these determinations, EPA ascertained which requirements are applicable to the area and that if applicable, they are fully approved under section 110(k). SIPs must be fully approved only with respect to applicable requirements.

a. The Macon Area has met all applicable requirements under section 110 and part D of the CAA.

The September 4, 1992, Calcagni Memorandum (see “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992) describes EPA's interpretation of section 107(d)(3)(E). Under this interpretation, to qualify for redesignation, states requesting redesignation to attainment must meet only the relevant CAA requirements that come due prior to the submittal of a complete redesignation request. See also, Michael Shapiro Memorandum, (“SIP Requirements for Areas Submitting Requests for Redesignation to Attainment of the Ozone and Carbon Monoxide NAAQS On or After November 15, 1992,” September 17, 1993), and 60 FR 12459, 12465-66 (March 7, 1995) (redesignation of Detroit-Ann Arbor, Michigan). Applicable requirements of the CAA that come due subsequent to the area's submittal of a complete redesignation request remain applicable until a redesignation is approved, but are not required as a prerequisite to redesignation. See, section 175A(c) of the CAA; Sierra Club, 375 F.3d 537 (7th Cir. 2004); see also, 68 FR 25424, 25427 (May 12, 2003) (redesignation of St. Louis, Missouri).

General SIP requirements. Section 110(a)(2) of title I of the CAA delineates the general requirements for a SIP, which include enforceable emissions limitations and other control measures, means, or techniques, provisions for the establishment and operation of appropriate devices necessary to collect data on ambient air quality, and programs to enforce the limitations. General SIP elements and requirements are delineated in section 110(a)(2) of title I, part A of the CAA. These requirements include, but are not limited to, the following: Submittal of a SIP that has been adopted by the state after reasonable public notice and hearing; provisions for establishment and operation of appropriate procedures needed to monitor ambient air quality; implementation of a source permit program; provisions for the implementation of part C requirements (Prevention of Significant Deterioration (PSD)) and provisions for the implementation of part D requirements (NSR permit programs); provisions for air pollution modeling; and provisions for public and local agency participation in planning and emission control rule development.

Section 110(a)(2)(D) requires that SIPs contain certain measures to prevent sources in a state from significantly contributing to air quality problems in another state. To implement this provision, EPA has required certain states to establish programs to address the transport of air pollutants (NO X SIP Call, Clean Air Interstate Rule (CAIR)). EPA has also found, generally, that states have not submitted SIPs under section 110(a)(1) to meet the interstate transport requirements of section 110(a)(2)(D)(i). However, the section 110(a)(2)(D) requirements for a state are not linked with a particular nonattainment area's designation and classification in that state. EPA believes that the requirements linked with a particular nonattainment area's designation and classifications are the relevant measures to evaluate in reviewing a redesignation request. The transport SIP submittal requirements, where applicable, continue to apply to a state regardless of the designation of any one particular area in the state. Thus, we do not believe that the CAA's interstate transport requirements should be construed to be applicable requirements for purposes of redesignation.

In addition, EPA believes that the other section 110 elements not connected with nonattainment plan submissions and not linked with an area's attainment status are not applicable requirements for purposes of redesignation. The area will still be subject to these requirements after the area is redesignated. The section 110 and part D requirements, which are linked with a particular area's designation and classification, are the relevant measures to evaluate in reviewing a redesignation request. This approach is consistent with EPA's existing policy on applicability (i.e., for redesignations) of conformity and oxygenated fuels requirements, as well as with section 184 ozone transport requirements. See, Reading, Pennsylvania, proposed and final rulemakings (61 FR 53174-53176, October 10, 1996), (62 FR 24826, May 7, 1997); Cleveland-Akron-Loraine, Ohio, final rulemaking (61 FR 20458, May 7, 1996); and Tampa, Florida, final rulemaking at (60 FR 62748, December 7, 1995). See also, the discussion on this issue in the Cincinnati, Ohio redesignation (65 FR 37890, June 19, 2000), and in the Pittsburgh, Pennsylvania redesignation (66 FR 50399, October 19, 2001).

EPA believes that section 110 elements not linked to the area's nonattainment status are not applicable for purposes of redesignation. Any section 110 requirements that are linked to the part D requirements for 8-hour ozone nonattainment areas are not yet due, since, as explained below, no part D requirements for 8-hour standard became due prior to submission of the redesignation request. Therefore, as discussed above, for purposes of redesignation, they are both not considered applicable requirements. Nonetheless, EPA notes it has previously approved provisions in the Georgia SIP addressing section 110 elements under the 1-hour ozone NAAQS (70 FR 34660, June 15, 2005). EPA believes that the section 110 SIP approved for the 1-hour ozone NAAQS is also sufficient to meet the requirements under the 8-hour ozone NAAQS (as well as satisfying the issues raised by the D.C. Circuit Court in the SCAQMD case).

Part D requirements. EPA has also determined that the Georgia SIP meets applicable SIP requirements under part D of the CAA since no requirements became due prior to the submission of the area's redesignation request. Sections 172-176 of the CAA, found in subpart 1 of part D, set forth the basic nonattainment requirements applicable to all nonattainment areas.

Section 182 of the CAA, found in subpart 2 of part D, establishes additional specific requirements depending on the area's nonattainment classification. Subpart 2 is not applicable to the Macon Area.

Part D, subpart 1 applicable SIP requirements. For purposes of evaluating this redesignation request, the applicable part D, subpart 1 SIP requirements for all nonattainment areas are contained in sections 172(c)(1)-(9). A thorough discussion of the requirements contained in section 172 can be found in the General Preamble for Implementation of title I (57 FR 13498). No requirements applicable for purposes of redesignation under part D became due prior to the submission of the redesignation request, and therefore none are applicable to the area for purposes of redesignation. For example, the requirements for an attainment demonstration that meets the requirements of section 172(c)(1) are not yet applicable, nor are the requirements for Reasonably Achievable Control Technology (RACT) and Reasonably Available Control Measures (RACM) (section 172(c)(1)), reasonable further progress (RFP) (section 172(c)(2)), and contingency measures (section 172(c)(9)).

In addition to the fact that no part D requirements applicable for purposes of redesignation became due prior to submission of the redesignation request and therefore are not applicable, EPA believes it is reasonable to interpret the conformity and NSR requirements as not requiring approval prior to redesignation.

Section 176 Conformity Requirements. Section 176(c) of the CAA requires states to establish criteria and procedures to ensure that Federally supported or funded projects conform to the air quality planning goals in the applicable SIP. The requirement to determine conformity applies to transportation plans, programs and projects developed, funded or approved under title 23 of the United States Code (U.S.C.) and the Federal Transit Act (transportation conformity) as well as to all other Federally supported or funded projects (general conformity). State conformity revisions must be consistent with Federal conformity regulations relating to consultation, enforcement and enforceability that the CAA required the EPA to promulgate.

EPA believes it is reasonable to interpret the conformity SIP requirements as not applying for purposes of evaluating the redesignation request under section 107(d) because state conformity rules are still required after redesignation and Federal conformity rules apply where state rules have not been approved. See, Wall , 265 F.3d 426 ((upholding this interpretation). See also, 60 FR 62748 (December 7, 1995, Tampa, Florida.)

EPA has also determined that areas being redesignated need not comply with the requirement that a NSR program be approved prior to redesignation, provided that the area demonstrates maintenance of the standard without a part D NSR program in effect since PSD requirements will apply after redesignation. The rationale for this view is described in a memorandum from Mary Nichols, Assistant Administrator for Air and Radiation, dated October 14, 1994, entitled “Part D New Source Review (Part D NSR) Requirements for Areas Requesting Redesignation to Attainment.” Georgia has demonstrated that the area will be able to maintain the standard without a part D NSR program in effect, and therefore, Georgia need not have a fully approved part D NSR program prior to approval of the redesignation request. Georgia's PSD program will become effective in the Macon Area upon redesignation to attainment. See, rulemakings for Detroit, Michigan (60 FR 12467-12468, March 7, 1995); Cleveland-Akron-Lorraine, Ohio (61 FR 20458, 20469-70, May 7, 1996); Louisville, Kentucky (66 FR 53665, October 23, 2001); Grand Rapids, Michigan (61 FR 31834-31837, June 21, 1996). Thus, the Macon Area has satisfied all applicable requirements for purposes of redesignation under section 110 and part D of the CAA.

b. The area has a fully approved applicable SIP under section 110(k) of the CAA.

EPA has fully approved the applicable Georgia SIP for the Macon Area (including Bibb and a portion of Monroe County) under section 110(k) of the CAA for all requirements applicable for purposes of redesignation. EPA may rely on prior SIP approvals in approving a redesignation request, see Calcagni Memorandum at p. 3; Southwestern Pennsylvania Growth Alliance v. Browner, 144 F.3d 984, 989-90 (6th Cir. 1998); Wall , 265 F.3d 426, plus any additional measures it may approve in conjunction with a redesignation action. See, 68 FR 25426 (May 12, 2003) and citations therein. Following passage of the CAA of 1970, Georgia has adopted and submitted, and EPA has fully approved at various times, provisions addressing the various 1-hour ozone standard SIP elements applicable in Macon, Georgia (70 FR 34660, June 15, 2005).

As indicated above, EPA believes that the section 110 elements not connected with nonattainment plan submissions and not linked to the area's nonattainment status are not applicable requirements for purposes of redesignation. EPA also believes that since the part D requirements applicable for purposes of redesignation did not become due prior to submission of the redesignation request, they also are therefore not applicable requirements for purposes of redesignation.

EPA believes that Georgia has demonstrated that the observed air quality improvement in the Macon Area is due to permanent and enforceable reductions in emissions resulting from implementation of the SIP, Federal measures, and other state adopted measures. Additionally, new emissions control programs for fuels and motor vehicles will help ensure a continued decrease in emissions throughout the region.

Notably, no credit specific emission reduction is being claimed in the SIP for the NO X SIP Call reductions although this program has resulted in measurable emissions reductions.

In its request to redesignate the Macon Area to attainment, EPD submitted a SIP revision to provide for the maintenance of the 8-hour ozone NAAQS for at least 10 years after the effective date of redesignation to attainment.

Section 175A of the CAA sets forth the elements of a maintenance plan for areas seeking redesignation from nonattainment to attainment. Under section 175A, the plan must demonstrate continued attainment of the applicable NAAQS for at least 10 years after the Administrator approves a redesignation to attainment. Eight years after the redesignation, the State of Georgia must submit a revised maintenance plan which demonstrates that attainment will continue to be maintained for the 10 years following the initial 10-year period. To address the possibility of future NAAQS violations, the maintenance plan must contain such contingency measures, with a schedule for implementation as EPA deems necessary to assure prompt correction of any future 8-hour ozone violations. Section 175A of the CAA sets forth the elements of a maintenance plan for areas seeking redesignation from nonattainment to attainment. The Calcagni Memorandum provides additional guidance on the content of a maintenance plan. The Calcagni Memorandum explains that an ozone maintenance plan should address five requirements: the attainment emissions inventory, maintenance demonstration, monitoring, verification of continued attainment, and a contingency plan. As is discussed more fully below, Georgia's maintenance plan includes all the necessary components and is approvable as part of the redesignation request.

Georgia selected 2005 as “the attainment year” for the Macon Area for the purposes of demonstrating attainment of the 8-hour ozone NAAQS. This attainment inventory identifies the level of emissions in the area which is sufficient to attain the 8-hour ozone standard. Georgia began development of this attainment inventory by first developing a baseline emissions inventory for the Macon Area. The year 2003 was chosen as the base year for developing a comprehensive ozone precursor emissions inventory for which projected emissions could be developed for 2005, 2008, 2011, 2014, 2017, and 2020. Non-road mobile emissions estimates were based on the EPA's NONROAD2005 model. On-road mobile source emissions were calculated using EPA's MOBILE6.2 emission factors model. The 2005 VOCs and NO X emissions, as well as the emissions for other years, for the Macon Area were developed consistent with EPA guidance, and are summarized in Tables 3 and 4 in the following subsection.

The June 15, 2007, final submittal includes a maintenance plan for the Macon Area. This demonstration:

(i) Shows compliance and maintenance of the 8-hour ozone standard by providing information to support the demonstration that current and future emissions of VOCs and NO X remain at or below attainment year 2005 emissions levels. The year 2005 was chosen as the attainment year because it is one of the most recent three years (i.e., 2003, 2004, and 2005) for which the Macon Area has clean air quality data for the 8-hour ozone standard.

(ii) Uses 2005 as the attainment year and includes future emission inventory projections for 2005, 2008, 2011, 2014, 2017, and 2020.

(iii) Identifies an “out year,” at least 10 years after the time necessary for EPA to review and approve the maintenance plan. Per 40 CFR part 93, MVEBs were established for the last year (2020) of the maintenance plan. See, section VII below.

(iv) Provides the following actual and projected emissions inventories for the Macon nonattainment Area. See, Tables 3 and 4.

A safety margin is the difference between the attainment level of emissions (from all sources) and the projected level of emissions (from all sources) in the maintenance plan. The attainment level of emissions is the level of emissions during one of the years in which the area met the NAAQS. Georgia has decided to allocate a portion of the available safety margin to the regional 2020 MVEBs for NO X and VOCs for the Macon Area, and has calculated the safety margin in its submittal. See, Tables 3 and 4 above. This allocation and the resulting available safety margin for the Macon Area are discussed further in section VII of this rulemaking.

There are currently two monitors measuring ozone in the Macon Area. Only one of the monitors was in place during the 2003-2005 monitoring period. The second monitor was installed and began collecting data for the 2005 ozone season. Georgia has committed in the maintenance plan to continue operation of these monitors in compliance with 40 CFR part 58, and has addressed the requirement for monitoring.

Georgia has the legal authority to enforce and implement the requirements of the ozone maintenance plan for the Macon Area. This includes the authority to adopt, implement and enforce any subsequent emissions control contingency measures determined to be necessary to correct future ozone attainment problems.

Georgia will track the progress of the maintenance plan by performing future reviews of actual emissions for the area using the latest emissions factors, models and methodologies. For these periodic inventories Georgia will review the assumptions made for the purpose of the maintenance demonstration concerning projected growth of activity levels. If any of these assumptions appear to have changed substantially, Georgia will re-project emissions.

The contingency plan provisions are designed to promptly correct a violation of the NAAQS that occurs after redesignation. Section 175A of the CAA requires that a maintenance plan include such contingency measures as EPA deems necessary to assure that the state will promptly correct a violation of the NAAQS that occurs after redesignation. The maintenance plan should identify the contingency measures to be adopted, a schedule and procedure for adoption and implementation, and a time limit for action by the state. A state should also identify specific indicators to be used to determine when the contingency measures need to be implemented. The maintenance plan must include a requirement that a state will implement all measures with respect to control of the pollutant that were contained in the SIP before redesignation of the area to attainment in accordance with section 175A(d).

In the June 15, 2007, submittal, Georgia affirms that all programs instituted by the State and EPA will remain enforceable, and that sources are prohibited from reducing emissions controls following the redesignation of the Macon Area. In the submittal, if there is a measured violation of the 8-hour ozone NAAQS in the Macon Area, contingency measures would be adopted and implemented as expeditiously as possible, but no later than eighteen to twenty four months after the triggering event. The proposed schedule for these actions would be as follows:

• Six months to perform a comprehensive analysis;

• Three months to identify potential sources for reductions;

• Three months to identify applicable control measures;

• Three months to initiate a stakeholder process;

• Three months to draft SIP regulations; and

• Six months to initiate the rulemaking process. This step would include the time required to hold a public comment period, hearing, and board adoption, and submit the final plans to EPA. This process may be initiated simultaneous with drafting the regulations.

Georgia will consider one or more of the following contingency measures to re-attain the standard.

• RACM for all sources of NO X

• RACT for all existing point sources of NO X

• Expansion of RACM/RACT to area(s) of transport within the State

• Mobile Source Measures

• Additional NO X reduction measures yet to be identified

EPA has concluded that the maintenance plan adequately addresses the five basic components of a maintenance plan: attainment inventory, maintenance demonstration, monitoring network, verification of continued attainment, and a contingency plan. The maintenance plan SIP revision submitted by Georgia for the Macon Area meets the requirements of section 175A of the CAA and is approvable.

Under the CAA, states are required to submit, at various times, control strategy SIPs and maintenance plans in ozone areas. These control strategy SIPs (reasonable further progress SIPs and attainment demonstration SIPs etc.) and maintenance plans create MVEBs for criteria pollutants and/or their precursors to address pollution from cars and trucks. Per 40 CFR part 93, an MVEB is established for the last year of the maintenance plan. The MVEB is the portion of the total allowable emissions in the maintenance demonstration that is allocated to highway and transit vehicle use and emissions. See, 40 CFR 93.101. The MVEB serves as a ceiling on emissions from an area's planned transportation system. The MVEB concept is further explained in the preamble to the November 24, 1993, transportation conformity rule (58 FR 62188). The preamble also describes how to establish the MVEB in the SIP and revise the MVEB.

Georgia, after interagency consultation with the transportation partners for the Macon Area, has elected to develop regional MVEBs for NO X and VOCs for this entire area. Georgia is developing these MVEBs, as required, for the last year of its maintenance plan (2020). The MVEBs reflect the total on-road emissions for 2020, plus an allocation from the available VOCs and NO X safety margin. Under 40 CFR 93.101, the term safety margin is the difference between the attainment level (from all sources) and the projected level of emissions (from all sources) in the maintenance plan. The safety margin can be allocated to the transportation sector; however, the total emissions must remain below the attainment level. These MVEBs and allocation from the safety margin were developed in consultation with the transportation partners and were added to account for uncertainties in population growth, changes in model VMT and new emission factor models. The regional MVEBs for the Macon Area are defined in Table 5, below.

As mentioned above, Georgia has chosen to allocate a portion of the available safety margin to the 2020 MVEBs. This allocation is 9.1661 tpd for NO X and 2.6163 tpd for VOCs. The 2020 regional MVEBs are derived as follows for NO X : (5.6051 tpd for total mobile emissions) + (9.1661 tpd from available safety margin) = 14.7712 tpd; and for VOCs: (5.2581 tpd for total mobile emissions) + (2.6163 tpd from available safety margin) = 7.8744 tpd. Thus, the remaining safety margin in 2020 is 27.4983 tpd for NO X and 7.8490 tpd for VOCs.

Through this rulemaking, EPA is proposing to approve the 2020 regional MVEBs for NO X and VOCs for the Macon Area because EPA has determined that the Area maintains the 8-hour ozone standard with the emissions at the levels of the budgets. As mentioned above, these MVEBs are regional MVEBs for the entire Macon Area. Once the new regional MVEBs for the Macon Area (the subject of this rulemaking) are approved or found adequate (whichever is done first), they must be used for future conformity determinations. As is discussed in greater detail below, EPA is also announcing the status of its adequacy determination for the proposed 2020 MVEBs for the Macon Area pursuant to 40 CFR 93.118(f)(1).

Under section 176(c) of the CAA, new transportation projects, such as the construction of new highways, must “conform” to (i.e., be consistent with) the part of the State's air quality plan that addresses pollution from cars and trucks. “Conformity” to the SIP means that transportation activities will not cause new air quality violations, worsen existing violations, or delay timely attainment of the NAAQS. If a transportation plan does not “conform,” most new projects that would expand the capacity of roadways cannot go forward. Regulations at 40 CFR part 93 set forth EPA policy, criteria, and procedures for demonstrating and assuring conformity of such transportation activities to a SIP. The regional emissions analysis is one, but not the only, requirement for implementing transportation conformity. Transportation conformity is a requirement for nonattainment and maintenance areas. Maintenance areas are areas that were previously nonattainment for a particular NAAQS but have since been redesignated to attainment with a maintenance plan for that NAAQS.

When reviewing submitted “control strategy” SIPs or maintenance plans containing MVEBs, EPA must affirmatively find the MVEB contained therein “adequate” for use in determining transportation conformity. Once EPA affirmatively finds the submitted MVEB is adequate for transportation conformity purposes, that MVEB can be used by state and Federal agencies in determining whether proposed transportation projects “conform” to the SIP as required by section 176(c) of the Clean Air Act.

EPA's substantive criteria for determining “adequacy” of an MVEB are set out in 40 CFR 93.118(e)(4). The process for determining “adequacy” consists of three basic steps: public notification of a SIP submission, a public comment period, and EPA's adequacy finding. This process for determining the adequacy of submitted SIP MVEBs was initially outlined in EPA's May 14, 1999, guidance, “Conformity Guidance on Implementation of March 2, 1999, Conformity Court Decision.” This guidance was finalized in the Transportation Conformity Rule Amendments for the “New 8-Hour Ozone and PM 2.5 National Ambient Air Quality Standards and Miscellaneous Revisions for Existing Areas; Transportation Conformity Rule Amendments—Response to Court Decision and Additional Rule Change,” on July 1, 2004 (69 FR 40004). EPA follows this guidance and rulemaking in making its adequacy determinations.

Georgia's maintenance plan submission contained new regional MVEBs for VOCs and NO X for the Macon Area for the year 2020. The availability of the Georgia SIP submission with the Macon MVEBs was available for public comment on EPA's adequacy Web site on June 21, 2007, at: http://www.epa.gov/otaq/stateresources/transconf/currsips.htm. The EPA public comment period on adequacy of the 2020 regional MVEBs for the Macon Area closed on July 23, 2007. EPA did not receive any comments or requests for the submittal.

EPA intends to make its determination of the adequacy of the 2020 MVEBs for the Macon Area for transportation conformity purposes in the final rulemaking on the redesignation of the Macon Area. If EPA finds the 2020 MVEBs adequate and approves these MVEBs in the final rulemaking action, the new MVEBs must be used for future transportation conformity determinations. The new 2020 MVEBs, if found adequate and approved in the final rulemaking, will be effective on the date of publication of EPA's final rulemaking in the Federal Register . For required regional emissions analysis years that involve the year 2019 or before, the area will continue to use the interagency consultation group for this area to determine the appropriate interim test to use to demonstrate conformity. For required regional emissions analysis years that involve 2020 or beyond, the applicable budgets will be the new 2020 MVEBs. The 2020 MVEBs are defined in section VII of this rulemaking.

EPA is now proposing to make the determination that the Macon Area has met the criteria for redesignation from nonattainment to attainment for the 8-hour ozone NAAQS. Further, EPA is proposing to approve Georgia's redesignation request for the Macon Area. After evaluating Georgia's SIP submittal requesting redesignation, EPA has determined that it meets the redesignation criteria set forth in section 107(d)(3)(E) of the CAA. EPA believes that the redesignation request and monitoring data demonstrate that the Macon Area has attained, and will continue to maintain the 8-hour ozone standard.

EPA is also proposing to approve the June 15, 2007, SIP revision containing Georgia's 8-hour ozone maintenance plan for the Macon Area. The maintenance plan includes regional MVEBs for 2020 for NO X and VOCs, among other requirements. EPA is proposing to approve the 2020 MVEBs for the Macon Area, because the maintenance plan demonstrates that expected emissions for all other source categories will continue to maintain the 8-hour ozone standard.

Further, as part of today's action, EPA is describing the status of its adequacy determination for the 2020 MVEBs in accordance with 40 CFR 93.118(f)(1). Within 24 months from the effective date of EPA's adequacy finding for the MVEBs, or the publication date for the final rule for this action, the transportation partners will need to demonstrate conformity to these new MVEBs pursuant to 40 CFR 93.104(e) as effectively amended by section 172(c)(2)(E) of the CAA as added by the Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users (SAFETEA-LU), which was signed into law on August 10, 2005.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this proposed action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This proposed action merely proposes to approve state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Redesignation of an area to attainment under section 107(d)(3)(e) of the CAA does not impose any new requirements on small entities. Redesignation is an action that affects the status of a geographical area and does not impose any new regulatory requirements on sources. Accordingly, the Administrator certifies that this proposed rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule proposes to approve pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

This proposed rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely affects the status of a geographical area, does not impose any new requirements on sources, or allow a state to avoid adopting or implementing other requirements and does not alter the relationship or the distribution of power and responsibilities established in the CAA. This proposed rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997); because it is not economically significant and because the Agency does not have reason to believe that the rule concerns an environmental health risk or safety risk that may disproportionately affect children.

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

The LSC Board of Directors identified 45 CFR Part 1626 as an appropriate subject for rulemaking on January 27, 2001. On June 30, 2001, the LSC President and the Chair of the Operations and Regulations Committee made a determination to proceed with the initiation of a Negotiated Rulemaking to consider amendments to Part 1626. In accordance with the LSC Rulemaking Protocol, LSC published a notice in the Federal Register formally soliciting suggestions for appointment to the Negotiated Rulemaking Working Group from the regulated community, its clients, advocates, the organized bar and other interested parties (66 FR 46977, September 10, 2001). After receiving submissions of interest, a Working Group was appointed. Each organization which timely requested to participate was appointed to the Working Group. The Working Group met three times without coming to consensus on several issues. Subsequently, work on the 2001 rulemaking was deferred in 2003 by the previous Board of Directors pending the appointment and confirmation of the present Board. No further action on the rulemaking has been taken since that time.

During the past several years as LSC has considered its rulemaking agenda, neither Management nor recipients have suggested reinitiating work on this broad rulemaking. As such, LSC is of the opinion that consideration of broad revision of Part 1626 is no longer necessary or appropriate. Accordingly, with the publication of this notice LSC is terminating the open rulemaking.

LSC-funded legal services providers are permitted to provide legal assistance only to citizens of the United States and aliens upon whom eligibility has been expressly conferred by statute. LSC regulations at 45 CFR Part 1626 implement the various existing statutory authorities and set forth the eligibility standards based on citizenship and eligible alien status. Since 1996 Part 1626 has limited the eligibility of citizens of the Republic of the Marshall Islands (“RMI”) and the Federated States of Micronesia (“FSM”) and the Republic of Palau to services provided in those respective nations (unless the applicant is otherwise eligible under Part 1626). In connection with LSC's development of a 2007 Rulemaking Agenda, the Legal Aid Society of Hawai'i (LASH) and Legal Aid of Arkansas (LAA) have both requested that LSC engage in rulemaking to change the section 1626.10(a) to provide for the eligibility of citizens of RMI, FSM and Palau legally residing in the United States for legal assistance from LSC-funded programs.

LSC agrees that there is sufficient reason and authority for LSC to amend its regulation in this regard. To that end, the Operations and Regulations Committee of the LSC Board of Directors considered a Draft NPRM and the Board of Directors approved this NPRM for publication and comment at their respective meetings on July 28, 2007.

At the time of the creation of LSC in 1974, the countries that are now the sovereign nations of the Republic of the Marshall Islands (“RMI”), the Federated States of Micronesia (“FSM”), and the Republic of Palau were possessions of the United States, known as the Trust Territories of the Pacific Islands (“the Trust Territories”). The LSC Act defined the Trust Territories as a “State” for the purposes of the Act. The Act thus conferred eligibility for LSC-funded legal services to Trust Territory residents to the same extent provided to residents of any other State of the United States. Section 1002(8) of the LSC Act, 42 U.S.C. 2996a(8).

In 1983, Congress placed the first statutory restrictions on representation of aliens on LSC recipients in LSC's appropriations bill for that year, Public Law 97-377. That law provided that none of the funds appropriated could be expended to provide legal assistance for or on behalf of any alien unless the alien was a resident of the U.S. and otherwise met certain statutorily specified criteria. On its face, this language would have appeared to imply that all non-U.S. citizens, including residents of RMI, FSM and Palau would be subject to these restrictions, notwithstanding their eligibility under the LSC Act. To deal with this problem, LSC included a “special eligibility section” (§ 1626.10) in the implementing regulations on representation of aliens, 45 CFR part 1626, to exempt residents of the Trust Territory from the alien restrictions imposed by Congress.

In 1986 the trust governing the relationship between the U.S. and the Trust Territories was terminated. At that time the former Trust Territories were recognized as independent nations and a new relationship with RMI, FSM and Palau was created by the signing of two Compacts of Free Association, one with RMI and FSM and the other with Palau. The Compact with RMI and FSM contemplates the provision of certain services and programs of the U.S. to those nations. Specifically, section 224 of the Compact of Free Association with RMI and FSM provides that:

The Compact of Free Association Act of 1985 (“CFA Act”) (Pub. L. 99-239, codified at 48 U.S.C. 1901 et seq. ), which implemented the Compact, provides express authority for the provision of LSC-funded legal services. Specifically, section 105(h)(1)(A) of the CFA Act provides that:

The implementing act for the Compact with Palau makes section 105 of the CFA Act applicable to the Republic of Palau. 48 U.S.C. 1932(b). 1

After the signing of the respective Compacts and the corresponding implementing statutes, the FAS remained covered by the special eligibility section of Part 1626, notwithstanding their change in legal status vis-à-vis their relationship with the United States. In 1989 that section of the regulation was amended to make the section more precise in light of the termination of the trust. Under this version of the rule, the special eligibility section provided:

As a result of new statutory restrictions contained in the LSC FY 1996 appropriations legislation (Pub. L. 104-134), additional changes to Part 1626 were made in 1996. Although the statutory amendments did not address this issue, § 1626.10(a) was again revised, this time in response to comments from the LSC Office of Inspector General (OIG). As explained in the preamble to the 1996 Final Rule:

During the last session of Congress, legislation was passed in the Senate by unanimous consent on September 29, 2006, which would have definitively clarified the issue by clearly stating that LSC services were to be available to the citizens of the FAS. Specifically, section 5 of S.1830, provided:

The report accompanying S.1830 explained that:

Similar legislation was introduced in the House, but was not acted on during the course of the 109th Congress. Accordingly, there was no final legislation enacted into law on this subject in the last Congress. More recently, on January 12, 2007, S. 283, the Compact of Free Association Amendments Act was introduced in the Senate. On February 15, 2007, the bill was reported out of the Senate Committee on Energy and Natural Resources, accompanied by a written report. The operative language of the bill and report dealing with the availability of legal assistance from LSC recipients to citizens of the FAS, regardless of where they are obtaining those services, is the same as in last year's Senate bill (quoted above). A similar bill, H.R. 2705, has also been introduced in the House. As of the publication of this notice, both of the bills are still pending.

In addition, LSC received a letter dated June 1, 2007, from David Cohen, Deputy Assistant Secretary for Insular Affairs at the Department of Interior. In his letter, Deputy Assistant Secretary Cohen stated:

Subsequently, representatives of LSC met with the Deputy Assistant Secretary, several members of his staff and an attorney from the Department of State. They reiterated their understanding of the Compact and the CFA Act. In particular, they explained that the United States and the FAS countries negotiated the Compacts as essentially an aid package and that the Departments of Interior and State, as well as the FAS nations themselves, consider the extension of benefits to the FAS to include the extension of benefits to FAS citizens, regardless of where those citizens are lawfully residing (in the FAS or the United States). As an example, they noted that the CFA Act extends the Pell Grant (educational grants) program to the FAS and that the grants are provided to FAS citizens regardless of whether they are attending institutions of higher education in the FAS or in the United States. Similarly, FAS citizens are eligible for Job Corps services being provided in the United States.

In light of the above, it would appear that LSC's interpretation of the CFA Act, while permissible, was not the only permissible reading and perhaps, in hindsight, not the best available reading. Moreover, LSC appears to be within its legal authority under the law to amend § 1626.10 to permit FAS citizens to receive legal assistance anywhere LSC services are provided without requiring independent eligibility under Part 1626.

When LSC was created in 1974, there were probably no more than a few thousand Micronesians living in Guam and Hawai'i, and a scattering in the continental United States. Even when the first Compact was negotiated in 1986, there were probably still less than ten thousand Micronesians living within U.S. territory, still mostly in Guam and Honolulu. However, when the Compact was renegotiated and extended in 2002 it was then known that the migration pattern was showing greatly increased numbers in the continental United States. According to the Embassy of FSM there are, in addition to the traditionally high populations of Micronesians in Guam and Hawai'i, at least 30,000 to 40,000 FSM citizens living or going to school in the continental U.S. Further, LAA has noted in its request to LSC for rulemaking on this issue that there are also 6,000 to 10,000 Marshallese living in Northwest Arkansas alone.

Thus, while there was relatively little demand for legal services among FAS citizens in the United States in 1996, the increased migration of FAS citizens to the United States has significantly increased the potential demand for legal services among members of that community. The inability of financially eligible FAS citizens in the U.S. to access legal services from LSC programs assistance is a growing problem for the U.S. FAS community. LASH, for example, has noted that that FAS citizens working in Hawai'i are more likely to be victims of unscrupulous employers because they believe that such citizens have little recourse to legal services to protect their employment rights.

LSC is proposing to amend section 1626.10(a) to redesignate the existing language in paragraph (a) as paragraph (a)(1) and to add a new paragraph (a)(2) to read as follows: “All citizens of the Republic of Palau, the Federated States of Micronesia, and the Republic of the Marshall Islands residing in the United States are eligible to receive legal assistance provided that are they otherwise eligible under the Act.” This language makes explicit that FAS citizens are eligible under Part 1626 for legal assistance and is consistent with the other eligibility provision in section 1626.10 addressing the eligibility of Canadian-born American Indians at least 50% Indians by blood, members of the Texas Band of Kickapoo and foreign nationals seeing assistance pursuant to the Hague Convention. 45 CFR 1626.10(b); 1626.10(c); and 1626.10(d). The “otherwise eligible” language is meant to refer to financial eligibility (for the provision of LSC-funded legal assistance”) and to the permissibility of the legal assistance provided under applicable law and regulation.

For reasons set forth above, and under the authority of 42 U.S.C. 2996g(e), LSC proposes to amend 45 CFR Part 1626 as follows:

DFARS 232.906 presently provides for interim payments on cost-reimbursement contracts for services within 14 days after receipt of a proper payment request. The proposed rule would revise this policy to provide for payment to other than small business concerns within 30 days. The proposed change will allow DoD to better cash manage payments without having a significant impact on small business concerns. The proposed change is consistent with the policies of other Government agencies, which do not pay in 14 days. These payments are subject to the Prompt Payment Act.

This proposed rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

DoD does not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. , because the proposed rule makes no change to payment procedures for small business concerns. Therefore, DoD has not performed an initial regulatory flexibility analysis. DoD invites comments from small businesses and other interested parties. DoD also will consider comments from small entities concerning the affected DFARS subparts in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite DFARS Case 2006-D066.

The Paperwork Reduction Act does not apply, because the proposed rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

Therefore, DoD proposes to amend 48 CFR Parts 216, 232, and 252 as follows:

1. The authority citation for 48 CFR Parts 216, 232, and 252 continues to read as follows:

The contract clause at DFARS 252.211-7003, Item Identification and Valuation, requires unique identification for all delivered items for which the Government's unit acquisition cost is $5,000 or more, and for other items designated by the Government. In addition, the clause requires identification of the Government's unit acquisition cost for all delivered items, and provides instructions to contractors regarding the identification and valuation processes.

This proposed rule revises the clause at DFARS 252.211-7003 to update and clarify instructions for the identification and valuation processes. The changes include: Updating of references to standards and other documents; clarification of the definition of unique item identifier; specifically addressing the DoD recognized unique identification equivalent, where applicable; clarification of data submission requirements for end items and embedded items; and clarification of requirements for inclusion of the clause in subcontracts.

This proposed rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

DoD does not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. , because the proposed rule does not significantly change existing requirements relating to the identification and valuation of items delivered under DoD contracts. Therefore, DoD has not performed an initial regulatory flexibility analysis. DoD invites comments from small businesses and other interested parties. DoD also will consider comments from small entities concerning the affected DFARS subpart in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite DFARS Case 2007-D007.

The Paperwork Reduction Act does not apply, because the proposed rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

Therefore, DoD proposes to amend 48 CFR Part 252 as follows:

The proposed rule was published in the Federal Register on June 19, 2007 (72 FR 33732). Additional information on the proposed management measures are described in the proposed rule.